Bangladesh in 'Red' list on World Bank's food security index

The World Bank has published a list considering food inflation in various countries, taking into special consideration the food inflation situation of the last 10 to 12 months in the countries ranked last. This reveals the direct impact of the COVID-19 situation and the post-Ukraine war on global high inflation. There was not a single country in the world that did not face high inflation during this period. Overall, every country dealt with high inflation. Even the world's number one economic power, the United States, struggled with high inflation. At one point, the US inflation rate reached 9.1%, the highest in 40 years. The global supply chain disruption caused by the Ukraine war primarily led to such a surge in inflation. During this time, the Federal Reserve Bank of America (Fed) was forced to make the risky decision of increasing policy rates. Over the past two years, the Fed has raised the policy rate at least 13 times. Although there were concerns that increasing the policy rate would slow down investment activities, the Fed took this step to control inflation and reduce public suffering.

Central banks of at least 76 countries, including Bangladesh, have increased their policy rates. The policy rate of Bangladesh Bank was previously 5%, which has now increased to 8.5%. Despite various measures taken by central banks of different countries, including the United States, to bring down the high inflation in their economies, Bangladesh has been extremely unsuccessful in this regard. The overall inflation rate in the United States is now 3.2%. Even in crisis-hit economies like Sri Lanka, inflation has decreased from 35% to 2%.

The policy rate is the interest rate charged by the central bank to schedule banks for short-term loans. In turn, the interest rate charged by scheduled banks to ordinary borrowers or entrepreneurs is known as the bank loan interest rate. The general principle of economics is that if the policy rate increases, the cost of funds for scheduled banks also rises. As a result, when they lend to entrepreneurs, they charge a higher interest rate compared to before. This reduces the interest in borrowing among ordinary borrowers or entrepreneurs, leading to a decrease in the money supply in the market. Consequently, high inflation gradually decreases. Although other countries, including the United States, have managed to curb high inflation by increasing the policy rate, Bangladesh has failed in this regard. The reason is that, despite repeatedly increasing the policy rate, Bangladesh Bank had set the maximum bank loan interest rate at 9% until recently. As a result, the tendency to borrow from banks among individuals or entrepreneurs did not decrease but rather increased.

For the past two years on average, Bangladesh's domestic economy has been carrying the impact of high inflation. The World Bank's rating of food inflation in various countries shows that Bangladesh's position is not very good. The World Bank has published a list considering food inflation in some selected countries. Countries with a food inflation rate below 2% are categorized as green. A total of two countries fall into this category. Countries with food inflation between 2% and 5% are classified as yellow, with two countries in this category. Countries with food inflation between 5% and 30% are categorized as red, with 15 countries, including Bangladesh, in this category. Countries with food inflation above 30% are categorized as purple, with eight countries in this category. A total of 172 countries' food inflation rates have been considered.

In the past 12 months, for 7 months, Bangladesh's food inflation has been in double digits. In August 2023, the food inflation rate was 12.54%. In September of the same year, it was 12.37%. In October, it was 12.56%. In November, food inflation was 10.76%. Although food inflation decreased slightly in the following months, it rose again to 10.22% in April. In May, it increased to 10.76%, and in June, it was 10.42%. The Bangladesh Bureau of Statistics' figures on food inflation are often questioned for their accuracy. Many believe that the actual food inflation rate is much higher. Due to the high trend of food inflation, ordinary people, especially those with low incomes who live from hand to mouth, are in a severe crisis.

Moreover, in many professions, salary increments are much lower than the rate of food inflation. As a result, people's real income is decreasing. Generally, people in Bangladesh spend half of their total income on purchasing food. Low-income people spend 70% to 75% of their total income on buying food. In the last fiscal year (2023-2024), the average overall inflation rate in Bangladesh was 9.72%, the highest in 12 years. The number of people experiencing food insecurity in Bangladesh is increasing. Currently, at least 22% of the population is facing food insecurity. Due to food insecurity, there is a risk of people facing severe crises. Food is the most critical element for human survival, and we cannot survive a day without it.

