Bad weather augurs ill for crop yield,
Making holes in the poor's food shield.
Rice grower may become major importer,
Making food inflation a serious matter.
After heatwaves flash flood poses challenges to Boro harvest, which has already been started in the haor areas and will take some time to be completed. Heavy downpour could submerge the Boro crop,which accounts large part of our rice production. This year Boro harvest is crucial for Bangladesh as this part of the world is witnessing fury of the climate and El Niño is yet to arrive.
This year government has set a production target for 4.27 million tons.Last year Bangladesh produced 3.92 million tons of rice. Both the import and public procurement of grain declined compared to last year. Food grain stock has also decreased this year,only 1.8 million tons of grains available at govt storage facilities1. But at the domestic market food inflation shows no sign to abate. A good Boro harvest could give great relief.
Harsh climatic conditions cast shadow over crop production in major producing countries. China is major producer of both rice and wheat. But rice production took a hit due to high temperatures there. El Niño may also make an impact on India's rice production. In addition, grain deal between Russia and Ukraine may discontinue if both the countries do not reach a consensus. In that case, wheat prices in the international market may go up again.
Luckily, both Thailand and Vietnam, two major producers and exporters, have good news in terms of rice production2 & 3. Bangladesh in the past imported rice from these two countries. If they have a good harvest this year, then Bangladesh will import rice from them again. But as China will import grain from these countries because of bad harvest, price may again go up in the international market.
Worrying thing is higher grain prices in international market may worsen the food inflation at home. Govt's monetary policy is not working as inflation is still hovering around double digit figures. Grain price hike will only make the matter worse. Despite good harvest at home,it will increase the social security spending. Government has to increase rice import to check the food price inflation.
I think the best measure is to go for early negotiation with the exporting countries. Securing early commitment from few of these countries at one hand will stabilize the local grain market and will ensure food security for the vulnerable population on the other.
”Vietnam’s Rice Export Forecast To Enjoy Another Successful Year”,Vietnam Plus,February 03,2023. For more read at
https://en.vietnamplus.vn/vietnams-rice-export-forecast-to-enjoy-another-successful-year/247796.vnp
”Thai Rice Output To Reach Five-Year High”,www.world-grain.com,March 21,2023.For more read
https://www.world-grain.com/articles/18264-thai-rice-output-to-reach-five-year-high
Inflation shows no sign to tame,
Mocking the measures of austerity.
Pumping money for sake of people’s name
Deepens the problem's severity.
Govt in an unprecedented move increased all kinds of fertilizer prices by Taka 5. Despite falling prices in the international market,govt has little alternative to raising the prices in the wake of Tk 460 billion fertilizer subsidy. Depreciation of Taka more than 20% in the unofficial market following the Ukraine war and double-digit inflation set the ground for such rise. One minister even acknowledged the move may further drive up the price levels.
Nine months after its introduction, govt's contractionary policy failed to curb inflation. In fact, govt acknowledged that inflation reached 9.33% at the end of March this year. Back in July 2022,it was 7.48%1. However, import registered a decline. More smaller increases in policy rate hike are anticipated at measured intervals in future. Still large part of the money lies outside the banking system. Since July last year several factors have been contribute to rise in price levels. In November last year, while an IMF team was in an official visit to Bangladesh, a little known Nabil Group swindled around Tk 90 billion from several Islamic banks2.Till date,whereabouts of the money is not known.This plundering shook depositors' confidence so much that many were prompted to withdraw their money,leading to a liquidity crisis in the Islamic Banks. To address the crisis, central bank provided Tk 147.90 billion credit to the troubled Islamic banks through promissory demand note3.Govt literally printed the money and injected it into the ailing banks. Most of this Taka 237.90 billion is being circulated outside the banking system. Even if a large part may find safe sanctuary abroad through clandestine channels, hoondi partners may transfer the Taka to local counterparts ,adding the inflationary pressure at home.
In addition,govt created a new Export Assistance Fund(EAF)of Tk 100 billion to assist the local exporters. Earlier IMF suggested to downsize the Export Development Fund as it hinges heavily on forex reserve money. The newly created EAF so far doled out Tk 20 billion in local currency as export assistance to exporters. Interestingly, selective clients of the troubled Islamic banks got most of the assistance. A news report says $1 billion worth of export proceeds have not arrived. So promising export growth does not tell the whole story.Central bank’s injection to the economy now stands at Taka 257.90 billion. There is more!
