Govt injected Tk20,000cr of 'high-powered money' into economy in March: PRI chief economist
Ashikur Rahman said global economic instability, particularly geopolitical tensions in the Middle East, policy uncertainty and the challenges of graduating from LDC status, is putting pressure on the country’s economic stability.
Highlights
- Government has started printing money again
- This could push inflation higher
- Global economic instability, policy uncertainty, post-LDC challenges putting pressure on economy
- Stagnation in employment as new risk to economy
- IMF terms should not be viewed merely as conditions but as necessary steps
The government injected Tk20,000 crore in "high-powered money" into the economy through central bank borrowing in March alone, a move Policy Research Institute (PRI) Chief Economist Ashikur Rahman warns could trigger higher inflation.
Noting that the government has started printing money again, Ashikur said, "The government borrowed Tk20,000 crore from the Bangladesh Bank. This is high-powered money – essentially printed money. That means it could push inflation higher."
Keep updated, follow The Business Standard's Google news channel
He made the observations today (23 April) while presenting the keynote at a Monthly Macroeconomic Insights event, titled "Evolving Global Landscape for Trade and Growth", in Dhaka. The event was organised by PRI with support from the Australian government's Department of Foreign Affairs and Trade (DFAT).
The PRI chief said global economic instability, particularly geopolitical tensions in the Middle East, policy uncertainty and the challenges of graduating from least developed country (LDC) status, is putting pressure on the country's economic stability.
"In this context, stepping back from reforms would be self-defeating," he said, expressing hope that the government would review bank resolution measures.
He added that retreating from reforms had created "unnecessary tension" around engagement with the International Monetary Fund.
Speaking as chief guest, Mahbubur Rahman, president of the International Chamber of Commerce Bangladesh (ICCB), said prolonged instability in gas and electricity supply has become a major obstacle to investment.
"Long-standing disruptions in gas and power supply have eroded entrepreneurs' confidence," he said. "Entrepreneurs are hesitant about expanding business and investment. They are unsure whether they will get gas and electricity. The government and businesses must work together."
He added that weaknesses in the banking sector, difficulties in accessing credit and the risk of non-performing loans are further complicating the investment environment. As a result, entrepreneurs are taking a cautious stance on setting up new industries or expanding existing businesses.
Mahbubur also warned that high inflation is increasing the cost of living and putting pressure on low- and middle-income groups. Policymakers, he said, must be more cautious in controlling inflation and avoid excessive money supply or unnecessary spending.
He recommended restoring discipline in the banking sector through reforms, including, if necessary, bank mergers.
IMF reforms necessary
Speakers at the event said reforms backed by the IMF should not be viewed merely as conditions but as necessary steps for long-term economic stability.
Khondokar Shakhawat Ali, visiting research fellow at BRAC University's BIGD, said Bangladesh is currently going through a difficult period both domestically and externally.
He said a form of "crony capitalism" has developed in the country, harming the investment climate and disrupting the normal functioning of the economy.
Despite growth in bank deposits, governance gaps persist, he said, stressing the need to prevent money laundering and ensure transparency in the financial sector. He warned that financing subsidies through excessive money printing would raise inflation and directly affect ordinary people.
He also pointed to stagnation in employment as a new risk to the economy.
'National economic imperatives'
In his closing remarks, PRI Chairman Zaidi Sattar said the proposed economic reforms are not IMF-imposed conditions but "national economic imperatives".
"Failure to implement these reforms will become a self-inflicted wound for the economy," he said, adding that an elected government has the capacity to carry out difficult reforms.
He cited Bangladesh's experience in 1991, when a democratically elected government implemented major economic reforms that significantly altered the country's economic trajectory.
"The current situation is similarly conducive to deep and structural reforms, and IMF support can be helpful in this regard," he said.
Among others, Clinton Pobke, deputy head of mission at the Australian High Commission, spoke as special guest. Former NBR chairman Muhammad Abdul Mazid and Meghna Group of Industries director Tanjima Mostafa also joined the discussion.
The event concluded with remarks by PRI research director Bazlul H Khondker.
