[🇧🇩] Monitoring Bangladesh's Economy

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Inclusive development for an equitable country

Through the war of independence, the people of Bangladesh sought to establish a country free from exploitation and deprivation, where every citizen would enjoy fair treatment and access to basic rights and benefits. It is deeply regrettable that even after more than half a century of independence a

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Inclusive development for an equitable country
Md Tauhidul Alam
Published :
Aug 26, 2024 22:44
Updated :
Aug 27, 2024 21:15

Through the war of independence, the people of Bangladesh sought to establish a country free from exploitation and deprivation, where every citizen would enjoy fair treatment and access to basic rights and benefits. It is deeply regrettable that even after more than half a century of independence and significant economic growth, approximately 35 million people of the country, representing 18.7 per cent of the population, still live below the poverty line. While there has been notable progress in reducing poverty, income inequality remains distressingly high, particularly among rural communities, women, and other vulnerable groups who still struggle to secure basic necessities such as food, shelter, healthcare, and education. This persistent disparity is largely driven by unequal distribution of the benefits of economic growth, which has disproportionately favoured the privileged segments of the society.

In this context, fostering inclusive development is crucial to ensure that all segments of the society, especially those who are marginalised, can share the nation's economic progress. With the fall of Sheikh Hasina's autocratic regime and the emergence of an interim government, a significant opportunity has arisen to build an equitable and just society-an opportunity the nation must seize to achieve true inclusion.

INCLUSIVE DEVELOPMENT: Inclusive growth and inclusive development both refer to an economic growth process that is broad-based, sustainable, and equitable, ensuring that all segments of the society, especially the marginalised and disadvantaged, benefit from economic progress. These concepts emphasise the importance of creating opportunities for everyone, reducing income inequality, and addressing social and economic disparities. Inclusive growth and development aim not only to increase overall economic output but also to distribute the gains from growth more evenly across the society, fostering social cohesion and improving the quality of life for all individuals. The core principle is the "inclusion of the excluded," focusing on dismantling barriers and promoting the participation of marginalised groups to create a more equitable society where no one is left behind.

EDUCATION AND SKILL DEVELOPMENT: Education is the cornerstone of inclusive development, and while Bangladesh has made significant progress in improving access to education, challenges remain in terms of quality and equity. To address these challenges, particularly for the marginalised communities such as rural and indigenous populations, targeted programmes are essential. Additionally, enhancing vocational and technical training can equip the youth with skills that match the demands of the evolving job market, thereby reducing unemployment and underemployment. However, to establish an education system that is both people-centred and supportive of the poor, a comprehensive reform programme is urgently needed. Immediate actions, including reconstituting the governing bodies and managing committees of nearly all educational institutions with qualified, honest, and skilled individuals are crucial. Furthermore, recruiting qualified teachers and providing rigorous training for existing educators are critical steps in improving the overall standard of education.

HEALTHCARE ACCESS AND QUALITY: Bangladesh has made notable progress in healthcare, particularly in reducing child mortality and increasing life expectancy, but significant disparities in access to quality healthcare remain, especially among rural and low-income populations. The healthcare system is plagued with challenges such as inadequate facilities, underfunding, and a shortage of skilled professionals, particularly in rural areas. High out-of-pocket expenses further hinder access for those with limited financial resources, forcing many to rely on informal and unregulated providers, resulting in incorrect treatments and worsened health outcomes. Overcrowded and under-resourced public hospitals, coupled with systemic issues like favouritism and influence of corrupt syndicates, exacerbate these challenges by creating unequal access to care, draining public resources, and diminishing the quality of healthcare. These factors erode public trust and perpetuate cycles of poverty and poor health outcomes. To address these issues, it is crucial to implement stronger regulations, increase transparency, and ensure equitable access to healthcare for all citizens by strengthening rural healthcare infrastructure and adopting universal health coverage, thereby promoting inclusive development and improving overall health outcomes in the country.

