Home ›› 03 Nov 2022 ›› Editorial
The ongoing global economic crisis creates a negative impact on developing countries. The main export destination of these countries is the developed world. All the countries of the world will be affected by the economic crisis of the developed countries. According to the calculations of the International Monetary Fund (IMF), the GDP growth rate of almost all the countries of the world will decrease next year. Along with that, the rate of inflation may increase further.
Not only that, the recession prevailing due to high inflation due to an increase in policy interest rates across the world will reduce investment and increase unemployment. Due to these reasons, it is also feared that the price of labor will decrease. The IMF publishes its World Economic Outlook report twice a year. April and October. This time various analyzes are being published before the main report is published in October. Recently IMF warned about the impact of the war in Ukraine and the global recession.
The risks of global recession have increased. One-third of the world's countries are now going to enter a recession, if not this year, but next year. Instead of growing for two consecutive quarters, the economy will contract. Last year, the IMF estimated that the world economy could grow by 6.1 per cent this year. But now it looks like the growth will come down to 3.2 per cent, which may further decrease to 2.9 per cent next year. Even though the shock of Corona has started to be overcome, new crises have been created due to the impact of the war in Ukraine. Not only the rise in the prices of daily commodities but now there is a risk of money flowing from the developing world to the developed countries as the value of the dollar rises.
Explaining why the recession will come the report says that the real income of the people is decreasing due to the increase in the prices of daily commodities. An increase in the prices of fuel and commodities will reduce production. The ongoing economic crisis could cost the economy as much as $4 trillion by 2026. The amount of damage is equivalent to a large economy like Germany. However, the damage to the global economy is an estimate, this damage may be greater.
It should be noted that this prediction of the IMF comes at a time when oil-producing countries have announced to reduce their oil production. This announcement is going to give another shock to the economy. The Russia-Ukraine war has changed the situation just as the world is expected to move on from the shock of the corona pandemic. According to the IMF's analysis, China is yet to overcome pandemic-related obstacles at this time. On the other hand, as Russia supplies less gas to European countries, the economy there is also affected. On the other hand, the US economy is also slowing. Inflationary pressure has reduced consumer demand.
The IMF said, in this situation, it will be difficult for many countries to bring inflation under control, with the effect of which the economy of many countries will go into a long-term recession. In the current situation, the IMF chief said, now the main goal of countries should be to control inflation. But monetary policy can't be tightened that much. But many major countries are raising policy interest rates very quickly. If the cost of borrowing increases, it will reduce production. And if production decreases, unemployment will increase. As a result, a long-term crisis will be created. For this reason, inflation control measures should be taken step by step. Second, support for low-income people under inflationary pressures must be increased. Steps must be taken to transition from the rising cost of living. Benefits should be increased especially for low-income people. Third, concerted action must be taken for the developing world. Because almost all countries' currencies have depreciated against the dollar.
PM Sheikh Hasina came to a press conference on October 4 and said that she had talks with many state leaders and heads of international organisations at the UN. Almost all of them hinted to her that the coming year carried the risk of great depression for the rest of the world. It is clear that 'a global fear is that the year 2023 will be a year of great crisis. What can happen as a result? She said that food insecurity may be evident during the year. We need to prepare for that in advance. She has also said what that preparation could be. Agriculture is our protection in times of danger. So, whoever has the space, she suggested starting cultivation. She also talked about a separate budget for the agriculture sector to deal with the crisis.
Apart from providing food, agriculture also provides employment to more than 40 per cent of rural people. If agriculture does well, the non-agricultural sector also does well. Growing modern agriculture also provides the raw material for the industrial sector and the overall domestic demand of the country. As a result, there is no recession in the country. In 2009, the global financial crisis also occurred. But determined to deal with the crisis, the PM adopted an inclusive development strategy with special focus on agriculture, SMEs, exports and diaspora income; As a result, the people of Bangladesh did not get a glimpse of that global financial crisis. Development-oriented central bank at that time joined the government's ground-breaking development drive with financial inclusion strategy.
That inclusive development strategy has worked well to counter the economic shock of Covid-19. The government and the central bank jointly adopted a strategy of financial inclusion in the form of incentive programs. As a result, the economy of Bangladesh has not slowed down at all, rather, Bangladesh has gained a reputation as one of the most dynamic growth countries among developing and underdeveloped countries. Around 6 per cent of GDP is covered under these incentives including low-interest loans and social protection programs.
Still, Bangladesh has set the wheel of inclusive growth in motion by introducing special refinancing programs for agriculture and small entrepreneurs. While the World Bank and the IMF are keeping the growth around the world this year and next year at around 3 per cent, those institutions have highlighted in their economic projections that the growth rate of Bangladesh will be more than double in these two years. ADB says a little more than that. And Bangladesh hopes that its growth rate will not be less than 7 per cent during this period.
The big crisis of the moment is how to keep inflation under control. Not only Bangladesh, but the whole world is blowing this strong wind of inflation. Food inflation in particular is very aggressive. As a result, people's real income is decreasing. Poverty rate is also increasing. The source of this inflation is not internal. This import inflation is partly due to the disruption of international supply chains (especially shipping) due to Covid. Moreover, the Ukraine-Russia war has caused fuel, gas and edible oil as well as food prices to rise dramatically.
A large trade deficit had already appeared in Bangladesh due to the sudden increase in import costs. However, the Bangladesh Bank and the government have adopted many policies over the past few months aimed at controlling the import of luxury and less essential goods. Bangladesh has started reaping the benefits of prudent policies such as widening lending margins, closely monitoring high-value LCs, undertaking many austerity programs to reduce dollar consumption, and slowing the pace of implementation of unnecessary development projects.
In order to bring more dollars into the country from expatriates and foreign investors, Bangladesh has taken the initiative of major currency devaluation and easing of regulations. Hence trade deficit and current account deficit have come down considerably in the last three months. As a result, even after about a year, the trend of reserve depletion has stopped. Reserves have started increasing again, albeit slowly. Instead of multiple rates of the dollar, if we move towards a rate acceptable to all, it seems that the speed of expatriate and export income will increase. In the coming days, it is expected that the foreign exchange earnings will increase on the one hand and the import cost will decrease on the other hand. Together, the dollar-taka exchange rate will stabilize and reserves will gradually increase.
As the prime minister has said, agriculture should be given importance as our biggest defense. For that, apart from adequate budgetary support, loans on easy terms, expansion and marketing support should be provided. All kinds of policy support should be given to expanding agro-based industries as well as increase exports of agro-processed products.
To encourage banks to lend to small and medium enterprises, the government has allocated funds for a credit guarantee scheme through Bangladesh Bank. Solar pumps can also be availed under this scheme. Then the rate of investment in agriculture will increase. The budgetary allocation for this guarantee scheme can be increased if necessary. The initiative taken by Bangladesh Bank to provide loans without trade license under nano credit and digital finance for small businessmen is certainly commendable. Modern agricultural entrepreneurs should also be given this opportunity.
There is certainly an opportunity to introduce new smart policies by sitting down with all the stakeholders and reviewing the rules and regulations. Everyone should be patient during this crisis. Nothing can be done to cause panic in the market. We have developed many inclusive development policy strategies in our own country over a long period of time. Relying on these tried and tested policy frameworks, if we proceed with calculations, we will definitely be able to maintain the reputation of Bangladesh's development by facing the current recession or the future great recession.
The writer is a columnist and researcher. He can be contacted at [email protected]
