The erosion of purchasing power caused by high inflation between 2022 and 2024 has significantly deepened poverty and vulnerability, driving an additional 1.78 crore people in the country into poverty or at risk of poverty, according to a study.

The study titled ‘Current Macroeconomic Situation and Preparation for LDC Graduation’ conducted by the Research and Policy Integration for Development identified that the proportion of people living in extreme poverty has risen from 5.65 per cent in 2022 to 7.95 per cent in 2024.

This means that an additional 38.2 lakh people are now struggling to meet their most basic needs, revealed the study at an event at the CIRDAP auditorium in the city.

The study also showed that the moderate poverty has seen a sharp increase, climbing from 18.22 per cent to 22.95 per cent leading 78.6 lakh people below the poverty line between 2022 and 2024.

It also estimated that the proportion of the population classified as vulnerable has grown from 33.9 per cent to 39.8 per cent adding 98.2 lakh people at risk of falling into poverty due to economic shocks or declining incomes.

According to the study, soaring inflation and stagnant wages have caused a sharp decline in purchasing power of over 6 per cent in 2023-24 alone, intensifying economic hardship and pushing more people into poverty and vulnerability.

Chief adviser’s press secretary Shafiqul Alam virtually attended the workshop as chief guest.

He blamed domestic policy mismatch including unprecedented government borrowing from the Bangladesh Bank which contributed significantly to swelling money supply.

He said that the previous government had manipulated economic data to portray the country’s growth, raising questions about the accuracy of the current GDP and per capita income statistics.

While the previous government attributed high inflation to global energy and food price hikes and the Russia-Ukraine war, these international factors were not the primary drivers of sustained inflation in Bangladesh, RAPID research director Md Deen Islam said while presenting the findings.

Deen Islam mentioned that the government borrowing from the central bank surged by over Tk 1 trillion between FY22 and FY23, exceeding the total outstanding amount accumulated over the previous 50 years.

He said that traditionally, contractionary monetary policy has been the primary tool to curb inflation, and Bangladesh has adopted this approach by raising the policy rate to an all-time high of 10 per cent.

However, if not implemented judiciously, contractionary monetary policy, such as higher policy rates, could have serious adverse effects on the economy by increasing borrowing costs and hindering private investment, Deen Islam said.

He said that contractionary monetary policy needs to be combined with other contractionary fiscal policies to get inflation under control faster.

Deen Islam suggested that monetary policy should focus on long-term trends rather than short-term fluctuations, with a core inflation-based approach being more suitable for fostering sustained economic growth.

In another presentation, RAPID executive director M Abu Eusuf said that the budget for the financial year 2024-25, announced by the previous government, was unrealistic, yet the interim government has not taken any initiative to revise it, even after six months in office.

‘It is important to bring amendment to the budget and, under the changed circumstances, we want to see new things in the coming budget to eliminate discrimination,’ he said.

Eusuf emphasised the urgent need for clear policy direction to reprioritise ADP spending, enabling the rollout of an economic stabilisation programme through the next budget.

He suggested increasing allocations for social protection programmes to support vulnerable populations, while minimising the impact of austerity measures on key sectors like healthcare, education, agriculture, and SMEs.

He also recommended broadening the tax base through automation, rationalising tax expenditures, and adopting evidence-based tax policies, saying that halving tax exemptions could significantly boost funding for education and health.

RAPID chairman M A Razzaque said that the government must make a swift decision on whether Bangladesh would proceed with its LDC graduation in 2026 or apply for a deferral, as buyers and investors seek policy predictability.

Razzaque said that a fixed timeline reduces uncertainty for buyers and investors, helping to maintain stable trade relationships.

He said Bangladesh was developing a smooth transition strategy with the vision of transitioning from LDC status to a structurally transformed, inclusive, resilient, and competitive economy.

Razzaque suggested that the government should swiftly adopt and implement the Smooth Transition Strategy for facilitating smooth LDC graduation and to give confidence to the investors and buyers.

On this issue, chief adviser’s press secretary Shafiqul Alam said that the government has yet to decide whether to proceed with LDC graduation in 2026 or apply for a deferment, saying that it was currently assessing which option would be more beneficial for the country.