A global recession is a period of
global economic slowdown. The International Monetary Fund (IMF) takes
many factors into account when defining a global recession, but it states that
global economic growth of 3 percent or less is “equivalent to a global
Informally, a national recession is
a period of declining productivity. In a 1974 New York Times article, Julius Shiskin suggested
several rules of thumb to identify a recession, which included two successive
quarterly declines in gross domestic product (GDP), a measure of
the nation’s output. This
two-quarter metric is now a commonly held definition of a recession. In the
United States, the National Bureau of Economic
Research (NBER) is regarded as the authority which identifies a recession
and which takes into account several measures in addition to GDP growth before
making an assessment. In many developed nations other than USA, the two-quarter
rule is also used for identifying a recession.
Whereas a national recession is
identified by two quarters of decline, defining a global recession is more
difficult, because developing nations are expected to have a higher GDP growth
than developed nations. According to IMF, the real GDP growth of the emerging
and developing countries is on an uptrend and that of advanced economies is on
a downtrend since late 1980s. The world growth is projected to slow from 5% in
2007 to 3.75% in 2008 and to just over 2% in 2009. Downward revisions in GDP
growth vary across regions. Among the most affected are commodity exporters,
and countries with sharp external financing and liquidity problems. Countries
in East Asia
have suffered smaller declines because their financial situations are more
robust. They have benefited from falling commodity prices and they have
initiated a shift toward macroeconomic policy easing.
The IMF estimates that global
recessions seem to occur over a cycle lasting between 8 and 10 years. During
what the IMF terms the past three global recessions of the last three decades,
global per capita output growth was zero or negative.
of a global recession in 2009
According to the IMF’s World
Economic Outlook, October 8, 2008, the world economy is “entering a major
downturn” in the face of “the most dangerous shock” to rich-country financial
markets since the 1930s. IMF expects global growth (measured using purchasing-power parity), to come down to
3% in 2009, on the verge of what it considers to be a global recession.
The World Bank said in December
2008 that the global economy will enter a recession for the first time since
1982. International trade will decline from 2007 levels. The bank said it
expects global GDP growth to decline to 0.9% in 2009 from 2.5% in 2008. Any global
growth rate under 2.0% is tantamount to a recession according to economist
David H. Wang. Global trade is expected to decline 2.1% in 2009, the first
decline since 1982, on reduced global demand and export credits.
Germany, Europe’s largest
economy, contracted by 0.5 percent in the third quarter of 2008, putting it in
recession for the first time in five years.
Japan’s GDP contracted at an
annual rate of 0.4 percent from July to September 2008, marking the second
consecutive quarter of negative growth. Japan’s previous recession was in 2001,
after the dot-com bubble burst in the United States.
The Eurozone economy. made up of
the 15 countries that use the euro contracted by 0.2% in the third quarter of 2008 following a
0.2% fall in GDP in the second quarter.
GDP dropped 0.5% drop in the third quarter of 2008. A number of economists
surveyed by Wall Street Journal expect gross domestic product to decline at an
annualized rate of 3% in this year’s fourth quarter and 1.5% in the following
Despite the global economic
forecast for 2009, the annual growth in greenhouse gas emissions of 3% is only
likely to slow modestly. It may even rise over the long term because of the
downturn’s impact on global climate talks and the funding of renewable energy
Jan 2009: The IMF updated their
forecast of global GDP growth in 2009 from over to 2% down to 0.5%.
World economic recession &
World economic recession is going
on since 2007. The main reason of this recession is the crisis of mortgaged
loan of USA which has started in housing sector where sub-prime were lending
verily. The economists identified two prime reasons of this recession one is
subprime lending & another is uncontrolled credit default. It’s also true
that, this world recession increasing also for environmental disaster e.g.
conflagration of Australia & draught in California. Many people lost their
jobs & back to their country as the starting of this recession is in America.
About 6 lakhs & 51 thousand people lost their job in February 2008 & in
January this number was 6 lakhs 55 thousand. To face this problem many
companies cut their workers. Almost 1 crore people of the world lost their job
The effect of this recession is
coming in small companies. On 26 January 2009 heavy machinery company
CATARPILLAR, Medicine Company FIZER, Telecom Company SPRINT NEXTOR CORPORATION
& Infrastructure Company HOME DIPO took decision to cut their workers.
