Political instability, economic uncertainty and social unrest are unfolding across Asia and Latin America, Africa and even Europe. European countries are struggling with an energy crisis and its effects are felt across the globe. Post-COVID slow recovery and recent inflation-led stalemate have aggravated the economic revitalization.
The COVID-19 pandemic has pulled the region’s developing economies into recession. Over the last 6 decades, the Asia Pacific region has witnessed a devastating fall and economic contraction. Asia is likely to see a drop of 3.8%. The bank’s Asian Development Outlook Update shows about three-quarters of the region’s economies are forecast to slump this year.
The last quarter of 2021 forecast in Asia for 2022 that South Asian growth would be 7.1% backed by better growth in India, and Bangladesh but the growth of Sri Lanka, Nepal and Bhutan was forecasted low and moderate. But, the forecast for April 2022 by IMF forecasted lower than that of ADB in Asia and the rest of the world. World GDP growth would be 3.6%, the U.S. growth 3.7% and China 4.4% and India 8.1% and the Sub-Saharan region 3.8% due to spiraling and unbridled inflation and hurt and broken supply chain system.
South Asian countries are largely integrated geographically and economically. 8 member countries including India, Bangladesh, Sri Lanka and the Maldives belong to both SAARC and SAFTA.
Any economic slowdown impacts other economies regionally with no exception to Bangladesh.
Extreme reliance on sovereign credit and external credit by Sri Lanka for infrastructural development and repercussions of external borrowing like lowering the supply of fuel, energy crisis, extreme devaluation of currency and broken food supply chain, higher unemployment as well poverty have weakened and halted the regular economic operations in Sri Lanka.
The unplanned economic development planning, sourcing fund and lack of pro people planning and post COVID stress have exposed more vulnerabilities in the economy. Chinese borrowing deals for projects were not win-win for Sri Lanka and were more unilateral. The foreign debt hits $12 billion with more than USD1600 per capita debt burden for an island economy. Against huge borrowing, local debt servicing, local economic failure and slump in local resource creations crippled the economic strength and hurt the economic easiness.
Sri Lanka had left with $2.31 billion in reserves but faces foreign debt at $12.55 billion. 17% hyperinflation, fuel price hike and inadequate supply have led to an extreme economic crisis. Delayed recovery from COVID and economic stress have enfeebled the economic revival trend in Pakistan and Sri Lanka. These two economies are undergoing stagflation featured by higher inflation, job cuts and poverty hike. This situation will upset regional growth, harmony, and shared development. The 15% uptick in food inflation, massive current account balance and diminishing foreign exchange reserve to $11 billion are adverse blows to economic stability. The prolonged economic crisis led to a deep political crisis ending up in a change in Government.
Pakistan is the only South Asian country showing its full-scale strategic significance to the region at this moment. Its foreign policy has shifted towards geo-economic from geo-strategy. The China-Pakistan Economic Corridor (CPEC) and Gwadar Port have added huge extra-regional value in this regard in terms of infrastructure and capacity, with the significance of this still poorly understood. However, what CPEC does is connect China’s Western Xinjiang Province to the Arabian Gulf in addition to giving access to Central Asia. Should the Afghanistan situation settle down it will further boost Pakistan’s infrastructure use.
Pakistan has been facing deep downfall in energy supply, growth and employment rate and a sharp hike in poverty and hyperinflation. Non-food inflation has heavily influenced their economic stability resulting in an economic slump. The consistent fall in the economic state over last year along with COVID stress hurt and hold back the desired economic stride.
The two-year-long persistent economic disruption has triggered serious hardship and unrest in two countries in the Indian subcontinent.
Since Bangladesh’s trade with Sri Lanka and Pakistan seems to be small, this would only have a small impact on our trade and market. Bangladesh’s total export to these nations is estimated to be over $100 million. Their unstable local market and supply chain will destabilize our cross-border trade. Meanwhile, port operation has been halted. As a result, our international trade using Sri Lankan port and route were largely hurt. If this continues, finding an alternative market could be difficult to meet our import needs. And, India can help to overcome this interim crisis.
However, our supply chain and regional value chain would be impacted since Bangladesh imports through Sri Lankan ports and disruption in Colombo port operations makes them vulnerable to an increase in costs and congestion issues.
Bangladesh, amidst the pandemic, realized consecutively 3.8% and 6.94% growth, USD2594 per capita income and double-digit export growth and healthy foreign exchange reserve and nicely turned around the economy from COVID devastation. Bangladesh is portrayed as the role model of resilience and development and precedent for COVID containment as it has tracked the economy back on the pre-COVID pace with firm and collective endeavor and spirit. This strong spirit and journey of revival must be relentless.
In this regard, the economic journey should be facilitated without any disruptions and regional economic crises and geo-economic challenges must be taken into account for our smooth economic expedition.
Our economic leadership has been proven unique and immensely remarkable with milestone achievements absorbing many critical macroeconomic episodes. The upcoming budget must consider some strategies, plans of action and indications to avoid the likely challenges of the regional economic crises.
Since the national budget is a critical policy instrument of a government, it must address some plans and measures to keep the effects minimum especially sharp fall of the exchange rate, reduction of external debt, deficit budget cut and lowering local banking led borrowing as well efficiency in expenditure budget. The consistent decline in inland revenue collection and soaring import costs due to weak Taka and Dollar Exchange rate, shipping costs and dry trend of remittance may weaken the economic state. Our inflation hike continues due to turbulent geo-economic state, broken supply, and global value chain challenges and this inflation hike must be contained to leverage and ease the business and living standards.
The prolonged economic instability led to political crises and other socioeconomic turmoil holding back the economic potential and advancement. For the protection of our foreign reserve, the REER of Taka against the USD needs to be minimum, and currency swap options and multiple currency preferences in foreign trade can be considered. Since Europe is forced to deal with trade negotiations in Rubel with Russia, Bangladesh may source LNG and other trade using the same currency as Taka is leading over Rubel. The graduation-led transition, regional economic crises and slow pace of post-economic revival along with inflationary pressure and increased cost of capital demand and compel us to wisely think and act with more caution to deal with unexpected and undeserving economic catastrophe. Both fiscal and monetary policy coordination has become critical to shielding our economy as they are very instrumental to steer economic functions.
Alongside, we must keep a close eye and learn the policy errors and decisions of Sri Lanka and Pakistan as experiences for fine-tuning our economy. We all stakeholders of the transitional economy need to work in tandem and set some result-oriented and durable planning and agenda to pave the way for overcoming all likely challenges for our progressive economic journey and achieving much-needed, game-changing economic transformation.