Originally posted in The Daily Star on 14 March 2022
The struggle of the poor and low-income group that began with the outbreak of Covid-19 in early 2020 is now worsened by the unabated rise in the prices of essentials. These people are still grappling with their limited budgets as the pressure of price hikes continues to mount. Of course, the global economy is also under tremendous pressure. With the pandemic persisting for more than two years, economies across the world have lost pace and, in some cases, stalled. Supply disruptions, logistical interruptions, shipping and airline charges and port congestions have led to higher prices of commodities. This is affecting the economic recovery process as a large section of people are still struggling to stay afloat. On the other hand, demand is on the rise as countries strive to recover from the pandemic fallout. The capacity of economies to meet the demand remains unfulfilled in view of the economic shrinkages during the pandemic.
Indeed, Bangladeshi consumers began to feel the inflationary pressure in June 2020. High commodity prices in Bangladesh are often connected with high global prices, but that is not always the reality. In Bangladesh, there is a tendency to blame external factors for high prices even if certain commodities do not have any connections with the global demand. As the country imports a few important commodities, higher prices of those will be passed onto the consumers. Unfortunately, such pass-through is reflected only in the case of price hike. When global prices decline, it does not get reflected in our domestic market. So, when global prices of fuels and other commodities go up, their prices in our domestic market are raised correspondingly, but the opposite does not happen. While importers pay less for their imports, the end consumers continue to pay the elevated prices.
Bangladesh is dependent on imported oils. The oil prices for Brent crude oils have increased by 83.9 percent over the last 12 months. This increase is worrisome since the share of Brent oil in the globally traded crude oil is more than 50 percent. The price is expected to continue to rise in the face of the ongoing Russia-Ukraine war. Therefore, the Bangladesh government will have to prepare to face such price hikes strategically—without any delay. The demand for fuels has been high as countries have been striving to recover from the pandemic slowdown. Bangladesh should make advance purchases to reduce the pressure of high prices. High payment for expensive fuel will be a stress on the country, given the shrinking fiscal space.
Bangladesh also imports edible oil, food, sugar, intermediate goods and raw materials for production. Using the excuse of the ongoing Russia-Ukraine war, prices of these items, particularly of edible oil, have skyrocketed. The government recently withdrew VAT from a few items such as edible oil, chickpeas, sugar and lentils till June this year. This has been a right move, given that the demand for these products will increase ahead of Ramadan, which is less than a month away. However, the need for strong market intelligence is critical. Unscrupulous market players have always been active to take advantage of difficult periods, by stockpiling and creating artificial crises in the market. Efficient market management through close monitoring and supervision will be critical to keep the commodity prices under control during Ramadan and beyond.
The other measure that the government should put in place is the enhancement of support for poor and low-income groups. The volume of sale of essential commodities through the open market system (OMS) should be increased. In a welcome move, the government has decided to supply edible oil, sugar, lentils, and chickpeas at an affordable price to 50 million people across the country. Distribution of these commodities must be managed effectively and without any corruption, so that the eligible people have access to these items at low prices. Indeed, the government should provide direct cash support to the poor, enhance social protection for low-income families, and extend stimulus to the small businesses for their survival during difficult times.
Besides, the government should prepare for maintaining adequate food stock not only through better agricultural production, but also through importing food. The high fertiliser price would lead to higher cost of production and higher prices of agricultural commodities, including rice. Due to the impact of climate change, the global projection of agricultural production is not promising. Natural disasters such as flood, cyclones, drought and wildfire will continue to disrupt agricultural production, resulting in continued inflationary pressure. Because of uncertain climatic conditions, high input costs, and the pandemic, the international food market is predicted to be unstable in 2022 by the Food and Agricultural Organisation (FAO).
In Bangladesh, despite bumper production, the rice market has been observed to be volatile during the past years. Despite the claim of being self-sufficient in food, we have to import food from the international market to meet the local demand. Also, Bangladesh’s vulnerability to climate change is high. In these circumstances, there is a need for actual demand estimation of rice and other food items in the country. During a crisis, food-exporting countries would not export food without meeting their domestic demands first. If they decided to export, the prices would be exorbitant. Therefore, planning the production and import of food should be done early on. And again, the government must monitor the market closely to curtail any attempt to manipulate the prices. Otherwise, the pain of the inflationary pressure cannot be relieved in the short term. It will hamper a sustainable and inclusive pandemic recovery, since the real purchasing power of many people will decline, causing further inequality.
Dr Fahmida Khatun is executive director at the Centre for Policy Dialogue (CPD). Views expressed in this article are the author’s own.