Sloppy Management May Cost The Progress

Sloppy management and resources into wrong hand May cause the progress to hit a dead end.

Current account balance became positive in July-November period of this fiscal year since Bangladesh adopted contractionary monetary policy. In 2022,Bangladesh experienced a current account deficit of $5 billion. Meanwhile, in the said period Bangladesh registered $579 million current account surplus. And the balance is improving week by week. In January this year, RMG export registered 11.45% growth compared to January 2023. This is a great news as RMG export registered negative growth for the last three months.

Gradually, govt’s reform programs become visible: central bank has already lowered cash incentives to exporters by 1%; last week, Bangladesh Energy Regulatory Commission (BERC) increased LPG prices by Taka 41,costing an LPG cylinder Taka 1474. I think more utility price hikes are on the way.

Government has not published yet the January inflation data. But egg prices marked a Taka 5 increase. Rice prices remain stable after frequent surveillance operation by the consumer rights. Liquid milk and flour/atta prices lowered. A month ago unpacked flour/atta cost more. Now in some cases unpacked flour is being sold at Taka 45 /kilo. Liquid milk registered Taka 5 decrease. Potato price has also registered Taka 10 decrease after news broke out that govt allowed import from India. However, prices of onion and winter vegetables are unreasonably high. So are the meat prices.

If pass-through effect--inflation worsened by depreciation-- reigns hard on any item, then it will be wheat followed by milk. Why? Because we import them and domestic production is not sufficient to meet the domestic need. But here we see the complete opposite: seasonal crops and perishable commodities, which are hard to store, are competing with each other in terms of increase in prices.

Amid the improvement of current account balance, Bangladesh announced to adopt “crawling peg”,an exchange rate mechanism that sets lowest and highest exchange rate of the local currency against USD before moving to fully floating exchange rate mechanism. I have come across a book written by Paul Krugman. Krugman cites example of Argentina that once adopted crawling peg and improved current account balance significantly. But it could not hold that healthy position. Capital and money came from abroad as a result of better macroeconomic situation fell into crooked management of financial institutions and groups. They misused the money and ruined the economy again. We have to capitalize the improvement from ongoing monetary policy. Letting sloppy management to reap the benefit of the better situation is equivalent to doing the same mistake again!