Global crisis and its impact on Bangladesh

If the Eurozone debt crisis engulfs the Asian economies, possibilities are slim that Bangladesh will be unscathed. But conversely, this crisis can bring about opportunities for the country, thanks mainly to its cheaper exports. So, what we need is prudent policy measures to avoid the impacts of the global crisis. Bangladesh is a low-lying, riparian country with a densely population. The Liberation War of 1971 destroyed about a fifth of Bangladesh's economy, and the post-war dislocations left the country on a slow growth trajectory for two decades. Then the economy accelerated from 1990, driven by a remarkable turnaround in the growth of multi-factor productivity. We identify factors that inhibit another growth spurt: low levels of human capital, unskilled manpower, poor infrastructure, import oriented materials, market failures specific to individual industries, low levels of international trade, corruption, cumbersome regulations, share market debacle and money inflation. Of these, we consider tackling infrastructure bottlenecks, promoting trade, and carrying out regulatory reforms as top priorities for the policymakers. Readymade garments dominate the country's export basket, making up as much as 77 per cent of the total exports. Jute, tea, frozen shrimp, fish, leather goods, tannery and handicrafts are also major exportable commodities. At Bangladesh's birth, the country embraced socialism as the economic ideology with a dominant role for the public sector. But, since the mid-seventies, it undertook a major restructuring towards establishing a market economy with emphasis on private sector-led economic growth. According to a World Bank estimate, Bangladesh is the 36th largest economy in the world in terms of GNP based on the purchasing power parity method of valuation, and the 55th largest in terms of nominal GNP in U.S. Dollars. An economic snapshot Bangladesh is an economy firmly in transition, with the manufacturing and services sector increasing in importance as a share of GDP, and agriculture declining. In 1980, agriculture accounted for 56 per cent of GDP, manufacturing 13 percent and services 31 per cent. By 2003, agriculture had declined, falling to 22 per cent of GDP, while manufacturing and services had risen to a little over 27 per cent and 52 per cent, respectively. Between 1991 and 2000, real GDP in Bangladesh increased by 52 per cent, averaging a sustained growth rate of about 5 per cent per year. The growth in exports has eclipsed the growth in imports, and the current account balance is now broadly positive. The share of exports as a percentage of imports has increased from 46 per cent in 1990 to 78 per cent in 2003. Since 1992, Bangladesh has liberalised its trading regime by greatly reducing tariffs and eliminating some quantitative restrictions on imports. The number of tariff bands has fallen from 15 in 19923 to 5 in 2003, and the maximum tariff rate has fallen from an average of 300 per cent to 37.5 per cent. In 1995, Bangladesh joined the WTO and currently operates a customs tariff that is the principal source of government revenue, accounting for nearly one third of total taxes. Reforms remain outstanding to ensure greater consistency and transparency in customs administration, tariff concessions, advance income taxes on imports and exports, import surcharges, subsidies and other assistance, competition policy, and the regulatory framework Poverty situation Poverty rates have fallen over the last four decades from approximately 70 per cent in the early 1970s to a little under 50 per cent in 2000 (World Bank, 2002). As the agricultural sector declines, employment opportunities have expanded in manufacturing and, particularly, in the garment and textiles industry. While overall strong growth rates have generated employment, a significant portion of the reduction in poverty is attributed to the availability of worker remittances from abroad, primarily the Gulf States, which help support incomes and consumption in rural areas. Of the total labor force, men and women are highly concentrated in agricultural activities: 77 per cent of the total female labor force and 53 per cent of the total male labor force were absorbed in agriculture in 2000. Manufacturing absorbs less than 10 per cent of the total female and male labor force, while services accounts for 16 per cent of the total female labor force and 40 per cent of the total male labor force. The potential labor force is expected to grow by approximately 1 million new entrants per year, forcing significant job creations. Recent global economic condition and Bangladesh The collapse of the US sub-prime mortgage system resulting in global financial crises has not only engulfed the entire US and European financial and banking system but also affected the global economy. The crux of the problem is that banks and financial institutions have, for many different reasons, gone bankrupt and had to be bailed out