Fear and anxiety about the option of a global recession is expanding lately around the world. The Russian invasion of Ukraine in February this year exacerbated pre-existing source-side disruptions and commodity market volatility caused by the pandemic. The global economy is experiencing a sharp decline. with a chain of sources interrupted and high inflation due to the double effect of these crises. There is very little policy space for countries to cope with slowing GDP expansion and accelerating value levels, as policies aimed at resolving one will worsen the other. Inflation policies have increased the burden of indebtedness, affecting the fiscal area of economies. Specifically, it will increase the debt of emerging markets and emerging economies (EMDEs), which were already facing a debt spike due to the pandemic. There are more domino effects of war, as food and energy prices have risen, outpacing the success of many people.
More problematic dangers may arise from further appreciation of the US dollar, further impacts on energy and food prices, and continued tight financial and fiscal policies. Russia may simply impede fuel trade in Europe, leading to a shortage of production, or the pandemic may simply resurface. In addition, the crisis in China’s real estate sector may disrupt the domestic banking sector, negatively affecting its growth. Its cross-border effects, as well as geopolitical tensions, can hamper trade, capital flows and cooperation on climate policies.
Bangladesh, as one of the EMDEs in Asia, is highly exposed to these risks. Unlike the recession of 2007-08, the global economic spikes are now hitting it particularly hard. There is a widening balance of payments (BOP) deficit and accelerating inflation driven by an increase in imports in the current part of FY22. The point-to-point inflation rate, according to the Bangladesh Bank, is 8 . 91% in October 2022, higher than the global inflation rate of 8. 8% (according to the IMF). Also, it may not look like the real situation because the weight to measure the inflation rate is based on data. Rising raw material costs led politicians to suppress imports, disrupting economic activities and causing a slowdown in economic expansion projections for the coming year. The World Bank and the International Monetary Fund (IMF) have revised their expansion projections for Bangladesh: for fiscal year 2022-23, the IMF projection is 6% in October from 6. 7% in April, and for the World Bank, is 6. 1% in October. 6. 7% in June.
Bangladesh is also experiencing a sharp drop in remittance earnings and rising imports lower the bill balance by outpacing export earnings. As a result, foreign exchange reserves fell to $35. 808 billion by the end of October 2022, the lowest level of the year according to the Bangladesh Bank. Policies pursued to deal with emerging force values, such as power cuts and force-intensive factory closures, can further exacerbate existing source constraints. The protective control of the exchange rate has led to the emergence of an informal dollar exchange market, which has rendered the improvement policies ineffective. According to a recent World Bank report on South Asia, from a fiscal point of view, the burden of subsidies for food and fertilizer has increased due to emerging food and fertilizer values. In addition, the accumulation in the value of fuel imports increased the burden of the fuel subsidy, which led to an accumulation in the value of fuel in the domestic market by 50% on average. According to World Bank projections, Bangladesh could face a budget deficit of 4. 1% of GDP in FY22 and 4. 9% in FY23.
In addition to the global crisis, Bangladesh has its own demanding situations to overcome. The country’s exit from LDCs in 2026 will bring several adjustments related to the market and monetary incentive programmes. We have a lower export-to-GDP ratio (less than 15%) than other low- and middle-income countries and comparators (e. g. Vietnam). The export basket is also not diversified, and relies heavily on GMR products. In the case of imports, Bangladesh has a protective tariff regime, which erodes competitiveness and reduces the chances of export survival. Non-tariff barriers and inefficient border processes also hamper our trade.
Lagging behind its competitors, Bangladesh’s monetary sector ranks 95th out of 184 countries in the IMF’s Global Financial Development Index. The pandemic has amplified secular vulnerabilities in the banking sector, such as low levels of capital, weak governance, problematic asset quality, etc. Financing infrastructure, housing and climate adaptation. As one of the most climate-vulnerable and disaster-prone countries in the world, Bangladesh suffers due to the effect of its natural hazards, such as the main threat of floods and cyclones.
Demanding situations in development may not fully offset some of the positive symptoms of our economy. The poverty rate in Bangladesh is expected to be minimized in 2022 and 2023 (World Bank, 2022). Foreign exchange reserves, although declining, have not yet reached an alarming level. Bangladesh suffers fewer negative effects than its larger neighbors, as it basically exports textiles and clothing, which are less delicate to order in high-income countries. Bangladesh has noticed an uptick in migration flows as 600,000 jobs abroad in the first six months of 2022, up from 617,000 in 2021. However, the maximum remittances from them are not reflected in foreign exchange reserves, since most of them come informally (hundi).
The significant progression of FinTech in Bangladesh has allowed banks to perceive the threat of credit and consider affordable loans for small businesses in rural communities and credit flows. Most importantly, the main progression of shipping connectivity – for example, the final touch and inauguration of the Padma Bridge – will better integrate municipalities, as well as the domestic and foreign industrial fabric.
In this scenario, making government spending efficient, getting rid of supply chain flaws, rationalizing exchange rates, facilitating exports, managing the lending rate, and increasing competitiveness may be appropriate tactics to prepare for the most likely recession.