As the low-income and vulnerable population groups in Bangladesh were struggling to recover from the adverse impacts of the Covid-19 pandemic, the unabated rise in the prices of essentials has put them into further misery. Over the last two years, a large number of low-income people have been dealing with Covid-19-induced shocks in the form of loss of income and employment opportunities, decreased expenditure on food and other essentials, additional loan burden, dissavings, and distress selling of assets.
Although the official data on inflation paint somewhat of a tolerable picture, as has been pointed out by several research findings and media reports, this does not reflect the ground realities. As per Bangladesh Bureau of Statistics (BBS) data, nationally, overall inflation was 5.7 per cent in February 2022 (on a 12-month moving average basis) while food and non-food inflation stood at 5.4 per cent and 6.1 per cent respectively. But the data on prices of daily necessities provided by the Trading Corporation of Bangladesh (TCB), a government agency itself, exhibit much higher level of inflation when compared to the BBS data.
Indeed, people belonging to the fixed income earning groups are grappling to maintain their living standards. It will not be far-fetched to say that the official information on inflation does not capture the actual structure of spending of general consumers and tends to undermine the sufferings of the lower- and middle-income groups.
A number of reasons can be attributed to the skyrocketing prices of essentials. At the global level, commodity prices have been creeping up owing to, inter alia, supply-demand mismatch, supply chain interruptions, such as shortage of shipping containers and vessels, changes in consumer preferences, and higher energy prices. In addition, the recent conflicting situation involving Russia and Ukraine has exacerbated the situation. IMF's commodity price index rose from 137.4 in January 2021 to 191.0 in January 2022. FAO's food price index rose to a record high of 159.3 in March 2022 - indicating a whopping 33.6 per cent growth over the index value of 119.2 prevailing in March 2021. FAO also forecasts a reduction (2.0 per cent) of global trade in cereals in 2021-22 owing to the Ukraine-Russia conflict.
In the case of Bangladesh, the hike in domestic diesel and kerosene prices and increased money supply through the stimulus packages can be connected to the escalating price level, besides the rising global prices.
Curiously, the extent of the price hike in Bangladesh was often greater compared to the global market. A number of media outlets have reported several reasons behind this phenomenon, including lack of competition at the import stage and syndication, intentional stockpiling of commodities, deliberate scaling down of supply, increased number of intermediaries in the value chain from producers to consumers and importers to retailers, illegal toll collection on the highways during the transportation, and weak monitoring by the administration.
The current situation has become onerous even for the middle-income segment of the population. As the high level of prices is expected to continue for the remainder of FY22 and at least the early months of FY23, according to Asian Development Bank, reining in the prices of essentials should be the most urgent and critically important macroeconomic policy objective in Bangladesh.
To this end, the following suggestions are put forward for consideration of policymakers in the upcoming budget of FY23:
• Government should carefully examine the duty and tax structures of the essential commodities, both at import and domestic levels, and make downward adjustments with a view to provide some respite to low and limited income-earning consumers. The increased price level of most of the other commodities should be able to compensate for the potential revenue loss to this end.
• Tax-free income threshold for personal income should be raised to Tk. 3.50 lakh in view of the added pressure of the rising food inflation and income erosion induced by the pandemic. The next slab for personal income tax, which is 5 per cent for an additional Tk. 1 lakh, should be increased to Tk. 3 lakh to provide a cushion for the middle-income earners.
• Government should extend the scope of direct cash/kind assistance programmes for low-income population groups.
• Volume of essential commodities sold through the open market system (OMS) should be increased. Government should set higher targets for foodgrains procurement and food distribution programmes. To this end, adequate resources should be allocated in the FY23 budget. Furthermore, the distribution of these commodities must be managed efficiently and without corruption so that only the eligible can obtain the essential items at lower prices.
• Competition Commission's role should be strengthened. Required skilled professionals should be hired to this end, particularly with a view to monitoring markets for essential commodities on a regular basis. The Commission should create a database, monitor the operations of prominent market players on a regular basis, investigate market control and manipulation (if any), and take appropriate actions. An adequate budget should be earmarked for the Commission to perform these duties. To this end, the Ministry of Commerce should also work in tandem with the Commission.
• Government should provide additional support for subsidised credit programmes for the agriculture sector (both crop and non-crop) to incentivise production during the next fiscal year.
• Government should continue providing stimulus to the small and medium enterprises to help them survive the difficult times.
Dr Fahmida Khatun is Executive Director, Centre for Policy Dialogue (CPD); Professor Mustafizur Rahman is Distinguished Fellow, CPD; Dr Khondaker Golam Moazzem is Research Director, CPD; and Mr Towfiqul Islam Khan is Senior Research Fellow, CPD. [email protected]; [email protected]