Bangladesh is currently experiencing a form of stagflation in its economy. In economic terms, stagflation is a rare economic condition that combines high inflation and high unemployment with low economic growth.
According to the World Bank, it will fall to 4.1 percent in the current fiscal year. That would be the lowest growth in more than two decades, excluding the COVID-19-induced 2020-21 fiscal year, reports Textiletoday.com.
After the new Governor Ahsan H. Mansoor took office, the policy interest rate has been increased three times in the last five months by 50 basis points to control inflation, which is currently 10 percent.
Although attempts have been made to control inflation by increasing the policy interest rate, it has not been possible, but rather, as a result, interest rates on all types of loans in the market have increased.
Demand for loans in the private sector has also fallen, which, according to those concerned, will have a negative long-term impact on the economy.
Private sector credit growth has bottomed out, meaning there is no investment in the country. GDP growth has also fallen to its lowest level. Industry insiders say it is almost impossible for businessmen to do business with loans at 15 percent interest.
On the other hand, the number of unemployed people in the country has increased slightly. In the July-September quarter of this year, 2.66 million people of the labor force were unemployed.
This information was found in the Bangladesh Bureau of Statistics (BBS)'s quarterly labor force survey for the July-September period of 2024.
According to the BBS survey, the total labor force in the country was 72.28 million in June 2024, down from 73.21 million in June 2023.
This means that the number of labor force in the country has decreased according to the BBS. Labor force refers to the total number of people aged 15 and above who are employed and unemployed.
In this situation, the central bank is going to announce the monetary policy in the end of January. Although attempts have been made to control inflation by increasing the policy interest rate, it is not being possible, rather, due to its impact, the interest rates of all types of loans in the market have increased.
According to Bangladesh Bank, the credit growth rate in the private sector stood at 7.66 at the end of the first four months of the fiscal year.
This rate is the lowest in the last three and a half years. Not only that, imports of intermediate goods and capital equipment required by industry have also decreased during this period.
In addition, the 'LC settlement' of consumer goods imports has decreased by 13 percent in the same period of 2024 compared to July-November 2023.
Essentially, we need to move forward through a combination of monetary policy, fiscal policy, and market management.
Otherwise, simply increasing the policy interest rate will have a negative impact on investment; this will affect growth, employment, and overall economic stability, experts opined.
These developments underline the growing risk of stagflation in Bangladesh. Addressing this complex issue will require a strategic combination of monetary policy, fiscal policy, and effective market management.
Policymakers must focus on increasing productivity to stimulate economic activity and ensure full employment. Failure to act decisively may exacerbate stagflation, undermining growth, employment, and overall economic stability.