John Rozario
In recent times, one of the topics of discussion in regional politics including Bangladesh is the economic and political disaster in Sri Lanka. Since early 2022, this issue has been the subject of extensive discussion at both the national and international levels.
Bangladesh’s story is different from others
The worsening economic crisis that Sri Lanka and many other nations are experiencing does not threaten Bangladesh with a debt catastrophe. More than 10 nations face the possibility of an economic collapse due to rising inflation, debt, and borrowing costs.
Canadian news organization Visual Capitalist recently identified 25 nations that are vulnerable to debt risk using information from Bloomberg.
According to the report, Sri Lanka is not the only nation now experiencing financial difficulty. Russia, Zambia, Suriname, Lebanon, and other countries are currently in arrears. Belarus is another nation that is in danger of becoming bankrupt. However, the list goes on. Twelve additional nations are in danger due to rising inflation, debt, and borrowing costs. The vulnerable countries are as follows: Argentina, Ukraine, Tunisia, Ghana, Egypt, Kenya, Ethiopia, SL Salvador, Pakistan, Belarus, and Ecuador. Bangladesh isn’t on the list.
Bangladesh approach for ‘not to face Sri Lanka like crisis’
Government officials’ travel abroad is restricted, the taka is devalued, remittances are rewarded with cash, and luxury goods are taxed, all of which help Bangladesh build up its foreign exchange reserves so it can easily meet import demand. In the meantime, the government’s policy of raising exports and lowering imports helps the economy recover.
The impact of COVID-19 on the economy, which is already constrained by the Russia-Ukraine conflict, cannot be denied. The latter has made things more difficult for developing nations like Bangladesh as well as escalating the global economic crisis.
In order to support the COVID-19 and the war-damaged economy, the nation must give controlling inflation equal priority to improving the export-import ratio.
Although the country has enough reserves to cover the minimum three-month import payment, the depletion of the foreign reserve may become a concern if it continues to decline. Here, the adoption of strategic interventions at all levels of budget management becomes necessary as part of a comprehensive economic plan to control and repair the economy. Bangladesh has already taken the policy of ‘cost minimization’.
On May 17, 2022, while presiding over a meeting of Bangladesh’s National Economic Council, the country’s prime minister gave advice to the ministries and divisions about how to implement development projects without going overboard with spending.
She underlined the importance of completing only critical projects and postponing low-priority ones for the time being in order to prevent pressure on the national economy from the current global crisis. This order continues a number of other policy directives and orders from the head of government to address the COVID-affected economic problem. It is not a stand-alone issue.
Over the past few months, Bangladesh’s a vested quarter, inspired by the events in Sri Lanka, has begun to expect that Bangladesh is heading towards a Sri Lankan economic status. They also expected that if that situation arose, the people of Bangladesh would take the field like the people of Sri Lanka to remove the government from power. But all those false ideas of theirs did not prove to be true at all. Ever since Sri Lanka’s economic disaster, the Awami League government under the leadership of the BD Prime Minister has strongly presented the argument that the economies of Sri Lanka and Bangladesh are vastly different.
Moreover, development aid organizations in Bangladesh have repeatedly said that there is no logical reason for the situation in Bangladesh to be similar to that of Sri Lanka. Those who make such false assumptions must first understand the fundamental difference between the economy of Bangladesh and the economy of Sri Lanka. Sri Lanka’s economy is largely dependent on the tourism industry.
Sri Lanka’s tourism industry has collapsed due to the ongoing Covid-19 pandemic that has been ongoing for more than two years. As a result, the country’s foreign exchange reserves began to decrease and the government began to pick up speed in importing fuel and other commodities. At one point the government was forced to stop all imports. As a result, there was a lot of anger among the people.
But, the main pillar of Bangladesh’s economy is garments and foreign exchange sent by expatriates. Bangladesh’s foreign exchange reserves are in a much stronger position than other South Asian countries. In the early stages of the Covid-19 pandemic, many assumed that remittances to Bangladesh would decline as many expatriates lost their jobs in the early stages of the pandemic. However, due to the diplomatic success of the government, Bangladeshi workers have returned to their workplaces in a short span of time and are sending foreign exchange at the same rate.
