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The economic crisis, abandonment of political/ministerial positions by politicians, and the long protests in Sri Lanka are widely known today.
With its debt restructuring on one hand while the UN's claim about children sleeping hungry in the island nation on the other, Sri Lanka serves as an example of how a country should not be managed.
Recently, one of our neighbors has also been facing economic trouble, so we at Jobaaj must ask this question: Is Bangladesh going Sri Lanka's way?
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What is happening in Bangladesh?
Seeing Bangladesh in an economic crisis is not something anyone would've believed 3 months ago when Bangladesh's per capita income was reported to be $280 higher than India's!
Bangladesh was surpassing all its neighbors in several economic and human development metrics.
However, the issues first began as oil prices surged due to the Russia-Ukraine war. Bangladesh is highly dependent on natural gas for the production of electricity, with some estimates suggesting over 60% of energy production through the same.
How bad is it?
Bangladesh, which was considered one of the fastest growing economies in the world, began witnessing protests due to the sharp hike in fuel prices. Prices of diesel and kerosene had jumped 43% while petrol a massive 51% as inflation has been above 7% since July.
Protests have erupted throughout the nation as several people, including student bodies, have held rallies to protest against the price hike. Some reports also suggested that some buses were overcharging customers, adding insult to injury.
The country's foreign exchange reserves had fallen well below $39.6 billion by the end of July 2022, falling below the $40 billion mark for the first time in history. It's lowest ever against $48 billion+ in August 2021, its highest ever.
Supply chain disruptions caused by the pandemic, spike in energy prices caused by the Russia-Ukraine war & adverse weather conditions causing floods are some of the main factors. Moreover, the rising demand for dollars dealt a serious blow to its currency.
The Bangladeshi Taka (BDT) has been depreciating ever since mid-May, 2022 as it fell from $1= BDT 86.61 to $1= BDT 95.09 at the end of August 2022! During this time period, $1 reached ₹79.73 from ₹77.55, preventing a decline as severe as the BDT.
What is Bangladesh doing to improve its condition?
At the end of July, the Bangladesh government approached the IMF for a $4.5 billion bailout package to tackle its depreciating economic situation. At the time, the nation was witnessing long blackouts on a daily basis, its balance of payments was negative, and it had a current account deficit of nearly $18.7 billion (in the financial year to June 2022).
Several austerity measures have been introduced which include power rationing, limiting foreign travel by government officials, and a ban on nonessentials/luxuries. Recently, the government announced that it would be reducing school by one day a week and reducing the working hours in government offices in a bid to reduce the load on its electricity grid. This comes after a daily 2-hour electricity outage. Moreover, the country is also looking to buy cheap fuel from Russia.
Normally the nation purchases oil from West Asian countries. However, its dwindling foreign reserves, rising fuel prices, and the relatively generous offer from Russneft, a Russian oil company, offering refined oil at $59 per barrel have forced Bangladesh to consider the transaction.
But, there are several things Bangladesh has to consider before it accepts any oil deals from Russia. With the country looking to the IMF for help, any dealings with Russia might be viewed adversely. Moreover, the trade will be difficult due to Russia's exclusion from the SWIFT banking system. Furthermore, transporting the shipment would also be a challenge since several shipping companies have stopped catering to Russian ports.
Is Bangladesh destined to go down?
Bangladesh is the third country in the region, after Sri Lanka and Pakistan, to approach the IMF for a bailout. However, Bangladesh may just make it through. Firstly, the country owes $4 billion or 6% of its external debt to China, which is much lower than Pakistan and Sri Lanka, effectively managing its position with China.
Secondly, the country did take on ambitious projects like the Padma bridge, but all their projects were those with immediate economic effects, unlike Sri Lanka's Hambantota Port which wasn't commercially viable.
Lastly, Bangladesh's economic management is much more integrated and dependent on several things, unlike Sri Lanka's dependence on tourism or Pakistan's defense-based approach. Adding on to this, the country has maintained a certain level of inflation and acted faster to resolve its crisis. Furthermore, Bangladesh did not wait for the crisis to fester as it approached the IMF as soon as it could.
We hope our neighbor recovers from this crisis soon & so does the overall global economy. The global economic downturn will spare no country & ultimately India will also have to face the heat.
Report by Jobaaj.
This news piece is brought to you in association with Jobaaj.com
