Inflation is not merely a monetary phenomenon but a political outcome: Fouzul

Power, Energy, and Mineral Resources Adviser Muhammad Fouzul Kabir Khan, who also heads several ministries, spoke at TBS Future dialogue offering a rare, candid diagnosis of Bangladesh's political economy.

He said that Bangladesh's economic instability, marked by high inflation, energy shortages, foreign exchange pressure, and declining purchasing power, did not emerge overnight. The roots of today's crisis lie in years of policy distortions, weak institutions, and political incentives that consistently overrode economic fundamentals.

He believes that unless elections produce accountable leadership committed to economic rules rather than political convenience, inflationary pressure and energy insecurity will persist, regardless of short-term fixes.

'Economy — A betrayed lover'

In his book 'Bangladesher Rajnoitik Orthoniti' (Bangladesh's Political Economy), Fouzul Kabir described the economy as "a betrayed lover that eventually turns vengeful." He explained that the metaphor reflects what happens when governments repeatedly violate basic economic principles—such as market pricing, competition, and fiscal discipline—for narrow political or personal gain.

"Politicians often assume they can control prices, fix interest rates, suppress exchange rates, or expand public spending without consequences," he said. "But these measures stop working at some point. When that happens, the economy responds in the opposite direction."

Bangladesh's experience with interest rate caps and exchange rate controls illustrates this pattern. Policies intended to stimulate investment instead facilitated capital flight, money laundering, and reserve depletion.

Artificially holding down the exchange rate benefited select groups temporarily but ultimately fueled import inflation and eroded foreign reserves—costs borne almost entirely by ordinary citizens.

'Inflation is a political outcome'

Adviser Fouzul Kabir argued that inflation is not merely a monetary phenomenon but a political outcome. As the taka weakened and import costs rose, inflation accelerated, especially for food and energy. Attempts to suppress prices without addressing structural distortions only worsened supply constraints.

The political class remains largely free from pressures, he said, adding that ordinary people pay the price through higher food costs, transport expenses, and declining real incomes.

According to him, inflation in Bangladesh has been amplified by a self-defeating cycle: distorted exchange rates raise import costs; higher import costs fuel inflation; inflation weakens purchasing power; and declining confidence encourages hoarding of dollars and essential goods.

Breaking this cycle requires restoring economic credibility, starting with exchange rate flexibility, fiscal discipline, and market-based pricing in the energy sector.

Energy sector: From syndicates to structural reform

The energy sector reflects Bangladesh's governance failures more clearly than any other sectors. Fouzul Kabir came down heavily on the 2010 Quick Enhancement of Electricity and Energy Supply Act, which allowed energy procurement without competitive bidding and shielded contracts from judicial review.

"This law effectively suspended competition," he said. "It turned procurement into a negotiated process, protected from scrutiny. The result was massive rent extraction."

Under the interim government, limited steps have been taken to reintroduce competition. Recent fuel procurement reforms, which expanded the supplier base and broke long-standing syndicates, reportedly reduced premiums by 35% and saved around Tk1,500 crore in just six months.

"The lesson is clear: competition works, but sustaining it requires political backing—something an interim administration lacks by design," he noted.

The inseparable link between election and economic reform

Adviser Fouzul Kabir repeatedly returned to the role of elections in shaping economic outcomes, arguing that the absence of checks and balances over the past decade enabled one-person dominance and one-party governance, weakening parliament, marginalising opposition voices, and eliminating accountability.

"When power is concentrated in one office, economic decisions become arbitrary," he said. "Even routine administrative actions require top-level political instructions. That is not how a functioning economy operates."

He stressed that the upcoming election must restore institutional balance through meaningful parliamentary oversight, stronger opposition participation, and constitutional safeguards that prevent rushed amendments or unchecked executive authority.

Without political reform, he warned, economic reform will remain fragile and reversible.

Why energy security drives inflation

Bangladesh's inflation challenge is inseparable from its energy dependence. Domestic gas production is declining, LNG import capacity is nearing its limit, and global volatility has exposed the risks of fossil fuel dependence.

Currently, Bangladesh can import a maximum of around 115 LNG cargoes annually. That ceiling has effectively been reached. Any future growth in electricity demand, therefore, cannot be met through LNG alone.

"This is no longer a choice—it is a compulsion," he said. "If we do not scale up renewable energy, load-shedding will worsen, even in winter."

Despite years of policy discussion, renewable energy accounts for only 3–4% of Bangladesh's power mix, far below regional peers such as India, Sri Lanka, and Pakistan.

The political economy of energy

The adviser was blunt about why renewable energy has lagged: it is less lucrative for rent-seeking networks.

"Small rooftop solar projects do not generate the kind of kickbacks that mega power plants do," he said. "That is the uncomfortable truth."

The interim government has begun mandating rooftop solar installations on government buildings and promoting net metering systems, allowing consumers to sell surplus electricity to the grid. However, resistance from vested interests remains strong.

"Renewables challenge the existing political economy of energy," he said. "That is why mindset change is as important as technology."

Inflation control: Technical fixes and political will

On inflation management, the adviser distinguished between technical measures and political reforms. On the technical side, exchange rate stabilisation, reserve rebuilding, and coordinated monetary policy have begun to show results. Inflation, once in double digits, is now trending downward toward single digits.

However, he cautioned that these gains remain fragile and depend heavily on continuity after the election.

"Economic stabilisation has a lag effect," he said. "The measures taken now will show full results over several quarters. Policy reversal would undo much of the progress."

Politically, controlling inflation requires dismantling extortion networks embedded in supply chains, from wholesale markets to transport corridors. Without a broad political consensus, such reforms remain difficult.

Why candidate backgrounds matter

Regarding the personal economics of politics, adviser Fouzul questioned how politicians with no declared profession or income source can finance election campaigns costing Tk5–8 crore per constituency.

"When politics becomes an investment, policy becomes extraction," he said.

This dynamic, he argued, fuels inflation indirectly: politicians seek returns through regulatory capture, inflated contracts, and informal taxation—all of which raise costs across the economy.

For voters, the implication is critical. Electoral choices influence not only governance but also price stability, energy security, and income distribution, the adviser opined.

A narrow window for change

Acknowledging the limitations of the interim government, Fouzul Kabir said its capacity for deep reform is constrained due to constant pressure to hand over power. Still, he believes groundwork has been laid—through master plans in energy and transport, procurement reforms, and renewed emphasis on accountability.

"The next government will not start from zero," he said. "But whether it moves forward or slides back depends entirely on political will."

The stakes ahead

Bangladesh now stands at a crossroads. Inflation has begun to ease, reserves are stabilising, and the exchange rate has found a tentative equilibrium. Yet energy insecurity, fiscal pressure, and institutional fragility remain unresolved.

The coming election, he argued, is not merely about political leadership; it is about economic direction.

"If we return to rule-breaking economics, the economy will retaliate again," he warned. "If we respect the rules, the benefits will compound for inflation, energy security, and ordinary people's lives."

For voters navigating rising living costs and energy uncertainty, the message is sobering but clear: economic stability is inseparable from political choice.