It has been nearly six months since the new government took office in February. Although some indicators of Bangladesh’s economy have improved over the past six months, there is little reason for overall optimism.

Inflation is currently the most visible problem. Although the rate eased somewhat in July, it remains above 8 per cent. This cannot be described as a normal situation. Prolonged high inflation has reduced the real incomes of low- and middle-income people, eroded the value of their savings, and increased the cost of food, education, healthcare and housing. A decline in inflation does not mean that prices are falling; it simply means that prices are rising more slowly than before. Policymakers therefore have little room for complacency. Tight monetary policy may be necessary, but trying to curb inflation solely through high interest rates will put greater pressure on investment and employment. A large part of Bangladesh’s inflation is also linked to food supply, import costs, the exchange rate, energy costs and market management.

Remittances are providing some support to the external sector. But excessive dependence on remittances amid weak exports and rising import costs creates new risks. Strong remittance inflows provide relief, but they cannot substitute for productivity, export diversification and investment. In the long run, the country will need to broaden its export base in goods and services to ensure sustainable external stability.