Extensive social protection scheme needed immediately

The government should expand social safety net programmes immediately to support the people reeling under escalated food prices, said Selim Raihan, executive director of the South Asian Network on Economic Modeling (Sanem).

"We need an extensive social protection programme for the families and households facing food insecurity," he said. 

Food prices in Bangladesh have risen in recent months because of the surge in import costs and input prices driven by the Russia-Ukraine war and supply disruptions.

Food inflation hit a record high of 9.94 per cent in August, almost double the level recorded in the same month a year earlier, dealing a blow to the poor and the low-income groups.

It fell to 9.08 per cent in September and 8.50 per cent in October, data from the Bangladesh Bureau of Statistics (BBS) showed.

Prof Raihan, however, said inflation is underestimated since the BBS still uses the 2004-2005 data to calculate consumer prices.

The professor of the economics department at the University of Dhaka identified high inflation and food insecurity as major challenges for low-income groups.

"There is serious targeting error in the social protection programmes of Bangladesh. Those who are not supposed to receive it are getting the assistance whereas those who need it the most are not getting it."

"The amount of support is low and the coverage is low as well. We will have to give special attention in this area," he said during an interview with The Daily Star.

Speaking about food security, he said there is a scope to work using scientific methods in a bid to estimate food availability with a view to finding out the actual production and the import requirements as well as the actual demand. 

"If there is a problem in the estimation of supply and demand, there will be a problem in policy choices."

Such a problem creates a panic and allows vested quarters to spread misinformation about famine and use the situation as a pretext to make abnormally high profits, he said. 

"I think there is no scope for a famine in Bangladesh. We have passed the stage."

However, risks for food shortage among the marginalised communities and the groups living in the remote areas remain, he warned.  

A study by the Sanem among 1,200 to 1,300 garment workers in five cities in the last several months found that the food security index fell, meaning apparel workers and their children are eating less than in the past.

The purchasing power of workers has lessened for the higher inflation, while their working hours have been squeezed for the fall in orders from international buyers.

"The high inflation and a falling real wage have created risks to food security," said Prof Raihan.

"If the risks to food security persist consistently for a longer period, a delayed intervention will not work. Interventions will have to be immediate. I think the next two to three months are very crucial for Bangladesh to take steps in this regard."

The economist also talked about the foreign currency market, the exchange rate and the banking sector, among other issues.

The foreign currency reserves stood at $46.4 billion at the end of 2020-21 and $41.83 billion at the end of the last financial year. But owing to escalated import payments, it fell to $34.4 billion recently.

"The depletion of reserves must be prevented," said Raihan. 

He, however, thinks that Bangladesh is not in a very bad situation in terms of reserves. But he expressed concerns about the danger if the fall of the reserve level does not slow down.

"We have to think about how to boost reserves so that they can meet import liabilities for 8-10 months."

The taka has also lost its value sharply against the US dollar amid the shortage of the American greenback and a surge in import bills.

Prof Raihan said India has allowed a gradual depreciation of its currency against the US dollar to avoid any sudden shock.

"But it has not been done in Bangladesh for a long time. As a result, the local currency has seen a sharp depreciation."

He added that since separate exchange rates have been fixed for importers, exporters and remitters, no one trusts them.

Raihan apprehended that economic growth and employment generations would decelerate in the current financial year due to the fall in the import of capital machinery and intermediate raw materials.

The opening of letters of credit (LCs) to import capital machinery declined 65.74 per cent year-on-year to $606.89 million during the July to September quarter, data from the Bangladesh Bank showed.

Similarly, the opening of LCs for importing intermediate goods and industrial raw materials fell more than 14.5 per cent during the three-month period.

"If export receipts and remittance flow don't increase in the coming days, there will be additional pressure on the economy to repay debts after a few years," said Prof Raihan.

He called for steps to stop hundi, an illegal cross-border money transfer system, and augment the flow of remittance through legal channels.

The economist said various problems have been created in the economy due to a lack of governance in the banking sector.

"Willful defaulters are so powerful that they can't be contained. Within a week after assuming office the current finance minister said that defaulted loans will not increase. But it has risen by another 30 per cent."

He said the conditions of the International Monetary Fund regarding reforming the banking and revenue sectors are nothing new.

The government is seeking $4.5 billion from the multilateral lender.

"The government has already made promises to carry out all of the reforms. The eighth five-year plan also spelled about them. But these reforms are not possible without a strong political commitment," added Raihan.