The present government started its journey at a time when the global economic environment was conducive to growth and low inflation. Food prices had stabilised after the global food crisis of 2007-08. Interest rates were lowered globally in response to the global economic crisis of 2008.

Bangladesh economy benefited from that environment and attained a gradual acceleration in growth associated with improvements in social indicators like poverty reduction, enrolment in primary education, and decline in child mortality. The conducive external environment made it easy to attain economic growth with poverty reduction despite several shortcomings in policy.

Mega infrastructure projects were undertaken, based on the premise that they would encourage investment and thus ignite further economic growth. Several such projects, notably Padma bridge, metro rail and part of an elevated expressway in Dhaka, and the Karnaphuli tunnel have been completed and are making an immediate impact in terms of easing travel and transport of goods.

Of course, there were questions of high costs and cost over-runs due to delay in their implementation, Furthermore, their expected benefits in terms of contribution to GDP growth are yet to be seen.

Single-minded pursuit of economic growth looked like growth fetishism. And issues like rising inequality, poor employment performance, continued dependence on employment in the informal economy and shortfall from decent work, low quality of education, vulnerability of the economy in the face of shocks (e.g., pandemic, war, global economic recession), etc. have been ignored.

The commitment for employment guarantee made in the 2008 election manifesto was forgotten quickly. A large segment of the population who were vulnerable fell into poverty during the coronavirus pandemic.

The programme adopted by the government in response to the crisis had several weaknesses in helping the poor people and smaller enterprises. Furthermore, the experience has not been utilised to formulate strategies for increasing the resilience of the low-income people to such shocks.

Several wrong policies were adopted and pursued despite their obvious shortcomings.

They include: (i) keeping the exchange rate fixed when economic fundamentals warranted adjustments, (ii) putting caps on interest rates on deposits and lending, thereby providing wrong signals to economic actors, (iii) raising administered prices (e.g., of petroleum products and electricity) at a time when the monster of inflation was already raising its head, (iv) not making proper assessment of supply of and demand for key commodities and arranging their timely imports, and (v) not making appropriate use of tariff policy to counter the price effects of currency depreciation and to provide competition to domestic producers.

Economic challenges in 2023 and initiatives taken by the authorities

The policies mentioned above eventually became self-defeating as was apparent when the economy started to face multiple challenges on the macroeconomic front. Private investment remained sluggish, and the competitiveness of exports started to erode.

The overvalued currency discouraged remittance flow through formal channels and encouraged capital flight from the country. The result was a sharp deterioration in the external account of the country.

What happened after that is well-known to informed readers. Multiple challenges include sharp erosion of the foreign exchange reserve, stagnation in remittance flows, rising inflation, return of power shortage – to name a few.

While the initial response of the government (e.g., controlling imports) was halting and half-hearted at best, the quick-fix of a loan from the International Monetary Fund (IMF) was adopted to salvage the situation.

The loan came with a plethora of conditions that included measures like withdrawing limits on interest rates, and making the exchange rate flexible – precisely the measures that were being recommended by independent specialists and the government was refusing to adopt.

However, up to now, only half-hearted measures have been adopted to meet the conditions. For example, the caps on deposit and lending rates have been withdrawn, but the exchange rate has not been unified. The gaps between the official exchange rate, the market rate and the rate at which remittances are converted have grown wider – thus encouraging the use of unofficial channels for remittances.

How do you look at 2024?

The new year would provide the policymakers an opportunity to make a new beginning. But that opportunity will have to be used quickly and effectively if further deterioration of the economic condition is to be avoided. The first task would be to fix the macroeconomic imbalances that have been acting as a brake on the economy for more than a year now.

The exchange rate will need to be fixed correctly without any further delay. The IMF is now suggesting the use of "crawling peg" method. However, in applying the method, it needs to be ensured that an environment of "depreciation expectation" is not created, because that will hold back the return of export earnings and a smooth flow of remittances through formal channels.

To fight inflation, action will be needed on multiple fronts.

If interest rate is raised, its impact is likely to come with a time lag. During the interim period, supply side interventions will be needed, especially for items that are sensitive to price fluctuations.

Advance estimation of import requirements, and better planning and implementation of imports are essential. Measures should be undertaken to protect the poor from the adverse effects of inflation, e.g., by bringing more people and more items in the government's open market sales programme and augmenting their supplies.

Stabilisation measures like raising interest rate and correcting the exchange rate are likely to be associated with growth moderation. When economic growth falters, the employment and labour market situation is likely to become more precarious.

With wage growth already behind inflation rate for quite some time and the ominous prospect of inflation remaining high for a prolonged period, the plight of the poor and low-income people is almost certain to worsen. Concrete measures are needed to provide them protection. A policy of adjustment with the human face should be pursued.

The author is an economist and former special adviser to the employment sector, International Labour Office, Geneva.