When news of Sri Lanka's economic crisis began to trickle in from March this year, discussions on the situation became a 'sensitive' issue for us. Sri Lanka has been way ahead of other countries in the region in various indexes and so its predicament was perplexing. Certain economists and experts here tried to draw a parallel with Bangladesh, highlighting possible risks. But no one in the various writings and discussions said that Bangladesh would face the same fate as Sri Lanka. They tried to caution Bangladesh's policymakers by pointing to the various problems in Sri Lanka's economy, development policies and strategies and its political culture. Many also came up with recommendations of what we should do. But the government and its people were not pleased with such discussions. Many found it quite insulting to bring up discussions on the Sri Lankan economic situation, amid intonations of the development mantra.
It is evident that our policymakers still hadn't quite grasped how radically things had been changed by the two years of Covid and then the Russian attack on Ukraine. It is now clear that there had been a lack of farsightedness in understanding the fallout of the events. It took time for the government and its policymakers to realise the gravity of the situation and the cause for worry. Finally on 18 July when certain measures were announced to save the dollar reserves and curtail expenditure on energy, it was clear that the government could no longer sweep things under the rug. Even 'development' spending was curbed. Expenditure on the ongoing projects would be carefully doled out. Some projects would continue, funds for some would be trimmed and some would be shut down. And the various measures being adopted over the last few days indicate that the situation is none too good.
In the prevailing global economic slump, many countries are approaching IMF for loans. Bangladesh is on the list too
In the meantime, a BBC analysis came up with a list. The IMF chief Kristalina Georgieva said that a few more countries may fall into the same unforeseen economic crisis as Sri Lanka. She did not name any names, but analysing Sri Lanka's economic condition, its borrowing from China for high-expenditure projects and the IMF chief's statement, BBC named four Asian countries that may face a similar fate. These were Laos, Pakistan, Maldives and Bangladesh. Of these four, Pakistan is already in dire straits. Steeped in debt, Pakistan is even considering selling off state assets to avoid falling into default. Its cabinet has approved an ordinance in this regard and the country's precarious situation is obvious.
In the prevailing global economic slump, many countries are approaching IMF for loans. Bangladesh is on the list too. It has asked IMF for loans in order to maintain balance in its transactions and also as budget assistance. According to news reports, this loan amount may be around USD 4.5 billion (USD 450 billion). The situation is rapidly changing. The government people are no longer speaking as they did in March-April. Our finance minister changed his tune almost overnight. Last week (20 July) he had said that at the moment we had no need for foreign loans. In the very same week, Bangladesh applied to the IMF for loans.
The Sri Lanka situation has been a warning to other countries, a signal for them to take measures in advance. Sri Lanka was known to be the most advanced country in South Asia. It is only natural for a country achieving that height to feel there is no way that it can face a downfall. Sri Lanka has proved such perceptions to be false. This is a big lesson for us. While it may have been complacent in the beginning, the government has now woken up as is evident it is approaching IMF for loans and JICA for assistance. There are also talks about approaching the World Bank and the Asian Development Bank (ADB) for assistance too. The Sri Lanka experience may have saved us from an immense crisis.
I had interviewed two economists in April after Sri Lanka's economy nosedived. I feel it would be relevant to refer to those interviews again. One of the two was Dr Selim Raihan, professor of economics at Dhaka University and executive director of the research organisation SANEM. He had said at the time that Sri Lanka was proof of what fate a country could face due to wrong economic policies, politics aimed at remaining in power, cronyism, dynastic politics and corruption.
The other economist was Dr Niaz Asadullah. He is a professor of economics at Malaya and Monash Malaysia University in Kuala Lumpur. His assessment of the Sri Lankan situation was that a year before this crisis, the post-war Sri Lanka has been on the path of economic growth. This had given the politicians there excessive expectations and excitement about Sri Lanka's economic future. The government took up foreign loan dependent mega projects that would be popular and visible. But with the projects not completing on time, their commercial ineffectiveness, dependence on foreign loans for funds and detrimental global circumstances, all dragged Sri Lanka down into disaster.
Bangladesh has begun taking steps before the situation plunges too deep. It is trying to control the situation by adopting austerity measures, trimming development projects and seeking loan assistance. The lessons learnt from Sri Lanka may help in tiding over the present crisis. But how can we overlook the 'political' observations of the two professors of economy regarding Sri Lanka?
Corruption, nepotism, cronyism and the inordinate delays and abnormal expenditure on mega projects -- how will these political problems be resolved?
* AKM Zakaria is deputy editor of Prothom Alo and can be reached at [email protected]
* This column appeared in the print and online editions of Prothom Alo and has been rewritten in English by Ayesha Kabir