Bankrupt companies are increasing in number in USA. The export market of China
fallen on because of Banking crisis and many people are losing work. In Japan,
Spain, England, Russia, Germany, Mexico, Latin America and also Caribbean’s
countries contracted their job market. Bangladesh is not free from this
recession. Its telling that 3 million people can loss their job of Bangladesh
in this year, side by side poverty is increasing here. This recession affected
on our export. According to export development bureau during last 7 months the
exporting of raw jute decreased 15.20%, jute goods 19.80%, leather 31.80% &
refrigerated foods 5%.
BGMEA said their export decreased
in January by 4.98% in February by 17.58% as our cloth mostly goes in USA &
Europe so it greatly affects our industry. This recession greatly affected our
manpower export as well. In the meantime Malaysia, Kuwait, Dubai, & Saudi
Arabia returned back our workers. Malaysia cancelled the visa of 55 thousand
workers. All the countries who are importing our manpower are going to cut our
Whenever this world recession
affected in our manpower exporting it also affects our remittance. It is shown
that the income from remittance decreased 250 crore in February than January
2009 from Middle East. This recession also greatly affected our industry where
jute, sugar, spinning mills are about to die. Our textiles are also falling in
danger. From the 80 mills of jute products 17 are fully stopped, 11 of these
mills are working partially & other mills also are in the way to stop. Out
of 25 lakhs workers, 1 lakhs labor has lost their job in spinning mills, 50
thousands labor are jobless. The unsold goods of spinning mills are tk 30
thousands crore. To protect this recession government, already took many steps.
Our minister went to Malaysia to save visa of 55 thousands labor. Prime
minister went to Saudi Arabia to solve the problem of Bangladeshi workers.
Finance minister A M A Muhit
declared a stimulus package. This package is of 3424 crore tk where 13% is for
export, 43% for agriculture, 18% for power, 11% for food & 15% for
In this package there is no
stimulus for RMG sector which is urgently needed. Though almost all economists
welcomed this package but they said there is no definite guidance there. Its
true that this package is not enough to check our problem but it is a stimulus
package. It requires more steps. We think this package will be implemented
perfectly & Bangladesh will be succeeded to free from this ongoing
Impact of global recession on BD
Though Bangladesh is yet to face
the impact of global economic recession directly, the country is likely to feel
the brunt of the phenomenon by May-June in the form of fall in manpower export
and inflow of remittances.
Zahid Hossain, World Bank senior
economist in Dhaka expressed the view while talking to BSS today.
Optimistic in view of
Bangladesh’s strong economic position and high reserves, the World Bank
official said the country would be able to overcome the situation easily.
Recession is not the problem of
Bangladesh alone, it has created a crisis all over the world, he observed.
To tackle the situation, Zahid
Hossain said, employment opportunities would have to be created, if the
overseas manpower market shrinks and the existing employees lose job abroad.
Special credit programmes can be introduced for them, he suggested.
The World Bank economist said the
government is active on the issue and has formed a committee in this regard.
Referring to Bangladesh Bank
statistics, he said the country received eight million US dollars as remittance
in January. The amount of remittance is likely to fall by May-June, he
apprehended. He said the present reserves of 600 crore US dollars are
Response to Global Financial Crisis
The world economy has changed
spectacularly since September 2008. What began as a slump in the US housing
sector is now a global crisis, spreading to both rich and poor economies. Many
believe that this may go down in history as the worst crisis since the Great
Depression of the 1930s wiping out almost 10 trillion US dollar worth of value
from stock markets over the past months. The triggers of the present global
financial crisis were in the US subprime mortgage market the crumple of which
engulfed the global financial markets leading to a painful recession of the
Bangladesh, though not so much
globalized financially, depends a lot on foreign trade. More significantly, its
exports including readymade garments, shrimps, leather, etc are solely
dependent on the western consumer demand. So falling employment and hence the
income of the ordinary consumers in the USA and Europe is bound to have serious
impact on our export potentials. This may start impacting after January once
the buying spree during Christmas sales is over. Similarly, there can be
negative impact on the export of Bangladeshi low-skilled manpower following
ever declining oil price with potential depression in infrastructural
development activities in the Middle-East. So the new government will have to face
these economic crises head on. One positive thing is of-course falling price of
oil and commodities in the international market. This will surely dampen
inflationary pressures. Before we go any far let us understand the nature of
the global financial crisis.