Bangladesh has historically been known for food production. The question arises, why is Bangladesh at risk of food insecurity now? When Bangladesh gained independence in 1971, the country produced 11 million tons of rice. Now, rice production has increased to 37.8 million tons. In the last 54 years, rice production has nearly quadrupled, while the population has increased from 75 million to 170 million, a two-and-a-half-fold increase. So why is Bangladesh experiencing food insecurity? Over the years, our dietary habits have diversified. Previously, people mainly consumed rice. Now, along with rice, they also consume bread and other foods. Fast food has become very popular among many people, who take it as an alternative or supplement to regular food. The government is supporting food production in various ways, providing substantial subsidies to the agriculture sector.

The International Monetary Fund (IMF) and the World Bank, among other international organizations, have repeatedly advised stopping or significantly reducing subsidies in the agricultural sector. However, the government has not withdrawn subsidies from agriculture, considering the interests of farmers. The benefits of this decision are now evident. In recent times, Bangladesh has become nearly self-sufficient in food production, with only a small amount of rice and wheat needing to be imported. Even during various natural disasters, Bangladesh does not need to rely on others for food aid. Many may recall the severe food shortage worldwide during the 2007-2008 recession in the United States, which led to violent conflicts over food in some African countries. During that time, Bangladesh was relatively safe in terms of food supply.

So why are people facing such difficulties in procuring food products now? The food production situation in the country is fairly stable, but the distribution system is not. As a result, produced food products are not reaching consumers correctly and promptly. A class of businessmen is creating artificial shortages and increasing prices by hoarding food products. Most of these hoarders have political backing from the ruling party, making it difficult for market regulators to take action against them. High inflation is creating food insecurity for ordinary people. Alternatively, it can be said that high inflation is resulting from food scarcity. For the past two years, food inflation has remained in double digits, sometimes exceeding 12%.

One crucial point to note is the lack of coordination between inflation and people's real income. There is no problem with rising product prices if real income increases correspondingly. For example, if the price of a dozen eggs rises from 40 to 300 taka in a year, there is no issue if real income also increases from 40 to 300 taka during the same period. People's greatest strength is their real income, but unfortunately, the increase in real income is not keeping pace with inflation in our economy. As a result, people's purchasing power is gradually shrinking.

According to the Bangladesh Bureau of Statistics, the overall inflation rate in the economy was 9.94% in May 2023, while the real wage growth rate was 7.32%. In March 2024, the inflation rate was 9.81%, and the wage growth rate was 7.80%. The following month, the inflation rate was 9.74%, and the wage growth rate was 7.85%. A retired government official's pension increases by 5% annually, while inflation nearly doubles. How will they manage? In privately-owned businesses, there are many jobs where salaries are not increased annually.

Many people react strongly to proposals for making the exchange rate of the US dollar market-based, arguing that it would lead to a significant depreciation of the local currency, causing the prices of all imported goods to rise. However, they do not consider the actual reasons behind rising market prices. Is it because of the increased prices of imported goods, or is there another reason? Bangladesh imports only 25% of its essential goods. So why do locally produced goods become more expensive? If the government could control the market effectively, prices would not rise so much. If the exchange rate of the US dollar were market-based, the tendency for remittances to come through legal channels would increase. The part of export earnings that remains abroad in various ways would also come to the country, significantly easing the foreign exchange reserve crisis.

Ordinary people are in a dire situation due to the abnormal rise in food prices. Measures must be taken to reduce food prices to provide some relief. An economist closely associated with the government mentioned in an interview that the current student movement demanding quota reform has surprisingly garnered support from the general public. This is because there is general discontent against the government, one of the main reasons being high inflation, especially the government's failure to control food prices. People can do anything to satisfy their hunger, so the issue must be addressed. Provoking the public by supporting a few hoarders is not wise. Therefore, caution is advised.

M A Khaleque: Retired General Manager, Bangladesh Development Bank Plc and Writer on Economic Affairs.