Polls spending to fuel inflation

Electoral expenditure will put pressure on inflation in the coming months, said experts at an event yesterday.

“Inflation is likely to remain upwards due to high expenditure centring on the upcoming national election,” said Wahiduddin Mahmud, a noted economist and former adviser to the caretaker government.

He went on to express his confusion over inflation data.

“I am not saying there is manipulation in the inflation data and the growth rates, but the government should make the statistical data more credible,” he said at the concluding session of the two-day BIDS Research ALMANAC 2018.

Inflation stood at 5.43 percent in September against the Bangladesh Bank's target of 5.8 percent.

The government hurriedly approved many projects in recent times on political grounds, he said.

“It is a common practice that every government approved such projects at the end of its tenure, which is called political business cycle.”

New governments will revaluate these projects.

Mahmud also touched upon the current instability in the foreign exchange market.

“The dollar market is likely to remain unstable due to a downward trend in remittance and export earnings,” he said, while urging the government to toughen up on the financial sector as capital flight is connected to it.

Volatility in the foreign exchange market and the financial sector is one of the main challenges for the government, said Zahid Hussain, lead economist of the World Bank's Dhaka office.

“The flexible interest rate and the flexible exchange rate are the shock absorbers of the economy.”

In theory, Bangladesh has a flexible interest rate and a flexible exchange rate system, but in reality these are tightly managed, according to Hussain.

The financial market should be allowed to determine the interest rate and the exchange rate without any intervention from the central bank.

Though inflation is still low, it will be the short-term challenge for the new government because of volatility in the financial market.

The middle-income trap is the long-term challenge for Bangladesh and the government should focus on investment in human resources and skills development, he added.

Bangladesh can take advantage of the trade war between China and the US, said Mohammed Farashuddin, a former governor of the BB. China is not looking to divert its investment to Bangladesh, so the government should take measures to attract them to the country, he added.