Previously ranked as the 41st largest economy in the world and the second largest in South Asia, the nation's economic status has deteriorated recently due to factors including inflation, a deficit in foreign reserves, defaulted loans, foreign debt, and a trade deficit, lastly an energy crisis.
Furthermore, numerous doubts regarding Bangladesh's dire predicament are being raised in the public consciousness as a result of the recent bankruptcy of Sri Lanka, an earlier economic powerhouse. The government's lackluster performance during these challenging times has drawn criticism on social media.
Although Bangladesh's economy has been in a downturn for a while, the confrontation between Russia and Ukraine makes its effects quite visible. More than 80% of Bangladesh's requirements for wheat and maize are covered by imports. Only about half of this is imported from silos in Russia and Ukraine. Then when the war started, that industry was crippled.
However, Bangladesh has recently purchased wheat from several suppliers, including Australia and India. Unfortunately, it is insufficient to address the current food crisis and the government's food supply is currently in highly catastrophic condition.
There are currently roughly $38 billion in reserves that have plummeted by $10 billion in just seven to eight months, which is a highly terrifying prospect for the nation's economy. Due to its new monetary strategy and the high inflation in the economy, Bangladesh Bank eventually sold a sizable amount of dollars to preserve the value of money.
In the meantime, Bangladesh's fiscal year 20-21 saw the biggest trade imbalance in the country's history, amounting to nearly $30 billion. The Bangladesh Bank lost its dollar reserves because it was unable to eliminate this trade deficit.
The energy crisis has given a new dimension to this worst situation. The most recent and severe energy crisis is currently affecting the entire world. The present situation is worse than it was during the Arab oil embargo in 1973.A national budget is not only a document of allocation of funds to various sectors but also an outline of the country's economic activities, and an overall management philosophy.
There is currently no roadmap in place for the nation's approach to supplying its energy requirements. Inflation and fuel prices are inextricably linked. The inflation situation in Bangladesh is now skyrocketed.
The government is organizing load shedding to reduce this need for additional electricity demand and preparing to close gas stations at least once a week. Bangladesh ceased purchasing LNG from the open market or the spot market after the Ukraine-Russian conflict broke out because of the price increase on the global market. The decision has made the energy issue even worse.
Commercial banks are not enabling importers and exporters to open LC (Letters of Credit) because they do not have enough dollar reserves. The entire procedure of import and export is impeded. Regarding importing fuel, it was previously observed that BPC (Bangladesh Petroleum Corporation) opened 16-18 LCs per month, the majority of which were through three state-owned banks. Between November and April, however, Sonali Bank did not open any LCs. The Sonali Bank's strategy is being adopted by other institutions as well.
Furthermore, the state of foreign debt is practically unsustainable. Analysing the relevant data of the Ministry of Finance of Bangladesh, it can be seen that the amount of foreign debt has increased by about 58 percent in the last financial year.
Bangladesh currently owes $121 billion or so on its international debt. The analysis shows that the amount of foreign loans taken in the last 39 years since the inception of Bangladesh has increased two and a half times in the last 10 years.
Due to the current rate of expansion, analysts predict that the debt burden will rise over time. Several of the nation's big projects have recently come under harsh criticism. Additionally, experts include the nuclear power project, the railway route over the Padma Bridge, the Dohazari to Cox's Bazar Railway Line, and the Payra Sea Port as white elephant projects. Many claim that by borrowing money through foreign loans without considering their rate of return, the government is unnecessarily spending money on them which is increasing the total quantity of foreign debt.
The IMF estimated that Bangladesh's defaulted loan in 2019 was over Tk 3 lakh crore. There will surely be an increase in defaulted liabilities in March 2022, which will total at least Tk4 lakh crore. But the defaulted loan was 1 lakh 13 thousand crore taka, according to data provided by Bangladesh Bank. It makes sense that there is a loophole.
Surprisingly, even after not repaying the loan, the defaulters are being given various benefits such as a reduction of interest, an extension of tenure, etc. It has been seen that after receiving these benefits, they no longer repay the loan; rather, they believe that only by defaulting they will receive additional advantages. Inevitably, the number of debt defaulters is growing as a result.
According to the IMF's projection, Bangladesh, Pakistan, Laos, and the Maldives may soon discover themselves in a similar predicament to Sri Lanka.
The state of the nation continues to worry economists considerably. They are making several recommendations to the government to facilitate this crisis. They contend that the lessons we can learn from Sri Lanka's experience are cost reduction in large-scale projects, avoiding resource waste, and effective project prioritizing.
Moreover, they suggested that in the upcoming days our development, expenditure should be much more economical and revenue collection should be strengthened. They asked the government to focus on accelerating the recovery of the economy and not just looking at the growth of GDP.
In plainer terms, however, it must be acknowledged that the economy will face a terrible catastrophe shortly if the government is unable to implement an effective monetary and fiscal policy soon and deal with the currency and oil crises.
Writer is a student, Department of Economics University of Chittagong