SOCIAL PROTECTION AND SAFETY NETS: Social protection programmes are crucial for safeguarding the most vulnerable populations against economic shocks and natural disasters. While Bangladesh has several social safety net programmes, their coverage and effectiveness require significant enhancement. One of the key challenges is the political bias that often influences these programmes, leading to the exclusion of a large number of people who should be beneficiaries. Additionally, the high rate of corruption in the distribution process is a major concern, as benefits are frequently siphoned off by influential individuals involved in the distribution. To achieve inclusive development, it is essential to expand these programmes to cover all vulnerable groups, including the elderly, disabled, and extreme poor.

ECONOMIC POLICY AND JOB CREATION: Economic policies should be designed to promote job creation and entrepreneurship, particularly in sectors with the potential to absorb large numbers of workers, such as agriculture, manufacturing, and services. However, several challenges hinder entrepreneurship development, including limited access to capital, inadequate infrastructure, lack of technical skills, and burdensome regulatory hurdles. These barriers must be addressed promptly, as failing to do so will leave job creation as an unfulfilled promise.

Special attention should be given to empowering women and youth, who are often marginalised in the formal economy. Financial inclusion initiatives, such as mobile banking, microfinance, and tailored financial literacy programmes, can play a pivotal role in ensuring that all citizens have access to the financial resources needed to engage in economic activities. Moreover, creating a supportive ecosystem that includes mentorship, access to markets, and streamlined business registration processes is essential for nurturing entrepreneurship and driving sustainable economic growth.

INFRASTRUCTURE DEVELOPMENT: Infrastructure is crucial in bridging marginalised

communities with markets, services, and opportunities. To truly make a difference, investments in transportation, energy, and digital infrastructure must focus on underserved regions, especially rural and remote areas. This approach not only drives economic growth but also fosters greater social inclusion.

However, infrastructure development in Bangladesh has been marred by several challenges. Poor quality, corruption, and frequent delays are common, leading to cost overruns and poor project outcomes. Environmental degradation, community displacement, and a lack of inclusive planning further compound these issues. Additionally, political interference often distorts project priorities, while a heavy reliance on foreign loans raises concerns about debt sustainability. Critics argue that these problems underscore the urgent need for more transparent, efficient, and sustainable infrastructure development practices in Bangladesh.

ENVIRONMENTAL SUSTAINABILITY: For development to be truly inclusive, environmental sustainability must be prioritised, as climate change disproportionately impacts the poor and marginalised. Integrating climate resilience into development planning is essential, with key strategies including sustainable agriculture, renewable energy investments, and robust environmental policies. However, Bangladesh faces significant challenges, such as inadequate implementation of environmental regulations, leading to severe pollution from industries like textiles and leather. Rapid urbanisation is encroaching on wetlands, while reliance on fossil fuels and poor waste management exacerbate environmental degradation. Current efforts often overlook marginalised communities, who bear the brunt of these issues, underscoring the need for more equitable and inclusive sustainability approaches. Comprehensive solutions are vital for achieving development that benefits all and preserves the environment.

CHALLENGES AND THE WAY FORWARD:

To overcome the challenges, a multi-stakeholder approach is necessary. The government, private sector, civil society, and international partners should work together to create policies and programmes that are inclusive by design. This includes fostering public-private partnerships, enhancing governance and accountability, and ensuring that marginalised groups have a voice in decision-making processes.

Md. Tauhidul Alam, CICC, is a Senior Faculty and Head of the earning Facilitation Wing, MTB Training Institute (MTBTI)​

 

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Budget support: Govt hunts for $8b from IMF, other lenders

The government is seeking as much as $8 billion in budget support by December from the development partners, including the International Monetary Fund (IMF), to pay back foreign liabilities and boost foreign exchange reserves.

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Budget support: Govt hunts for $8b from IMF, other lenders
Bangladesh seeks to shore up reserves, repay liabilities

The government is seeking as much as $8 billion in budget support by December from the development partners, including the International Monetary Fund (IMF), to pay back foreign liabilities and boost foreign exchange reserves.

It is also working to get immediate funds from the Asian Development Bank (ADB) and the World Bank for rehabilitation programmes in areas recently devastated by floods.

Based on a primary assumption of loss and damage, the government has already sent a letter to the ADB, requesting $300 million for flood rehabilitation. It will seek a bigger amount from the World Bank, but a formal request has not been made yet.