Subprime lending is the practice of
making loans against mortgaged property to borrowers who do not qualify for
market interest rates owing to various risk factors, such as income level, size
of down payment, credit history, employment status and so on. Banks transferred
credit risks to the third party investors through a process called
securitization- Mortgage Backed Securities (MDS), Collateralized Debt
Obligations (CDO). Four primary categories of risks are involved in subprime lending-
credit risk, asset price risk, liquidity risk and counterparty risk.
The value of US subprime mortgages
was estimated at $ 1.3-2 trillion as of march 2007, while total mortgage market
was estimated at $ 12 trillion. Between 1997 and 2006, American home prices
increased by 124%. Thus second mortgage of properties increased and the added
funds were used for consumer spending. As a result, household debt grew from $
680 billion in 1974 to $14 trillion in 2008. However, records of nearly 4
million unsold existing homes were for sale which placed significant downward
pressure on prices. As a result, more homeowners were at risk of default.
Factors contributed to the global financial crisis include: poor judgment by
borrowers and/or lenders, speculation and overbuilding during the boom period
due to lower price and interest rates, risky mortgage products and high
personal and corporate debt levels, weak financial regulation and lack of
oversight of financial institutions, aggressive activities by the insurance
companies and vague ratings of assets and securities, overexposure of banks to
risky lending and easy credit money, greed of Wall Street financiaries,
unsupervised cross border integration of financial markets, market
fundamentalist philosophy and so on.
Governments across the world have
taken multiple efforts to mitigate impact of financial crisis. The US, UK,
Ireland and others have virtually ‘nationalized’ giant financial institutions
including banks, insurance companies, and mortgage houses. In the US, Congress
adopted a massive bailout plan with taxpayers’ money. It initially approved a
law to buy $1.5 trillion worth of bad mortgages and other assets from the
troubled banks, which would wipe debts from their books with the hope that they
will be able to start lending more freely again. Overall, a $2.4 trillion
dollar rescue package has been put into motion in the US, the EU and Asia.
India cut its key interest rates (20 October) by one percentage points – from
9% to 8%. China also cut interest rates and announced a $586 billion stimulus
package focusing mainly on infrastructure and social programs. This followed a
similar $11 billion fiscal stimulus package announced by S. Korea a few days
earlier. The International Monetary Fund (IMF) has urged the major central
banks to provide direct support to the banking system, saying some $657 billion
would be needed in the next few years. Several meetings have already taken
place regarding the restructuring of the global financial system and more are
scheduled in the near future.
Global consequences of the financial
crisis include Sharp fall in exchange rates of most of the currencies against
the US dollar, despite ongoing recession in the US territory, sharp decline in
global stock markets, fall in property prices in many western countries, sharp
rise in the unemployment in the US, over 65,400 jobs were cut as of September
2008. Currently, unemployment rate there estimated to be around 6.5%, fall in
consumer confidence in developed economies and so on. Some projections made by
IMF in its World Economic Outlook, October 2008 indicate that world economic
growth will slow down to 3.9% in 2008 and 3.0% in 2009 from the relatively
robust growth of 5.0% in 2007.
Impact of Meltdown on Developing
Developing countries—at first
sheltered from the worst elements of the turmoil—are now much more vulnerable,
with dwindling capital flows, huge withdrawals of capital leading to losses in
equity markets, and skyrocketing interest rates. It is no longer a question of
‘whether’ but ‘when’ and ‘how’ the ongoing financial crisis will affect
developing and least developed countries. The effects will vary substantially
across the globe depending on size and structure of the national economy, as
well as level and nature of global integration. The full effects of financial
crisis on developing countries have not yet been registered. Lack of real time
data is a problem. The risks for low?income
countries vary, but all are potentially severe. Large external demand shocks
will immediately have real economy impact as they can not be cushioned by
internal demand. Unfavorable effects in Official Development Assistance (ODA)
may accelerate economic slowdown in LDCs. World Bank projects the real GDP
growth to slow down across all developing regions in 2009. GDP growth in
developing countries—only recently expected to increase by 6.4% in 2009—is now
likely to be only 4.5%, according to economists at the World Bank. Moreover,
rich countries are now expected to contract by 0.1% next year. Thus LDCs are to
be affected more, but given the trade relationship. Progress towards MDGs
faced setbacks over the last 2 years due to soaring food and fuel prices. Now
the challenge for many LDCs who rely on exports is how to cope with falling
demand for these exports and prevent mass unemployment. But unfortunately, the
challenge of high inflation has yet to fade away in some regions.