This year government increased dearness allowance of public servants by 20%. A daily has revealed that since 2015, govt has been pursuing a policy of 5% increment in salary of public servants instead of indexing the salary like the Western countries4. This adds further Tk 40 billion into the economy. So central bank pumps a total of Taka 297.90 billion into the economy in the nine months of this fiscal year alone. Say half of the money stays outside the banking system, that is Taka 148.95 billion. This money mixing with the undocumented money in the economy causes huge upward pressure at price levels.
As this is ahead of election year,many are shy to bring their money into the banking system. Despite increase in deposit rates, many prefer not to deposit their money. Moreover, rule like obligatory tax return certificate for purchase of National Savings Certificate worth more than Taka 500,000 discourages households to bring their money into the system.
One group alone robbed $840 million from the banking system while the central bank were negotiating with IMF to grab $476.27 million as first instalment of credit package. But the austerity measures and contractionary policy have turned into a mockery when the central bank printed Taka 147.90 billion and injected into the system. This one single act rendered the whole policy of the central bank useless. Depositors' confidence at the banking system under current regime is at all time low. Pumping money to restore confidence in this case was a redundant move. So govt has to take fair share of the responsibility for the rise in inflation amid measures of austerity.
"’Nasty November' For Islamic Bank",Sanaullah Sakib,Daily Prothom Alo, November 24,2022.
"Receding Trust In Banks",Rezaul Hoque, https://hoquestake.blogspot.com,January 13,2023.For more read at
https://hoquestake.blogspot.com/2023/01/receding-trust-in-banks.html?m=1
"Agami Budget e Sarkari Chakurijibidr Bhata Barchhey(Dearness Allowance of Govt Officials Likely To Increase In Next Budget)",The Business Standard,April 12,2023.For more watch
https://m.youtube.com/watch?v=n3paeAzIvV4
Also read
" No New Payscale,20% Dearness Allowance Proposed For FY 24", Abul Kashem,The Business Standard, April 13,2023. For more
https://www.tbsnews.net/economy/budget/no-new-pay-scale-20-dearness-allowance-proposed-fy24-615058
El Niño casts shadow over crop production
Worsening further the awful inflation.
Last week Bangladesh Bank divulged that inflation reached 9.33% at the end of March. At the end of December last year, inflation was 8.72%. Clearly, inflationary situation has worsened since the start of this year. Ordinary consumers know this well and everyday they feel the hit of skyrocketing prices of foods and other commodities.
Govt is running a rationing program for the poor through family card targeting 5 million families. Long queue before Trade Corporation of Bangladesh trucks captures the awful condition lower income group endures at the ground.
RMG exports fell short of anticipated target in the last two months and fetched less forex than the corresponding two months of the previous year. This is a bad sign while economy is under IMF prescription. Import has reduced significantly following the contractionary monetary policy.
Moreover, National Board of Revenue has to augment its revenue target as per IMF conditions.Next year it has to achieve Tk 30,000 crore more revenue. But grim situation in export and stalled growth in private sector make it harder to attain. Govt may print more money to meet the revenue shortfall.
On the other hand,The National Ocean and Atmospheric Administration (NOAA) has predicted that this year El Niño may arrive in India by July-August,affecting the rainfall and the Kharif crop in India1. India is a major rice producer. If El Niño conditions seriously hamper rice production,then rice price will hike in the international market. Though Bangladesh has gradually increased its crop production many times for the last one decade,it hinges heavily on grain import to meet the mismatch in demand and supply and to ensure food security. A crisis in grain supply may lead to increase its spending on food security. Since foreign fund is in short supply ,govt may opt for printing money to meet the extra spending.
Another thing I have recently noticed that this year alone govt has to pay Taka 1 trillion as interest payments. This means it has to compromise spending on other sectors or to print money to meet the debt obligation. As this is an election year,govt may also embark upon politically motivated development projects to unite the loyalists. Often the money may stem from printing more money. This will push up the price level further, depreciating Taka further and increasing the woes of consumers. Officially, govt is following gradual contractionary policy. But three quarters after its introduction ,we have witnessed further rise in price levels. Like hiding of true figure of forex reserve,govt may hide its action of printing and injecting more money into the economy. That will be indeed a disastrous thing.
Notes And References
"El Niño Likely To Arrive In India By July-August 2023”,Down To Earth,March 13,2023. For more read at
https://m.youtube.com/watch?v=klaPGvfJkJQ&t=14s