Of the budget support, $3 billion is expected to come from the IMF on top of the global lender's existing $4.7 billion loan programme.

The government will seek as much as $5 billion from other development partners like the World Bank, ADB, Japan International Cooperation Agency (JICA) and the Asian Infrastructure Investment Bank (AIIB), said officials of the finance ministry and the Bangladesh Bank.

Recently, Bangladesh Bank Governor Ahsan H Mansur told foreign media that they would seek $3 billion from the IMF. A finance ministry official said they have already started talks with the IMF for the funds.

The official said an IMF staff mission is likely to visit Bangladesh to discuss the loan towards the end of next month. After the visit, Bangladesh will formally send a letter to the IMF, seeking the additional loan.

IMF officials informed the finance ministry and the central bank that it was assessing how much it could lend Bangladesh, going beyond the existing quota for the country.

The officials said a meeting on the loan arrangement could be held on the sidelines of the World Bank-IMF Annual Meetings in Washington in October. Finance Adviser Salehuddin Ahmed and the central bank governor are likely to take part in the meeting.

The IMF has so far released $2.3 billion under the $4.7 billion loan programme since its approval in January last year.

After the interim government took charge, the World Bank and the ADB held separate meetings with the finance adviser, the energy adviser and the central bank governor. Bangladesh sought more budget support from them during the meetings but did not specify any amount.

The energy adviser during meetings with the World Bank and the ADB sought $1 billion as immediate budget support, according to officials familiar with the development.

Officials at the Economic Relations Division said they could get funds from the World Bank under three arrangements -- a policy-based loan, diverted regional funds or from slow-moving projects.

Besides, Bangladesh could quickly get $1 billion to $1.5 billion from the ADB under two arrangements -- a policy-based loan or countercyclical support. Both JICA and AIIB could join the ADB arrangement, according to officials.

The interim government took charge amid pressure of high inflation and bleeding of foreign currency reserves which have been prevalent for almost two years.

The reserves stood at $20.5 billion on August 21 in line with the IMF's BPM-6 after the new government headed by Nobel laureate Professor Muhammad Yunus had taken charge earlier this month following the downfall of former prime minister Sheikh Hasina's government through a student-led mass uprising.

Inflation remained high last month, with the consumer price index rising by 1.94 basis points to 11.66 percent from the previous month. Food inflation crossed 14 percent in July for the first time in 13 years.

When Hasina fled the country, the Awami League government left $156 billion in local and foreign loans for the country to carry. These included $88 billion from domestic sources and the remaining $68.33 billion was external debt.

The country is also struggling to deal with a fragile banking sector hit by scams and defaults caused by people with direct or indirect links to the previous government.

The interim government has taken some quick and drastic measures to tackle the situation surrounding finances while bringing reforms to all the sectors as promised by Yunus.

Policy rates against both local and foreign currencies have been increased, while strict measures have been taken for the banking sector which are longtime suggestions from the development partners for providing budget support.

Finance ministry officials said because of the reform measures taken by the interim government, development patterners are ready to provide more support.​

 

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White paper on economy: 12-member committee formed

The Debapriya Bhattacharya-led committee will hold its first meeting tomorrow

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White paper on economy: 12-member committee formed
The Debapriya Bhattacharya-led committee will hold its first meeting tomorrow

Debapriya Bhattacharya. File photo

The government today formed a 12-member committee led by Dr Debapriya Bhattacharya, a distinguished fellow at the Centre for Policy Dialogue (CPD), to prepare a white paper on the state of Bangladesh's economy.

The panel will hold its first meeting at the Planning Commission in Dhaka tomorrow.

The committee members include Professor AK Enamul Haque, dean of Faculty of Business and Economics of East West University; Ferdaus Ara Begum, CEO of Business Initiative Leading Development (BUILD); Imran Matin, executive director of BRAC Institute of Governance and Development at BRAC University; Dr Kazi Iqbal, senior research fellow at Bangladesh Institute of Development Studies (BIDS); and Dr M Tamim, professor of Bangladesh University of Engineering and Technology (BUET).

