Bangladesh is experiencing an extensive economic crisis as it remains to survive on the brink amid serious unrest. As per the data provided by the Bangladesh Bureau of Statistics on 12th August, the inflation rate or consumer price index hit a 12-year high of 11.66 per cent in July and food inflation surpassed 14 per cent for the first time in thirteen years. The inflation rate stood at 9.72% in June. Food inflation reached 14.10% and non-food inflation at 9.68% which was 10.42% and 9.15% respectively in June. The general inflation rate peaked in May of last year at 9.94 per cent.
The latest numbers demonstrated the ongoing decline in real income and fall in the living standards of low-income groups in the country as it grapples with the terrible aftermath of anti-minority violence especially against Hindus and anti-quota agitation. The protests severely impacted the supply chain in Bangladesh. Curfews and internet outages happened on several days in July which interfered with supply chains and made it difficult for people and businesses to conduct smooth operations. During this period, port and rail services were also interrupted. The breakdowns in the supply chain are predicted to result in an even greater increase in the prices of other items and necessities.
The nation’s business sector is also experiencing a liquidity crunch as a result of the central bank placing limits on the maximum amount of cash withdrawal owing to the unpredictability surrounding the overthrow of the former Prime Minister Sheikh Hasina Wazed-led government and the interim administration of Nobel Peace Prize winner Muhammad Yunus, who seeks to restore normalcy to the nation.
The people are not allowed to take out more than 2 lakh Taka at a time from a bank which is discouraging local traders from purchasing additional currency and is slowing down overall trade. The business community’s inability to acquire currency in large quantities, which is a prerequisite for trading, will ultimately impact imports and drive up inflation in Bangladesh.
The previous two years have seen a nearly 35 per cent decline in the value of the Taka relative to the United States Dollar, increasing the cost of imports. Retailers are under pressure to maintain stable pricing for necessities which prevents them from turning a profit, as the value of the currency is steadily declining in relation to the US dollar. The upheaval in the nation has resulted in a considerable decrease in the number of customers.
Even though Dhaka has been peaceful for the past few days, protests are still raging in Bangladesh’s interior regions. The prices of the stapes including rice and lentils, among other items have reportedly climbed up. Bangladesh imports dried fruits, spices, pulses, and other essentials from its neighbours, particularly India.
On 8th May, the Bangladesh Bank increased the policy rate, the interest rate at which it extends credit to traditional banks by 50 basis points (bps) to 8.5 per cent to minimize the amount of money in circulation. It has increased the rate by 400 bps overall over the last two years. Furthermore, it established a flexible exchange rate system by allowing the dollar to trade within a band and made the lending rate in the banking sector entirely market-based after four years.
According to a fresh forecast from the Mastercard Economic Institute (MEI), Bangladesh’s GDP growth and inflation are predicted to slow down in the 2025 fiscal year. The country’s GDP growth is expected to decrease to 5.7% and inflation is expected to decrease to 8% in FY (Financial Year) 25 from 9.8% in FY24. Meanwhile, the Central Bank data unveiled that Bangladesh’s foreign exchange reserves dropped from $21.78 billion the previous month to $20.48 billion on 31st July.
The economic issues caused by sluggish domestic and overseas demand have been compounded by persistently rising inflation, which has been eating away at consumers’ purchasing power. Higher US dollar exchange rates can also make external sector vulnerabilities worse. MEI recommended changing the pricing to be more market-based to resolve these problems.
The turmoil that has engulfed Bangladesh began as demonstrations against the government’s employment quota system but swiftly grew into anti-government riots that have claimed the lives of at least 400 people. Sheikh Hasina was forced to resign as the nation’s prime minister due to the upheaval and Muhammad Yunus was handed over the authority as the top adviser of the interim government. Minorities have fled Bangladesh as a result of the riots, particularly Hindus, who have been singled out by Muslim mobs and have been the subject of lynchings, looting, rapes and vandalism. Their temples and properties have also been burned and damaged by the extremists amidst the carnage.
