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Rising foreign debt and balance of payments deficit: Does Bangladesh need to worry?

rainbowrascal

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With depleting foreign reserves, a falling taka against the dollar, widening trade and current account deficits, does a Sri Lanka-like fate await Bangladesh?

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With global inflation rising and the fear of fuel and food crises looming large, clouds are gathering on the economic horizon of South Asian countries. The Russia-Ukraine war, followed by the Covid pandemic, disrupted the global economy and trade. In the meantime, Sri Lanka's economic and political crisis has reached a critical point, driven by the country's mix of high indebtedness, soaring inflation, and poor economic management.

A cautionary tale for South Asia

Once projected to become the Singapore of South Asia, Sri Lanka became the first country in the Asia- Pacific region in 20 years to default on foreign debt. President Gotabaya Rajapaksa flew to Singapore to escape a popular uprising against his government and was forced to resign as president. Rajapaksa's resignation letter indicated that Sri Lanka's years of poor economic management contributed to this ill fate.

According to some economic analysts, the global headwinds—the supply chain bottlenecks, subsequent inflation, currency depreciation, and depletion of foreign currency reserves—have been pushing several other South Asian economies to the brink of an economic collapse, similar to the island country in the Indian Ocean.

Pakistan is on the brink of a balance of payments crisis. Its foreign currency reserves have plunged to only $9.8 billion, hardly enough for five weeks of imports, while the Pakistani rupee touched a record of about 233 to the dollar. The most concerning issue is that the Shehbaz Sharif government has decided to sell national assets to foreign countries without any checks in a desperate attempt to prevent the country from a debt default.

Pakistan's new government, which narrowly averted a debt default, also struck a crucial IMF deal to resume a bailout programme, a move that offers economic pain relief but no panacea Because the volatile political system threatens true economic revival. Thus, the public may lose its temper and take to the streets at any time against the government's unpopular steps, leading the country to the next Sri Lanka.

Panic has gripped Nepal over the growing likelihood of a Sri Lanka-like economic meltdown as the country is seeing a rise in imports even as the country's foreign exchange reserves have shrunk sharply with rising food and fuel prices. Moreover, foreign debt has escalated as the country continues to sign up for more and more Chinese-funded infrastructure projects, while the Covid pandemic has battered the economy.

The Himalayan nation is also facing a liquidity crunch and struggling to extend loans to productive sectors like agriculture, tourism, manufacturing, and energy. Therefore, there is no reason to disregard the suspicions outright that Nepal would not meet Sri Lanka's fate if the government continued to ignore the warning signs.

Like Sri Lanka's, the Maldivian economy is heavily reliant on tourism– which suffered a big blow after the outbreak of the Covid pandemic. Its public debt is already on the red line and is now well above 100% of its GDP. US investment bank JPMorgan has warned that the country is at risk of debt defaulting by the end of 2023.

The Bangladesh Case

Having observed the depleting foreign exchange reserves, falling Taka against the US dollar, plus widening trade and current account deficits; it is fair to say that the situation is alarming. The most immediate challenge for Bangladesh is to reduce inflationary pressures and keep the foreign exchange reserve at a satisfactory level. The goods imports jumped by 39% in the first 11 months of the past fiscal year (FY22) over the same period of FY21, creating pressure on the dollar reserve. It is undoubtedly an alarming sign for Bangladesh's economy as the country is widely dependent on imports for both domestic consumption and export-oriented industries.

Another, concerning issue is that Bangladesh is feeling the consequences of the Russo-Ukraine war that is causing an energy crisis. Despite scepticism, Bangladesh's economic managers believe the country is still well-positioned to withstand any external shocks by analysing overall macroeconomic parameters.

It's true, like Sri Lanka, Bangladesh has failed to diversify its export basket, but it has a lot of room to continue growing in the garments sector. It is now among the top three apparel exporters in the world and is gradually taking market share from China. Bangladesh's export story, which recently touched a landmark by crossing $50 billion for the first time despite global headwinds, is very impressive. Bangladesh's FDI hit a three-year high in 2021. According to a UNCTAD report, Bangladesh has become the second-favoured investment destination in South Asia after India, thanks to Bangladesh's initiatives to implement 100 economic zones to attract FDI.