The others are Dr Mohammad Abu Eusuf, professor of Dhaka University's Department of Development Studies; Professor Mustafizur Rahman, distinguished fellow of CPD; Dr Selim Raihan, professor of Department of Economics, University of Dhaka; Dr Sharmind Neelormi, professor of Department of Economics of Jahangirnagar University; Dr Tasneem Arefa Siddiqui, founding chair of Refugee and Migratory Movements Research Unit (RMMRU); and Dr Zahid Hussain, former lead economist of the World Bank.

The interim government last week announced its decision to prepare the white paper so that strategic steps can be taken to stabilise the economy, reach the Sustainable Development Goals, and mitigate the challenges after Bangladesh graduates from the LDC grouping.

Debapriya, who is also the convener of the Citizen's Platform for SDGs, Bangladesh, said after a meeting with Finance Adviser Salehuddin Ahmed at the Secretariat on August 25 that the panel would consider incorporating issues beyond its mandate, depending on the situation.​

 

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White paper to assess extent of corruption

The committee tasked with formulating a white paper on Bangladesh’s economy will assess the extent of corruption in the country and identify the reasons behind it, according to Debapriya Bhattacharya, a distinguished fellow at the Centre for Policy Dialogue (CPD).

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White paper to assess extent of corruption
Says Debapriya Bhattacharya

The committee tasked with formulating a white paper on Bangladesh's economy will assess the extent of corruption in the country and identify the reasons behind it, according to Debapriya Bhattacharya, a distinguished fellow at the Centre for Policy Dialogue (CPD).

However, he said that it would not identify any individuals involved.

"Many people think it is a committee to catch corrupt people, but that is not its purpose. Instead, it will explain why corruption occurred and to what extent," he said. "The government has its own agencies for finding those responsible."

Bhattacharya, team leader of the 12-member committee tasked with preparing a white paper on the state of the economy, was speaking at a press briefing after the committee's first meeting at the Planning Commission in Agargaon yesterday.

Asked whether the committee would publish the names of corrupt individuals, he said it was out of the question.

Regarding the main tasks of the committee, he said they will highlight the challenges in managing the economy and present its true state with data. The report will not detail why these challenges arose, but some indications will be provided.

"At the same time, we will offer some hints on how to overcome these challenges," Bhattacharya said.

It will also mention measures that can safeguard the country from plunging into such a crisis in the future.

It will not evaluate the activities of the previous government, but will make recommendations to the current government to avoid repeating past mistakes.

He also informed that the newly formed committee would only discuss the country's mega projects instead of all development projects.

"We are not going to discuss all development projects. We will review the mega projects. If it is necessary to examine any specific project in detail, we will do so," he said.

"We will review the necessity of undertaking these mega projects and the government's ability to repay associated loans ."

Regarding the banking sector, Bhattacharya said there will be a separate commission to evaluate it.

The committee will prepare the white paper following a critical evaluation of government data, existing reports and research papers from local think tanks and global institutions. Members will also meet with stakeholders both within and outside Dhaka.

The committee will share interim reports periodically over a three-month period.

"Mega projects and their liabilities will be a major focus of the discussions," the central bank governor said.

"We will try to identify where the interim government stands now. This will help them prioritise the reform tasks ahead," he added.

The government formed the panel on Wednesday to prepare a white paper so that strategic steps can be taken to stabilise the economy, reach the country's Sustainable Development Goals, and mitigate challenges after Bangladesh graduates from the group of least developed countries.

The 11 other committee members include Professor AK Enamul Haque, dean of the business and economics faculty at East West University, Ferdaus Ara Begum, CEO of Business Initiative Leading Development, Imran Matin, executive director of the BRAC Institute of Governance and Development, Dr Kazi Iqbal, senior research fellow at the Bangladesh Institute of Development Studies, and Dr M Tamim, a professor at the Bangladesh University of Engineering and Technology.

