Bangladesh’s ongoing USD shortage shows no sign of slowing down, and to tackle this crisis, economists and stakeholders recommend taking steps that boost remittance, ensure faster implementation of foreign-funded projects, and effective measures to halt luxury imports.

Making the suggestions at a dialogue titled “Economy in crisis: What can the action plan do?” organised by the Centre for Policy Dialogue (CPD) at BRAC Centre in Dhaka on Saturday, they spoke in favour of a series of measures to help rein in inflation.

Their recommendations include enforcing laws to curb market irregularities, withdrawing of interest rate cap, increasing the minimum wage, direct cash support to vulnerable people, revisiting the national budget to revise the targets of domestic resource mobilisation, prioritising public expenditure, and formulating deficit financing strategies.

Economic crisis, USD shortage

Participating in the discussion, experts said the economic crisis that Bangladesh is currently in did not come overnight. The country is in crisis due to structural problems that have been persisting for the past decade.

CPD Chairman Rehman Sobhan said “We have a structural problem, which became visible due to the impacts of the Covid-19 pandemic and the Russia-Ukraine war.

“Not addressing the problems caused those to become cancerous. This in turn triggered a number of social and political problems that are now present.”

Experts believe that money laundering is a key reason behind the current USD shortage in Bangladesh.

“Money launderers first converted the local currency to USD. This is why the greenback shortage has become so severe here,” Prof Abu Ahmed said on the issue.

LC opening began to decrease after the Bangladesh Bank and National Board of Revenue (NRB) took necessary initiatives in this regard. The government said the USD crisis will begin to decline from January, but economists believe it will take much more time to overcome this crisis.

At the programme, Policy Research Institute (PRI) Executive Director Ahsan H Mansur said, “Though it is officially said the USD crisis will go away within the next month, it will not happen.

“There is uncertainty in exports. Remittances are not increasing even though manpower exports are going up. Alongside, there is also the pressure of debt repayment. Therefore, the crisis will not end so quickly.”

However, if the government can manage everything well, maybe it will take six more months to overcome the USD crisis, he added.

In addition to continuing the import contraction policy to overcome the USD crisis, the experts recommended taking initiatives to increase remittance inflow.

CPD Executive Director Fahmida Khatun said, “The cost of imports in the world market is on the decline. Apart from this, if the import of luxury goods can be properly curbed, then we can reduce the USD crisis to some extent.

Shamim Haider Patwary, a Jatiya Party lawmaker, said, “I see no solution except to increase quick remittance income.

“For this reason, apart from continuing incentives against remittance, a pension system for expatriates should be introduced. Besides, special initiatives should be taken to renew passports and more facilities should be introduced.”

How to tackle inflation?

Experts claim that the prices of goods rose not only due to the Russia-Ukraine war, but also because of internal irregularities, corruption and syndicates in Bangladesh’s market. Such issues require more of the government’s attention, they added.

Salehuddin Ahmed, a former governor of the Bangladesh Bank, said, “You [the government] are controlling the exchange rate, controlling the imports, so why are you not tackling those who are running syndicates in the market?”

CPD also recommended that the distribution of major commodities must be managed effectively and without any corruption, so that the eligible can have access to these items at lower prices.

The Bangladesh Competition Commission should adopt a strong stance against cartels and a zero tolerance policy towards collusive practices.

The CPD also recommended increasing wages to curb inflationary pressure, and urged the government to provide direct cash support to the poor, enhance social protection for low-income families, and extend stimulus to small businesses for their survival during difficult times.

Subsidy pressure

At the event, CPD highlighted that the rising global prices coupled with significant depreciation of BDT resulted in serious pressure in subsidy requirements, particularly for agriculture (fertiliser and irrigation), energy (oil and LNG), power, and social protection (including food).

The think tank assumed that the amount of subsidy will be Tk 1.1 lakh crore in the current financial year. As per CPD’s recommendation, higher allocation for subsidy will be required, but the estimations should be rigorous and transparent.

In this context, Ahsan Mansur said, “By my calculation, the subsidy amount may be Tk 1.80 lakh crore. How will the government deal with the burden of subsidy pressure?

“If government tries to manage this issue by printing money, then inflation will be a serious situation. Policy makers should take initiatives to increase revenue income.”