The interim government failed to reduce price hikes by not taking major steps to address irregularities such as extortion, hoarding, and irrational price-fixing of essential commodities, while inflation remained persistently high, the Centre for Policy Dialogue (CPD) said on Wednesday.
The CPD also noted that despite changes in leadership, there are no visible signs of improvement in the macroeconomic situation as the 2024-25 fiscal year progresses.
Executive Director of CPD Dr Fahmida Khatun said while presenting a keynote paper at a media briefing titled “Bangladesh Economy 2024-25: The Challenge of Meeting Expectations in Times of Crisis.”
The briefing was organized under CPD’s flagship program, the Independent Review of Bangladesh’s Development (IRBD).
In her keynote presentation, Fahmida said: “According to CPD’s observation of the supply chain analysis of 14 different essentials, including onion, potato, eggplant, egg, Ruhi fish, turmeric, wheat, lentils, sugar, beef, garlic, ginger, soybean oil, and palm oil, it has revealed several barriers to price volatility and inefficiencies.”
“For most agricultural commodities, the primary barriers include hoarding, extortion, dominance of commission agents or warehouse operators, inadequate pest management and farming practices, high input costs, poor storage and transportation facilities, and unpredictable weather that affects overall supply.
“It is regrettable that the interim government has not taken significant steps to address irregularities such as extortion, hoarding, or unreasonable pricing in the supply chain of essential commodities. Therefore, the measures taken by the interim government to control inflation have so far failed to reduce the prices of essential commodities in the market.”
Regarding food inflation, the CPD says that the previous authoritarian government in Bangladesh has left a dysfunctional economy with high inflation, which the interim government will have to fix. Analysis of the supply chains of several food items reveals a complex network of intermediaries who play a role in excessive price increases.
Rice market supply & price
Citing an example, Fahmida said that the rice market system is relatively complex.
Therefore, CPD conducted an exploratory survey at the field level to identify the constraints existing in the rice supply chain, especially medium-grain rice.
The aim was to create an understanding of the main reasons for the price volatility. The investigation found that there are numerous market agents in the rice supply system.
There is significant dominance of warehouse owners or auto rice millers over market prices. As a result, rice farmers often do not receive the right price.
But consumers face unreasonably high prices, which reduces purchasing power.
CPD stated that, according to the observational field visit, the types of market agents involved in the supply chain of rice including farmers, small traders (forias), large traders (beparis), bulk buyers (paikers), warehouse operators (aratdars), millers, wholesalers, and retailers, are consistent with existing literature.
In addition, three local clusters have also been identified where supply chain participants interact to determine the average buying and selling price of Paijam rice. This includes local weekly markets (haats), regional hubs, and mokams.
Due to the involvement of such varied intermediaries, consumers experience extreme price escalation, which reduces their affordability to purchase rice from their local market. When medium Paijam rice as a commodity flows from farmers to retailers, prices increase by Tk32, accounting for a 97% price increase (Infographic).
Such price escalation is a testament to the existing volatility and the dominance of market intermediaries in the rice market.
In addition, farmers receive 50.8% of the retail price for the produce they sell. It is important to underscore that millers retain the highest margin, accounting for about 14%, in comparison to the other participants in the supply chain for rice, highlighting their overbearing dominance of the chain (Infographic).
The research organization further says that unless the interim government takes bold and urgent steps to restore good governance in the supply chain of essential food items, it will be difficult to reduce the inflation rate.
Banks on life support
In Bangladesh, more banks have been approved than are necessary due to political considerations. Some of these banks are in a very fragile state, and those that do not have the capacity to handle unexpected shocks, this private research organization has recommended shutting down those banks.
Fahmida Khatun said: "These banks are on life support, and their customers are at risk. These banks cannot handle unexpected shocks. Therefore, considering the overall situation, the banks that are on life support can shut down.”
However, just a day earlier (28 January), Bangladesh Bank Governor Ahsan H Mansur assured that the government will rescue the weak banks by any means necessary.
He said: “For banks unable to return customers' money, I assure you that the money will either be refunded or paid through bonds.”
Election and economy
The CPD highlighted that reforms cannot be implemented without strong political commitment, especially when confronting powerful vested interests. To ensure sustainable reforms, the organization stressed the need for political will, enhanced institutional capacity, internal discipline, and good governance.
Fahmida said: “Elections should be held as soon as possible. A timeline has been provided (Dec 2025-June 2026), and I believe the government will make its decision based on careful consideration.”