The other members are: Dr Mohammad Abu Eusuf, a professor of development studies at the University of Dhaka, Professor Mustafizur Rahman, distinguished fellow of the CPD, Dr Selim Raihan, a professor of economics at the University of Dhaka, Dr Sharmind Neelormi, professor of economics at Jahangirnagar University, Dr Tasneem Arefa Siddiqui, founding chair of the Refugee and Migratory Movements Research Unit, and Dr Zahid Hussain, former lead economist of the World Bank.​

 

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Upward trend in remittance: Bangladesh receives over $2 billion in Aug

Bangladesh is showing an upward trend again in remittance sent by expatriates and exceeded US$ 2 billion in 28 days of August. According to Bangladesh Bank’s updated report on remittance as of August 28, expatriate Bangladeshis sent $2.07 billion to the country through the formal channel. In

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Upward trend in remittance: Bangladesh receives over $2 billion in Aug
FE Online Desk
Published :
Aug 29, 2024 21:45
Updated :
Aug 29, 2024 23:35

Bangladesh is showing an upward trend again in remittance sent by expatriates and exceeded US$ 2 billion in 28 days of August.

According to Bangladesh Bank’s updated report on remittance as of August 28, expatriate Bangladeshis sent $2.07 billion to the country through the formal channel. In the same period of August 2023, remittance inflow was $1.43 billion, reports UNB.

Bangladesh witnessed the lowest remittance in the last 10 months in July 2024 amid the student movement. In July, the country’s remittance was about $1.91 billion.

It is to be noted, banks were closed from July 19 to 23 due to the situation caused by the students’ movement against discrimination, public and general holidays. Apart from this, broadband internet was off for 5 consecutive days and mobile internet was off for 10 days. Because of this, foreign transactions with the country’s banks were almost stopped.

Bangladesh Bank has taken different steps to increase remittance to overcome the foreign exchange crisis and increase reserves. In the last few months, these measures have had a positive impact on expatriate income or remittance coming into the country.​

 

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Is govt action enough to curb inflation?

Persistent inflationary pressure, particularly in terms of food inflation, has been taking a toll on low- and fixed-income people in Bangladesh, forcing them to spend most of their income on nutrition.

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Is govt action enough to curb inflation?

Persistent inflationary pressure, particularly in terms of food inflation, has been taking a toll on low- and fixed-income people in Bangladesh, forcing them to spend most of their income on nutrition.

The recently ousted Awami League government had taken steps to cushion this blow, especially by introducing food distribution programmes.

And though such measures remain in place, the question is whether these alone are enough to tackle inflation.

A record 32.61 lakh tonnes of food grains were sold at subsidised rates through public distribution systems like the Open Market Sale (OMS) and Vulnerable Group Development programmes in FY24.

The OMS alone distributed about 32 percent of the total grains, mostly rice and wheat, to increase market supply and maintain a price equilibrium.

Essential commodities, including oil and sugar, are also being sold at subsidised rates to around one crore family cardholders under a Trading Corporation of Bangladesh (TCB) programme.

Professor Bazlul Haque Khondker, chairman of the South Asian Network on Economic Modeling (Sanem), welcomed these moves but urged authorities to monitor distribution properly.

"We often receive allegations of corruption in the distribution process. At times, the support does not reach the intended beneficiaries," he said.

Towfiqul Islam Khan, a senior research fellow at the Centre for Policy Dialogue (CPD), said it is critical to plug these leaks in public food distribution programmes, including the TCB's family card initiative.

"The list of beneficiaries should be revisited to stop both inclusion and exclusion errors," he added.

Khan also emphasised the need to increase budgetary allocations for public food distribution initiatives.

"The last budget did not include adequate support to reduce the production cost of essential commodities. Even energy and fuel prices were kept high."

He suggested the interim government facilitate the import and distribution of essential commodities so that more players can enter the market.

Sanem's Bazlul Haque Khondker said the focus should now shift to framing non-monetary policies to control inflation.

He added that proper market management by removing the scope for extortion should be prioritised.

"The country may witness significant change in the next six months if the interim government can play a remarkable role with a tight monetary policy," he added.

The CPD's Towfiqul Islam Khan said recent changes in the monetary policy, including policy rate hikes and allowing banks more flexibility to fix interest rates, were taken with a view to addressing demand-pull issues.

