Home ›› 07 Nov 2022 ›› Opinion
International Monetary Fund has recently predicted that Bangladesh would see no respite from the current account balance deficit anytime soon. The country will continue to bear the brunt of this deficit till 2027. As per the data of Bangladesh Bank, the deficit leapt to $18.7 billion in the 2021-22 fiscal year. The deficit was caused due to high import and diminishing export putting a dent in the foreign currency reserve. If the trend continues the government has to spend more from its reserve for import. And that is the case happening in the country for quite a long time.
As the government continued to depend excessively on import this account deficit has widened. In the month of August of 2021 the country had a foreign currency reserve of $48 billion. The reserve dropped to $35.98 billion as of October this year. This is an ominous sign for the country.
The government has thought it prudent to try and reach out to foreign lenders to solve its problem. In July Bangladesh sought $4.5 billion from IMF, $1 billion dollar from the World Bank and another $1 billion dollar from ADB as a preemptive move to avert a Sri Lanka like situation. Ironically in 2021, the country celebrated its economic achievements and boasted that per capital income had overtaken India’s. The boasting has evaporated without the government coming up with any plausible explanation for such deep economic crisis.
The rising energy cost is wreaking havoc on the economy while a few days back the high-ups of the government declared with pride that load-shedding was a matter of the past. It was predicted by the country’s energy experts that the country was heading towards energy crisis. But the authorities concerned didn’t delve deeper into the looming crisis.
Bangladesh has no shortage of gas
Bangladesh has to heavily depend on 57 per cent of its natural gas, 17 percent of its biomass, 13 per cent of its coal and 12 per cent of its oil for energy sources. Natural gas is the key source of energy for the country. The policymakers didn’t go for new exploration although the country is still rich in natural gas as it comprises one of the largest deltas in the world. Large-scale exploration has not been carried out over the past 20 years. The gas reserve in the existing gas fields began to dwindle in 2016-17. The country should have gone for digging exploratory wells to explore new gas fields but it didn’t do that; rather the policymakers thought they could easily avert the crisis by importing Liquefied Natural Gas (LNG). Why was such a decision taken has never been explained but the question is blowing in the wind.
When the country began to buy LNG from international market the Ukraine-Russia war began creating a schism between Russia and European countries that used to heavily depend on Russian fuel and energy. The war pushed up the LNG price as the European countries began to scramble to purchase LNG making it difficult for the poor country like Bangladesh to penetrate into the LNG market.
Again gas shipment is hard to find while Europe is scooping up natural gas by paying more money. A country like Bangladesh can do two things – either it has to cut down usages or buy gas at almost 10 times higher rate from the spot markets that will eventually result in widening trade deficit.
In the last financial year Bangladesh’s trade deficit rose to $33 billion. It means Bangladesh is importing way more than it is exporting. When a country imports more than it exports naturally its foreign exchange reserve plummets. Even the garment sector that constitutes 84 per cent of the country’s export worth nearly $34-$35 billion couldn’t protect the economy. Many global clothing brands order for their brand items to Bangladeshi garment factories. But that demand too came down because of the war. Again energy crisis in the country compounded the problems as energy was too expensive.
Bangladesh’s garment factories work on highly competitive budget. If the energy cost is too high the output comes down. Add to that, there is power cut that has forced garment factories to use generators for hours a day. Expensive energy along with growing inflation globally, especially in Europe, has slowed down the production. Food and fuel is now the main concern, not the branded clothes leading to dollar crisis.
Will IMF loan help or hinder growth?
To come out of the crisis the steps the government has taken seems to be more suicidal. I have already mentioned that it sought a loan of $4.5 billion from IMF as a bail-out package. Presumably this loan, if granted, may help the country to keep its economy afloat for the time being. However, in the long run it has to ultimately repay the loan. The question is how it is going to do that. We have had many instance of IMF loan given to many of the countries of the world who have eventually never been able to come out of the vicious cycle of debt net of IMF.
Before looking at the scenario of what is coming next we must look into the IMF programmes. The IMF high-ups have never hidden their purposes. From many of their interviews and writings it is clear that it is an international bank that invest money in the name of helping poor and distressed people. IMF says it is not in the charity business. It is a financial institution. The money it uses is the money from other countries. IMF is a kind of credit union. All the countries of the world are putting money to help those in trouble but they want to be repaid. There is no way for these countries to say that IMF is going to give the money without being repaid. Put simply, it doesn’t grant any aid to elevate people from poverty.
Then what does it do before granting any loan? It sets a series of conditions for the loan receiver country. Most of the conditions usually go against public interest as its key purpose is to make sure the country that is granted loan will be able to repay. When a country is in economic distress for which it seeks loan it is very difficult for it to repay the loan. That is the reason why IMF set conditions to put pressure on the government to cut public spending to make sure it can save enough to pay off. The conditions also include some positive steps but mostly they squeeze money out of the pockets of poor people pushing the country into further crisis.
Pakistan was in debt to the tune of $500 million. It was given $450 million after the flood in 2010. After a devastating earthquake in Haiti the same year it was also granted loan. As Haiti was unable to pay back the loan was forgiven. But again it was given $60 million. Such fresh loan exacerbated the cycle of deficit and poverty both in Haiti and Pakistan. Numerous such examples can be cited. A 10-member IMF team is now in Bangladesh to strike the deal for a loan of $4.5 billion. Is Bangladesh going to walk into the same trap or can it make the best use of the loan to heal its troubled economy?
The writer is a journalist. He can be contacted at maksud.i.rahaman@gmail.com
