Bangladesh being ‘killed by economic conditions elsewhere’: Financial Times
Power blackouts and high import prices are fuelling fears that Bangladesh’s previous gains could be reversed by the global crisis, according to the Financial Times.
In South Asia, a region of almost 2 billion people across India, Pakistan and Sri Lanka, Bangladesh stood out for its development and success in fostering a globally competitive goods export sector.
But now, along with most of its neighbours, the country is being rocked by soaring prices of energy and food following the Covid-19 pandemic and Russia’s invasion of Ukraine. These have led to energy shortages and rising import bills that are, in some cases, straining their ability to keep up with debt payments, the British daily said.
The regional economic crisis in south Asia has been swingeing in its casualties, claiming countries whose governments pursued reckless spending policies, such as Sri Lanka, alongside model development economies. It now threatens to reverse hard-won, generational gains made in the world’s most populous emerging market region.
The crisis is punishing countries with an array of different economic performances and models, said Mark Malloch Brown, a former UN and World Bank official who now heads the George Soros-backed Open Society Foundations. “Bangladesh, a very internationally oriented economy known for its garment sector, is getting killed by economic conditions elsewhere in the world.”
Bangladesh had until recently been better insulated from recent economic shocks, in part because of its successful export sector. But prime minister Sheikh Hasina’s government in July approached the IMF for a loan to try and shore up its foreign currency reserves and help the low-lying country build resilience against climate change. The country is seeking about $4.5 billion from the fund, and as much as $4 billion more from other lenders, including the World Bank and Asian Development Bank.
In addition to raising fuel prices, which triggered protests, Bangladesh’s government has cut school and office hours to conserve energy and introduced import restrictions on luxury goods to protect its foreign reserves.
Bangladesh’s finance minister AHM Mustafa Kamal insists that “everybody is under pressure,” and his country is not in danger of falling into the deep financial distress of its neighbours. “Bangladesh is in no way connected to what is happening in countries like Sri Lanka.”
“Creditors know our projects, know our balance sheet very well. [Bangladesh] is a good place to offer money,” the minister added.
The IMF said with a debt-to-GDP ratio of 39 per cent – lower than its neighbours – Bangladesh is “not in a crisis situation,” but the country is vulnerable to the “huge uncertainty surrounding global economic developments.”
The garments sector helped shield Bangladesh during the pandemic, with exports rising to a record as locked-down consumers overseas shopped for clothes online. But it is now starting to feel the strain.
The IMF said demand for Bangladesh’s cornerstone industry’s products will suffer due to slowing growth in major buyers in the US and European countries. “This is definitely going to affect export performance going forward.”
The country’s garment makers import everything from raw materials to machinery.
David Hasanat, chair of Dhaka-based manufacturer Viyellatex Groups, said the price of cotton had increased more than 50 per cent, but that his company was only able to pass on about 10 per cent of that cost to buyers. “Eventually [the higher costs] will give us more pain.”
Also, the rising import bill has taken a toll on Bangladesh’s foreign reserves, which have fallen to less than $40 billion, from more than $45 billion last year.
While this remains enough for about five months’ worth of imports, Dhaka University economics professor Rashed Al Mahmud Titumir said he expects it to fall below three months’ import cover – the level economists often consider critical – by the end of the year.
“The situation is laying bare cracks in the economy, from Bangladesh’s slowing poverty reduction to its stagnating wages and rising debt. This has exposed the [success] story that we hear as a kind of a mirage,” he added.
Malloch Brown said the experience of South Asian countries shows how the pressures on emerging markets are part of a wider “systemic crisis which really endangers the global economy.”
He called for an international policy response akin to the Marshall Plan extended to war-ruined countries after the second world war.