Impact on South Asia
If we compare the economic
integration of Bangladesh, India and Pakistan with the rest of the world, we
will find that in 2006 trade as percentage of GDP is highest in India (48.78%)
followed by Bangladesh (44.22%) and Pakistan (38.61%). Pakistan receives the
highest FDI Inflow as percentage of GDP (3.37%) followed by India (1.19%) and
Bangladesh (1.13). From the exchange rate side it as visible that Pakistan
rupee has depreciated the most against the US dollar, followed by the Indian
rupee while Bangladeshi Taka has remained relatively stable. The IMF data and
projections indicate that all the three countries are expected to experience
some slowdown in GDP growth rates from the previous years. Bangladesh
government expects over 6% growth for Bangladesh in FY 2008-09. Indian PM
forecast growth at 7.5% for India. Pakistan’s economy has grown by 7-8% over
the past few years but most of this growth has taken place in sectors such as
consumer financing. Real economy (agriculture, industry, mining, etc.) has not
had much growth and impact on poverty reduction has been minimal at best.IMF
projects high inflation of 23% and growth rate of only 3.5% for 2009. As
previously mentioned, Pakistan rupee has depreciated significantly. This has
adversely affected the country’s ability to repay foreign debts. As a result,
the foreign exchange reserves of the country have fallen so low that they
hardly cover 9 weeks of imports. To avoid default, Pakistan has sought help
from the IMF. A US $7.6 billion has been approved and the country is expecting
about $500 million loan from China. Pakistan will immediately access US $3.1
billion of the loan under a 23-month facility, with the rest phased in. The
slowdown of economic growth in India has been less rapid than in other more
export-dependent East Asian economies like Hong Kong, Singapore and Taiwan. GDP
growth in the second quarter of the current fiscal year declined to about 8%,
on the back of weakening investment. Indian PM forecasts GDP growth rate at
7.5% for current fiscal year. According to the Commerce Minister of India, the
global meltdown in financial markets will impact demand in developed countries
for Indian exports and the export target of $200 billion for the current
financial year may be missed. Real estate and textile sectors are already
facing a slump. Unrelated to the crisis, tourism and some related sectors may
face short-term setbacks as a consequence of the tensions following the Mumbai
terrorist attacks. Export growth in India slowed in the third quarter of FY08
from 33.7% year-on-year in July to 12.6% in September as demand from developed
countries dropped dramatically. Trade and commercial services, manufacturing
and agricultural sectors have all seen a slight decline in growth rates. Much
of Indian industry is taking a more financially prudent stance, given the
impact of the global financial meltdown. India is likely to miss the
revenue and fiscal deficit targets in the current fiscal year as the government
wants to spend extra money to boost the aggregate demand in the economy which
has shown clear signs of slowdown. The government has foregone 31,000 crore rupee
of revenue through reduction in taxes and duties, on account of fiscal measures
to stimulate growth and fight inflation. Indian currency has come under
pressure, prompting the Reserve Bank of India to intervene in support. As
previously mentioned, interest rates were cut dramatically.
Impact on Bangladesh Economy
This crisis has several downside
risks for the Bangladesh economy. However, the impact on the Bangladesh economy
will depend on the nature, scope, severity, and duration of the crisis.
Although the economy of Bangladesh has become increasingly integrated with the
global economy in recent years, the country’s financial sector is not as
globally integrated as India’s. Private foreign players are important players
in the banking sector; however, foreign portfolio holdings in the equity market
are relatively small at only 2.6%. Also, currency transfers abroad are
restricted, so no question of large-scale capital flight. Therefore, the
country’s financial markets have yet to feel any direct impact. The risks
like mainly in the areas export earnings, remittances and foreign aid.