On the issue of reforms, she said without political reforms, meaningful economic reform in the country will not be possible.
Adding that everyone acknowledged the importance of reforms, she said the implementation would depend on the next political government.
She expressed hope that the interim government will take immediate action, and the next political government will ensure its continuity, she added.
At the press briefing, CPD Distinguished Fellow Professor Mostafizur Rahman said the country's tax-to-GDP ratio is very low, and specific measures must be taken to address this issue.
He pointed out that inflation is rising at twice the rate of wage increases, which is leading to a decline in the standard of living for ordinary people.
“There was an opportunity to address income inequality. The Anti-discrimination Student Movement had created a significant opportunity in this regard,” he added.
The main reason for the July movement was the lack of employment. The discriminatory policies of the previous government had worsened unemployment. Inequality has increased in society. The interim government was unable to take responsibility and increase employment, the discussant also said.
Recommendations
Given the ongoing economic situation, a coordinated approach is needed to overcome the multifaceted challenges, stabilize the economy, and protect the vulnerable, low- and limited-income households, CPD said.
They also stated that to address Bangladesh’s economic challenges in the coming months, the interim government must adopt a balanced and effective strategy that addresses immediate crises and initiates medium- to long-term reforms to be carried out by the politically elected government.
In that regard, CPD suggested some recommendations in public finance, inflation, the external sector, investment, agriculture, power and energy, and banking sectors.
Public finance • The interim government should prioritize preventing tax evasion, limiting tax avoidance, and bolstering compliance systems to create a more inclusive fiscal base and reduce revenue leakages. • The recently started practice of excluding non-productive initiatives from the ADP will need to be continued. • Special emphasis should be placed on ADP projects nearing completion (particularly those over 85% finished by June 2025) since these can quickly stabilize the economy, attract private investment, and create additional jobs.
Inflation • Monitor markets to limit intermediaries, connect farmers directly to buyers, and regulate hoarding and stockpiling by rice warehouse operators and millers. • Provision of improved storage facilities and adequate transportation systems are integral to reducing post-harvest loss of agricultural commodities. • Educate farmers to adapt agricultural best practices, expand the use of existing modern technologies, and improve their negotiation skills to secure fair prices.
External sector • Given the emerging global and regional trading scenario, including the uncertainties as regards USA trade policy under the new Trump administration, undertake renewed efforts to realise the untapped export potentials in the markets of neighbouring regions of South Asia, East Asia and ASEAN by pursuing Free Trade Agreements and Comprehensive Economic Partnership Agreements, and through triangulation of investment, transport and trade connectivities. • Proactively implement trade facilitation (including green trade facilitation) measures since these are emerging as crucial elements of Bangladesh’s export competitiveness, given the significant erosion of market access preferences due to LDC graduation and increasing competitive pressure from countries such as Vietnam. • Pursue in all earnest appropriate measures to implement the Smooth Transition Strategy, which has been prepared in anticipation of Bangladesh’s upcoming LDC graduation, particularly because any request for deferment of graduation is unlikely to succeed, and if it does, it will leave Bangladesh as the only LDC in South Asia other than the war-torn Afghanistan.
Investment • Prioritize immediate improvements in the law-and-order situation to ensure businesses can operate safely without the threat of extortion. • Explore further reductions in fuel prices using a market-based pricing model, with the potential to lower costs by Tk10-15 per litre as suggested by CPD. • Design a subsidized credit facility with lower interest rates to support SMEs.
Agriculture • Given the rise in demand for non-household consumption, particularly animal feed and industrial use, a proper estimation of annual rice demand is highly required. • The government may explore long-term contracts with Middle Eastern countries to import fertilizer, which would reduce fertilizer costs. • The rice procurement process must be revised and made transparent, open, and accessible to all.
Power and Energy • A specific two-year plan with the agenda to end this cycle in which the whole sector has been entrapped needs to be identified. • The government should deprioritize importing LNG and focus on the exploration of domestic natural gas. • All documents and reports related to public procurement, especially power plants, should be accessible to the public, as these are not confidential documents by law.
Banking: Concrete measures such as improving loan sanctioning practices, enforcing single borrower exposure limits, stopping repeated loan rescheduling, strengthening internal controls, and developing an exit policy for troubled banks should be initiated by the Bangladesh Bank. • Bank accounts of willful defaulters and their immediate family members should be frozen immediately, their assets liquidated, and their businesses nationalized temporarily. • Given the strong vested interest groups, an all-out effort should be taken and continued, backed by political commitments from the highest level required to continue banking reforms.