However, conventional economic theories and past global experiences suggest that these measures need time to have an effect.

"The government policies have not adequately addressed the issue of cost-push inflation areas. The pressure on the exchange rate will be there for some time in the foreseeable future," Khan said.

He also mentioned that the official data does not adequately reflect ground realities and somewhat underestimates the inflation rate.

"The policies are taken with low-quality data year after year. It is high time we took immediate steps to improve this situation."​

 

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Business activities yet to come back on track

Flash floods across parts of the country, the lingering effects of recent nationwide political upheaval, and persistent inflationary pressure have prevented business activities from getting back on track, according to businesspeople.

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Business activities yet to come back on track

Although the unrest stemming from nationwide protests is fading and shopping centres have opened their doors, customer footfall has not picked up. Recent floods, alongside persistently high inflation, have also impacted consumer behaviour. As such, shopping centres and malls remain relatively desolate. The photos were taken in Farmgate yesterday. Photo: Prabir Das

Flash floods across parts of the country, the lingering effects of recent nationwide political upheaval, and persistent inflationary pressure have prevented business activities from getting back on track, according to businesspeople.

As uncertainty and fear are still clouding people's minds, they are not interested in shopping, businesspeople said.

However, they believed business activities would gradually return to normalcy, saying that there was no alternative but to wait for better days.

"The months-long political unrest stemming from the student movement, coupled with recent floods, caused sales and demand to drop to inadequate levels. So, businesses are enduring a difficult time," said Tapan Sengupta, deputy managing director of BSRM, a leading steel manufacturer.

He said that sales of construction materials usually decline in the rainy season, with demand for steel significantly reduced during the monsoon months.

"However, various elements have emerged and hampered business in nearly all sectors."

Since demand from clients and dealers has declined substantially, BSRM has only been partially running its production units in order to avoid a stockpile of goods, he informed.

Sales will not improve until consumer confidence is restored, and development projects are resumed, he opined.

Rupali Chowdhury, managing director of Berger Paints Bangladesh, said domestic consumption of fast-moving consumer goods and construction materials has declined significantly since last year.

"The recent unrest added to this, which is unfavourable for business growth," she said.

Consumers are uninterested in spending money on non-essential products in the current situation, she noted.

Chowdhury, also a former president of the Foreign Investors' Chamber of Commerce and Industry (FICCI), said all multinational companies were facing the same situation.

"The economy is not in a positive state due to the political changeover and recent flash floods while people are yet to mentally recover from recent turmoil," Chowdhury said.

"So, businesses are passing a transitional period. As a result, business activities have been hindered."

Arfanul Hoque, director (retail) at the Bata Shoe Company (Bangladesh) Ltd, said footfall at their outlets slowed since the start of this year.

He said high inflationary pressure is a fundamental reason for the decline in sales.

Inflation hit 11.66 percent in July this year, the highest in at least 13 years, while food inflation soared to at least a 10-year high of 14.1 percent, according to the Bangladesh Bureau of Statistics.

"Later, unrest and flash floods exacerbated the situation," he said.

However, Hoque believes the situation will gradually improve as the political situation becomes more stable.

Mohammed Amirul Haque, managing director of Premier Cement Mills PLC, said the business situation had been beyond anyone's control since mid-July.

"Demand declined significantly due to the monsoon season and also because customers are yet to regain confidence. In this situation, we are running the manufacturing units partially," he said.

"Despite having no control over the situation, we are trying to do our best to handle the challenges," Haque added.

He also stressed the need for policy support from the interim government.

MA Jabbar, managing director of DBL Group, said factories in Mymensingh's Bhaluka area and Gazipur's Kashimpur locality are contending with an acute gas and power supply crisis.

"In this situation, we are running the factories with diesel to ensure power, which increases the cost of production," he said.

Although demand is slow at the moment, manufacturers may be unable to ensure adequate supply as production is being hampered due to the gas crisis, he added.

Jabbar said such issues had become a new headache for investors, adding that they would think several times before expanding their businesses or making fresh investments.

Khourshed Alam, director of sales and marketing at Akij Ceramics Ltd, said the business situation is yet to come back on track as the overall condition is not suitable for customers.