by States such as the US government pumping in US$ 700 million into the system and the UK government nationalising banks and other financial institutions. Other countries like Russia are bailing out their banks through guarantees of millions of dollars and at least one country, Iceland, Greece have gone bankrupt and has to take credits of millions from Russia to survive. The effect of banks and financial institutions going bankrupt is that there is no money available as credits or loans to run businesses and so businesses in all the major economies in USA, Europe and Russia are either closing down altogether or retrenching leading to massive job losses and unemployment. The common people in all these economies long habituated to consumerism that is, buying everything from food to houses, on credit are now forced to return the money which they cannot do because they have lived way beyond their incomes. Incomes too have either decreased or are unavailable as businesses; factories and manufacturing have closed down or retrenched. So our industries too will have to retrench leading to job losses. Since imports will reduce, so government will have less revenue and less money to push into "development and social safety" resulting in an increase in poverty. Banks and financial institutions too will have less money to give as credits to businesses, factories and manufacturing, if they at all want this money. Next, remittances will also reduce drastically as expatriate Bangladeshis will be the first ones to get the chop in the foreign countries where they are working particularly in the Middle-eastern countries whose economies are entirely dependent on oil exports, the price of which is falling drastically. Again, international financial institutions and development agencies such as the World Bank, the IMF and ADB, the UN will not dole out credits and grants like they did in the past because their major financiers in USA, Europe, Japan and Middle-east are all either going bankrupt or are bailing out their own economies. So, the global financial crisis is going to have a severe impact on Bangladesh sooner rather than later and the global financial crisis is here to stay for at least the next 5 years if this situation is stayed randomly. Our governments and politicians need to take stock of this immediately and take steps at the earliest. Impact of global economic crisis on Bangladesh Bangladesh has also started to feel the hit as donors cutback on funding. Non-resident Bangladeshis are sending less remittances than in the recent past. It causes less money supply in the overall economy of this country. As our country is partly dependent on the foreign remittance, we face a lot of problem for the less amount of foreign remittance. For the global economic crisis, many Bangladeshi people, who are working in the foreign countries, are losing jobs and they are coming back to their motherland. Besides, many other Bangladeshi people are in the pipeline to lose their running jobs. So, as a whole, we are going to face a very big problem in the coming years. On the domestic fronts, the government's bank borrowing has already exceeded the annualised target, reaching Tk 200 billion and averaging Tk 1.2 billion to 1.3 billion per day. On the other hand, banks have fallen into Liquidity Fund Crisis. Call money rate is very high and the banks borrow money from the other banks. Now-a- days, share market is turbulent. Bangladesh now is passing through a transitional economic crisis. The financial crisis that started in the US in March of this year has now turned into a full-fledged economic crisis that has pushed the European Union and others into deeper crisis. The global economic crisis has made a landfall in Bangladesh. For this reason, the whole economic situation of the country is not good to improve poverty and unemployment situations. This has been evident from the fact that the American financial crisis has left everyone in a state of shock. October 10 was the day when stocks and shares dropped to the lowest level in US, Japan, Britain, Bangladesh and Australia and pretty much across the world. No country was spared from the financial crisis because of the increasing interconnectedness. Governments have intervened with funds to avoid collapse of reputable banks and some say nationalisation in part of banks was unthinkable during 21st century. But it has happened in a free market economic system. The crisis is compounded by the fact that the Bush administration has not been prudent in having a deficit budgets for several years. Furthermore the US regulators have not supervised adequately the way the banks were providing loans to all kinds of people during the housing- boom period. And the financial regulatory bodies in the US ignored the warning signs of financial storm since. ......................................... The writer works for The Premier Bank Securities Limited and can be reached at: sjewel_cu@yahoo.comMd. Noor Solaiman (Jewel)