For the sake of the country and the people, the Professor of Economics department of Dhaka University Dr. Muhammad Shahadat Hossain Siddiqui has urged not to mix business with politics. This eminent economist feels that the country as a whole suffers when it comes to import substitution (importers) due to political violence. People are suffering.
He said, 'I think there is never a full alternative. Maybe it fills up slowly. But the people have to pay this high price of time.
In an exclusive interview given to multimedia news portal Barta24.com, the Professor Muhammad Shahadat said these things. In the conversation, various challenges of the contemporary economy including reserves, remittances, foreign investment, programs taken by the government to overcome the crisis in the financial sector were discussed. Planning Editor Ashraful Islam spoke to Dr. Siddiqui.
Barta24.com: Two months have passed since the fall of the Awami League government on August 5. Currently, the country is run by an interim government. There are various concerns about the country's economy at the moment. How would you rate the overall situation?
Dr. Siddiqui: Everyone knows that the economy of Bangladesh is going through a challenge. We highlight two main reasons for this challenge: foreign currency reserves and inflation. Say the current government and say the previous government, everyone was challenged by these two issues. These two issues are again related to each other. Inflation due to the dollar crisis… As many economic crises as the world is built around, we have seen inflation sometimes go up to 200-500 percent. If we talk about Zimbabwe-even the East-Asian country of Indonesia; Mainly due to foreign currency reserves in these countries, inflation increased excessively. Now the main reason for the increase in inflation in Bangladesh is the foreign exchange crisis and inability to maintain the value of money. Now we who talk about its consequences may not be a matter for us, but how much sacrifices common people live for the needs of life is not considered in policy making in many cases. The marginal lower class or the lower middle class are in the grip of poverty. The way out of this quagmire is… an annual rate of wage growth that is lower than the rate of inflation so that people's standard of living increases a little. But if you look at the statistics of Bangladesh, the wages increase from 6 to 6.5 percent. Real income is the income with which they can buy goods. But I see, in the last two years this real income is decreasing by 5 to 6 percent. Their lives are not getting better, they are getting worse. Now the consequences of this deterioration are many. A child who used to attend school is dropping out; he has to join work for food.
Barta24.com: How far do you think Bangladesh can go in the future to achieve the global development goals announced by the United Nations?
Dr. Siddiqui: We want to adjust with the global vision - as stated in the context of SDG; the poverty line should be brought to 3 percent by 2030. There is a lack of confidence in statistical data. The way we were progressing in a place of true reckoning would surely be hampered. We are seeing a kind of anger recently among the people, especially among the poor, to get rid of the challenges of the previous government. The number of deaths of these poor people in the movement is not less. They also had a kind of sacrifice, no doubt. It can be said that there was a blow to inflation. We had one hope from the interim government that we would be free from this challenge. The first duty was to protect the devaluation of money in the currency. We see ways to protect it, and we don't. There is concern about it. Because a few days ago you will see that in the news, the name of Bangladesh is among the ten countries that can fall into bankruptcy. That means that trust has been destroyed at the global level. As a result, the countries that have signed various cooperation agreements with the government may face a challenge. Another issue is how to increase remittances to reduce this foreign currency pressure. The previous government's figure for June was 2.54 billion dollars, in September it stood at 2.40 billion dollars.
Barta24.com: The market system is completely uncontrolled - experts say. What is the real reason?
Dr. Siddiqui: When our currency depreciates by 35-36 percent, import costs naturally increase. If you review the last two years, the price of everything including oil has increased. On the other hand, currency devaluation has been 36-40 percent. Because of this, we see a clear impact on inflation. The thing is almost all supply sided…even after we have taken contractionary monetary policy 3 times but inflation is at 9.92, food inflation is still in double digits. Food inflation in double digits is a breath of fresh air for the poor. Food inflation affects almost all imported products. Where the problem lies in importing is in market management.
Barta24.com: What are the biggest economic challenges in the current interim government?
Dr. Siddiqui: The biggest challenge of the current government (which was also the case of the previous government) is the foreign currency reserve and inflation control. It's hard to do, because that's what we see on the one hand, when the flow of remittances increases; the foreign currency reserve that earns the most is 48 billion dollars out of 57 billion dollars. If the total reserve is 57 billion dollars, 46-47 billion of it comes from the garment sector. Export orders of the RMG sector; If we can't keep track of it, if remittances increase more than exports decrease, it will be difficult to deal with the overall crisis. If you lend, you will give a loan, if you pay more, it is a kind of challenge, but you through FDI (Foreign Direct Investment)...if they have confidence in this government, that confidence must be reflected..for the international perspective. It can be said then that big investors did not come during the previous government, now they are coming.
Barta24.com: Do you see any signs of that immediately?
