Bangladesh’s economy in 2024 faced significant challenges, with rampant inflation overshadowing progress in other sectors. The rise in the cost of living, fueled by both domestic and international factors, eroded purchasing power and posed serious difficulties for households. Despite this, the country managed to maintain moderate growth due to the resilience of its economic framework, though the struggle to balance development with economic pressures became increasingly apparent.
Inflation Surge: A Pressing Concern
Inflation reached an alarming average of 11.38% in November 2024, the highest level in over a decade. The inflation rate peaked at 11.66% in July, marking the highest since the 2010-11 fiscal year, primarily driven by rising food prices, which significantly impacted household expenditure and the Consumer Price Index (CPI). In comparison, inflation was 8.56% in 2023, indicating a worsening situation in 2024.
Food inflation, a critical issue for many Bangladeshis, ranged between 12% and 14% throughout the year, with essential goods such as rice, cooking oil, and vegetables seeing substantial price increases. Non-food inflation also climbed steadily, spurred by higher transportation costs, increasing utility bills, and the rising cost of imported goods due to currency depreciation.
Factors Driving Inflation
Several factors contributed to the inflationary pressures in Bangladesh during 2024:
Global Commodity Prices: The continuing war in Ukraine disrupted global supply chains, leading to higher import costs for essentials like fuel, wheat, and edible oils. These price fluctuations were passed on to consumers.
Currency Depreciation: The Bangladeshi Taka depreciated by around 10% against the US dollar, exacerbating inflation by making imports more expensive.
Supply Chain Disruptions: Delays in shipping and logistical bottlenecks worsened inflation, leading to shortages of key commodities and driving up prices.
Domestic Demand Pressures: Increased consumer spending during festival seasons added to inflationary pressures, contributing to supply-demand imbalances.
Impact on Households
The inflation crisis severely impacted low- and middle-income families, who struggled to meet the rising cost of essential goods. Many families had to cut back on non-essential items and even skip meals or opt for cheaper substitutes.
Urban areas, where people rely more heavily on market purchases, faced the brunt of these challenges. Rural households, though somewhat shielded by local agricultural production, still experienced rising input costs for farming.
Real wages for workers, both in formal and informal sectors, failed to keep pace with inflation, exacerbating income inequality. The growing disparity highlighted the urgent need for targeted social safety nets to protect vulnerable populations.
Government Measures to Address Inflation
To combat inflation and stabilize the economy, both the government and Bangladesh Bank implemented several measures:
Monetary Policy Tightening: The central bank raised the repo rate five times in 2024, reaching 10% in October, to curb inflation by reducing liquidity. However, higher interest rates also made borrowing more expensive, potentially dampening business investment.
Subsidy Adjustments: The government increased subsidies on food and energy to cushion the impact of rising prices. Special programs were introduced to provide subsidized rice and wheat to low-income families.
Exchange Rate Reforms: In May 2024, the Bangladesh Bank adopted a crawling peg exchange rate system to reduce the gap between formal and informal exchange rates, aiming to stabilize the Taka and improve foreign exchange reserves, which stood at around $25 billion by the end of the year.
Market Monitoring: The government intensified market monitoring efforts, deploying task forces to prevent hoarding and ensure fair pricing of essential goods.
Social Protection Programs: The government expanded cash transfer programs and food aid schemes. Initiatives like the Vulnerable Group Feeding (VGF) program were scaled up to support millions of affected families.
Economic Growth Amid Inflation
Despite the inflationary pressures, Bangladesh’s GDP growth remained positive, though slower than previous years. The Asian Development Bank (ADB) projected a growth rate of 5.8% for 2024, while the International Monetary Fund (IMF) estimated it at 5.4%. This growth was driven by strong performance in the manufacturing and export sectors, particularly the ready-made garment (RMG) industry, which accounted for over 80% of the country’s export earnings.
However, inflation and higher borrowing costs stifled domestic consumption and investment. Small and medium enterprises (SMEs), which form the backbone of the economy, struggled with rising input costs and reduced consumer demand.
International Support
To help address these economic challenges, Bangladesh sought international assistance. In September 2024, the World Bank pledged over $2 billion in financing for initiatives such as flood response measures, healthcare improvements, and air quality management. Additionally, the IMF disbursed $680 million under its Extended Credit Facility (ECF) program, aimed at supporting fiscal reforms and boosting foreign exchange reserves.
The Road Ahead
Despite significant challenges, Bangladesh is determined to reduce inflation to below 7% by mid-2025, a target that will require sustained efforts in monetary and fiscal management. The government faces a delicate balancing act to control inflation, maintain economic growth, and safeguard the welfare of its citizens. With ongoing international support and targeted policy interventions, the government hopes to stabilize the economy and continue its development trajectory.
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