It is important to note that, while other South Asian countries are overwhelmed by foreign debts, Bangladesh has nothing to worry about because its external debt is only 21.8% of GDP. Bangladesh's strong macro-economic base, loan management, and debt repayment capability have led the World Bank to continue lending more than $35 billion with the lowest interest rates – the highest amount given to a single country.

Needless to say, while Sri Lanka implemented lots of unnecessary megaprojects using Chinese loans – for example, the Hambantota Sea Port and Rajapaksa International Airport, to serve political interests, Bangladesh PM Sheikh Hasina has been careful to not take up projects without a high economic and social rate. Moreover, Bangladesh's political system has shown resilience in recent years without any major political turmoil.

Moreover, the government adopted a conservative approach to deal with any upcoming potential crisis. Bangladesh has sought a $4.5 billion loan from the IMF for its balance of payment and budgetary needs. So as to save dollars and increase foreign currency reserves, the government has restricted civil servants' foreign tours, imposed higher import tax on luxury items, relaxed restrictions to draw in remittances, boosted exports, and introduced austerity measures in power expenditure. Although these don't seem to be the long-term solution to economic woes, it's expected to save huge money, positively influencing macro-economic stability.

According to a report based on IMF data, Bangladesh is the 41st largest economy in the world with a GDP of $397 billion, and its position is second in South Asia after India. Even a recent Bloomberg report pressed alarm bells for 25 countries that are exposed to the default risk, excluding Bangladesh from the list.

To conclude, though Bangladesh is in a much more comfortable position than other South Asian countries, there is a need to define a repayment strategy as an economic shock is looming from debt repayment pressure in the upcoming years. The Sri Lankan episode presents an alarming case study to other South Asian ones. Thus, the leaders in power ought to show the farsightedness to make buffers and reject subversive economic policy essential to steer the countries' major economic drivers on the right course before it's too late.

 

SoulSpokesman

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BD is doing fine. It is always desirable to be cautious but no need to be unduly worred. In fact even Pak and Nepal have seen the worst and will do better from now on.

Regards
 

Abu Shaleh Rumi

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Im losing the value of my fixed deposit because of inflation. AlHamdulillah Allah gave me enough to live a comfortable life even with this inflation. But, what about the majority of Bangladeshi population? They are feeling the burnt of GoB mismanagement. Especially on food products which is essential to survive. Example: In my hometown chicken Egg was 10 Taka per piece, from yesterday it became 15 Taka. 50% jump overnight!

Corrupt politicians, corrupt, low IQ and low quality civil servants will fuk this country further...
 

Nergal

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Im losing the value of my fixed deposit because of inflation. AlHamdulillah Allah gave me enough to live a comfortable life even with this inflation. But, what about the majority of Bangladeshi population? They are feeling the burnt of GoB mismanagement. Especially on food products which is essential to survive. Example: In my hometown chicken Egg was 10 Taka per piece, from yesterday it became 15 Taka. 50% jump overnight!

Corrupt politicians, corrupt, low IQ and low quality civil servants will fuk this country further...
Bro , try to adjust ; it's your prescription!

Jokes aside , transport cost increased ( because of diesel price hike ), so all goods price increased as well!

Rikshawalahs are asking higher fare, because food price increased!

Govt must subsidy diesel in order to solve the problem! And I'm sure.they will do.

The problem is , "Gadha pani khabe , Tobe ghola na Kore khabe na" !

Same thing happened during COVID-19 management!
 

SoulSpokesman

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@Abu Shaleh Rumi

Example: In my hometown chicken Egg was 10 Taka per piece, from yesterday it became 15 Taka. 50% jump overnight!

Well that is quite shocking Abu bhai! In Delhi the retail prices are around Rs 5-6/piece. Assuming TK=0.8 INR, that means an increase from 8 to 10. I was under the impression that basic foodstuff was quite cheap in BD.