"There were no sales between July 15 and August 15 due to the student movement. Recently, flash floods also impacted businesses," he added.

Alam hopes that business activities will come back on track within one-and-a-half months.​

 

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Fall of a titan: Looking for the economic tinderbox

Despite the youth-driven upheaval, the key drivers of the economy remain very much intact and ready to take the economy to new heights.

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Fall of a titan: Looking for the economic tinderbox

Inflation must be tamed in the shortest possible time, or else it will remain a keg in the economic tinderbox. FILE PHOTO: AMRAN HOSSAIN

Just when the Hasina regime was imbued with an aura of invincibility, the ground finally shifted on August 5, 2024, and the 15-year-old regime collapsed like a house of cards. This regime change, and the process that led to it, will be recorded in blood-letters, once again, in the annals of Bangladesh history. To the nation's advantage and to restore stability, we had someone of the stature of Nobel laureate Dr Muhammad Yunus, widely respected nationally and internationally, who was unanimously offered the high task of leading the nation onwards.

Bangladesh is no stranger to national student movements and violent transitions. A peaceful transfer of state power has eluded this country for much of its 53-year existence. But it was for the first time that a student movement toppled an apparently powerful government. Political analysts around the world will now have to sift through their books to ascertain the theoretical underpinnings that best fit the latest transformative developments. Suffice it to say that the end of a long-running progressively authoritarian regime was inevitable, albeit unpredictable. The nagging question was when… and how?

Since early July, Bangladesh has gone through what can aptly be called a youth-driven mass uprising that toppled a regime that had lost touch with the people. But, for such a movement to change a regime that appeared fully ensconced in the saddle of government, there has to be some lethal and explosive spark that removes the ground from underneath the holders of state power. I am no political scientist, but I would like to argue that in a situation where one political party and its cronies share much of the wealth creation that has indeed happened over the past decade and a half, then it is the exclusion of the vast swath of the population (an overwhelming majority), not connected with the ruling elites or their henchmen, that presents a classic case for a political explosion to unravel.

It is true that, as a consequence of the Covid pandemic and subsequent Russo-Ukraine war, the economy was treading a rough terrain, putting a damper on the notion of a fairytale economy of Bangladesh. To make matters worse, there was an inexcusable mishandling of the internal and external challenges afflicting the economy that triggered something of an "economic tinderbox," a concoction of Lutfey Siddiqi, a talented professor of Bangladeshi origin at London School of Economics (LSE). Was there an "economic tinderbox?" The answer, in my view, is yes and no. To be objective, one needs to take a closer look.

Most certainly, inflation, a rise in the general price level, remains a ticking time bomb. Ordinary citizens are suffering from serious diminution of their purchasing power from double-digit inflation that has stubbornly persisted for over 18 months. If not handled deftly and fast, it could be the cause of another implosion in the future. It is therefore reassuring to see the appointment of a highly competent professional economist like Dr Ahsan Mansur (former IMF Division Chief and Executive Director, PRI) at the helm of Bangladesh Bank. His immediate task is to bring inflation under control and restore sanity in the financial sector. But the challenges should not be underestimated.

Orthodox monetary management, which is now in full swing and seems to be intensified (by raising interest rates a few notches) may take too long for the patience of ordinary citizens to last. This inflation is not just an excess demand phenomenon which can be quashed by restraining demand through monetary tightening. There is a significant cost-push element arising from exchange rate depreciation (raising import prices) and hike in domestic energy tariffs that triggered the first inflationary spike in domestic prices in 2022. Then, there is the need to give a deflationary shock to prices, particularly to essential food items such as sugar, edible oils, onions, wheat, spices, etc. Import prices of intermediate and capital goods also need a reprieve in order to reduce production costs that have risen as a consequence of the 36 percent exchange rate depreciation that occurred over the past 18 months or more. What are the options?

Bangladesh presents a unique case of possible inflation control via long-pending tariff rationalisation in a high tariff economy. This presents an opportunity to kill two birds with one stone. What is not known to most experts in the country is that the 36 percent exchange rate depreciation has raised already high tariffs by exactly 36 percent, across-the-board. It is high time to shave off at least half of that, an action that will provide the dis-inflationary trigger to domestic prices.