Financial sector is in relatively good health, underpinned by prudent
regulation and sound management due to past reforms. It is highly insulated
from foreign markets and lacks sophisticated financial derivatives linked to
Western capital markets. Non-performing loans are decreasing and the capital
base is relatively comfortable. Foreign exchange reserves remain well managed
and kept mostly in cash, US Treasury securities, accounts with central banks,
and in sovereign bonds with no holding of any corporate bonds. At present they
are equal to about $5.3 billion. The banking system is mostly separated from
international financial markets, and does not have sophisticated financial products.
These factors also apply to the financial sectors in Sri Lanka and Nepal. The
capital account remains nonconvertible with few private transactions permitted
such as foreign direct investment and portfolio investment. There is a positive
current account balance that reduces the risks emanating from short run
fluctuations in the exchange rate and foreign reserve situation. Net inflow of
FDI has remained relatively stable in recent times whereas private debt
transactions are limited and strictly monitored by the central bank. One
potential threat for the banking sector is the likely incidence of payment
default by foreign buyers against export orders, especially of RMGs, in the
event of their going bankrupt.
Nearly 87 percent of Bangladesh’s
exports are destined to markets in developed countries. Readymade garments
(RMG) make up over 75% of all exports, mostly to US and EU markets. The impact
on RMG exports will therefore determine the impact on the country’s overall
exports. With the ongoing recession in the US and EU, it is likely that exports
will be hurt. There are some moderating factors that should be considered.
Since the country’s RMG exports mainly cater to the low price segment of the
apparel market, the current slowdown may create less impact on the country’s
RMG exports. With incomes falling, even some diversion of demand from the
high-end garment segment to low-end may take place. But people may also
compensate by not diverting to low-end and just buying far less high-end
clothing. Major purchasers of RMG products may move to take advantage of the
market situation by negotiating less favorable order contracts for suppliers
from LDCs. Bangladesh is the cheapest producer of RMG in the world at present.
In fact, a local company has received a $10 million order that was diverted
from China. There are also negotiations for orders that are being diverted from
India, Turkey, Indonesia, and Cambodia. Latest data from government indicates
exports during Jul-Sep 2008 up about 42% from the same period of the previous
year. But a more important question would be if this trend can be sustained if
recession prolongs. Bangladesh is a net importer of essential food commodities
and fuel. In recent months prices of commodities such as rice, wheat,
edible oil, fuels, fertilizer, etc. have dropped significantly in the global
market which favors Bangladesh. The settlement of L/Cs for consumer goods
during Jul-Oct 2008 declined by 19% (Source: Bangladesh Bank). On the other
hand, settlement of L/Cs for capital machinery has increased by about 8.5%
which is a positive sign for future industrial growth and productivity. Taka
has appreciated against many currencies such as the Euro, Aus $, Canadian $,
etc. so this makes imports from those countries cheaper. Official general
inflation figures are: 7.26% in October down from 10.19% in September. Food
inflation is 8.08%, down from 12.09% (these are point-to-point calculations).
Remittance receipts during July-October 2008 up by around 36.5% compared to the
same period of the previous year. Most remittance to Bangladesh is from the
Middle Eastern Gulf states whose financial health has not yet been severely
affected by the crisis. However, the price of oil has fallen very sharply, from
$147 a barrel in July to under $50 at present. If this continues, the demand
for labor from Bangladesh is bound to fall as new construction projects are
halted. Bangladesh has little FDI and most of these are longer term in nature.
Tighter global credit markets have raised the cost of capital in the
international market and are likely to reduce FDI in developing countries.
Increasing FDI to Bangladesh depends more on domestic factors such as
improvements in infrastructure, power supply, and governance and business
practices. Most of Bangladesh’s aid sources (nearly 80 percent of the total)
come from multilateral sources. Aid inflows are likely to remain unaffected in
the short run although the promises of significant aid increases may not
materialize. Aid during FY 2009-10 is not likely to increase as developed
countries mobilize resources to tackle their domestic economic problems.
Bangladesh Bank projects growth of
around 6.2% for the current fiscal year. However, World Bank projects it will
be in the range of 4.8-5.4%. Official govt. forecast is based on the fact that
Bangladesh has not had any major natural disasters this year which set back
agricultural output. Over half of all economic activity in the country occurs
in the informal sector. Accurate data regarding this sector is hard to come by.
The informal sector employs a large section of the population (particularly
lower income groups) and the global financial crisis is unlikely to affect it.
It is therefore difficult to paint an accurate picture of the impact of the
crisis on the economy of Bangladesh and lower income groups in particular.