As a result, there is absolutely no possibility of a situation like Sri Lanka in Bangladesh’s economy in the current situation. Moreover, even though the level of corruption of the Rajapakse dynasty in Sri Lanka has reached the highest level, no action has been taken against them by the government. As a result, there was great anger among the people.
Although there are allegations of corruption in some cases in Bangladesh, no such situation has arisen. Besides, no such complaint is found about the Honorable Prime Minister of Bangladesh and his family members. As a result, there is no anger among the people. As a result, it can be said with certainty that there is absolutely no possibility of a Sri Lanka-like situation in Bangladesh in the near future.
The global economic crisis as a reality and the Bangladesh case
It is good to say here that for the last two years, the economy of the major countries of the world has been disrupted due to the ravages of the Covid-19 epidemic and now the Russia-Ukraine war. Because the impact of covid has not only fallen on the health sector, it has disrupted all other sectors including the economy and education. However, due to the visionary leadership of the Prime Minister of the Government of Bangladesh, on the one hand, it has been able to deal with the health threat of Covid very successfully, as well as on the other hand it has been able to put its economy on a solid footing.
Post-Covid-19, there has been a global economic recession. Keeping that in mind, the government has already undertaken some financial reform programs. The hope is that several economic reform programs have already been undertaken by the Bangladesh Bank and the government keeping the global recession in mind.
The economy of Bangladesh is now standing on a solid foundation. As the economy struggles to recover from the shock of the coronavirus, the Russia-Ukraine war has made that struggle even more difficult. Although the economy of Bangladesh is going through a difficult time. Commodity prices are rising, inflationary pressures have become difficult to handle, reserves have fallen below $40 billion after two years, and the government is under severe pressure on electricity and fuel, but initiatives taken by the BD government in tackling the temporary crisis may be effective.
Many people think that this crisis will lead Bangladesh to Sri Lanka. But Sri Lanka’s crisis and Bangladesh’s crisis are not the same. Sri Lanka’s crisis began before the Ukraine war. And the current crisis due to the war is not only for Bangladesh but for the whole world. The current crisis is actually imported. The crisis will fluctuate with the international market. The BD government has adopted an austerity policy to deal with the crisis. There really is no other way. Efforts were made to prevent the deterioration of reserves by reducing imports and increasing exports. As long as the effects of the war last, it must on the whole be thrifty, the rush of demand. War is like a storm. Whose touch will be in everyone’s house? If your house is strong, you will feel less windfall. Bangladesh’s economic base is very strong now, so the storm of war may not blow it away, but the blow will be less.
One thing is quite clear in economic language and in terms of economic figures that any country taking on global debt of up to 70% of its core GDP will not face economic ruin. Bangladesh’s current debt to gross domestic product (GDP) is 44%. Although the foreign debt has increased by 21.8%, the import expenditure has increased by 44% in the global downturn and the foreign exchange reserves have already fallen, Bangladesh ranks 41st economy in the world. The position is just after India. According to new data by IMF, Bangladesh and India were the only two South Asian countries considered to be part of the 50 largest economies of the world.
Reserves have stood under 40 billion. Reserve has gone – I don’t see any reason to make a fuss because the reserve has gone. Because the hard truth is, when the current AL government took power, how much was the reserve? That comparison is now more than double. (I am not being effusive in praising the government, that is the hard truth) So reserves should not be a problem at all. At that time, the state had three months’ worth of import expenditure compared to seven months at present. However, the Bangladesh government has already settled import payments worth 1.99 billion dollars with the Asian Clearing Union (ACU) last week. Reserves have been reduced mainly after sanctioning import payments. Through ACU, member countries settle import payments for their regional transactions. Bangladesh, Bhutan, India, Iran, Maldives, Myanmar, Nepal, Pakistan and Sri Lanka are members of ACU.
Just as we cut our family expenses in times of danger, the state also has to cut back. Sri Lanka borrowed more than it could afford and built a watchdog scheme on that debt without knowing if it would be reciprocated. Wrong policies have reduced crop production. There is no such crisis in Bangladesh. Economists have already explained why Bangladesh will not become Sri Lanka with various statistics. Even in the common eye, we understand that Bangladesh is not Sri Lanka and will never be. If you love your country, then it is the responsibility of all of you to work to overcome the crisis from your own respective places.
John Rozario is a Karnataka-based South Asian affairs researcher and analyst. He can be reached at [email protected]