Economic trajectory of Bangladesh in the face of global crisis

At the time of its liberation in 1971, Bangladesh was one of the poorest countries of the world. Recurrence of political instability, natural disasters, and famine made things even worse. However, over the decades the situation has remarkably improved. The current economic trajectory shows that the country is going to remove the Least Developed Country (LDC) tag by 2025. This indicates that the country's per capita gross national income, economic resilience, and capacity to absorb shocks are pushing it towards sustainable development. Besides, the country has seen a huge improvement in health, education, infant mortality, and life expectancy. 

But the recent concern over the foreign exchange reserve of the country decreasing to around $30 billion has caused a lot of worry among economic analysts. For a good period, foreign currency reserve of Bangladesh was steady and was growing satisfactorily. It was $32.68 billion in 2019 before reaching $48.06 billion in August 2020, which marks the highest ever reserve for the country. Then came the global pandemic and the Ukraine-Russian war, which necessitated increased import, resulting in reduction of the country's reserve. The government and the central bank have already taken some initiatives to curb the import payments to stabilise the foreign currency reserve. The very crucial steps taken by Bangladesh government in mid-2022 were imposition of additional duty on sixty-eight various importable items, lifting of source declaration requirement for over BDT 5 lac remittance and finally, putting travel restriction for government officials.

Recently, the government has taken a loan worth USD 3.3 billion from International Monetary Fund (IMF) that has raised concern among economic analysts, as they see it as the same situation Pakistan and Sri Lanka had gone through. But the loan these two countries  sought was meant for "bailout", on the other hand, Bangladesh had opted for Extended Credit Facility and Resilience and Sustainability Facility (Bangladesh is the first Asian country to get this loan) which are respectively for structural reform and Balance of Payment (BOP) stability. Many international sources had confirmed that rather than waiting for a crisis, Bangladesh has taken a prudent step towards macroeconomic stability. Bangladesh has accepted the loan, but it does not mean that the country lacks foreign currency to cover for import expenses. The internationally accepted threshold is that a country must have enough reserve to cover for three months of import expenses. Currently, Bangladesh can cover for four months, which indicates a healthy reserve position. What we must notice is that it is not only Bangladesh that has been hit by current economic crisis, but the entire world is also facing it due to the global crises and in many cases the wounds are worse than Bangladesh. However, it is true that with the loan from IMF comes additional accountability; until now Bangladesh government was setting the monetary policies based on the assessments of Bangladesh Bank, but now whenever any policy is determined by the government it needs to be in line with IMF's conditions. It is a shift from the Keynesian economics to a monetarist economy. Keynesian economists claim that the government can directly influence the demand side of goods and services by imposing tax policies and reforming public expenditure. Whereas the monetarist school of economists emphasise that money supply is the crucial factor, it uses the interest rates to adjust the amount of money in the economy.

In these challenging days of global crises, Bangladesh should be careful to manage the loans it is receiving from various sources. In case of the IMF loan, the country should focus on investing the fund in productive activities. Also, Bangladesh must pay the instalments on time. The focus should as well be to increase export earnings and make the utilisation of funds in visible gains.

Bangladesh has recently showed much consistency in the overall achievement in the SDG goals. From 2016 to 2022, the score increased from 59.37 to 64.22, which also keeps Bangladesh ahead of India, Pakistan, Laos, Cambodia, and Mongolia in the Southeast Asian region. In addition, there is considerable progress of Bangladesh in various socio-economic indicators mainly because of the presence of many national and international non-government organisations. The NGOs working in close collaboration with the government helped the country to increase women's participation in skills development and income generating activities, and in general, reduce poverty, improve water and sanitation, child health, education, and average life expectancy rates.

In comparison with Sri Lanka and Pakistan, it is very much evident that Bangladesh will not follow the same fate these two nations are facing now as Bangladesh is currently having a very strong leadership, pragmatic fiscal policy, abundant working population, remarkable amount of expatriate income contributing to the national economy. The government is very much successful in implementing some of the megaprojects the country has been waiting for since last few years, although things didn't pan out to be as planned due to many external crises hitting the economy.

Recently, Bloomberg news agency has recognised Bangladesh's timely steps to curb the negative economic impacts of the international crises. Bangladesh showed a lot of resilience during the Covid-19 pandemic compared to other similar economically positioned countries, but the Russian-Ukraine war with its multiplier effects delayed the recovery process. It caused an unforeseen energy crisis leading to an increment in import costs and inflation. As there is further possibility of recession, Bangladesh's domestic production, which is dependent on international market, may also face a slump. Also, as there is the national election coming early next year. A lot of internal factors will play key roles in the fluctuating macroeconomic situation of the country in the coming days. In this regard the government must focus on the most economically vulnerable groups of the country.

The stability and growth of the economy will depend largely on how the government copes with the international situation in framing its policies in keeping with domestic realities.

Ashik Kabir is a freelance contributor on international and economic affairs. ashikk992@gmail.com