Financial firestorm to hit export, remittances

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Kayes M Sohel
Economists and capital market experts do not see any immediate effect of the global financial crisis on the country's economy, including the capital market, but they predicted a negative impact if the crisis persisted for a longer period.
They expressed the fear that the export, wage earners' remittances and inflow of foreign direct investment might be affected by the global financial turmoil, casting a negative effect on the country's economy in the long term.
"Bangladesh remains largely isolated from what is going on in the US financial markets. It is not going to affect us for the time being," according to them.
The financial turbulence triggered by sub-prime mortgage debts in the USA has sent global capital markets spiralling downward over the weeks and created a liquidity crunch in the international financial markets, fuelling fears of global economic slowdown.

Economist professor Mustafizur Rahman said, "True, we may not face any direct consequences of the crisis. But if the financial turmoil triggers an economic slowdown or recession in the USA for a long period, our exports, particularly RMG, are likely to suffer badly."
Out of $ 10.7 billion garment export proceeds, which account for 76 per cent of the country's total export earnings, $ 3.2 billion come from the US while around $ 6.0 billion from the European countries.
Professor Mustafiz said, impact of global economic meltdown on our economy would largely depend on the duration of the global financial turmoil. If it lasts at least for two to three years, the consequences will leave a negative impact on the country's economy because the unemployment rate in the USA will rise, shrinking consumers' spending.
So, a long-term recession would shrink demand for the consumer items, having negative impact on the local apparel sector, he said adding that even if the global financial turbulence recovers within a short period, the growth of country's economy will be slowed down.
"To overcome the looming crisis, the situation should be carefully monitored and exchange rate of local currency against the US dollar should be adjusted in a way so that the exportable products do not lose the competitiveness," he suggested.
But economist Professor Muzaffer Ahmad said the global credit crisis might marginally affect remittances as most of the remittance come from the Middle East that has remained unaffected by the global turmoil.
But he said the service sectors might take a hit of the global credit crunch.
"The driving force of our economy is agriculture. The government should give more credit to this sector than the industrial sector," Muzaffer said.
Mamun Rashid, a leading banker, said the stock market of Bangladesh will remain immune from the ongoing financial turmoil because of an insignificant presence of foreign institutional investors.
Competitive exchange rate of the local currency against the greenback should be the top priority of the central bank to manage the liquidity crisis, he suggested. "The global credit crisis continues to eat up the consumer expenditure in the European Union and the USA," he said.
Mamun pointed out that the country's economy would be affected in the days to come as export and remittances will be affected by the global financial crisis.
Salahuddin Ahmed Khan, chief executive officer of the Dhaka Stock Exchange (DSE), said, "My assessment is that in the short term the country's stock market will remain unaffected by the turbulence in the global financial markets because the market capitalisation of foreign portfolio investment in our markets is below one per cent of the total market capitalization."
But the remittances and exports will be hurt, as many institutions might not be able to service their bank loans during the period, he said.