CMSME, inflation and sustainable development

Consequent upon the Russian-Ukraine War, dollar crisis, exchange rate fluctuation, devaluation in reserve currency, prices of daily needs increased substantially, while general peoples income level remained constant. As a result, people are facing problems in meeting their daily needs. Inflation rate fluctuated between 9-10% throughout the year, whereas the government expected inflation rate to be 7.50%.

 Though the government has taken several initiatives to rein in inflation rate at the expected level, such as increasing the policy rate (Repo rate) up to 8.00% from 7.75%, changing the Standing Deposit Facility rate from 5.75% to 6.50%, and the Standing Lending Facility (special repo) Rate from 9.75% to 9.50% in the last monetary policy. Introduction of reference interest rate, which is SMART+3.50%, i.e., 13.11% for commercial banks right now (SMART means Six Month/182 days Moving Average rate of treasury bills).

In spite of the number of initiatives taken by the government, the inflation rate has been increasing day by day, due to some wrong decisions of the government such as circulation of excess money in the market. In last December 2023, reserve money Tk.3,72,315.00 crore, whereas it was Tk.3,40,370.00 crore in November of the same year. Circulated money in the market increased Tk.31,945.00 crore only in one month. Lack of coordination among different authorities of the government, lack of market monitoring, syndication among the top giant businessmen i.e. oligopoly market, though global commodity prices have been declining, Bangladesh could not capitalize for above mentioned reasons.
To control inflation, the best way is ensuring sufficient supply of goods or services in the market. It is needed to establish new small-scale industries or support prevailing industries through developing effective entrepreneurs or swelling efficiency of existing emerging entrepreneurs in which some government supports are needed such as increasing credit growth in the private sector, especially in agriculture, CMSME (Cottage, Micro, Small, Medium) area.

For example, continuing Entrepreneurs Development Program (EDP) from side to side Bangladesh Bank Skills for Employment Investment Program (SEIP) which has a positive impact on the economy, so many entrepreneurs are now gaining momentum in their respective fields in manufacturing or services under these projects. Mentionable that in the last couple of years, Bangladesh Bank along with commercial banks organized several events of EDP under SEIP projects throughout the country which should be continued so new entrepreneurs could nurture. As a result, new employment generation in place as well as supply of goods or services supported substantially, when supply shall surpass demand, oligopoly market might be demolished, consequently prices will inevitably tumble, people will get their products at expected level.

Besides, the present target for CMSME credit is 25% of the total outstanding credit portfolio, it should be extended to up to 30-35% by the year 2030 gradually. In the last monetary policy, Bangladesh Bank expected credit growth in June 2024 is 27.80% in public sector whereas private sector is only 10%. Hence, private sector specially CMSME should be encouraged so that entrepreneurs will get sufficient supports, refinancing, pre-financing facilities at a desired level that could help our country in sustainable development through sufficient employment generation with proper supply against demand, otherwise socio-economic development, emerging middle-income economy, eradicating poverty entirely, Smart economy, smart society, the road to Smart Bangladesh by 2041 would not possible.

The writer is Banker Analyst, NCC Bank PLC, Head office, Dhaka