Friday, 12 August, 2022
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Straight Talk

Another Crisis in the Offing?

Abdul Mannan

Another Crisis in the Offing?
Abdul Mannan

Though there is no sign of the war in Europe between Russia and Ukraine coming to an end it seems there is another crisis is waiting to unfold, this time in Asia following the US House Speaker Nancy Pelosi’s defiant visit to Taiwan recently. Pelosi is the third highest-ranking official in the US government after the President and the Vice-president and her visit to Taiwan is first from such a high-ranking US official in a quarter century. China as expected showed their displeasure about this visit and Pelosi as if to incite China vowed to preserve democracy on the self-ruled island Taiwan which China considers as one of their breakaway province since the establishment of the People’s Republic of China in 1949. It has time and again vowed to reunite Taiwan with the mainland. Many countries of the world, including Bangladesh and even the US,   believe in one China policy and do not have any diplomatic relations with Taiwan. Only fourteen small and insignificant sovereign states have full diplomatic relations with Taiwan. None of them are major economic or military powers. The US has always remained a good friend of Taiwan and virtually has underwritten its defence in case it comes under any threat from China.

Pelosi’s decision to visit Taiwan has irritated China so much that China’s President Xi Jinping in a phone call with President Biden had earlier warned against Pelosi’s Taiwan visit. No sooner had Pelosi left Taiwan after her two day visit, China began live military exercise in the region and its fighter jets have overflown Taiwan’s air defence system. Few of the missiles it fired in air hit the territorial waters of Japan. As expected Russia took Pelosi’s visit to Taiwan as an act of ‘Sheer Provocation’ and said that nothing good would come out of the trip.

The war in Europe followed by Nancy Pelosi’s Taiwan visit has brought these superpowers much closer than any other previous time. The Russian leader Putin has already visited Iran, another ‘foe’ of the US, and this visit is seen as an important event. North Korea already maintains a close contact with both China and Russia. All four countries are nuclear powers. Pelosi’s visit to Taiwan has left the countries in the Asian neighbourhood nervous. China has a robust economy though it suffered its share of pain during the Covid-19 pandemic period.

The war in Europe has shaken the world both economically and financially and there is a prediction from many analysts that the world may be heading towards another recession. They also forecast that it may begin in the US though Fed Chairperson Jerome Powell refuses to acknowledge that any such thing will happen. Already US’s inflation has hit all time high and currently it has hit 9.1 per cent. The food inflation on an average has gone upto 10.4 per cent. If it was not for food stamps and other type of cash doles dished out to a section of US citizens, many low- and middle-income American’s would be struggling to keep their food budget under control. Like any country, whether in Asia or Europe, the US also has power shortage and to keep things under control many States have begun power rationing from 4 to 9 p.m., considered peak hour. It simply means that power will not be totally cut off like ‘load shedding’ but for use of power during these hours one will have to pay a high price. So, people practise not using power guzzling appliances like washing machines, dishwashers, air conditioners during these peak hours. In most of the countries of Europe, street lights are shut down at night. Greece has issued an order that all public places, including airports and restaurants, must put their air conditioning system on 27 degrees failing which they will have to pay a heavy fine.

Now who does gain out of these tensions and wars? Sure enough the countries whose economy heavily depends on sale of military hardware. This is a historical truth. It happened in the Middle East and Arab countries and now it has created another scope for sale of arms to Taiwan on the pretext that military action against Taiwan from China is imminent.

At the backdrop of the Russia-Europe war virtually all countries, big or small suffered economically and Bangladesh was no exception though the critics of the current government deliberately refuses to believe it. Immediately following the invasion of Ukraine by Russia came the US sanctions against Russia followed by delinking Russia’s international business by switching off its SWIFT code used in inter banking transactions very necessary in international trade. This is for the first time SWIFT code has been  used as a tool for taming a country in times of war not realising that such measures will not only punish the concerned country or countries but also virtually all countries around the world will suffer. Ironically the US-Russia trade ties are very strong and currently the US imports from Russia is around US$ 31 billion while its exports to Russia hardly crosses US$ 7 billion. The US sanctions following the Ukraine-Russia war has also put the US economy in an uncomfortable position and stress.

Now coming back to Bangladesh and all these wars and could be wars what are at stake? When global economy came to a standstill during the pandemic period only twenty three countries, which included Bangladesh, showed positive growth and managed to keep its economy fairly stable. This was acknowledged even by IMF, WB and WEF. However, one of the major issues was the disruption of the supply chain as China virtually isolated itself from rest of the world during the pandemic period which lasted for about two years. Bulk of our industrial raw materials which includes yarn used in our readymade garments industry, raw materials for pharmaceuticals industries, machines and equipments, computers and accessories, mineral fuel including oil, iron and steel, plastics and plastic articles etc., are imported from China. China is Bangladesh’s single largest trading partner followed by the US and India. When Bangladesh with rest of the world was coming out of the shadows of global economic downturn, came the unfortunate war in Europe.

