Bangladesh was once one of the fastest growing economies in the world!
Now the country is heading towards a Sri Lanka-style ECONOMIC CRISIS
THREAD: The fall of the Bangladesh economy and the reasons behind it.
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Now the country is heading towards a Sri Lanka-style ECONOMIC CRISIS
THREAD: The fall of the Bangladesh economy and the reasons behind it.
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All of us are very well aware of the recent Sri-Lankan economic crisis-
series of bad decisions, political turmoil and day-to-day hardships of the common man.
And now, another one of our neighbours is falling into an economic downward spiral.
series of bad decisions, political turmoil and day-to-day hardships of the common man.
And now, another one of our neighbours is falling into an economic downward spiral.
YES! Exactly.
We're talking about
-- B A N G L A D E S H.
We've broken the entire situation of this 'Land of rivers' in a very easy-to-understand way for you.
We're talking about
-- B A N G L A D E S H.
We've broken the entire situation of this 'Land of rivers' in a very easy-to-understand way for you.
The main problem that Bangladesh is facing is the problem of
-- DEBT & DEFICIT.
You see, the Bangladeshi economy is dependent on garment manufacturing up to a great extent.
Production of garments is 1/3rd of their total industrial production.
-- DEBT & DEFICIT.
You see, the Bangladeshi economy is dependent on garment manufacturing up to a great extent.
Production of garments is 1/3rd of their total industrial production.
But with the outbreak of the Covid-19 virus, the production and distribution system of this nation fell apart.
On top of that, the Russia-Ukraine war made things worse.
Let's see how:
On top of that, the Russia-Ukraine war made things worse.
Let's see how:
1. INCREASING IMPORTS
- Bangladesh has always been an import-dependent country.
- It imports raw materials (textiles) for garment production, petroleum & oil, iron & steel, chemicals, wheat etc.
- Imports became more expensive with the outbreak of the Covid-19 virus.
- Bangladesh has always been an import-dependent country.
- It imports raw materials (textiles) for garment production, petroleum & oil, iron & steel, chemicals, wheat etc.
- Imports became more expensive with the outbreak of the Covid-19 virus.
- But Bangladesh's economic recovery was commendable.
- Their import costs increased by 43.9% in the past 9 months compared to last year and now it is $68.67 B.
- OUTCOME?
Their imports are rising at a faster pace than their exports.
- Their import costs increased by 43.9% in the past 9 months compared to last year and now it is $68.67 B.
- OUTCOME?
Their imports are rising at a faster pace than their exports.
2. REDUCED PACE OF EXPORTS
- Bangladesh's exports are rising, but NOT at an increasing rate.
- They majorly export fully-manufactured garments to all the major countries.
- But now, with the rising cost of raw material, the cost of stitched garments is also INCREASING.
- Bangladesh's exports are rising, but NOT at an increasing rate.
- They majorly export fully-manufactured garments to all the major countries.
- But now, with the rising cost of raw material, the cost of stitched garments is also INCREASING.
- This is lowering the demand for garments in the international markets.
- OUTCOME?
The slower pace of increase in exports.
- OUTCOME?
The slower pace of increase in exports.
3. WIDENED TRADE DEFICIT
- Trade Deficit is the amount by which the country's imports exceed its exports.
Imports - Exports = Trade Deficit
- Do you know the current trade deficit of Bangladesh? It's $27.56 B whereas it was $2.28 B in FY 21!!!!
- Trade Deficit is the amount by which the country's imports exceed its exports.
Imports - Exports = Trade Deficit
- Do you know the current trade deficit of Bangladesh? It's $27.56 B whereas it was $2.28 B in FY 21!!!!
Now, why are we discussing the trade deficit?
- A trade deficit reduces the income for domestic workers and national savings because the major portion of the national income gets spent on import payments.
- This hampers the wealth creation process of a country.