Newly elected govt. should actively focus on these issues.
In conclusion, South Asia as a whole
is clearly feeling the effects of the current global financial crisis to
varying degrees. Pakistan is the worst affected in the subcontinent. Foreign
reserves have been exhausted, the country is now dependant on emergency loans,
and growth forecasts are sharply lower while inflation forecasts are terribly
high. It is this high inflation that will hurt Pakistan’s development and
poverty reduction prospects the most. India has felt the adverse effects and is
actively tackling the slowdown with several stimulus measures. The extent to
which the crisis will hurt the economy of Bangladesh is still unclear. At
present, some indicators such as exports and remittance are actually
encouraging. However, that does not mean that the government can be complacent.
A prolonged global recession now seems likely and therefore negative impacts
may be inevitable. So Bangladesh must be prepared to face this crisis both at
the macro and micro levels. Policy adjustments may have to be made at any time
as demanded by the depth of the crisis. Appropriate policy taskforce, in
addition to the routine monitoring by technical groups will have to be
functioning continuously to provide necessary guidelines to the implementers so
that there is no scope of complacency and hence inaction in any quarter.
Fallout of Global Recession in Bangladesh
THE impact of the global economic
meltdown is visible in most of the countries of the world. Though the crisis
originated in developed countries, it has started to bite the economies of even
many low-income countries. Bangladesh is no exception. A lot of debate is now
going on among businessmen and economists about the impact of the meltdown on
Bangladesh. The government is also taking up the issue seriously.
Finance Minister AMA Muhith is
upbeat about the issue. He hinted that the proposed high-powered political
committee, that awaits cabinet approval, would be in place anytime soon to face
the possible impacts of the global economic meltdown on Bangladesh’s economy.
The government would announce the committee within 15 days. The proposed
committee, headed by the finance minister, will be represented by political
leaders, trade body leaders and stakeholders of trade, industry, business and
the economy to keep close watch on the affects of the financial crisis and take
However, the taskforce comprising
of officials formed earlier in this regard would work side by side while the
Bangladesh Better Business Forum (BBBF) would continue to function. As per
expert opinions so far, the issues of concern that deserve close attention by
the proposed committee would include the impact mainly on the country’s exports
and remittance inflow.
Meantime, Bangladesh Bank
Quarterly Report released recently recommended a close watch on the impact of
global recession on the country’s exports and wage earners’ remittance while it
stressed the need for looking further at the exchange rate situation of
Bangladesh taking into consideration the adjustment of currencies in the
neighboring and competitor countries. Experts and trade bodies suggested
reduction of lending rates to a tolerable level particularly for the
export-oriented and manufacturing sectors, and keeping exchange rate stable and
At a recent meeting, noted
economist Prof Rehman Sobhan called for formation of a “special
parliamentary committee” to update lawmakers on the global financial
crisis and its probable impact on Bangladesh. The committee will act as a link
between lawmakers and the proposed taskforce to monitor the probable impact of
the crisis. The taskforce should be assigned to brief the government on the
movement of economies, national and international, he said.
Prof Sobhan criticized the past
governments in Bangladesh for their negligence in implementing recommendations
by different taskforce committees. He said the new government must involve
professionals and experts in the new committee. There are competent
professionals in the country. As they want to work, the government should make
best use of their talents. Taskforce members need to know the global economic
trend and when and how it could affect Bangladesh. Besides formation of a
taskforce, the government should review export, import, fiscal, farm and food
policies to make a proper strategic plan.
The technical committee of the
coordination council on monetary and exchange rate policy recently recommended
forming a high-power executive committee to deal with the global economic
recession. It also forecast that the economy would remain stable until March as
inward remittance and export data showed an increasing trend. The collection of
custom duties had declined and as a result the total revenue earning by the
National Board of Revenue was also on the wane.
However, there is nothing to
worry about the economy until March as the growth of both inward remittance and
export is showing an increasing trend. The committee will also place
recommendations to the coordination council to minimize the possible adverse
effects of the global financial crisis on the country’s economy and its
financial sector. The country’s current account for the first three months of
the current fiscal year was positive, however, the import payments and
short-term expenditures of the country pulled down the current account balance
to the negative zone in October. If the current account remains in the negative
zone for a long time there will certainly be a negative effect of it on the
country’s balance of payment (BoP) as well as the overall economy.
