‘This is not a seasonal challenge; this is a structural problem’

There are two reasons for Bangladesh to arrive at such a disturbing economic situation.  

The primary reason is that we didn't take note of various cracks appearing in the macroeconomic management over the years. We didn't want to acknowledge that private investment as a share of GDP is not growing. Net foreign direct investment remained a paltry sum. Notwithstanding robust economic growth, the tax-GDP ratio did not increase; indirect taxes dominated the tax basket. 

We also didn't look at why the impact of public investment in terms of aggregate employment and distribution of income has been limited. The quality of public investment has been quite low as overvaluation of the projects and corruption in procurements were rampant. The share of operational expenditures as against development outlays went on increasing. 

In the external trade, we couldn't diversify our export basket away from the RMG. And the per capita earnings of our remittance workers remained low in comparison to other comparable countries.  

Over and above, whatever we were producing in terms of income and assets was very unevenly distributed across society. Access to public resources and services by disadvantaged people remained skewed. 

We became an unequal society; these structural flaws weakened the economy's ability to deal with external shocks and resilience capacity. Indeed, whatever resources or space we had in this regard were drawn down during the Covid-19 pandemic.  

The second reason underpinning the present tight economic situation relates to the external shock induced by the turmoil in the world economy. Ukraine's situation is to be partly blamed for that.  Food and fuel prices are rising, supply chains are breaking down, and a large global recession is looming. 

Thus when the multi-pronged external shock hit us, our macroeconomic and sectoral resilience was weak. Our policy response was poorly coordinated, half-hearted and lacked nimble follow-up.

So, what are the way-outs? This is not a seasonal challenge;  this is a structural problem. So there is no quick fix to this. What we need is to go back to the drawing board, and devise a policy intervention package for two/three years. I call this a transitional package to protect our achievements, deal with the current situation and move forward on a stronger footing.  

In that package, I see four major elements.  

First, of course, is stabilising the macro economy- with containing the inflation rate as its anchor.  

Sketch: TBS

We need to relax the caps on the interest rate and harmonise the exchange rate reflecting the market situation. Expanding the fiscal space by upping the revenue flow, enhancing foreign aid disbursement and limiting public borrowing - prioritisation of ADP projects will be crucial. Securing foreign exchange for the import of food and fuel should be front-loaded. 

Second, in order to protect private investment in particular and employment, we need to support the domestic market-oriented small and medium enterprises as well as units in the informal sector. We have to compensate for the falling external demand by boosting the domestic demand. That will give us some employment respite. Within that of course, agriculture should get the priority.   

On all counts, agriculture should constantly be on the policy radar. Amon season is ongoing. Protecting the Amon harvest and providing fair prices to the farmers through public procurement will be quite important. This is particularly so because of delayed rainfall as well as enhanced prices of electricity, fertiliser, diesel, pesticides and seeds.  

Thirdly, the external economy needs to keep up the remittance and net export revenue flow. The number of people going abroad for jobs is increasing, this has to be sustained.

And finally, you have to protect vulnerable people. We have to accept that GDP growth in the current year will be consumer-driven – not investment-driven. So, we will have to protect the consumption level of the marginalised community and save them from falling below the poverty line.  

So, the government's decision to have the family cards and usages of TCB are all fine. We need to strengthen them, increase the allowances given to people left behind to Tk1,000 per month and support the unemployed youth community.  

But to successfully counter both the reasons for our current difficult economic situation, we would need policy coordination and leadership. That is not visible at this moment.

Disclaimer: This analysis has been written based on a telephone conversation between the author and The Business Standard's Masum Billah.