People – especially those belonging to the middle and low income segments of Bangladesh’s population – found no respite in 2023, as the slowly climbing wage growth consistently remained behind the rising inflation.
The wage growth, unadjusted to the country’s inflation, indicates that the worker’s real wages were in the negative throughout 2023 when compared year-on-year. This in turn had reduced the purchasing power of middle and low income people.
As real wages started declining, people began withdrawing their savings under the National Savings Certificate (NSC) scheme to cover living expenses.
This phenomenon triggered a negative trend in saving certificate sales, a slower growth in bank deposits, and an increased cash flow outside banks, an analysis of government data shows.
According to the Bangladesh Bureau of Statistics (BBS), the wage growth during January-December last year was between 7.06 and 7.74, while the inflation was between 8.57 and 9.94, meaning the real wages were below or negative around 2 percentage points.
For the January-June period last year, savings certificate sales stood at Tk 40,386 crore and repayment was Tk 40,576 crore, as the net sales were at negative Tk 189 crore.
According to the Bangladesh Bank, during the July-October period of 2023, total NSC sales reached Tk 29,076 crore, while the repayment amount was Tk 31,381 crore. So, the net sale of such savings tools was negative Tk 2,305 crore.
In economic terminology, currency outside the banking system refers to legal tender held by the general public, and there has been a notable increase in the volume of such currency in recent months, as evidenced by the rise in circulating currencies.
According to Bangladesh Bank, the volume of currency outside the banking system rose by 23.46 per cent year on year in June 2023.
Besides, according to the central bank, time deposits were reduced to around 8 per cent year-on-year growth in June after a month when the country faced the inflationary pressure to an 11-year high to 9.94 in May.
Such deposits were again increased due to a little lower trend in inflation. The overall inflation in Bangladesh stood at 9.41 per cent in December, compared to 9.49 per cent in November.
The country also witnesses a positive trend in wage rates too. The wage growth was 7.72 per cent in November and 7.74 per cent in December.
Commenting on the issue, Consumers Association of Bangladesh (CAB) President Ghulam Rahman said, “If the government takes timely and right policy measures, including market-based interest and exchange policy, stopping the printing of money to ease fiscal pressures, and proper utilisation of government’s spending, inflation will come down gradually.
“The government relaxed the interest rate earlier as per the six-month moving average rate of treasury bills (SMART), replacing the 9-6 cap regime, but this is not yet a market-based system.”
Zahid Hussain, former lead economist of the World Bank's Dhaka office said, “The government should rein in inflation first. The workers will not reap the benefits of their salary if it remains behind inflation.
“The government should then take necessary measures to encourage employment-friendly investments. The government policy support in capital investment witnessed throughout the last decade was not much employment-friendly investment.”
He continued, “That was the reason why investments increased, but employment opportunities did not. If demand for employment does not increase, wages will stagnate. The government should further tighten monetary policy.
“But still, only monetary policy alone cannot control inflation. So, the government should also focus on market management.”
It should be noted that in FY23, the government took out a direct loan of around Tk 1 lakh crore from the central bank, and the move had drawn widespread criticism over the fact that printed or high-powered money was entering the market.
This in turn led to an increase in the overall money flow at least five times. As a result, this money has further fuelled inflation in the country.
The government backtracked from this trend of printing money, and the central bank sources say the government is likely to unveil a contractionary monetary policy stance to control inflation.
