Can Bangladesh avoid the impacts of global financial recession?

A recession is a significant slowdown or contraction in economic activity. A significant drop in spending usually results in a recession. A recession is generally defined as two consecutive quarters of declining gross domestic product (GDP). Economic output, consumer demand, and employment typically fall during recessions.

The global economy was on the verge of a slowdown as 2022 approached. As inflation raged, central banks accelerated monetary policy tightening to slow aggregate demand growth and ease price pressures. Two shocks intervened: Russia’s invasion of Ukraine on February 24 and mainland Chinese lockdowns in response to a March-April surge in COVID-19 cases. These shocks disrupted supply chains, raising costs. Rising energy and food prices hampered consumer spending and sentiment.

Bangladesh has a strong history of growth and development, even in times of high global uncertainty. Bangladesh, like many other nations, is experiencing economic difficulties on a worldwide scale. In the second half of FY22, rising commodity prices and increased imports led to a widening balance of payments (BoP) deficit and accelerated inflation. As a result, foreign exchange reserves decreased to $36.4 billion by September 30, 2022. Real GDP growth is anticipated to decelerate in FY23 as import restrictions disrupt economic activity.

The World Bank has warned that global interest rate increases by central banks in 2023 could trigger a worldwide recession. A few months ago, the World Bank and the International Monetary Fund (IMF) independently predicted a global recession in 2023.

Now a question arises: Will the global financial recession inevitably affect Bangladesh in 2023?

Well, the answer could be “ NO.” There is a “flimsy path” to avoid a sharp downturn and even a global recession, which is a possibility. The central bank and other policymakers will need to formulate effective policies, and they will also need a good fortune. Bangladesh must take the initiative to avoid the global recession. If not, a recession is inevitable.

According to Planning Minister MA Mannan, Bangladesh will undoubtedly be affected by a global economic downturn. However, it will not have the same effect on our country as other powerful countries. He added because Bangladesh’s economy is not as interdependent with the world’s leading economies.

For economic stability, Bangladesh must undertake the following steps.

Efficient ways of Reducing Inflation:

Bangladesh Bank has hiked its key policy rate three times in four months in a desperate attempt to control inflation by putting pressure on cash flow. Instead, private-sector borrowing has increased as the cap on the interest rate has remained in place. But it didn’t work out due to the same interest rate. Central Bank can raise the key interest rate, also known as the repurchase agreement. To control the money supply, The repo rate is the interest rate at which the central bank lends money to commercial banks when funds are low. Raising the repo rate makes it more expensive for commercial banks to borrow, increasing the cost of loans and limiting the money supply. Even Bangladesh Bank can increase the interest rate for a commercial loan from 9 per cent to 12 per cent for a certain time, which will eventually help to reduce the money supply in our country. Both ways can be done cautiously to stabilize the economy.

Efficient use of current lands and ensuring no foods are hampered: 

Despite high population density, diminishing arable land, and frequent natural disasters, Bangladesh has made remarkable strides toward food security. Almost half of the population is employed in agriculture. Existing land is not enough to produce enough food for 165 million people, yet people have to use land capacity for maximum production to reduce their dependency on foreign countries. Countries like ours are experiencing extreme temperatures, which may continue to rise. If this occurs, our normal crop production may be severely hampered. The current extreme weather is, without a doubt, cause for concern. Keeping that in mind, we must ensure that our agricultural production does not suffer.

Efficient use of current Energy and available alternative best options:

In March 2022, the entire nation had access to electricity, but in July 2022, load shedding began. In July, BPDB’s average daily power generation was 12,000 MW, compared to a daily demand of approximately 14,000 MW. The current disruption in power generation in Bangladesh is primarily due to a lack of electricity supply and gas. Coal-fired power appears to be becoming more expensive in comparison to renewable energy. Dhaka should boost renewables and energy efficiency. According to the Export Promotion Bureau, Bangladesh’s RMG exports fell 7.52 percent in September for the first time in 13 months. Exporters and experts predict a further drop due to production disruption. Wind and solar, which require no fuel and improve energy security, are important in the current energy crisis. This will help retain foreign reserves. Strategic planning and decisive action are needed to improve energy-sector management, eliminate costly rental power systems, and reduce reliance on external sources. Bangladesh’s situation will deteriorate if energy prices remain volatile. Taking on new projects would also be challenging for the nation. The ongoing projects must be completed as soon as possible. Universal Jeans has utilized a renewable solar power plant in Narayanganj for many years. It has a capacity of roughly 707.96KwP. It actually provides 10 per cent of their daily energy. Meghna Ceramic Industry employs the same strategy. They are receiving approximately 13.7 MW per day. Both factories are contemplating increasing their expenditures in order to become energy independent. Our nation is largely dependent on exports, with the RMG and textile industries contributing more than 80.6 per cent of total exports, totaling $19.90 billion. Bangladesh may save a substantial amount of foreign currency if all factories adopt solar power.

Efficiently reducing labor-market constraints:

Policy measures must help to increase labour-force participation while also reducing price pressures. Labour-market policies can help displaced workers find new jobs. Only then, during a recession, unemployment can be reduced.

Bangladesh must plan ahead to deal with a global economic downturn and the impending crisis. The country’s $416 billion economy has long been among the fastest-growing in the world, but rising oil, gas, and food costs caused by the Russia-Ukraine war have increased its import bill and current account deficit. To address these issues, the government should make decisions as soon as possible to avoid a global recession.

The writer is a freelance contributor. He can be contacted at mahadi.hassan5@northsouth.edu