Dr. Forqan Uddin Ahmed :
During the covid-linked crisis in 2020-22, Bangladesh’s economy has been adversely affected both internally and externally. The impact was a loss of employment, income, less flow of remittances and export earnings and a slowdown in domestic service and manufacturing activities. This time also global commodity and energy markets have slumped due to demand shortfall and supply chain crisis. The government has taken fiscal and monetary policy measures, including various stimulus packages, targeting the domestic economy in order to support those who lost their jobs, investment and production. Country-wide vaccination programme against infections at the micro level has been well-appreciated. Despite various shortcomings, the support measures are considered to be effective for the targeted people, sectors and activities. Global economies either individually or collectively have taken measures to address the crisis. Hence, the recovery phase of the crisis started rather quickly, particularly through the implementation of the vaccination programme successfully across the world. However, the covid-related challenges are still not over.
The macroeconomic crisis has impacted the world economies adversely mainly at the macroeconomic level, with having destabilising elements. Unlike in the past, a major element of the crisis is the volatile energy market. Rising commodity prices in the world due to the disruption in the supply chain of raw materials, rising shipment costs, and a spike in demand for finished consumer goods have had an inflationary impact on global economies. The crisis has impacted the developing economies severely, threatening their macroeconomic stability, while the crisis for the developed economies is, rather of, limited in nature. In addition, the economies are facing the challenges of inflationary pressure. However, the current macroeconomic instability in developing countries owing to weakening foreign exchange reserves overwhelmed countries’ inflationary concerns. In other words, the crisis-related challenges are largely macro in nature and the measures to be addressed are to be targeted accordingly.
Let us all recognise that there is a difference between economic downswings and the catastrophic calamity that is happening in Sri Lanka and the one that could come down in Bangladesh. Bangladesh has a larger economy and a population which is far bigger and an economy which is more robust than Sri Lanka. The per capita debt of the people of Bangladesh is one-fifth of Sri Lanka. Similarly, the steady inflow of remittances from the expatriates working abroad gives Bangladesh an edge. All our other international economic metrics indicate a healthier current state of affairs. Bangladesh economy, on the other hand, and its balance of payments are overly dependent on RMG exports and remittances-making them vulnerable to global market fluctuations in demand and prices. Bangladesh has also incurred an undisclosed amount of debt to Chinese lenders mostly in the form of suppliers’ debt. The government has other major challenges. As per studies done by BUILD, a think tank of DCCI, under and over-invoicing in import and export bill is amounting USD 12-13 billion per annum on an average. Another form of financial rigmarole is “front loading” of infrastructure projects which now amounts to 20-25 percent of the projected cost.
Bangladesh’s real foreign exchange reserves are now 34.2 billion dollars. The current $34 billion in reserves may still sound comforting to many, but the ongoing dire inflation crisis around the world has naturally raised concerns about dwindling reserves. Bangladesh Bank becoming a ‘guarantor’ for some private sector borrowers in taking foreign loans from IFC or other sources may also ultimately pose a danger to the country. In the meantime, various steps have been taken to control imports. But the combined effect of these measures will not reduce the import cost much, so whether the growth of the country’s import cost will be significantly slowed down or stopped in the new fiscal year despite taking these measures, it will be an ‘acid test’ for our policy makers. The fire of price inflation in the international markets of fuel oil, LNG, wheat, rice and consumer goods will not be easily extinguished unless the Russia-Ukraine war stops, nor will the jump in shipping rates. Global recession is going to join this soon. If our apparel export earnings slow or stop growing due to recession, the economy will be in dire straits. Therefore, the decline in foreign exchange reserves must be stopped with all efforts.
According to economic analysts, there is room for further tightening. Along with exports, remittances should also be increased. Import of non-essential and luxury goods should be limited or stopped. Recently the LC margin on non-essential goods has been increased by 25 percent and doubled by another step. Attempts to maintain foreign exchange reserves at a satisfactory level by fixing LC margin of 75 per cent on imports of cars and electronic goods to discourage import of luxury goods continue.
The loan agreement with the IMF can bring down the dollar crisis and bring the foreign reserves to a stable level. That is the thing to watch now. From ministers to government bureaucrats and employees at all levels, unnecessary expenses and luxurious lifestyles must be avoided in government offices. In this case, the government should be strict and rigid if necessary. In addition, the culture of lending from reserves for various government projects must be stopped. After all, if the country’s reserve crisis is not resolved, our economy will face severe recession. This can destroy the existence of our nation.
(The writer is former Deputy Director General, Bangladesh Ansar & VDP).