Petrol and diesel though are still cheaper in BD I understand.

Regards
 

Abu Shaleh Rumi

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I was under the impression that basic foodstuff was quite cheap in BD.
Nope. Never was. We are a small country with massive population. Food always was expensive compared to india.
Petrol and diesel though are still cheaper in BD I understand.
Was! After government removed subsidy it became comparable to india.
 
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Abu Shaleh Rumi

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Bro , try to adjust ; it's your prescription!
Thats all I can do.
transport cost increased ( because of diesel price hike ), so all goods price increased as well!
Understandable. But, inflation was getting out of hand even before fuel subsidy removal.
Govt must subsidy diesel in order to solve the problem! And I'm sure.they will do.
Im against fuel subsidy. Government should subsidise food only.
 
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rainbowrascal

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@Abu Shaleh Rumi

Example: In my hometown chicken Egg was 10 Taka per piece, from yesterday it became 15 Taka. 50% jump overnight!

Well that is quite shocking Abu bhai! In Delhi the retail prices are around Rs 5-6/piece. Assuming TK=0.8 INR, that means an increase from 8 to 10. I was under the impression that basic foodstuff was quite cheap in BD.

Petrol and diesel though are still cheaper in BD I understand.

Regards
I would say logistics is the biggest problem for bd, which drives the price up for every essentials. Also as the middle income population grows, demand will follow the suit. But supply and production is lagging behind.
Not other fuel bro , just subsidy diesel only. Okay let's wait see what govt is going to do in future.
They'll surely reduce price once global price falls. But I don't think they'll ever go to subsidize it again. Let's see what happens
 

Bilal9

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I would say logistics is the biggest problem for bd, which drives the price up for every essentials. Also as the middle income population grows, demand will follow the suit. But supply and production is lagging behind.

They'll surely reduce price once global price falls. But I don't think they'll ever go to subsidize it again. Let's see what happens

Hoarding and price control by business mafias is common and has been proven before - this is a far bigger problem. Maybe not on eggs and milk as they are perishable but definitely on oil and other relatively non-perishable items.

The govt. does very little to break up these mafias, as they pay off MPs and the Trade Minister. All in on making two pice on the backs of mehnati people - who pay for the govts. inactivity and corruption.
 

BananaRepublicUK

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Hoarding and price control by business mafias is common and has been proven before - this is a far bigger problem. Maybe not on eggs and milk as they are perishable but definitely on oil and other relatively non-perishable items.

The govt. does very little to break up these mafias, as they pay off MPs and the Trade Minister. All in on making two pice on the backs of mehnati people - who pay for the govts. inactivity and corruption.

Food is cheap in India due to massive price controls and restrictions on exports.

This has created a crisis in farming. Many farmers are making losses, borrowing from banyas at exorbitant rates. And committing suicide when they cannot pay the interest.
 

Homo Sapiens

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It is important to note that, while other South Asian countries are overwhelmed by foreign debts, Bangladesh has nothing to worry about because its external debt is only 21.8% of GDP. Bangladesh's strong macro-economic base, loan management, and debt repayment capability have led the World Bank to continue lending more than $35 billion with the lowest interest rates – the highest amount given to a single country.

Needless to say, while Sri Lanka implemented lots of unnecessary megaprojects using Chinese loans – for example, the Hambantota Sea Port and Rajapaksa International Airport, to serve political interests, Bangladesh PM Sheikh Hasina has been careful to not take up projects without a high economic and social rate. Moreover, Bangladesh's political system has shown resilience in recent years without any major political turmoil.

Moreover, the government adopted a conservative approach to deal with any upcoming potential crisis. Bangladesh has sought a $4.5 billion loan from the IMF for its balance of payment and budgetary needs. So as to save dollars and increase foreign currency reserves, the government has restricted civil servants' foreign tours, imposed higher import tax on luxury items, relaxed restrictions to draw in remittances, boosted exports, and introduced austerity measures in power expenditure. Although these don't seem to be the long-term solution to economic woes, it's expected to save huge money, positively influencing macro-economic stability.

