Will the dollar crisis frustrate the government's plans to rein in prices during Ramadan?

Ramadan and price hike – these two words have become intertwined in recent years. Every year, the price of necessities go up rapidly in the holy month, leaving citizens of the country in undue distress. 

This year, the trouble has been compounded by the ongoing dollar crisis, which is continuously deepening, and in addition, the import bills are increasing every day. 

Amid such circumstances, the newly-elected government vowed to regulate the market regulation - with a focus on stabilising essential food items, almost a month back now.  

The government decided to reduce taxes on various food imports by 5%. The import duty on edible oil has been reduced from 15% to 10%, while the duty on dates has been decreased from 25% to 15%. The import duty on rice has been lowered to 5% from 25%. Sugar saw two-third of its duty slashed. The Minister of Foreign Affairs went to India to request a steady supply of essential commodities from our neighbouring country. 

However, whether the government's efforts will have any significant impact on the market is unclear. The duty reduction has not been reflected in market prices, and so, apprehensions about potential difficulties during the upcoming month of Ramadan have sparked concern among the public. 

Photo: TBS

The price of import

Despite repeated attempts to strengthen Taka against the Dollar, most banks collect remittances at Tk 122-123 a dollar and sell at Tk 116-118 to the importers now, according to recent media reports. This is keeping the cost of import high and offsetting any advantage that could be accrued from the duty reductions.

"Imprters face import restrictions and a dollar crisis this year," said Dr. Khondaker Golam Moazzem, the Research Director at the Centre for Policy Dialogue (CPD). 

"In a normal year, when there is no dollar crunch, we see a price hike. Why would there not be a price hike in an abnormal year like the current one?" 

Galib Ibn Anwarul Azim, a digital and inclusive finance specialist at the United Nations Capital Development Fund, also reiterated the import cost issue.

"In the coming days, the exchange rate may increase even more, to accommodate the dollar crisis. Then, we are going to see import bills rising even more." 

That is not all. Import bill includes transportation and distribution, which are susceptible to volatile global crises. Soaring freight rates on major sea routes have come as a blow for Bangladeshi import - pushing the import costs higher. 

The Red Sea crisis resulted in increased costs, as shipping lines are asking 30% to 40% more for freight charges. Before this, the domestic fuel crisis had increased inland cargo transportation costs. 

The Bangladesh Inland Container Depots Association (BICDA) increased container handling charges by 23% on 4 November, while 19 private inland container depots raised charges by 26%.

The Water Transport Cell (WTC), the body of private lighter-vessel operators, increased fares by 15% on 15 November in the aftermath of the fuel price hike by the government. 

Besides, road transport costs also increased by more than 25% as the government in early November last year increased diesel and kerosene prices by 23% - from Tk15 to Tk80.

So, stabilising supply is not going to be easy. At the same time, even if supply is plenty, it does not guarantee a stable price, as the market in Bangladesh functions through complicated dynamics.

Photo:TBS

An unresponsive market

Before Ramadan, traders increased their imports of six products — onions, lentils, dates, anchor daal, wheat and crude soybean oil — compared to the same period last year. However, imports of sugar, chickpeas and palm oil have decreased. 

Traders claim that even if consumer demand during Ramadan does not increase substantially due to inflation, the additional import will help maintain market stability.

Dr. Moazzem hopes that duty reduction and the Minister of Foreign Affairs' visit to India will ensure a steady supply of necessary items during Ramadan. Yet, the optimism is not without a hint of caution. 

"Despite the government saying that the Ramadan commodities stock is sufficient, it is a given that prices will increase — whatever the increased margin is. It is the basic rule of the market. It will happen because of the higher import costs," said Dr. Moazzem. 

As with all products, prices do not come down as fast as they go up. The effect of the duty cut is still not visible on the market. "New LCs are being opened; duties are being reduced. But where is the impact on the market?" he asked. 

"When prices go up in the international market, or a new tariff is imposed, prices go up immediately in the local markets. But, it does not come down as fast - if it ever does. It may pose a problem for market regulation. And for the government, it is a big challenge." 

Photo:TBS

There can be another situation. Not all products needed during Ramadan are essentials, so they do not enjoy tariff cuts or incentives. As a result, the non-essential Ramadan commodities may see sudden spikes in price - which has been the case for too long. 

Products like ginger, garlic or powdered milk always become more expensive in Ramadan; this year, the margin may increase even further. 

"Consumers should also acknowledge the new reality of the dollar crunch," Dr. Moazzem opined. "They should be encouraged to substitute imported products with domestic products. At the same time, the government should promote such domestic alternatives to consumers."

When asked about the effectiveness of the government policies on market regulation during Ramadan, Pradip Ranjan Chakrabarty, the Chairman of the Bangladesh Competition Commission, expressed his optimism. 

"In the free market, everyone wants to make a profit. The Bangladesh Competition Commission is actively monitoring the market, ensuring that nobody can engage in unlawful market practices. 

The commission is determined to uphold the government's manifesto and directives. I believe we will see the benefits in the upcoming days." 

Let us hope his words turn out to be true.