Surviving through global economic recession
Thursday, 10 June 2010
Md. Abdul Jabbar
The impact of the western economic recession on our country is evident. The countries that are dependent on exports to USA and European markets have been severely affected by this recession. The crisis has its impact on growth and development through ups and downs in commodity prices, transfers, trade finance, and investment flows etc. Bangladesh, however, had shown some resilience to the crisis in the last year but could not prolong it this year as we have limitations to withstand the adverse effects. Our economy is largely dependent on external demand (exports) and external financing, remittances, and official development assistance (ODA)), and also on fiscal expansion/discretionary demand management and the ability of their authorities to use it flexibly.
Many areas in our financial sector are still not stable. Capital flow in the country has not been restored to the level that can generate more employments. There has been poor disbursement of credit often at high interest rates. All sources of financing for the economy are affected by the crisis, making it hard for fiscal stimulus to compensate for lost sources of growth.
The continuation of sluggish investment will thwart the achievement of the Millennium Development Goals. Social protection measures are urgently needed. It is now known to all that Foreign Direct Investment (FDI) is down worldwide. To turn the crisis into an opportunity, the policymakers have to encourage domestic investments to improve the growth of agriculture and industry.
Such a situation might lead to deterioration of employment and human rights scenario. The crisis has threatened to widen the existing inequalities within and between countries.
The country remains vulnerable to external shocks as it is still dependent on only a few commodities leading to decline in exports. Export and market diversification should be encouraged, along with higher productive capacity and a balance between domestic demand-led and export-led growth as part of new strategies to build up the resilience of the economy against external shocks. Special attention to small and medium enterprises is required in this regard.
The government should take appropriate measures to improve agricultural production and productivity to deal with the ongoing food crisis.
It is worth mentioning that we could survive the impact of our currency depreciation during the ongoing recession. Otherwise, it could further increase our debt servicing burdens.
We are now closely linked with the global economy by trade and FDI flows, and thus our economy is more sensitive than before to falling international demand. The degree of exposure and integration between our economy and external markets has increased greatly in recent years.
We must understand that the challenges posed by the current economic crisis are different from those posed by previous crises. Economy is now closely connected with each other, and this calls for closer global cooperation and collaboration to arrest rapid contagion of the crisis and revive economic growth and development. Owing to the interdependent nature of today's global economy, policies and strategies are needed to be designed by governments not only with respect to their effect on the domestic market, but also taking into account their impact on international markets and trading partners.
Against such a background, effective and coordinated policy responses are required to achieve a sustainable economic recovery. We are to continue to grow through trade, investment, remittances, aid, and technological innovation.
The country was for the first time awarded a credit rating, which would improve the financial position of the country in the long run. No doubt, this will expedite inflows of FDI in the country.
During last two decades, we observe that the country's economy turned in to an export oriented developing economy. But the export opportunities have been shattered due to the present scarcity of gas and electricity.
Bangladesh economy could escape the wrath of economic recession during 2009. But it is observed that the effects of the world economic recession are landing gradually with a sharp pinch, particularly in 2010. The Asian development bank (ADB) in its recent reports on the economy stated that the growth in 2009 -2010 would not be more than 5.50 percent as our economic recovery slowed down due to slow investments as well as exports. This is less than 6.90% of South Asia and first time to be less than 6.0% since 2004. It further revealed that the growth in agriculture would be 4.01 percent compared to the 4.6% in last year; the growth in industry would be 5.6 percent against 5.9 while service sector would grow 5.6 percent compared to 6.3 in last year. No major investment was visible during the 1st half of the current fiscal year though it was expected that the shattered investment environment would be reversed under the democratic government. Thus, the banking sector is burdened with Tk.35,000 crore surplus liquidity. Meanwhile inflation rate is about to touch double digit.
The 1st half of the current fiscal year is marked with negative growth of import and export. Export earnings were worth Tk. 7,274.0 million for July-December, 2009 which was Tk. 7,755.0 million in the same period of the last fiscal. This is less by 6.2 percent from the last corresponding period. The import also fell by 5.0 percent in the same period compared to last fiscal. The value of import for last sixth month of last fiscal was Tk. 1811.0 million where as it was Tk. 1158.0 million in the same period of current fiscal. The revenue collection was less by Tk. 1775.0 million during the last six months of the current fiscal compared to the same period of last fiscal.
Although our economy performed well despite recent global economic downturn the present power crisis came as a severe blow to the economic activities.
To build up the nation it needs patience, wisdom and the will to perform. So, the sharing of experiences and best practices in investment is therefore particularly welcome and preparing the private sector for long-term public-private partnerships in infrastructure is also important. The government should boost both public and private investment, create favorable investment climate, keep the domestic demand up and accelerate poverty reduction drive at the earliest for higher economic growth.
