As Bangladesh grapples with four consecutive years of runaway inflation, economists are already questioning whether the government’s new target is achievable.
In the upcoming budget, to be presented on Thursday by Finance Minister Amir Khosru Mahmud Chowdhury – the first under the newly returned BNP government – the inflation target is expected to be set at 7.5 per cent.
A similarly ambitious target of 6.5 per cent was set in the current budget prepared by the interim government, which was later revised to 7 per cent. Yet, inflation remained well above that revised threshold, despite former Bangladesh Bank Governor Ahsan H Mansur’s efforts to curb price pressures through higher interest rates and a tighter money supply.
According to the latest data from the Bangladesh Bureau of Statistics (BBS), inflation has averaged around 9 per cent since Russia’s invasion of Ukraine in February 2022. In May, overall inflation climbed to 9.42 per cent, marking the highest level in 16 months.
Inflation has now hovered above 9 per cent in three of the past five months of the current fiscal year. While food inflation has eased somewhat, persistent pressure in the non-food sector keeps overall prices elevated.
Compounding the issue, the government has increased fuel oil prices twice within four months, raised liquefied petroleum gas (LPG) prices several times, and implemented the largest electricity tariff hike in 25 years. Further increases in utility and energy costs are currently under discussion.
At the same time, government employees are set to receive a substantial 50 per cent increase in basic salaries in the new fiscal year. Economists warn this injection of liquidity could boost consumer spending and add fresh inflationary pressure.
Abu Saleh Md Shamim Alam Shibli, a senior researcher at the Centre for Policy Dialogue (CPD), warned that monetary tightening alone cannot control inflation if government spending continues to rise.
“We generally understand monetary and fiscal policy as the two main tools for controlling inflation. The government has sought to curb money supply through higher interest rates and other contractionary measures,” he told TIMES. “But if public expenditure is not reduced and continues to increase, such efforts will have little impact. Inflation cannot be controlled in this way. Alongside monetary tightening, government spending must also be restrained.”
Given these conflicting policies, Shibli stated it would be “not really possible” to achieve the government’s 7.5 per cent inflation target.
“This year’s Annual Development Programme (ADP) and the overall budget clearly indicate large-scale government spending. This expansionary approach is ineffective for reducing inflation and sends the wrong signal to the market. When spending increases, the money supply rises, putting more cash into the hands of consumers. Their consumption will naturally increase, creating fresh market demand and driving commodity prices up yet again,” he said.
Mustafa K Mujeri, executive director of the Institute for Inclusive Finance and Development (INM), echoed these concerns.
“Considering our domestic economic realities, global geopolitical instability, and volatile international commodity prices, there are no immediate signs that inflation will come under control,” Mujeri said.
Bangladesh remains heavily dependent on imports for energy, food, industrial raw materials, and machinery. Mujeri noted that international prices for these goods are unlikely to decline significantly anytime soon, leaving the country vulnerable to imported inflation. Furthermore, domestic production sectors are not expanding fast enough to ease supply-side pressures.
“The agricultural sector remains vulnerable to natural disasters, while new investments in the industrial and service sectors have slowed down,” Mujeri added. “This has created a stagnation in the overall economy, making a rapid decline in inflationary pressure highly unlikely.”
No track record of meeting inflation targets
A review of recent budgets reveals that successive governments have repeatedly failed to achieve their inflation targets. Over the past four fiscal years, actual inflation has consistently overshot official projections.
In fiscal year 2021-22, the government targeted an inflation rate of 5.3 per cent, but actual average inflation reached 6.15 per cent. This gap widened significantly in fiscal year 2022-23, when the target was set at 5.6 per cent, while real inflation surged to 9.02 per cent.
The trend of missed milestones continued into fiscal year 2023-24, where projections aimed for a drop to 6 per cent, but the year ultimately concluded with inflation peaking at 9.73 per cent. Most recently, for fiscal year 2024-25, the government set a target of 6.5 per cent, yet actual inflation hovered stubbornly around 9 per cent.
