Bangladesh’s economic stability under threat: CPD



| Update:
Dec. 24, 2021, 9:39 a.m.

Economic stability in Bangladesh is no longer comfortable due to certain macroeconomic issues, according to policy think tank CPD and offers a set of recommendations for the government to follow.

In its latest review released Thursday, the Center for Policy Dialogue noted that the prices of basic necessities are on the rise, to the chagrin of those on limited incomes.

Revenue mobilization remained much slower than expected, leading to shrinking fiscal space.

The rise in prices on the international market is one of the main reasons for the surge in prices here. Also, the internal market lacks good governance, which leads to abnormal spikes in the prices of goods on the local market.

CPD Executive Director Dr Fahmida Khatun said the inflation rate in October was officially 5.3 percent, but the real price rise in the domestic market was much higher.

Regarding the role of the Competition Commission in market control, Dr Khatun said the institution should be further strengthened in order to ensure competition in the economy.

Export in terms of value remained above target. But there are some concerns as export earnings depend on export volumes, not prices, the economist noted.

CPD, one of the oldest private think tanks in Bangladesh, believes the government should opt for a focused and targeted fiscal policy bolstered by an accommodating monetary policy given macroeconomic development.

He suggests lowering diesel prices in order to reduce cultivation and transportation costs. “Otherwise, inflationary pressure will be much more intensified,” he warns.

The CPD noted that the government has increased diesel prices by 23 percent to Tk 80 per liter although the use of petroleum is widespread in agricultural production, transportation and rice milling.

Therefore, the costs of producing and marketing rice are likely to increase.

He advocates retaining the 2.0 percent cash incentives to remittances to deter remittances through informal channels.

CPD economists were speaking at a press conference on its first reading of the State of the Bangladesh Economy for FY2021-2022 in its Dhaka office. The Executive Director, Fahmida Khatun, was the moderator.

Creating fiscal space is very important as the tax-to-GDP ratio has fallen further due to rebasing of GDP, said Dr Mustafizur Rahman, one of the prominent CPD fellows.

The extraction of surplus from the Bangladesh Petroleum Corporation (BPC) has created problems, he comments.

BPC deposited its surplus funds into the treasury in accordance with the new law. “BPC could handle rising market fuel prices if it had sufficient funds, but the surplus was turned over to the treasury,” said Dr. Rahman.

“So such extraction of funds from such organizations should be investigated,” suggests the economist.

Institutional capacities should be strengthened. “The economic risk will increase if institutional efficiency is not assured,” he says.

And the cost of doing business will increase if institutions, including ports, are not improved.

He says that there are a lot of external funds tracked, but a large part is intended to support projects. “The government cannot spend such funds on its budget deficit.”

In the action-related comments, the CPD says the securities regulator – BSEC – should make it mandatory to tag TIN numbers and bank account numbers with the BOE account.

BSEC should be more cautious when it comes to trading Sukuk Bonds.

And market-related manipulation must be dealt with by BSEC “immediately”.

CPD Director (Research) Dr Khandker Golam Moazzem said the prices of basic necessities have risen much more than international levels. “Some large groups have benefited from the rise in prices on the international market,” he said, indicating a possible act of oligopoly.

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