Containing inflation should be the number one priority for the new government to ensure relief for middle and low-income people by reducing duty on essential commodities imports, ensuring market-based exchange rate and rationalising the social safety net, says former Bangladesh Bank (BB) governor Atiur Rahman.
“Inflation rate should be brought down to 5-6 per cent as 9 per cent interest rate is not acceptable to us and must be contained within six months,” he said in a public lecture on economic issues organised by Unnayan Shamannay in Dhaka on Thursday.
Atiur, also the executive chairman of Unnayan Shamannay, said, “A contractionary monetary policy alone cannot contain inflation. Fiscal policy is required. Duty on essential commodities imports should be reduced as value has increased due to the depreciation of the taka against the dollar, though the import prices remain constant.”
He recommended prudent macroeconomic management with a market-based exchange rate to curb hundi and increase remittance inflow.
“If the exchange rate is Tk 1-2 more or less than the market, hundi will be stopped. The government should bring stability in the exchange rate,” he said.
Atiur proposed creating a “Smart Exchange Rate” for the exchange rate of taka and US dollar. “This adjustment aims to bring the exchange rate closer to the effective market price, gradually reducing inflationary pressures caused by imports.”
He also suggested channelling remittance income through official channels to balance foreign exchange reserves, considering a 5 per cent incentive for remitters instead of the current 2 per cent. Relaxing regulations for investment in foreign currency bonds could also attract expatriates to buy bonds to reduce forex crunch, he added.
Atiur said, “We reduce imports to decrease balance of payment deficit and forex pressure but it affects our exports as well. So, the government should control unnecessary imports and even stop luxury goods imports such as cars by imposing non-tariff barriers so that the country can import essential goods.”
The government should also focus on promoting and diversifying imports, he said and hoped that political uncertainty and global headwinds will reduce and foreign direct investments will rise in 2024.
Though poverty has reduced, income inequality in the country has increased. The assets information in election affidavits indicates how that has happened, said Bangladesh Institute of Development Studies (BIDS) Research Director SM Zulfiqar Ali.
Transparency International Bangladesh (TIB) has recently revealed that of the 1,920 candidates participating in the upcoming 12th parliamentary election, 18 have assets worth over Tk 100 crore. Also, 164 candidates possess assets above Tk 1 crore.
The biggest challenge for the new government in the coming year will be controlling inflation so that vulnerable people do not fall below the poverty line again. And attention should also be paid to reducing income inequality, Zulfiqar said.
Former BB executive director Mahfuzur Rahman said, “In the last 14 years, the remittance has been about $233 billion, which could have been more if skilled manpower were sent.”
“Besides, it is not possible to maintain foreign exchange reserves due to the inability to control Trade-based Money Laundering,” he said and suggested an administration which will ensure good governance and be corruption-free.
Mastercard Country Manager Syed Mohammad Kamal said, “The biggest pillar in building a smart country is a smart economy, and to create it, cashless transaction facilities must be rationalised.”
So, the government should incentivise any digital payment, whether it is through mobile financial services or cards, he stressed.
