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Issue 17

January 2023

Happy New Year 2023! While the world was still going through post pandemic recovery, the Russia -Ukraine war came as another blow. Like many other emerging economies, Bangladesh also faced substantial macroeconomic challenges due to external shocks. The cover article for this issue of Policy Insights provides a comprehensive analysis of the economy and focuses on the dynamics of inflation, current account deficit, and external debt in light of recent events. It offers several recommendations for taming imported inflation and restoring external balance.

Several other articles of this issue also focus on the recent macroeconomic developments.  Inflationary pressure, balance of payments pressure and fiscal pressure are recognised as the primary causes of the recent macroeconomic instability in one article. It suggests that a combination of monetary policy, exchange rate policy and tax/expenditure policy measure is required to improve the efficacy of each instrument. Another article identifies the post- Covid crisis and Russia-Ukraine war as the main drivers for the ongoing price hikes in the domestic market and termed it as an imported inflation. Depreciation of taka against dollar, adopted to tackle BOP deficit has further increased import prices and hence cost of production, as it had a similar effect as import tariff hike. Therefore, lowering tariffs and removing Regulatory Duties can be effective measures to remedy the situation and also attract FDI to revitalise exports. In contrast, one article states that only relying on the exchange rate and keeping a constant rate of interest can exacerbate the current economic condition. To avoid that, the interest rate should be increased. In that way, the demand for credit will be lower, and eventually, the foreign reserve and current account crisis will be mitigated. 

Another article explains why it is now crucial for the country to increase its revenue. Bangladesh has extremely constrained fiscal space, limiting its ability to spend adequately on health, education and social protection. Increasing macroeconomic resilience and propelling development following the LDC graduation requires generating more revenue from the domestic resources. This issue also includes an article on the need for affordable housing as rapid urbanisation is putting pressure on the housing situation in urban areas, resulting in informal housing, overcrowding and creation/expansion of slums. The article identifies the supply side and demand side factors that are inhibiting the growth of this potential sector at a pace fast enough to meet the growing demand. Ensuring affordable and green housing facilities for the emerging middle-class would require developing a coordinated ecosystem and government support.

This issue’s concluding article evaluates Bangladesh’s marine fisheries growth prospects in light of the WTO agreement. Bangladesh may continue to receive subsidies for illegal, unreported, and unregulated (IUU) fishing, overfished stock fishing, and high seas fishing over the next two years. However, to catch more fish sustainably, it recommends employing non-subsidised measures like low-interest loans, duty-free marine fishing trawler imports, etc.