Experts urge policy reforms as high inflation stifles business, investment

The rising inflation and economic instability are restraining business growth and investment in Bangladesh, according to discussants at the 12th Financial Sector Development Working Committee meeting.

They have raised concerns over Bangladesh Bank's delayed policy response to the country's prolonged inflation. The also pointed towards the systemic inefficiencies in the economy, emphasising the need for policy reforms.

The meeting was organised by Business Initiative Leading Development (BUILD) on 24 February at its conference room, chaired by Nurun Nahar, deputy governor of Bangladesh Bank (BB). The discussants included economists, academics, and representatives from banks and business associations.

They also hoped that the central bank's ongoing efforts to curb inflation will yield positive results soon.

At the beginning of the meeting BUILD CEO Ferdaus Ara Begum provided an update on 15 previous recommendations. Later, Asif Haider, research associate at BUILD, presented a policy paper titled "Long-Lasting Inflation and Its Impact on the Economy—Remedial Measures" that identified several major contributors to inflation. 

The study pointed towards market extortion, administrative failures, high policy and interest rates, exchange rate fluctuations, ineffective supply chain monitoring, rising public expenditure, and unclear role of competition commission.

Explaining successful examples of other countries, the study came up with several several policy recommendations, including increasing banks' loanable funds by restricting securities trading to institutional levels, encouraging financial transactions through banking channels to reduce informality (currently at 42% of the economy), and shifting to a market-based exchange rate, as the current crawling peg mechanism is ineffective. 

Some of the other recommendations are strengthening refinancing schemes for cottage, micro, small, and medium enterprises (CMSMEs), regular updates on Monetary-Fiscal Coordination Council meetings for transparency, and reducing bank spread rates and regulating remittance flows more effectively.

The study also pointed out that private sector credit growth was projected at 9.8% for FY25 but stood at only 7.3% in December 2024, while public sector credit growth reached 18.1%—exceeding the 14.2% target. 

Deputy Governor Nurun Nahar welcomed the recommendations and expressed confidence that inflation could be brought down to 7-8% by June this year.

She said the central bank would review the reserve requirements ratio of banks and continue collaborating with the National Board of Revenue (NBR) to formalise the economy.

"Steps are being taken to curb the dominance of aggregators in the forex market, with plans to transition to a market-based exchange rate by December 2025," she added.

She also emphasised the importance of regular Fiscal-Monetary Coordination Council meetings, involving both government agencies and the private sector, to ensure balanced macroeconomic policies.

She also mentioned that a master circular will be issued soon to address the issues of CMSMEs. She further said BB can look into the issue of reducing the high spread rate of the banks.

Participants at the meeting included Dr AKM Asaduzzaman Patwary, acting secretary general of Dhaka Chamber of Commerce and Industry; Nurul Absar, joint secretary of Chittagong Chamber of Commerce and Industry; Shaikh Murshidul Islam, deputy secretary of the Ministry of Agriculture; and Wajid Hasan Shah, member of the Competition Commission. 

Some of the other participants were Md Iqtadul Haque from Bangladesh Agro Processing Association; Sumon Chandra Saha, DGM of SME Foundation; Md Sajib Hossain from Bangladesh Knitwear Manufacturers and Exporters Association; representatives from Bangladesh Bureau of Statistics; Shihab Uddin Ahmed, senior assistant secretary, Finance Division; Magfirul Hasan Abbasi, senior assistant secretary, Ministry of Commerce; and Khan Mohammad Saifjada, additional director of Bangladesh Bank.