Home ›› 24 Dec 2022 ›› Opinion
Since the war between Russia and Ukraine began on February 24, 2022, the global economy has entered a new terrain of uncertainty. The war-induced challenges have surfaced on various fronts. With global economic integration, a crisis of such nature, which involves a country like Russia, is bound to impact other economies.
Bangladesh’s economic miracle is under severe strain as fuel price hikes amplify public frustrations over rising costs for food and other necessities. Bangladesh has a strong track record of growth and development, even in times of elevated global uncertainty. A robust demographic dividend, strong ready-made garment exports, resilient remittance inflows, and stable macroeconomic conditions have supported rapid economic growth over the past two decades. A strong recovery from the Covid-19 pandemic continued in FY22, although a recent surge in commodity prices has presented new headwinds. There are many issues that require countries coming and working together and which is why the G20 plays a very important role at this point. India having the presidency is really critical to this. India has been championing the Global South to make sure that sufficient financing is going to low income countries and that is going to be very critical looking ahead. Given the tough landscape, India certainly is doing relatively well and it has had a few quarters of 4-6 per cent growth and that helps in terms of again closing the gap from the sharp contraction that happened in 2020 in terms of coming back to the pre pandemic path. We have seen private consumption recover well in India, investment doing well and we expect investment to be an important engine of growth going forward.
Indeed the world is going through a challenging period, there are many big issues that require global cooperation. If I were to just name some, one would be food and energy security the other is issues of debt.
We are seeing what happened with the crypto landscape. If there is action to be taken on that front, it will require international coordination.We have looked at the global outlook and the main challenges that the world faces. Again in the issue of food and energy security, there have been important steps that are being taken that have come out to work at the G20.This comes from Indonesia’s presidency but it will be taken over by India to ensure that there are no restrictions on exports of goods and food coming out of countries, minimising supply disruptions and finding a way to keep energy prices stable to avoid the tremendous volatility that we have seen around the world. All of that is important to deal with the cost of living crisis that we are seeing. The second is on the debt front. About 60 per cent of low income countries are either already in debt stress or in high risk of debt stress. The G20 produces the common framework to help countries resolve this debt problem and progress has been made with a couple of countries. But a lot more needs to be done and India is on the forefront of pushing for concrete actions to get much faster debt resolution for countries. Sustainable finance is a big part of what we need in cooperation in terms of climate finance, again especially for the Global South. We are also making sure that technology transfers happen. These are all the issues which could not happen if we did not get all the relevant countries in the room to have these discussions. Absolutely, it is a key part of the agenda because every single country cannot deal with this problem on its own because the borders in that sense are porous.
Bangladesh are working very closely with India on coming up with principles on what regulations might look like but more importantly, in terms of what the consequences can be for the macro economy, how it affects cross border capital flows, the risks in monetary sovereignty and so on.I think it is interesting you referred to it as a problem because the central bank in India definitely sees crypto as a problem. Is that a view you share because this is something that has divided people? There are crypto zealots who believe it is the next coming and those who think it is going to destroy the financial system. The way I think about it is there is the technology that underlies a lot of these new financial instruments, the cryptography, the blockchain technology that underlies it, has the potential of solving some of the problems that we have grappled with including cross border payments and financial inclusion. You can have smart contracts because if you tokenise money, you can have much more smart contracts that help in terms of issues of governance. There is a promise of technology but that said, the manifestation of that in the current form is seen with the meltdown in the markets. Without the regulation, it is like the wild west and very highly valued companies basically were not following the right practices and we have seen the meltdown that followed. The last world economic outlook that the IMF put out did another downgrade of global growth to 2.7 per cent. Your next numbers will be out early next year. Is it going to look worse? Is 2023 going to be worse than expected earlier? It is still a little early to pin that down. Compared to October, the third quarter of this year for the US and Europe turned out to be better than expected for a few other countries too.
So the global outlook was in some sense appraised on the upside but the fourth quarter high frequency data is in line with the slowing that we are projecting for next year and the country for which we have had the most significant deterioration in the outlook has been China.Just in terms of the numbers that we are seeing and the high frequency has implications for what we will do with the numbers going forward. The reason we think next year is going to be worse than this year is because that is when we really see the consequences of all the monetary policy tightening that has happened around the world because as we know empirically it affects it with the lag and we will see that happening next year; but there is still a lot of uncertainty. I think the energy markets are still a source of a risk, we could see prices going up or down, there is a lot of volatility that can come in through that again China’s economy, how it performs is again a source of uncertainty but we will have numbers in January.Energy prices are coming down because people expect a global recession and that is not the best way to bring prices down; being able to increase supply would be better way of bringing crude prices down but yes, for countries that are energy importers, the decline in prices will certainly help. Many countries that are commodity exporters and there are several emerging and developing economies in that space will now find themselves more exposed to global financial conditions and the tightening that we are seeing because what we are seeing recently that the countries that are oil exporters have been somewhat shielded while the, importers have been more affected by it, including when it comes to their currencies.
The writer is a researcher based in the UK
