Coping with global economic meltdown
Monday, 8 December 2008
Ferdous Alam
ONE direct casualty of the ongoing global financial crisis could be the volume of foreign aid that the rich countries have been regularly making available to the poor or developing ones. On its part, Bangladesh has progressively reduced its aid dependence over the year and the government now funds its administrative costs entirely from taxes collected from internal sources. But a lion's share of its developmental expenditures, some 50 per cent of its annual development programme (ADP), is still dependent on foreign aid. If this amount of external resources now drops off due to economic downturn in the donor countries with subsequent impact of the same on donor organizations, then the Bangladesh economy would be confronted with a major resource gap to fund its developmental activities-- especially on infrastructure. In that event, its economic expansion will be restricted.
Thus, a dwindling of foreign aid is one thing that our policy planners must start thinking about with no loss of time. The developed countries are now clearly going into a period of recession that could be deep and a long one, biting hard into all or nearly all sectors of their economies.
Foreign aid from those countries is mobilized from taxpayers' money. With taxpayers in these countries getting so much pressurized to foot the bill for bail-out of bankrupt financial institutions and large corporate businesses, plus the drop in employment and earnings as a consequence of the financial crisis, it is hard to see how the rich or developed countries would be able to maintain their flow of developmental assistance under the present circumstances. A cut in foreign aid may have to be considered at some stage and when it comes, Bangladesh, along with other developing countries, would have to face a much tougher situation because of substantially reduced foreign aid.
In this backdrop, it is important that this likely reduction of foreign aid in the near future enters into the calculation of our policy planners. They should think up a plan of how to cope with a situation of drastically reduced foreign aid. The country's export activities will have to be maintained on the high side to go on earning increased foreign currencies as hedging against a shortfall in aid.
Our major trading partners are likely to become weaker from the financial crisis. Maintaining the rate of sale of our export goods to them as well as increasing the rate, will involve price reduction and other concessions to be offered in respect of our export products. Attaining the higher degree of competitiveness, thus, to retain the appeal of our products among the traditional buyers of our export products, will require a mix of private sector-government partnership and new initiatives.
The private sector on its own will need to find out quickly how it can improve and squeeze its operations to make the same competitive to a greater degree by producing the same or more at lesser costs. Government should help out by motivating exporters with appropriate incentives. Scaling down different charges and duties, better supply of energy and reduction in infrastructure use related costs may be considered for the purpose.
But the question will then arise how the government will provide such incentives when its revenues are likely to be impacted because of the likely direct and indirect fallouts from the current global economic meltdown.
However, the government will require to put the greatest stress on maximizing productivity in all sectors of the economy. Efforts should be on to discourage some unnecessary imports.
This will be possible if more care and planning are devoted to boosting production activities in the country. For example, government planned well the production of a record output of food grains during the last Boro season. Similar initiatives for major expansion in domestic production must be aimed to get the benefit of import substitution on a large scale covering different areas leading to significant conservation of foreign currency and helping the balance of payments position.
Bangladesh so far has gained from an export-led growth strategy. Considering that depression might linger on and deepen in the developed economies that could be a disincentive for some years to the country's export-led growth strategy, the coping mechanism with this situation through an interim strategy of domestic sector-led growth may have to be considered. An expansion of the domestic economy will be important, under the given circumstances to create jobs and incomes as well as to enlarge of the taxation base to garner more revenues.
ONE direct casualty of the ongoing global financial crisis could be the volume of foreign aid that the rich countries have been regularly making available to the poor or developing ones. On its part, Bangladesh has progressively reduced its aid dependence over the year and the government now funds its administrative costs entirely from taxes collected from internal sources. But a lion's share of its developmental expenditures, some 50 per cent of its annual development programme (ADP), is still dependent on foreign aid. If this amount of external resources now drops off due to economic downturn in the donor countries with subsequent impact of the same on donor organizations, then the Bangladesh economy would be confronted with a major resource gap to fund its developmental activities-- especially on infrastructure. In that event, its economic expansion will be restricted.
Thus, a dwindling of foreign aid is one thing that our policy planners must start thinking about with no loss of time. The developed countries are now clearly going into a period of recession that could be deep and a long one, biting hard into all or nearly all sectors of their economies.
Foreign aid from those countries is mobilized from taxpayers' money. With taxpayers in these countries getting so much pressurized to foot the bill for bail-out of bankrupt financial institutions and large corporate businesses, plus the drop in employment and earnings as a consequence of the financial crisis, it is hard to see how the rich or developed countries would be able to maintain their flow of developmental assistance under the present circumstances. A cut in foreign aid may have to be considered at some stage and when it comes, Bangladesh, along with other developing countries, would have to face a much tougher situation because of substantially reduced foreign aid.
In this backdrop, it is important that this likely reduction of foreign aid in the near future enters into the calculation of our policy planners. They should think up a plan of how to cope with a situation of drastically reduced foreign aid. The country's export activities will have to be maintained on the high side to go on earning increased foreign currencies as hedging against a shortfall in aid.
Our major trading partners are likely to become weaker from the financial crisis. Maintaining the rate of sale of our export goods to them as well as increasing the rate, will involve price reduction and other concessions to be offered in respect of our export products. Attaining the higher degree of competitiveness, thus, to retain the appeal of our products among the traditional buyers of our export products, will require a mix of private sector-government partnership and new initiatives.
The private sector on its own will need to find out quickly how it can improve and squeeze its operations to make the same competitive to a greater degree by producing the same or more at lesser costs. Government should help out by motivating exporters with appropriate incentives. Scaling down different charges and duties, better supply of energy and reduction in infrastructure use related costs may be considered for the purpose.
But the question will then arise how the government will provide such incentives when its revenues are likely to be impacted because of the likely direct and indirect fallouts from the current global economic meltdown.
However, the government will require to put the greatest stress on maximizing productivity in all sectors of the economy. Efforts should be on to discourage some unnecessary imports.
This will be possible if more care and planning are devoted to boosting production activities in the country. For example, government planned well the production of a record output of food grains during the last Boro season. Similar initiatives for major expansion in domestic production must be aimed to get the benefit of import substitution on a large scale covering different areas leading to significant conservation of foreign currency and helping the balance of payments position.
Bangladesh so far has gained from an export-led growth strategy. Considering that depression might linger on and deepen in the developed economies that could be a disincentive for some years to the country's export-led growth strategy, the coping mechanism with this situation through an interim strategy of domestic sector-led growth may have to be considered. An expansion of the domestic economy will be important, under the given circumstances to create jobs and incomes as well as to enlarge of the taxation base to garner more revenues.