Another point to note is that even if inflation were to decline to 6-7 percent due to monetary contraction, from the current level of more than 11 percent, over the next 6-9 months, that will not bring down market prices from current levels. This is the reality. You can't reduce prices by imposing pricing caps either. So, it is critical to come up with every possible ammunition in the economic policy package to reduce market prices to tolerable levels. The tariff handle is one such instrument. Tariff rationalisation has been a long-pending agenda. Its time has come. The National Tariff Policy 2023 has all the right policies waiting to be implemented. Budget and balance of payments support from IMF-WB could assuage any adverse impacts on revenue or balance of payments.

Bottom line: inflation must be tamed in the shortest possible time, or else it will remain a keg in the economic tinderbox.

Next off, it is the massive misgovernance in the banking and financial sector that needs immediate attention and redress. Needless to give details, all of which are now in the open. Some of the big guns involved in mega-theft (no better word to describe what has happened) of banks are in custody or on the run. The malaise runs deep and is a signature outcome of crass cronyism of the worse kind. What a mockery of the banking supervision rules. Setting up a banking commission and publishing a white paper on the state of the financial sector is a high priority and acknowledged by the interim government. Governance reforms in this sector simply cannot wait. Given the depth of the malaise, it is a tall order but one that deserves not words but action. Or else, here is one more keg in the tinderbox that could lead to a meltdown of the overall economy, simultaneously bringing both political and economic distress.

Since the outbreak of the Russo-Ukraine war the economy has been reeling under a balance of payments shock out of which it is yet to recover fully. Mismanagement of foreign exchange reserves and mishandling of exchange rate policy led to sharp depletion of forex reserves that were in highly comfortable range until 2022. After inexplicable delays, the exchange rate was substantially depreciated. A flexible exchange rate policy has been adopted—a crawling peg system—which has had the intended impact of stabilising forex reserves while minimising the divergence between the bank rate and the kerb market rate, thus incentivising and redirecting remittances through official channels.

Now comes the hard part. Restoring forex reserves to comfortable levels exceeding 5-6 months of import cover will need robust export performance for which a competitive exchange rate will play its part. This is where the interim government needs to exude signals of stability to the world community with laser-focus on reforms that bring dynamism to our export-oriented economy. That will then attract rising amounts of export-seeking foreign direct investment (FDI) bringing capital and technology and creating jobs with upskilling of workers aimed at markets of the future.

Thankfully, the nation can reap enormous dividends from the leadership that Nobel laureate economist Dr Muhammad Yunus brings to the table. Having received messages of continuing support from the multilateral institutions like the UN, World Bank, and IMF, there is increasing prospect of receiving higher balance of payments and budget support to backstop much needed reforms in financial, trade, and tax systems. Though not perfect, Bangladesh presents a notable example of effective aid utilisation where official development assistance has been a catalyst for its rapid progress.

To conclude, despite the youth-driven upheaval, the key drivers of the economy remain very much intact and ready to take the economy to new heights. First, the readymade garment industry has by and large remained unscathed with export prospects unaltered and perhaps better in the coming year as China+1 geoeconomics, a global strategy of diversifying supply chains, takes deeper root. Second, remittances are already showing signs of resurgence to be commensurate with the fact that departure of migrant workers has doubled in recent years. Third, agriculture, a sector that has taken the country towards food self-sufficiency, is also transforming itself into a mechanised and viable commercial enterprise of the future. Fourth, NGO-GO partnership for health, education, and human services for which Bangladesh is recognised the world over, gets a new boost with an NGO pioneer at the helm of affairs. These key drivers present challenges, with occasional hiccups, but no tinderbox-like phenomenon.

No doubt, there was a pent-up demand in the country for regime change. The youth have delivered where politicians failed. If this event can be called a "second independence", the nation indeed gets another chance to firmly establish itself as a "success story of development" that Oxford University professor and leading development economist, Stefan Dercon, thinks it is.

Dr Zaidi Sattar is chairman of Policy Research Institute of Bangladesh (PRI).​