HomeWorldInflation, unrest challenge Bangladesh's 'miracle economy'

Inflation, unrest challenge Bangladesh’s ‘miracle economy’

Bangladesh’s economic miracle is under severe pressure as rising fuel prices add to public dismay at the rising cost of food and other necessities.

Bangladesh’s economic miracle is under severe pressure as rising fuel prices add to public dismay at the rising cost of food and other necessities.

Rekha Begum standing in line to try to buy food is distraught. Like many others in Bangladesh, she is struggling to find daily essentials like rice, pulses and onions.

“I went to two other places, but they told me they did not have supplies. Then I came here and stood at the end of the queue,” said Ms. Begum, 60, as she waited for nearly two hours to buy what she needed from a truck selling food at subsidized prices in the capital, Dhaka.

Bangladesh’s economic miracle is under severe pressure as rising fuel prices add to public dismay at the rising cost of food and other necessities.

Fierce opposition criticism and small street protests have erupted in recent weeks to pressure Prime Minister Sheikh Hasina’s government, which has demanded Help from the International Monetary Fund To protect the finances of the country.

Not as serious as Sri Lanka

Bangladesh’s plight is nowhere, say experts as serious as sri lankaWhere months of unrest led to its longtime president fleeing the country and people suffering outright shortages of food, fuel and medicines, spending days in queues for essentials.

But it faces similar problems: excessive spending on ambitious development projects, public anger over corruption and nepotism, and a weak trade balance.

Such trends are undermining Bangladesh’s impressive progress, driven largely by its success as an apparel manufacturing hub, towards becoming a more prosperous, middle-income country.

The government last month raised fuel prices by more than 50% to counter rising costs due to high oil prices, sparking protests over the rising cost of living. It ordered officials to sell rice and other staples at concessional rates by government-appointed dealers.

Commerce Minister Tipu Munshi said the latest phase of the program, which began on September 1, should help around 5 crore people.

“The government has taken several measures to ease the pressure on the low-income people. This is affecting the market and making the prices of daily commodities competitive,” he said.

Policies are a stop for major global and domestic challenges.

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war in ukraine Prices of many commodities have risen at a time when they were already rising as demand improved with the easing of the coronavirus pandemic.

Meanwhile, many countries such as Bangladesh, Sri Lanka and Laos have seen their currencies weaken against the dollar, raising the cost of dollar-denominated imports of oil and other goods.

To ease pressure on public finances and foreign reserves, officials banned large, new projects, cut office hours to save energy, and imposed restrictions on imports of luxury goods and non-essential items, such as sedans and SUVs. Boundaries were imposed.

“Bangladesh’s economy is facing strong adversity and turmoil,” said Ahmed Ahsan, an economist and director of Dhaka-based Policy Research Institute, a think tank.

“All of a sudden we are back in the era of power cuts, taka and forex reserves are under pressure,” he said.

Millions of low-income Bangladeshis like Ms. Begum, whose family can hardly eat fish or meat even once a month, still struggle to keep food on the table.

Bangladesh has made great progress in growing its economy and fighting poverty over the past two decades. Investment in apparel manufacturing has provided employment to millions of workers, mostly women. Apparel and related products exports account for more than 80% of its exports.

But with fuel costs so high, officials shut down diesel-powered power plants that produced at least 6% of total output, cut daily electricity generation by 1,500 megawatts, and disrupted manufacturing. Used to do

Imports rose to $84 billion in the last fiscal year ended June 2022, while exports have fluctuated, leading to a record current account deficit of $17 billion.

There are more challenges ahead. The deadline for repayment of foreign debt related to at least 20 mega infrastructure projects is fast approaching, including the $3.6 billion Padma bridge built by China and a nuclear power plant funded by Russia.

Experts say Bangladesh needs to be prepared for when the repayment program will accelerate between 2024 and 2026.

In July, in a move economists see as a precautionary measure, Bangladesh sought a $4.5 billion loan from the International Monetary Fund, which recently became the third country in South Asia to seek aid after Sri Lanka and Pakistan.

Finance Minister AHM Mustafa Kamal said the government has asked the IMF to start formal negotiations on loans for “balance of payments and budgetary support”. The IMF said it was working with Bangladesh to develop a plan.

Bangladesh’s foreign reserves are falling, potentially reducing its ability to meet its debt obligations. By Wednesday they had fallen to $36.9 billion from $45.5 billion a year ago, according to the central bank.

Zahid Hussain, former chief economist at the World Bank’s Dhaka office, said usable foreign reserves would be around $30 billion.

“I would not say that this is a crisis situation. This is still enough to meet three months’ worth of imports, three and a half months’ worth of imports. But it also means that… you don’t have much room to maneuver on the reserve front,” he said.

growth forecast

Still, some economists say that Bangladesh is better equipped to weather the tough times than some other countries in the region, despite the exorbitant spending on some costly projects.

Its agricultural sector – tea, rice and jute are major exports – is an effective “shock absorber”, and its economy, four to five times larger than that of Sri Lanka, is less vulnerable to external disasters such as a slowdown in tourism.

According to the latest forecast from the Asia Development Bank, the economy is projected to grow at 6.6% this fiscal year, and the country’s overall debt is still relatively small.

“I think in the current context, the most important difference between Sri Lanka and Bangladesh is the debt burden, especially external debt,” Mr. Hussain said.

Bangladesh’s external debt is less than 20% of its GDP, while Sri Lanka’s stood at around 126% in the first quarter of 2022.

“So, we have some room. I mean debt as a source of stress on the macro-economy is not much of a problem right now,” he said.

48-year-old Mohammad Jamal, who was waiting in line to buy subsidized food, said he does not feel any such relaxation for his family.

Mr. Jamal said, “Trying to maintain our standard of living has become unbearable. Prices are out of reach of common people,” he said. “It’s hard to live like this.”

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