Interest rate and inflation to stay stubborn

At a time when fiscal discipline is crucial for the economy to stabilise, it is not easy to navigate the tortuous course of financial policy and action. The contractionary monetary policy with domestic high interests followed by the country certainly proves useful in containing inflation  for a short period but it cannot be a permanent recipe for stabilising the economy. High interest rates also constrains industries, particularly small and medium enterprises, from going whole hog for production. In worse case, factories and industries run below capacity and even are forced to shut down. Such industrial reversal also leaves workers, management and entrepreneurs without participation in the production process. But now that the governor of the Bangladesh Bank rules out reduction of interests in the near future, the outcome is likely to a below-par production in the majority of industries and continuation of the ongoing economic slowdown.

Given the massive unemployment with 2.0-2.2 million young people joining the rank every year, such contractionary monetary policy does not help the cause. Here another intriguing development can throw light on the archaic distribution of wealth. This concerns the creation of 5,974 millionaires between April and June last. The figure is based on accounts with deposits over Tk 10 million. Money must roll in order to create jobs and boost production. If 1.3-1.4 million jobs are created in normal time, it leaves 70,000-90,000 job-seekers with no employment. Also 85 per cent of the annual jobs are created in the informal sector. Since the private sector is reeling from shocks ---both domestic and international, there was a need for big investments. But the size of the new entrants to the millionaire rank clearly shows that their money is deposited to secure high interests instead of its investment for boosting production and absorbing the unemployed. This further shows where the problem lies with fresh investment and generation of employment.

Now, the BB governor's statement made at the launching event of the "Bangladesh State of the Economy 2025 and SDG Progress Report 2025" on Monday last does not augur well for the country. His projection of no recovery of the economy within five to six years hardly gives an encouraging message. The greatest villains are the debt-servicing obligation and non-performing loans (NPLs). In many cases, huge amounts of money were laundered abroad and recovery of those is mostly ruled out. The NPL has, the governor asserts, increased to 35 per cent of the total outstanding loans. In this connection, the NBR chairman who attended the launching ceremony of the reports, made the observation that interest payments now surpasses the budget allocation for agriculture and education.

So the uneven distribution of wealth is raising inflation on the one hand and on the other, disallowing investment for generation of employment. Without addressing this mismatch between wealth creation and its redistribution through generation of employment in the productive sector, the country now experiences stagflation. The NBR chairman goes a step further when he claimed that the country has got into a "debt trap". The economic stress favours the rich but not the poor, the marginal and even the lower middle class people. Making the wheels of production run in full speed could make the economy stronger but for the political uncertainty and polarised distribution of wealth. The need is to bridge the yawning gap.