THE global economic meltdown is unraveling before Bangladesh faster than the prediction made by economists just a few months back. The IMF director for Asia and Pacific Anoop Singh said on February 13 that Bangladesh’s economy has been able to resist some of the effects of the global economic recession as it has benefited from the fall in food, fuel, and other commodity prices.
Though the country was less affected from the first round impact of the global economic recession, it has already started facing the consequences of the global meltdown. Bangladesh is now facing the knock-on effects of the global recession on the external front because of a freefall in export earnings, remittances, and foreign direct investment.
Both prices and export orders of our major exportable items are slipping towards the bottom, dropping export earnings by more than 10%. Economic forecasts of our major export destinations are grim as they have faced significant impacts of the global meltdown.
Bangladesh knitwear industry with a highly laudable performance is now trying to keep its business afloat against the backdrop of an unprecedented fall of export orders. Statistics revealed that US imports of knitwear and woven garments from Bangladesh were more than $558 million and $1.21 billion respectively during July-December of the last fiscal while it decreased by 1.56% for the knitwear and by 3.72% for woven garments during the corresponding period of this fiscal year.
Remittance inflows are also feared to face a slowdown in the coming months as expatriate workers are losing jobs at an alarming rate. According to Bureau of Manpower Employment and Training, more than 8,000 expatriate workers have returned home in February from the Gulf region. This number is almost double the figure in January. The number of outbound Bangladeshi workers has also gone down with some countries like Malaysia canceling work visas.
According to Bangladesh Bank, foreign remittance grew by 29.36% to $5.3 billion in July-January period of this fiscal from $4.15 billion in the same period a year back. But it fell by around 9% to $784.47 million in February. FDI inflows have also shrunk further, hurt by global economic recession.
The government has formed a 27-member task force to identify the transmission channels of the global meltdown and analyse its fallout and impacts on Bangladesh in addition to reviewing the overall economic situation.
The task force, headed by the finance minister, at its first meeting held on March 24, decided to take quick steps in six major sectors and prepare a holistic package to protect various domestic sectors from the negative effects of the global meltdown. The experts in the taskforce have opined that the fallout of the global meltdown would not be economical only but might also turn into a serious social crisis.
The six steps that will be taken on an urgent basis for facing the global meltdown are release of cash incentives for exporters, reduction of fees for captive power plants, special care for export of frozen foods, relaxing provisions for rescheduling defaulted bank loans, strengthening the Bangladesh Standards and Testing Institute for improving certification, and reviewing the value added tax for the export sectors.
A delegation of the FBCCI has recently met the prime minister and claimed a Tk. 6,000 crore bailout package for the meltdown.
On the other hand, MCCI has recommended a supportive monetary policy and conducive tariff regime rather than direct cash incentive to exporters as stimulus package, as part of the government’s efforts to face global meltdown.
Western developed countries are using public funds to save the private businesses from collapsing. But Bangladesh does not have such capacity to give cash and cash incentives for export as bailout package.
Bangladesh’s economy has already started to feel the pains of global economic meltdown. So, the government needs to immediately start providing various fiscal-financial incentives and assistance to the affected sectors to tackle the fallout.
Bank loan at reduced interest rate, exemption of duties and tax rebates and cash compensation schemes should include in the aforesaid stimulus program among others.
I am not against the Tk. 6,000 crore bailout package, as demanded by the FBCCI leaders. But the pertinent question that one can ask is, to what extent will this package be able to meet the challenges of the global economic meltdown?
The capital markets all across the world are still in decline despite of injecting trillions of dollars into the affected sectors. This is one side of the coin. The other side is that it would create a big public liability, as the government has no alternative but to raise this huge fund through issuing bonds.
A.N.M. Nurul Haque is a columnist of The Daily Star
Source: The Daily Star, 29 March 2009