Prof. Dr. Atiur Rahman
Bangabandhu Chair Professor at Dhaka University
Former Governor, Bangladesh Bank
The economic crisis is intensifying all over the world. In the post-COVID global economy, demand increased on the one hand because all countries were showered with huge stimulus money and trade reopened after a long time, and supply chains collapsed on the other, which caused ship fares to go up five-six times.
Supply shortages cause import prices to rise at an abnormal rate. Meanwhile, the US Central Bank (Fed) continues to increase its key or policy interest rate as a strategy to absorb money from the market. The Fed has raised policy rates by as much as three percent. Due to the increase in interest rates, the dollar price is also increasing.
The Fed is conducting aggressive monetary policy mainly to bring inflation to the US dollar. As a result, the dollar has appreciated by about fifteen percent over the combined average value of developed countries currencies. Thus, all rich countries, including Europe and the UK, are forced to increase their policy rates because their inflation has reached 9-10 percent.
The continuous increase in interest rates in the developed world has also affected developing countries like ours. Policy rates have increased in almost all countries, including Bangladesh and India. In addition, the value of the currency of these countries had to be greatly devalued. As a result, our import costs have increased significantly. Compared to that, our export and expatriate income growth have not increased as much. Hence there is a large deficit in the commercial and current accounts. And because of that, a significant difference has been created in the overall transaction. Due to this, our foreign exchange reserves started to decrease again.
Bangladesh Bank has sold about ten billion dollars in the market in a year to keep the dollar price stable. As a result, the market has deposited an equivalent amount of Bangladeshi taka in the central bank. Therefore, a liquidity deficit is being created in some banks. On the other hand, there is extreme volatility in the global oil and gas market. No one can say when the Russia-Ukraine war will end. Many countries, including Europe, have problems getting Russian gas and oil because the United States and its allies have imposed various sanctions on Russia’s trade and commerce. As a result, world supplies of oil and gas have fallen. Hitherward, OPEC and some other countries have decided to reduce oil production by two percent or two million barrels per day. Right now, the price of oil is about ninety dollars per barrel.
As the oil supply decreases after this decision, its price will likely increase. And the global gas market is struggling to meet Europe’s demand. In this scenario, it is easy to imagine how much pressure the rising fuel prices and dollar will put on an import-dependent economy like ours.
Moreover, the World Food Organization and the World Food Program are warning that there will be massive food shortages worldwide next year. The upheaval of climate change seen throughout the world this year has raised this fear about food production. Moreover, due to the ongoing war in Ukraine and Russia, known as the world’s grain store, their agricultural production has suffered dramatically. Due to the war, there is also a problem with the transportation of food.
In a country like ours, war has had a negative impact. Prices of many food commodities, including wheat and edible oil, have increased. It is also challenging to get supplies. All these are working behind increasing our import inflation. And this year, including in our country, it did not rain during the monsoon season. But it rained a lot at the end of the rainy season. This seems to have a positive effect on the Aman crop.
Boro rice production will also require less irrigation as there will be sap in the land. However, the world food situation does not look favorable at all. The World Bank and IMF have repeatedly said that economic growth worldwide will slow down significantly in their economic outlook or projections. The IMF expects global economic growth to be 2.9 percent next year.
Taking these things into consideration, our Prime Minister said in a press conference a few days ago that 2023 will be the year of the Great Recession. During his visit to the United Kingdom and the United Nations, she interacted with many statesmen and heads of world organizations. They must also have exchanged views with him on the global food insecurity and inflation crisis. That is why she spoke so clearly about the Great Depression.
Earlier, she also spoke very directly about the global famine and severe economic crisis. Thanks to PM Sheikh Hasina for calling a spade a spade. You can undoubtedly get applause for telling the citizens in plain language that the world crisis is approaching.
Acknowledging problems is also a sign of prudent leadership. She did that work with great foresight. She didn’t just talk about issues. She also indicated how to deal with this crisis and prepare appropriately.
To understand that we have to solve this problem as we do, she said we must do whatever it takes to increase agricultural production. She has already increased the agriculture budget. She is also ready to provide additional allocation for agriculture from elsewhere if needed.
And from her statement, it is understood that agriculture is the big shield to solve our crisis. Agriculture provides us with food, forty percent of our employment, and the raw materials and needs of the industrial sector. That is why Bangladesh has been able to bounce back from natural and man-made crises by relying on its agriculture and small entrepreneurs. For example, during the Great Flood of 1998, the Hon’ble Prime Minister conducted relief operations like a front-line warrior and took many initiatives for post-flood agriculture rehabilitation.
PM Sheikh Hasina even arranged for the farmers to get agricultural loans. That is why she ordered the opening of State Bank booths in the market. Moreover, the list of those who received loans was arranged to be displayed in public places, including the Union Parishad Office. She even used government helicopters to transport rice seedlings from one district to another.
Similarly, 2009 also saw the global financial crisis develop a bundle of appropriate policy support for developing agriculture, SMEs, diaspora income, and export industries. The development-oriented central bank adopted supplementary financing policies for these inclusive initiatives of the government.
