Bangladesh economy and global crisis
Food for thought. Photo: Amdadul Huq
THE contagion of global meltdown that started in the US has caught up with the others. George Soros, in his book The crash of 2008 and what it means, writes: "The size of the problem is even larger than it was in the 1930s. This can be seen from a simple calculation. Total credit outstanding was 160 percent of GDP in 1929, and it rose to 260 percent in 1932 due to the accumulation of debt and the decline of GDP. We entered into the Crash of 2008 at 365 percent, which is bound to rise to 500 percent or more by the time the full effect is felt. And this calculation does not take into account the pervasive use of derivatives, which was absent in the 1930s but immensely complicates the current situation." He blames the collapse of the "housing bubbles" for the financial crisis. Our export basket consists of a few items involving low technology and, with buyers' conservatism, the prices of our exportables are bound to come down further. The other foreign exchange earner, the remittance sent by our workers abroad, also faces uncertainty. Remittance will shrink. It is impossible to put figures to these variables as they depend on the evolving condition of the global economy. Since external factors appear to be unfavourable in the short term, Bangladesh has to develop its agriculture, which accounts for 30% of our GDP. Bangladesh has a mixed economy. Land is primarily owned by private individuals. The farmers are, however, dependant, on the government for agricultural inputs like diesel, fertilizer, seeds, etc. The government's decision to reduce the prices of most fertilizers and diesel has been welcomed by the farmers. The International Rice Research Institute does not hold out any hope of increased land for farming or any ease in the fertilizer market in the future. Given the increase in food prices, coupled with the tendency of some businessmen to reap abnormal profit, governmental intervention in the market has become a necessity. Bangladesh's food supply is threatened by flooding in some areas and drought in others. Typhoons and monsoons that routinely pummel Bangladesh are intensifying because of climate change. If nothing is done to curb greenhouse emissions, sea levels could climb more than three feet. If this happens, 15% of Bangladesh could gounder water. FAO/WFP crop and food supply report of August 2008 estimates that 56 million are "absolute poor," i.e. unable to acquire the minimum level of food required to maintain normal health; within this, 27 million were categorized as "hard core poor," i.e. unable to acquire two-thirds of the minimum level mentioned earlier; and 11 million as "ultra poor," i.e. unable to acquire half of the minimum requirement. Their number increased from 2000-2005 due to population growth. Our main export earners are readymade garments and remittance of Bangladeshi expatriates working abroad. EU and the US account for most of our exports and our remittance comes from the Middle East and the Western countries. As their economies are in still in recession the job loss in the main areas of employment is likely to continue. The government will have to take measures to extend tax net, apprehend tax dodgers, widen the export basket, widen the war on corruption etc., to make up for the expected loss of external revenue. Bangladesh has one of the lowest tax-GDP ratios in the world. Another way of state earning could be to expeditiously bring back into the country the money illegally stashed away by the rich and the powerful. The World Bank had estimated that the price hike, partly due to rise in international price of rice, has added four million Bangladeshis to the poor class. Bangladesh lost about two million metric tons of rice (7.3% of domestic production) in the twin floods of July-August and the cyclone in November 2007. Because Bangladesh is a net importer of rice low-income households spends 80% of their income on food. The World Rice Commerce 2008 Conference held price stability as the foundation for avoiding price volatility. Consequently, price reduction of essentials would be a great challenge for the government. The government appears determined to intervene in the market to destroy the syndicates that artificially raised the price of commodities. Reduction and eventual eradication of poverty would be a greater challenge for the government. FAO has put Bangladesh in a list of 31 countries that need food assistance in 2009. Most of the food insecure countries belong to the Third World. Of the food insecure LDC countries 11 are in high growth group with GDP growing at 6% or above, and include Afghanistan, Bangladesh and Myanmar in Asia. The report anticipates that the ongoing financial crisis could push more people into poverty and hunger. Intra-regional trade imbalance due to asymmetric trade relationship ignores the fact that the less developed have a far smaller export basket and their main focus of export is to the developed countries. Although Bangladesh's exports registered a growth of 10% last year, her export to India slipped more than 22% in the last fiscal year. Indian granting of duty free import of RMG could not materialise due to different tariff and non-tariff barriers, which need to be removed. Indo-Bangla trade gap is more than $2.5 billion. Average inflation rate has come down to 7.2% in the third quarter of the fiscal year. This primarily reflects a fall in food grain price due to good harvest. The minor recovery seen in the last quarter of 2008-09 was not sufficient to push up GDP growth rate beyond 5.8% of that year. The government should continue to provide subsidy to fertilizer, diesel and electricity. Some expansion took place in aggregate spending -- both private and public -- but underdeveloped infrastructure, irregular supply of electricity, and deteriorating law and order situation continue to contribute to low growth rate. While export of woven garments, knitwear, footwear and terry towels registered growth in Q4 of FY 09; growth of petroleum by-products, chemical products, textile fabrics, home textiles and ceramic products decelerated. The main hope for Bangladesh is that Prime Minister Sheikh Hasina will provide transformational leadership that will "induce followers to transcend their self-interest for the sake of the higher purpose of the group that provides the context of the relationship. Followers are thus inspired to undertake 'adaptive work' and do more than they originally expected based on self-interest alone." Kazi Anwarul Masud is a former Secretary and Ambassador .
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