At present, over 50 per cent
equivalent of Bangladesh’s gross domestic product (GDP) is connected with the
global economy through exports and import of goods and services. About 85 per
cent of Bangladesh’s exports are destined to developed economies; about 60 per
cent of imports are from those countries. If India, China and other emerging
economies are also taken into consideration, the extent of exposure of Bangladesh
economy with crisis-driven developed and developing economies will be quite
significant. All of Bangladesh’s partner countries have seen their growth
projections revised downward several times in recent months, to various
Bangladesh has also benefited
from fall in global commodity prices such as food, fuel and fertilizer which
has somewhat eased the import burden. However, if recession deepens further,
some slowdown in export growth should not be excluded. Besides, the commodity
prices are likely to bounce back once the global economy starts to experience
an upturn. Accordingly, Bangladesh’s fiscal, monetary and macroeconomic
management policies should be pursued with due caution in anticipation of
possible adverse implications as well as changes in market environment.
The export sector is potentially
the most vulnerable in Bangladesh since it depends heavily on US and EU
economies. The readymade garment (RMG) industry accounts for over three
quarters of export earnings and depends almost entirely on US and EU markets.
There is growing concern that a deep and prolonged recession in the US and EU
may reduce consumer spending significantly across the board, thus undermining
the demand for Bangladeshi exports.
Although demand for Bangladesh’s
exports is not too sensitive to income, export prices may decline and this
could have significant effects on the country’s export earnings even if export
volumes remain largely unaffected. There is unlikely to be any direct immediate
impact on remittances. Remittances in Bangladesh proved to be resilient during
previous financial crises in the world. The bulk of Bangladesh’s remittances
come from the Middle East, and less than one-third come from the US, UK and
Germany. Strong remittance growth (44 per cent) has continued in the first
quarter of FY09.
However, if a deep and protracted
recession ensues in the US and EU, then the Middle-Eastern economies are likely
to be adversely affected. Stock markets in important Middle-Eastern economies
have already started to crash. Even if the current nearly $8.0 billion level of
remittances is sustained, it would be challenging to maintain its growth
momentum since 2001 if the world economy remains depressed for an extended
Official aid flows may take a
bite. Governments in rich donor countries are doling out massive amounts to
rescue their domestic financial institutions. They may look for savings from
other sources to finance these bailouts. Foreign aid budget is relatively easy
to cut since the foreign aid recipients do not count as their voters.
resilience so far to this ongoing global financial crisis and slowing growth in
high-income countries is in large part because of the country’s relative
insulation from international capital markets and the negligible role played by
foreign portfolio investors in the country. This resilience also derives from
sound policy framework and macroeconomic fundamentals.
Inflation has recently been the
biggest macro policy challenge in Bangladesh. With the aggravation of the
financial turmoil we have seen a sharp decline in global commodity prices. This
makes the inflation battle a little easier for Bangladeshi policymakers. But
new policy dilemmas are likely to emerge if export earnings begin to slow down
and currencies of Bangladesh’s competitor countries depreciate. This will put
exchange rate policy under pressure to maintain export competitiveness.
If manufacturing sector is hit
badly by recession in western economies, there will be fresh demand for further
expansion of safety nets and increase in direct and indirect subsidies to
exports. This will call for some more tough choices, accommodate these demands
through increased domestic borrowing and/or restrain other spending if
additional concessional financing cannot be mobilized from external sources.
The demand for the country’s
low-end products is likely to sustain in the face of falling purchasing power
in the partner countries. Hence, this also gives Bangladesh an opportunity for
increasing its market share in major trade partner countries. The country’s
policies will need to be geared to such market openings, and the exporters of
goods and services will need the support of policymakers to realize the
is the fifth highest remittance-earning country in the world and is the second
largest sector in the country which is integrated with the world economy. About
1.7 million workers left Bangladesh in search of jobs during 2007 and 2008 and
about five million Bangladeshis are currently working abroad, mainly in Saudi
Arabia, Kuwait and Malaysia.
In 2009, it
is predicted that the number of workers going abroad will be significantly
lower with UAE, Saudi Arabia, Malaysia and Singapore already struggling with
slow economic growth and declining demand for construction and other services
[CPD and ILO, 2009]. Overall remittances during 2008 were 37.3% higher
than the previous year but since August 2008 they showed a decreasing trend as
did the number of workers travelling overseas [Bangladesh Bank, 2009].