Now as these is a month of National mourning we have to look back to the previous history of Bangladesh’s economy. When Father of the Nation Bangabandhu was killed on the fateful night of 15th August 1975, Bangladesh just rose from the ashes of the liberation war and was beginning to walk. At the time of Bangabandhu’s killing, Bangladesh’s GDP growth stood at 7.8 per cent and it must not be forgotten that the country’s economy relied primarily on agriculture. Since 1975 and upto 1991 Bangladesh’s achievements in economic terms were insignificant and its budget was heavily dependent on foreign aids and loans. Defying all economic logic often aid money was used for revenue purposes pushing the national development backstage. In 1991 when the autocratic rule of Ershad ended the country’s foreign exchange reserve was less than one billion and Bangladesh’s current account deficit has always been perpetual.

Bangladesh’s foreign exchange reserve rose to US$ 48 billion in August 2021 which was an all-time high, thanks to the remittance received from our expatriate workers and out export growth mainly in apparels, pharmaceutical, software and some non-traditional items. Even during the pandemic period, Bangladesh managed to keep its foreign exchange reserve at a decent position though soon after the reserve showed a sign of decline due to the resumption of import of capital goods and industrial raw materials coupled with the decrease of remittance from abroad. It must be remembered that during the pandemic many of expatriate workers were sent back home from their host countries as they too faced strenuous and harsh economic downturn. The Middle Eastern and Saudi Arabia were hard hit as the global demand for oil decreased sharply due to virtual stoppage of transport and industrial sector, including virtually shutdown of aviation industry.

For obvious reasons Bangladesh’s foreign exchange reserve came down below US$ 40 and as usual a section of think tanks who are in the habit of always painting a gloomy picture of Bangladesh internally and externally predicted a doom’s day ahead for Bangladesh. The opinion of opposition political parties can be discounted as the culture of acknowledging the local and global reality are not in the books of Bangladesh’s political system. A section of the media always with some hidden agenda also joined the bandwagon and predicted that the economy of Bangladesh is facing an imminent collapse, and some audaciously predicted Bangladesh may be another Sri Lanka. A popular Bangla daily in its front page carried a story saying that though the capacity of Bangladesh’s power generation has increased and so did its cost and losses. They very well know that the inputs for generating power are constantly rising and utilities like power is a public good and in a country like Bangladesh government’s objective is to provide the necessary utilities at an affordable price and not to make a profit. Such products or services are usually subsidised.

Bangladesh’s economy has begun to show a sign of recovery. Its export earnings grew 15% in the first month of the new fiscal year and the expatriate workers have remitted US$ 2.2 billion dollar during this time. Pundits also constantly keep reminding that the Bangladesh will have to begin to pay some of its debts to international agencies in 2024 and that is the time when the country will begin to feel the real economic pain. Bangladesh has never failed to repay its debt on time. Economy is not something static. It will have its own ups and downs. But judging from the international standards Bangladesh’s foreign debt may not be a problem as the country’s public debt stands at 41 percent of its GDP and is much lower than the risk threshold of 70 percent estimated by the IMF. IMF has already agreed to sanction a loan of US$ 4.5 billion to Bangladesh. Sanctioning a loan does not mean that Bangladesh will immediately take the loan. It will consider the terms and conditions of the loan and will take it when it feels it is necessary.

However whatever happens in the days to come Bangladesh needs to tread its economic path with care and take realistic measures so that the country’s economy does not have to face sudden strains. The government has already taken certain measures. It has put a moratorium on foreign visits by government officials, excepting for those travelling on extreme national importance. But it seems in many cases this has been compromised as the monitoring mechanism seems to have taken a laid back approach. The government has discouraged import of all luxury goods and that too seems to be falling on its face. People very conveniently import containers full of illegal alcohol in the name of raw materials for apparel industry. The people involved in such activities always are found to have close connection with some powerful people in the government. On top of everything, Bangladesh needs to contain the endemic corruption by a section of public servants, businessmen and politicians. Money laundering has become cancerous in the country. This is crime against the nation and needs to be controlled by enforcing the existing laws. No one should be above the law.  Bangladesh’s trade deficit currently stands at US$ 33 billion (2021-22)  which is all time high and this has happened due to rise of import of capital goods and industrial raw materials as mentioned earlier. Such imports came down drastically during the pandemic period. It should now stabilise. India’s current deficit stands at US$ 31 billion which is also all time high. Due to rising cost of dollar in the international market caused by the US decision to increase in the interest rate, things may become stickier in the future. In the US, people are withdrawing money from share market and investing in less risky government bonds. This may prove counterproductive for the US economy in near future. But whatever happen, Bangladesh needs to handle its economy as prudently as possible and that needs proper leadership. Bangladesh’s current political leadership has already been praised by the international community and if the past is a reference point this leadership has not failed its people and is expected to overcome the global crisis and pay attention to national priorities.

 

The writer is an analyst and commentator