Dr. Siddiqui: I do not see any such reflection so far until political stability comes, it is very difficult to restore confidence in the current government. In that sense..We don't see foreign investors coming. We have to wait for another two-three months to see to what extent the remittances increase. If it goes to 2.5 and becomes stagnant and if the export market... I think people know this government well. Knowing is not the point; But to see how sustainable and dynamic the economic relationship? Dr. Yunus led government has access, but we have to see whether we can take that economic benefit. The relationship will only reflect when it reflects on our economy. If foreign direct investment or FDI comes in and increases my foreign currency or reserves then I would expect we are moving towards stability. My money will appreciate. If we import cost will decrease. But till or unless we can reduce the import cost, if it remains the same or increases further (more than 50 percent) it can be cause for concern. But I will still say that the component of the balance sheet, say the current account or the trade account - if we talk about the overall balance of payments, then from the point of view of everything - so far I do not see any light of hope. And the growth that has to be sacrificed in the future as a result of taking a contractionary monetary policy will fuel inflation again. You are withdrawing money by contraction; I can see the contraction in the economy due to the growth sacrifice if investment falls, then the inflation challenge will be evident. Now you can reduce some inflation by contracting from the consumer. But if the growth is more affected then the reduction will not really help. If you can't fix the currency devaluation at the same time.
Barta24.com: Majority of the internal labor market of the country is the employees of large industrial companies. Currently, the country's large industries are in a state of flux due to the change in the political climate. A large number of workers and employees have become unemployed. What effect will this change have on the overall economy of the country?
Dr. Siddiqui: That is a matter of concern. If we look at the events after August 5, especially the events happening around the industrial establishments. Many industries have been set on fire, many closed due to unknown threats. Considering all these contexts it has created great dissatisfaction in the domestic labor market. Continuing to pay workers when the industry shuts down is also a big challenge. All things considered, it is not only that our investment is reducing; Not being able to operationalize existing factories will also curtail production. Growth will be hampered in two ways-one. Investments suffer when interest rates rise. Later, many of the industries that are closed are also in fear of the unknown. Some continue but are on the decline. Due to this, the growth forecast is not talking about 7.2 percent. It is said that 5 percent. That means 2 percent of a country's growth is declining. If contraction is detrimental to growth, it poses a serious challenge. This is enough to render the mechanism of inflation control ineffective. The rest of the factors are there. There will be more contraction in supply than contraction in demand. Then it will not be possible to control inflation. The government should ensure that all the industries are able to go into full production and boost growth. It means that the amount of investment should not decrease under any circumstances. However, keeping it intact in the existing contractionary policy is a big challenge.
Barta24.com: The import market is dependent on large importing firms. Which have their own infrastructure and foreign channels of import. Will it be very easy to corner them and build an alternative to those institutions in a new way?
Dr. Siddiqui: Look, it depends on who can be the alternative? Those who have been involved in this activity for many years, have a setup. It is difficult to quickly create their place. Business should be allowed to run as business. When we associate business with politics, the country as a whole suffers when it comes to this replacement due to political violence. People are suffering. I think there is never a perfect alternative. Maybe it fills up slowly. But people have to pay this high price of time.
Barta24.com: Current Interim Government has taken measures to revitalize Bank-Financial institutions. How do you see him with the steps taken to reduce inflation and institutions?
Dr. Siddiqui: It is not clear to me that there is much reflection in the market on the activities of this government. What I expect from this government is clear. I want defaulted loans to come down to a rare standard of what it was under the previous government. But when it starts increasing again, it seems like there is no action, just the same as before. If the government's policy will damage the country's business and market, the default will rise from Tk. 1 lakh crore to just Tk. 20 thousand crore, then nothing meaningful will happen in real sense. Government action is not yet visible. They say they will reform. What to reform now, what are the activities, the reflection will actually tell the indicators of our financial sector. Now that the problem is going on in the market, 11 banks are said to be ready. This is not a good thing to say. Due to these 11 banks in the macro -economy, the situation of withdrawal and liquidity crisis of the banks has created a lack of confidence in other banks as well. It can turn into quite a chaotic situation. The steps that the government has taken to overcome this are that the central bank has taken emergency measures with a responsibility to meet the crisis. But how much of this system compared to the need is a matter of thought... where 17 thousand crores of rupees are needed, they gave 1 thousand crores of takas! Can other banks do inter-bank liquidity management? Cooperation has been done in 5 banks; it will be done for the remaining 6. Can banks take or pay this much liquidity money at such an interest rate? If not, since the Central Bank has taken responsibility, perhaps the Central Bank will have to make arrangements through either print money or expansionary monetary policy. Therefore, it will be difficult to maintain the principle of contraction when going into expansion. That is why it is very difficult to say how to manage this economic crisis. Maybe two or three more months will be understood.
Barta24.com: Does that mean from your analysis that there is no good news for the common man that the existing economic crisis will ease?
Dr. Siddiqui: I don't see any good news for now.