The writer is Executive Vice President, Islami Bank Bangladesh Ltd. He can be reached at E-mail:
jabbar@islamibankbd.com
The impact of the western economic recession on our country is evident. The countries that are dependent on exports to USA and European markets have been severely affected by this recession. The crisis has its impact on growth and development through ups and downs in commodity prices, transfers, trade finance, and investment flows etc. Bangladesh, however, had shown some resilience to the crisis in the last year but could not prolong it this year as we have limitations to withstand the adverse effects. Our economy is largely dependent on external demand (exports) and external financing, remittances, and official development assistance (ODA)), and also on fiscal expansion/discretionary demand management and the ability of their authorities to use it flexibly.
Many areas in our financial sector are still not stable. Capital flow in the country has not been restored to the level that can generate more employments. There has been poor disbursement of credit often at high interest rates. All sources of financing for the economy are affected by the crisis, making it hard for fiscal stimulus to compensate for lost sources of growth.
The continuation of sluggish investment will thwart the achievement of the Millennium Development Goals. Social protection measures are urgently needed. It is now known to all that Foreign Direct Investment (FDI) is down worldwide. To turn the crisis into an opportunity, the policymakers have to encourage domestic investments to improve the growth of agriculture and industry.
Such a situation might lead to deterioration of employment and human rights scenario. The crisis has threatened to widen the existing inequalities within and between countries.
The country remains vulnerable to external shocks as it is still dependent on only a few commodities leading to decline in exports. Export and market diversification should be encouraged, along with higher productive capacity and a balance between domestic demand-led and export-led growth as part of new strategies to build up the resilience of the economy against external shocks. Special attention to small and medium enterprises is required in this regard.
The government should take appropriate measures to improve agricultural production and productivity to deal with the ongoing food crisis.
It is worth mentioning that we could survive the impact of our currency depreciation during the ongoing recession. Otherwise, it could further increase our debt servicing burdens.
We are now closely linked with the global economy by trade and FDI flows, and thus our economy is more sensitive than before to falling international demand. The degree of exposure and integration between our economy and external markets has increased greatly in recent years.
We must understand that the challenges posed by the current economic crisis are different from those posed by previous crises. Economy is now closely connected with each other, and this calls for closer global cooperation and collaboration to arrest rapid contagion of the crisis and revive economic growth and development. Owing to the interdependent nature of today's global economy, policies and strategies are needed to be designed by governments not only with respect to their effect on the domestic market, but also taking into account their impact on international markets and trading partners.
Against such a background, effective and coordinated policy responses are required to achieve a sustainable economic recovery. We are to continue to grow through trade, investment, remittances, aid, and technological innovation.
The country was for the first time awarded a credit rating, which would improve the financial position of the country in the long run. No doubt, this will expedite inflows of FDI in the country.
During last two decades, we observe that the country's economy turned in to an export oriented developing economy. But the export opportunities have been shattered due to the present scarcity of gas and electricity.
Bangladesh economy could escape the wrath of economic recession during 2009. But it is observed that the effects of the world economic recession are landing gradually with a sharp pinch, particularly in 2010. The Asian development bank (ADB) in its recent reports on the economy stated that the growth in 2009 -2010 would not be more than 5.50 percent as our economic recovery slowed down due to slow investments as well as exports. This is less than 6.90% of South Asia and first time to be less than 6.0% since 2004. It further revealed that the growth in agriculture would be 4.01 percent compared to the 4.6% in last year; the growth in industry would be 5.6 percent against 5.9 while service sector would grow 5.6 percent compared to 6.3 in last year. No major investment was visible during the 1st half of the current fiscal year though it was expected that the shattered investment environment would be reversed under the democratic government. Thus, the banking sector is burdened with Tk.35,000 crore surplus liquidity. Meanwhile inflation rate is about to touch double digit.
The 1st half of the current fiscal year is marked with negative growth of import and export. Export earnings were worth Tk. 7,274.0 million for July-December, 2009 which was Tk. 7,755.0 million in the same period of the last fiscal. This is less by 6.2 percent from the last corresponding period. The import also fell by 5.0 percent in the same period compared to last fiscal. The value of import for last sixth month of last fiscal was Tk. 1811.0 million where as it was Tk. 1158.0 million in the same period of current fiscal. The revenue collection was less by Tk. 1775.0 million during the last six months of the current fiscal compared to the same period of last fiscal.
Although our economy performed well despite recent global economic downturn the present power crisis came as a severe blow to the economic activities.
To build up the nation it needs patience, wisdom and the will to perform. So, the sharing of experiences and best practices in investment is therefore particularly welcome and preparing the private sector for long-term public-private partnerships in infrastructure is also important. The government should boost both public and private investment, create favorable investment climate, keep the domestic demand up and accelerate poverty reduction drive at the earliest for higher economic growth.
The writer is Executive Vice President, Islami Bank Bangladesh Ltd. He can be reached at E-mail:
jabbar@islamibankbd.com