Home ›› 30 Oct 2022 ›› Editorial
“The crisis is not originated in Bangladesh, and it is an international crisis and, all must keep in mind…We all have to understand the root of the crisis. ” This candid statement by the Prime Minister, Sheikh Hasina at a meeting with the traders manifests multidimensional aspects of the current crisis. The economic crisis may be endogenous or exogenous. Political turmoil, economic mismanagement, and natural disaster are considered endogenous that may be addressed through pragmatic monetary, and fiscal policies and congenial trading environments. However, the exogenous consequences of crisis may be cumbersome for many countries in addressing sound demand management and structural policies. Structural policies salvage an economy by increasing the supply of goods and services at any given level of domestic demand. Exogenous factors in many instances can cause a whirlwind that may cause a chaotic situation in both developed and developing countries. Countries may seek help from multinational donor agencies in circumventing the weak state in certain macro issues. The current crisis of the global economy is not endogenous by nature; exogenous factors predominate through the transmission mechanism. Indeed, Bangladesh’s economy sustained several catastrophic setbacks during COVID-19. The resilience in the backdrop of the twin hazards, COVID-19, and the Russian aggression in Ukraine underscored the success of many drives. The economy was well poised in many macro aggregates before Covid-19 and could weather the disruption given a smooth supply chain that is at stake now owing to Ukraine- Russia war.
The continued uncertainty and the supply-chain disruption in the Ukraine-Russian war forced the governments of both the developed and developing countries in resorting to several emergency measures. The reserve oil use by the USA is a befitting example. The decision of the Saudi-led OPEC+ cartel on production cut undermines a cap on the price of Russian oil. President Biden on October 11, 2022, warned Saudi Arabia of the consequences in the wake of the production cuts as higher oil prices could still the growth process and the global economy may be in the grip of recessionary pressure. The economic ordeal is infesting the global economy with fierce teeth. Economists in many parts of the world apprehend the nascent recession on supply-side bottlenecks. Europe’s largest economy, Germany, may slide into recession next year. The energy crisis, rising prices, and supply bottlenecks could result in a contraction of 0.4 percent in 2023 from a previous forecast of 2.5 percent growth. Liz Truss with only 44 days as premiership resigned on October 24, 2022, following a failed tax-cutting budget that rocked financial markets. The launching of the mini-budget by her first finance minister, Kwasi Kwarteng, and subsequently reversed by the second finance minister, Jeremy Hunt created confusion within her own Conservative Party. The so-called mini-budget by the first finance minister echoed a knee-jerk reaction of the U.K bond markets with a plummeting value of BP.
The global economy encumbered recessionary syndrome in a few cases. The Q2 in 2002 may be an example; the Great Recession of 2007 is another example. The term “Great Recession” applies to both the U.S. recession, officially lasting from December 2007 to June 2009, and the ensuing global recession in 2009. The economic slump began when the U.S. housing market went from boom to bust, and large amounts of mortgage-backed securities (MBS) and derivatives lost significant value. The Reuters correspondent painted ‘ a picture of a global economy stacked precariously like a house of cards, waiting for a hit from just one more morsel of economic misery to predict to bring on a global recession.“ The projected growth according to IMF’s World Economic Report at 2.8 percent in 2002 barely above the 2.5 percent level considered by many economists to be bordering on recession. ” The chemistry of the current turbulent geo-political riddle with continued uncertainty of the Ukraine- Russia war depicts a picture contrary to the situation of 2002 and 2007. This encompasses not only the major developed country but most of the economies of the world trudging with deflation unprecedented among industrialized countries since World War II. Now, the global economy is emboldened by unprecedented inflation.
The Prime Minister’s innocent articulation on the current crisis when weighed in a historical mirror reflects her sincerity and commitment towards a nation; burdened with a herculean task in addressing multifarious problems in the domain of uncertainty. The problems are not confined only to Bangladesh but in G8 and G22 countries. The geopolitical alignment now is a challenge to the neutrality of a sovereign country. Bangladesh is seeking USD 4.5 billion in loans to bolster its reserves and to hedge future foreign exchange crises. The issue of banking reforms, the burden on external loans, the trend in the trade deficit, volatility in the exchange rate, and adequacy of reserves are crucial in delineating the strength of the economy and weathering the exogenous crisis. Manifold irregularities in the banking sectors and default loan culture are a threat to sound monetary management and a few incidents reveal the gross negligence on the part of the top management in Bangladesh Bank in dealing with the cases. The litmus test of the major macro aggregates may be available in the report when the IMF mission leaves Bangladesh after the 15-day visit. The recent visit may be an eye-opener on many issues the executives need to address on a priority basis.
The writer teaches at BRAC University and BIDS as an adjunct Faculty in the Master’s Program in Economics. He can be contacted at [email protected]
