The government should fully utilise its fiscal space to safeguard poor people from commodity price shocks stemming from war in Ukraine, economists said at a discussion on Sunday.
From rice to lentils to flour to edible oil, all daily essentials' prices have now gone beyond the poor's purchasing capacity. In this situation, they suggested keeping oil, gas and electricity prices unchanged through subsidies in the remaining three months of the current fiscal year.
While presenting a keynote titled "Changing global scenario and Bangladesh economy: What should be the policy stance?" Dr Famida Khatun, executive director at the Centre for Policy Dialogue (CPD), said prices of a few commodities have gone up by 30%, but Bangladesh Bureau of Statistics (BBS) claimed food inflation was less than 5.3% in the last four months.
Such data belies the reality, she also said, explaining that the people have now found themselves in a tight corner with reduced purchasing power.
Dr Zahid Hussain, former lead economist at the World Bank's Dhaka office, said the government has the capacity to spend an additional Tk94,900 crore for the remainder of FY22 to rein in prices of daily commodities and continue subsidies to oil and electricity and gas.
The Russia-Ukraine war has fuelled inflation that is already on the higher side with global economies running in the recovery lane. In this situation, the pace of economic recovery may now slow down and stagflation can erupt in many European countries, he noted.
Proposing that the government use its maximum capacity to food prices, Fahmida Khatun said the current budget had projected a deficit amounting to Tk214,678 crore, but there was a surplus of Tk1,130 crore in the first six months of the current fiscal year.
Despite having the ability to spend on protecting the people's livelihood, the government is not doing so, she also said.
To continue the poor's buying capacity intact, Famida recommended providing them with daily essentials at subsidised prices, increasing direct cash transfers and implementing employment schemes for them.
She also suggested taking steps to ensure fair competition on the market, increasing food stocks at the government level and ensuring that the benefits of VAT and tax rebates on various products reach consumers.
Mustafizur Rahman, distinguished fellow at CPD, said some 30% of the country's national income is dependent on exports and imports. So, any rise in product prices in the world market has an effect on the country's market.
He thinks higher import payments, declining remittance inflows, rising foreign debt costs and falling foreign direct investment will have put pressure on Bangladesh's balance of payments, forex reserve, currency exchange rate in the future.
Advising that the exchange rate be stable for a few more months, he said if the value of money goes down further, costs of imported goods may go up.
Buet Professor M Tamim said there was no rationale for raising oil prices in the current situation. Earlier, oil prices in the international market rose but then dropped.
Stating that the government agencies are giving wrong information of counting losses to further raise fuel and gas prices, he said the latest hike of diesel and kerosene prices by Tk15 had fed into prices of all products. Transport fares were raised irrationally as well.
If fuel prices rise by 50%, the country's GDP drops by 1.5%. Again, a 100% increase in fuel prices results in a loss of 2.5%-3% of GDP, he noted.
BIBM Professor Dr Shah Md Ahsan Habib said the country's banking sector is under default loan pressure as banks started classifying loans after moratorium packages ended amid normalisation of the financial condition of borrowers.
Banks need to further enhance their capital base, he added.