According to a report based on IMF data, Bangladesh is the 41st largest economy in the world with a GDP of $397 billion, and its position is second in South Asia after India. Even a recent Bloomberg report pressed alarm bells for 25 countries that are exposed to the default risk, excluding Bangladesh from the list.
Indian toilet media until one month ago were awash with reports like ''Kyasa banega Bangladesh textile superpower?'' But for the last one month they are beating the drum of economic collapse of Bangladesh with numerous media reports of Bangladesh becoming another Sri Lanka. Modi bhakts are gloating and taking a cheap shot on some Indian economists who praised Bangladesh's economic management. The toilet media is using 2013 Hefazat-e-Islam protest and riot as a recent occurrence in Bangladesh.

2013 video being circulated as “recent fuel price hike protests in Bangladesh”​


If Bangladesh can pass this crisis relatively well, we can expect the same Indian toilet media to back to their old chorus. One day they will elevate you to the sky and the next day they will throw you to the gutter without objectively analyzing the situation. This is the hallmark of a loudmouth, rumor based propaganda filled cheap media India is used to. This is why Indian media will never earn international respect and acceptance no matter how many thousands news channel they open and how many billions they get viewership.

 
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rainbowrascal

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Indian toilet media until one month ago were awash with reports like ''Kyasa banega Bangladesh textile superpower?'' But for the last one month they are beating the drum of economic collapse of Bangladesh with numerous media reports of Bangladesh becoming another Sri Lanka. Modi bhakts are gloating and taking a cheap shot on some Indian economists who praised Bangladesh's economic management. The toilet media is using 2013 Hefazat-e-Islam protest and riot as a recent occurrence in Bangladesh.

2013 video being circulated as “recent fuel price hike protests in Bangladesh”​


If Bangladesh can pass this crisis relatively well, we can expect the same Indian toilet media to back to their old chorus. One day they will elevate you to the sky and the next day they will throw you to the gutter without objectively analyzing the situation. This is the hallmark of a loudmouth, rumor based propaganda filled cheap media India is used to. This is why Indian media will never earn international respect and acceptance no matter how many thousands news channel they open and how many billions they get viewership.

Not just the media, the people are same too in most cases. Was having an argument with an indian who thought that Bangladesh was in similiar crisis like sl. But his own country's central bank had to jump to stop currency depriciation
 

bluesky

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Especially on food products which is essential to survive. Example: In my hometown chicken Egg was 10 Taka per piece, from yesterday it became 15 Taka. 50% jump overnight!

Corrupt politicians, corrupt, low IQ and low quality civil servants will fuk this country further...
So, the inflation is somewhere between 30% to 50% that will soon reach 100% or more. But, our Hasina Bibi claims it is about 6.5%.

Hoarding and price control by business mafias is common and has been proven before - this is a far bigger problem. Maybe not on eggs and milk as they are perishable but definitely on oil and other relatively non-perishable items.

The govt. does very little to break up these mafias, as they pay off MPs and the Trade Minister. All in on making two pice on the backs of mehnati people - who pay for the govts. inactivity and corruption.
This BAL party in power between 1972 and 1975, the salt price rose to 80Taka per kg. This 80 Taka in 1972 is equivalent to Tk1,600 in today's money.

I do not see any reason BAL and Hasina should cling to power and wait for a military coup to topple them.
 
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BananaRepublicUK

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Trolling
So, the inflation is somewhere between 30% to 50% that will soon reach 100% or more. But, our Hasina Bibi claims it is about 6.5%.


This BAL party in power between 1972 and 1975, the salt price rose to 80Taka per kg. This 80 Taka in 1972 is equivalent to Tk1,600 in today's money.

I do not see any reason BAL and Hasina should cling to power and wait for a military coup to topple them.

Shut up idiot.

You are talking through your Hinduvta backside.

Mods, pls ban this idiot!!!
 

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