Bangladesh, a textbook example for many in terms of economic growth and resilience, is struggling to battle inflation, falling behind neighbours Pakistan – a hotspot for political turmoil, and Sri Lanka – a country that is practically bankrupt.
Though Bangladesh, in a bid to rein in inflation, lifted the interest cap and hiked policy rate, the country is yet to see any tangible positive impact in the commodity markets, leaving the public to fight tooth and nail with shrinking wages and skyrocketing prices.
An analysis of inflation data for the January-July period of 2023 show that among four South Asian nations, Sri Lanka performed the best in containing high inflation, followed by a stellar performance by Pakistan.
Bangladesh and India, however, did not improve much in terms of cutting living costs.
Sri Lanka and Pakistan
This January, Sri Lanka’s point-to-point inflation rate was 53.2 per cent, which was even 6th highest in the world. Later in July, the country brought down the inflation rate to 4.6 per cent, which is a remarkable feat.
Many across the globe expressed a pleasant surprise that Sri Lanka was able to showcase such an improvement after announcing a failure to repay international loan instalments. The island nation has also begun repaying its loans.
Sri Lanka repaid $50 million to Bangladesh, as an instalment of $200 million borrowed back in 2021.
Speaking to The Business Post, former lead economist of World Bank Dhaka Office Zahid Hussain said, “Sri Lanka acknowledged its problems and took quick and effective measures to resolve them.
“For example, they lifted the import ban on fertilisers, increased interest rates, and market based exchange rate. Apart from this, the country’s USD income is also increasing due to an uptick in tourism after the Covid-19 crisis.”
He added, “It was easy to take such difficult decisions as Sri Lanka was standing on the edge of a cliff, and the country’s central bank acknowledged the actual situation, and implemented effective policies in a timely manner.”
Pakistan, a South Asian country embroiled in political chaos, has also been suffering from high inflationary pressure due to a USD shortage.
From January to May this year, the country’s inflation rate rose gradually. In May, this rate was 38 per cent, which was the highest that year. But it fell by 9.7 percentage points to 28.3 per cent from May to July.
Bangladesh too was facing record high inflationary pressure since 2022. This May, the inflation reached 9.94 per cent, the highest recorded figure in recent years.
Compared to neighbouring Sri Lanka and Pakistan, Bangladesh had somewhat of a low success in tackling the inflation. Bangladesh’s inflation dipped only 0.25 percentage points from May to July this year, hitting 9.69 per cent.
During the same period, Sri Lanka’s inflation dropped from 22.10 per cent to 4.60 per cent.
What can Bangladesh do?
According to economists and stakeholders, Bangladesh suffers from mismanagement of the market system, rampant syndication, lack of market monitoring, lax implementation of law, and consumer behavior.
On the issue, Zahid Hussain said, “Pakistan cannot be an example to us, but Sri Lanka can be. Rather than curbing inflation, we resorted to different policies, such as borrowing money directly from the central bank.
“There was a rampant denial of our problems. That is why we are not doing as well as Sri Lanka in terms of battling inflation.”
Experts say when Imran Khan was in power, he increased fuel prices as per the IMF prescription. The move escalated the country’s inflation.
However, when the country’s political regime changed and Shehbaz Sharif came to power, his government reduced the prices of petrol and electricity. The decision contained inflation across Pakistan in recent months.
The Russia-Ukraine war has been largely blamed for the high inflation and shortage of USD in Bangladesh.
However, an analysis of Food and Agriculture Organization (FAO) data shows that in April, prices of most essential commodities, including fuel and vegetable oil dropped when compared year-on-year, excluding sugar and rice.
In April 2023, sugar prices rose by 23.3 per cent, while rice 18 per cent. But palm oil, Soybean oil, crude oil prices declined by 40.3 per cent, 47.1 per cent and 20.5 per cent respectively compared to the same month last year.
Besides, wheat, tea, DAP and Urea prices declined by 23.6 per cent, 8.6 per cent, 33.2 per cent and 66.1 per cent respectively in April, but there was no positive impact on these prices in Bangladesh.
Addressing the matter, Zahid Hussain said, “Prices of essential commodities should have dropped domestically in tune with the international prices. But in the case of energy, we see that the government is not reducing the rates locally.
“Besides, due to import restrictions, many products cannot be imported at low prices. As a result, any price reduction in the international market makes no impact in our domestic market.”
How did India’s inflation resurge?
Among the South Asian nations, India is in a complicated situation in terms of inflation. From January to June this year, the country’s point to point inflation declined gradually, reaching 4.87 per cent in June.
But after that month, inflation witnessed resurgence in July, hitting 7.44 per cent – which is much higher than usual.
Gujarat-based businessman and Vice President of Rajkrupa Textile India, Manish Kashyap said, “Despite the ongoing global economic crisis, the Indian economy was doing well. However, due to the flash floods, our economy became a bit unstable as supply chains got disrupted.
“I am optimistic that the recent [Indian] government moves degrading exports will curb the country’s inflation.”
To tackle the high inflationary pressure and increase domestic supply, the Indian government introduced some restrictions on essential commodity exports, such as imposing more duty on onion and rice exports.
In this context, Zahid Hussain said, “India will want to keep inflation stable ahead of their national polls. For this reason, they will be stricter in banning the export of essential commodities.
“Along with Myanmar, if the Philippines and Thailand also decide to ban rice exports in a move similar to India, Bangladesh’s food security could be at risk.”
Myanmar is mulling a rice export ban to keep inflation under control. Although Bangladesh does not import much rice overall, Zahid Hussain voiced concerns that any bans on rice exports by neighbouring countries would impact Bangladesh’s markets.
Bangladesh Bank data shows that food grains import payment increased by 1.5 per cent to $2.59 billion in FY23, compared to the previous year.
Meanwhile, rice import payments rose by 33.9 per cent to $571 million, and wheat imports declined by 5 per cent to $2.02 billion in FY23, compared year on year.