Even after the current COVID-19 crisis, the Bangladesh Bank and the government have joined hands in conducting an incentive program of six percent of GDP. In continuation of this, to deal with the global economic crisis caused by the Russia-Ukraine war, the Honorable Prime Minister is taking various initiatives for the stability of the macro economy on the one hand. But, on the other hand, she also emphasizes such micro policies that not even an inch of land should fall.
The exchange rate has already been eased slightly to deal with the dollar crisis. However, it seems imperative to introduce a banded single exchange rate for exporters, expatriates, and importers. If not, the tension between these three parties about the dollar’s value is increasing. As a result, unnecessary speculation is also growing. Hundiwalas are taking advantage of this.
They must be brought under control by the joint initiative of law enforcement agencies and BFIU. And LC monitoring must be strengthened to close the loopholes in money laundering through trade financing. I would like to make some additional policy suggestions to support the initiatives mentioned by the Prime Minister to deal with the current recession and massive future recession:
1. As the Prime Minister has said, agriculture should be our most effective defense. Therefore, in addition to adequate budgetary support, loans on easy terms, expansion, and marketing support should be provided.
2. The Ministry of Agriculture has a database of farmers who have received the Bangabandhu Award and whose names have been proposed. They are modern farmers. Particular loans can be arranged for them.
3. More attention should be given to the development of solar irrigation. The subsidy provided by the government for agricultural mechanization should be similar to solar irrigation projects. Besides, loans can be arranged for several lakh solar pumps from the funds of twenty-five thousand crore rupees provided by Bangladesh Bank.
4. Loans can be given for marketing and warehousing to support research, innovation, and agricultural development.
5. As a part of encouraging e-commerce for agricultural products, Bangladesh Bank may direct banks to provide small loans without trade licenses through mobile and agent banking in the nano loan model.
6. Many educated women are also taking up modern agriculture initiatives. Therefore, one can think of some particular loan and revenue benefits for them.
7. It is not bad if the startup initiative launched by Bangladesh Bank through Agricultural University can be accelerated. In this recession, we must encourage agriculture and small enterprises.
8. All kinds of policy support should be given to expanding agro-based industries and increasing exports of agro-processed products.
9. Small and medium entrepreneurs should be provided with the necessary capital to expand the non-agricultural sector in the changing rural Bengal. The central bank can strengthen digital monitoring to see the speed of implementing these programs. However, care must be taken to ensure that this program continues
10. To encourage banks to lend to small and medium enterprises, the government has allocated funds for a credit guarantee scheme through Bangladesh Bank. Solar pumps can also be availed under this program. Then the rate of investment in agriculture will increase. The budgetary allocation for this guarantee scheme can be increased if necessary.
11. The initiative taken by Bangladesh Bank to provide loans without trade licenses under nano credit and digital finance for small traders is undoubtedly commendable. Modern agricultural entrepreneurs should also be given this opportunity.
12. After agriculture, expatriate income plays an active role as a significant driver of Bangladesh’s economy. Recently, many people have been going abroad as expatriate workers. Therefore, policy facilities should be ensured to repatriate their foreign earnings at reasonable rates easily.
The vigilance should be increased so that the exchange houses do not cheat them. At the same time, Bangladesh Bank and law enforcement authorities should increase the extent of the initiative to root out the hundi fields.
13. To bring large-scale expatriate income to the country, various types of investments, including investment bonds, and treasury bonds, can be easily made by expatriates, for which the digital transaction initiative taken by Bangladesh Bank should be made more accessible. Sufficient information about this should also be given to expatriates. In addition, expats should be encouraged to invest in the medium and long term by quickly removing NID-related complications and bond renewal complications.
14. Priority can be given to expatriate workers in skill development programs. The National Skill Development Authority can undoubtedly take the initiative to add special skill development training programs for them when they come home on leave or return home after losing their jobs.
15. Expatriates who remit expatriate income through war transfers and those who bring home money through freelancing have to sell dollars at a lower rate. Therefore, the demand to give the exact dollar exchange rate to all foreign earners seems reasonable to me. However, an urgent decision is needed in this regard.
16. The same applies to exporters. That’s why they save dollars at low rates. Importers will buy dollars at higher prices. We have to create a market-based exchange rate for everyone. India has done it. Why can’t we?
17. In addition, Bangladesh is showing considerable expertise in collecting long-term loans at low interest from international development or financial institutions. Such foreign cooperation should be mobilized increasingly by speeding up the implementation of quality projects. Currently, the Bangladesh delegation is negotiating with the IFF for a long-term loan. I wish them success in this regard.
18. The loopholes for easy money laundering abroad must be closed by increasing the monitoring of commercial financing.
Many more such policy suggestions can be made. There is an opportunity to introduce new intelligent policies by reviewing the rules and having a thorough discussion with all the stakeholders. Everyone should be patient during this crisis.
Nothing can be done to cause panic in the market. We have been developing many inclusive development policy strategies in our own country for a long time. Suppose we rely on these tried and tested policy frameworks. In that case, we will be able to maintain the reputation of Bangladesh’s development by facing the ongoing recession or the Great Recession in the coming days. Therefore, a culture of intensive policy dialogue with all stakeholders must be developed earnestly.
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