Bank suggests that because the oil rich countries of the Middle East have
accumulated large reserves of oil, migrant workers will still be in demand, but
a World Bank report suggests Bangladesh needs to create an additional one
million jobs for the people likely to lose jobs at home and abroad (Asian
Tribune, 2009). Any downward trend is likely to create issues for the receiving
International Organization for Migration (IOM) report examines the utilisation
of remittance in Bangladesh and, drawing on varied research, shows the impact
that remittance can have in reducing vulnerability, providing financial safety
nets and improving areas such as access to education and household debt.
report suggests that the dependency on this income can create serious issues
when the political or economic circumstances in the destination countries
change and that “the importance of remittances for the receiving family cannot
migrants working abroad as well, economic crises can exacerbate already
difficult conditions as their host countries become more constrained. Concerns
include inadequate access to decent living and working conditions, cuts in
social service provision, fear of xenophobic attacks and restricted access to
worker rights (IOM, 2009). Whilst evidence for this in relation to Bangladeshi
workers is difficult to find, it is important in the growing turmoil to
safeguard against human right violations.
measures can be introduced to protect migrant workers and their families?
Whilst Bangladesh Bank have sought to improve the efficiency of
transferring remittance, the Bangladesh Government has devised a seven
point strategy which includes extending existing manpower markets and exploring
new host countries in Europe. However in April’s emergency stimulus
package remittances were absent (New Age, 2009). To protect migrants abroad and
to try and retain remittance levels the Government need to prioritise this
steps with Saudi Arabia and Kuwait to protect Bangladeshi’s working there
good relations are maintained with existing migrant destinations such as
UAE, Malaysia, Oman, and Qatar through diplomatic intervention
further alternative migrant destinations including Iraq, Bahrain,
Mauritius, Sudan, Libya, and South Africa
technical and financial support from the ILO and initiate memorandums of
understanding (MOUs) between Bangladesh and the destination countries of
the migrants. These MOUs could contain basic rights such as full wages
every month and safe working conditions
for returning migrants provisions should be put in place to assist in
their repatriation, reception and reintegration and Official Development
Assistance (ODA) could be increased to create employment opportunities.
Since the collapse of the United
States subprime mortgage market and the subsequent international global crisis,
many developed and developing countries have been plunged into deep recession.
Bangladesh though has found itself in a slightly different position. Its
economy is not so dependent on international capital and foreign investment,
which has helped to lower the immediate impact of the crisis.
Despite this the Bangladesh
government has formed a high-level technical committee and taskforce to monitor
and advise on the crisis, and ministries and financial institutions have taken
several precautionary measures. Importantly in October 2008 Bangladesh Bank
withdrew 90 % of its total investment from foreign banks which has helped to
further shield the economy, so that it is only now that the affects of the
crisis are being felt.
Additionally the Bank has taken
measures to stabilize the exchange rate, provide extra liquidity to the
financial sector and raised the limit on private foreign borrowing. It has also
relaxed the conditions for opening fresh letters of credit (L/Cs).
In February 2009, the Finance
Minister AMA Muhith admitted that the global financial crisis was having an
impact on trade in Bangladesh. In April the Government announced their stimulus
package with 65 million dollars directed to assist exports. This though falls
short of the 877 million dollars needed according to industry experts (Yahoo
During 2008, 57% of Bangladesh’s
economy was involved in the global economy and this is increasing. This
indicates that the country might be progressively more affected should the
crisis continue for an extended period. Trade, migration and remittance are the
most likely sectors to be impacted as 43.3% of Bangladesh’s openness is related
to trade and 10 % to remittance. Overseas Development Assistance (ODA) and
Foreign Direct Investment (FDI) may also be vulnerable in the longer term but
to a lesser extent due to only 3.2% integration with the global economy (CPD
and ILO, 2009).
Whilst the longer term nature of
FDI commitments has kept the net inflow of investment relatively stable, the
sluggish growth of rich countries may eventually slow it down. Aid receipts
(excluding dollars) are providing less in local currency due to unfavorable
exchange rates and future aid commitments from donors may be in jeopardy if the