- A trade deficit reduces the income for domestic workers and national savings because the major portion of the national income gets spent on import payments.
- This hampers the wealth creation process of a country.
- So to reduce the deficit, they need to increase their exports and remittances.
- And the imports of unnecessary and luxury items need to be reduced.
- And the imports of unnecessary and luxury items need to be reduced.
4. FALLING FORIEGN EXCHANGE RESERVES
- Bangladesh's forex reserve fell to $39.67 B in July from $45.5 B earlier this year.
- It is a direct consequence of the rising trade deficit of this country.
- Bangladesh's forex reserve fell to $39.67 B in July from $45.5 B earlier this year.
- It is a direct consequence of the rising trade deficit of this country.
- Maintaining a healthy forex reserve is very important because it stabilizes the exchange rate and financial markets of a country.
- These reserves are assets for Central Banks, and depleting assets is always bad news.
- This also causes devaluation of the national currency.
- These reserves are assets for Central Banks, and depleting assets is always bad news.
- This also causes devaluation of the national currency.
5. DEVALUATION OF CURRENCY
- The decline in the inflow of remittances by Bangladeshi workers and a rise in import payments is depreciating the country's currency- TAKA.
- Moreover, their central bank is using its forex reserve to stabilize the value of TAKA against the dollar.
- The decline in the inflow of remittances by Bangladeshi workers and a rise in import payments is depreciating the country's currency- TAKA.
- Moreover, their central bank is using its forex reserve to stabilize the value of TAKA against the dollar.
- A weak domestic currency makes:
a) imports-EXPENSIVE and;
b) exports- CHEAPER in the global market.
- This tends to improve the trade deficit of a country
a) imports-EXPENSIVE and;
b) exports- CHEAPER in the global market.
- This tends to improve the trade deficit of a country
- On the one hand devaluation of currency encourages foreign investors to invest their money in a country.
- And on the other hand,d it increases inflation and reduces the purchasing power of the country's residents.
- And on the other hand,d it increases inflation and reduces the purchasing power of the country's residents.
6. BAD INVESTMENT DECISIONS
- Bangladesh has taken some foreign loans in recent years to develop some expensive but unprofitable mega projects- like nuclear power plants and bridges.
- The country needs to pay $4 B per year instalments to repay its loans.
- Bangladesh has taken some foreign loans in recent years to develop some expensive but unprofitable mega projects- like nuclear power plants and bridges.
- The country needs to pay $4 B per year instalments to repay its loans.
- But they might not be able to repay these loans on time due to a shortage of income from these mega projects.
- So they don't have any room for negligence, corruption and delay in these projects because that will further increase the cost of these projects.
- So they don't have any room for negligence, corruption and delay in these projects because that will further increase the cost of these projects.
7. INCREASING INFLATION
- Last but not least, increasing inflation always is the core factor of every economic crisis.
- General price level increased due to the rise in the price of crude oil, which increased after the commencement of the war between Russia and Ukraine.
- Last but not least, increasing inflation always is the core factor of every economic crisis.
- General price level increased due to the rise in the price of crude oil, which increased after the commencement of the war between Russia and Ukraine.
- Bangladesh govt. announced price hike of fuel by 51.7%, which will in turn increase the price of every single commodity of their economy.
- This will further reduce the household savings and investments in Bangladesh.
- This will further reduce the household savings and investments in Bangladesh.
- Bangladesh govt. announced price hike of fuel by 51.7%, which will in turn increase the price of every single commodity of their economy.
- This will further reduce the household savings and investments in Bangladesh.
- This will further reduce the household savings and investments in Bangladesh.
We factor in a lot of economic variables while taking decisions for a country but only the poor people suffer its consequences.
The virtue of every country and its citizens lies in the hands of its govt. and their management.
The virtue of every country and its citizens lies in the hands of its govt. and their management.
GOOD GOVERNANCE IS THE NEED OF THE HOUR FOR BANGLADESH.
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