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In My View

Bangladesh will not go the Sri Lanka way

Published : Friday, 2 September, 2022 at 12:00 AM  Count : 927
Syed Badiuzzaman
Prime Minister Sheikh Hasina's assessment of the state of the economy of Bangladesh is accurate. Although the global economy is still suffering due to the prolonged pandemic of COVID-19 and then currently for Russia's  ongoing war in Ukraine, Bangladesh economy is not performing so badly compared to that of many countries around the world.  

It is true that the foreign exchange reserves of the country dropped to $35.9 billion in July from $38.1 billion the previous month this year setting a declining trend for this vital resource and thus causing some worries among some people. However, the prime minister has repeatedly assured the nation that the foreign reserves will be enough to cover import for the next six to nine months.

Taking into consideration the dwindling foreign exchange reserves, Sheikh Hasina's Awami League government has already adopted a series of austerity measures including a restriction on import of automobiles and luxury goods. The government has also banned foreign travels for officials in an apparent attempt to save valuable reserves and introduced new office hours in the country for saving energy.  

Sheikh Hasina sounds quite upbeat about the Bangladesh economy. Speaking at an event marking the National Mourning Day in the capital just a few days ago, she brushed aside fear of some people that Bangladesh may face similar situation like in Sri Lanka. Many opposition politicians especially those belonging to BNP are worried about Bangladesh. But as Sheikh Hasina suggested, they shouldn't be so anxious as Sri Lanka situation was different from the situation of Bangladesh.

The crisis in Sri Lanka actually began back in 2009 right after the ending of the prolonged civil war that badly bruised this nation. As the civil war ended, the government started concentrating on local production and sales of goods. And the result was obvious. A discouragement of exports started hurting the country's much-needed foreign currency reserves. And as the emphasis was laid on sales of local products, the demand for foreign goods increased considerably in the country.  

Then in 2019, Gotabaya Rajapaksa's sweeping tax cuts was another major blunder for Sri Lanka's economy. Soon after winning his presidential election and prior to the parliamentary polls, he announced a reduction of value added tax in Sri Lanka from 15 percent to 8 percent and eliminated at least another half a dozen taxes for popularity. As a result of these tax cuts, Sri Lanka lost at least one million tax payers since 2019. Tax cuts brought a disastrous effect on the nation's economy as the government lost a significant amount of revenue.  

And then came the assault of the prolonged pandemic of COVID-19 on Sri Lanka. The economy of every country was affected by the border closures for pandemic and Sri Lanka was no exception. However, Sri Lanka's economy was hit hardest as its tourism industry, a major contributor to the nation's GDP, experienced a massive revenue loss as well as job cuts. In 2020, tourism contributed just 0.8 percent to Sri Lanka's GDP while in 2018 prior to the pandemic the country's tourism industry's share of the GDP was as high as 5 percent.  

Also, as a result of a ban on foreign-made fertilizer last year, as mentioned in an article published on the website of the World Economic Forum, Sri Lankan famers used only local and organic fertilizers which caused a massive crop failure. The ban was enforced to prevent further reduction of the country's foreign currency reserves but it backfired and led to more economic crisis. The situation forced Sri Lankans to rely again heavily on imports causing more depletion of the nation's reserves. Rising grain and fuel prices due to the Ukraine war have made the dire situation in Sri Lanka even worse.

In last April, the Sri Lankan government announced that it was defaulting on its debt payments making it the first sovereign default in Sri Lankan history since independence in 1948. Sri Lanka also became the first state in the Asia-Pacific region to enter sovereign default in the 21st century. Officials of the Washington-based International Monetary Fund or IMF recently arrived in the country to discuss a bailout. Sri Lankan ministers also visited Russia for negotiating a deal to import oil at a reduced price. China and India have promised to help Sri Lanka out of this economic crisis.

Bangladesh will not face Sri Lanka-like situation for several reasons. First of all, this country has two strong, reliable and permanent foreign currency earners -- more than 10 million expatriate Bangladeshis and the thriving garment industry of Bangladesh. Even though there has been a declining trend in the earning of foreign reserves for the last couple of months, the country still maintains about $36 billion in foreign reserves -- enough to pay for at least six months' imports. The fall has been due to job losses of some expatriate Bangladeshis as a result of the pandemic which has impacted virtually the whole world.

And as Sheikh Hasina said, Bangladesh has also been repaying its foreign debt regularly. "The amount of our debt is not so high and that we will not fall in the trap of anyone," she told an event in Dhaka recently. The total foreign debt of Bangladesh reached $90.8 billion in December 2021. In the previous quarter, it was $84.7 billion. Pakistan's external debt is higher and India's a lot higher than that of Bangladesh. Pakistan's foreign debt stood at $130.2 billion in June 2022 as against $129.0 billion in the previous quarter. The foreign debt of India reached $620.7 billion at the end of March 2022, registering an increase of $47.1 billion over its level during the corresponding period previous year.

In order to avert any unforeseen future financial crisis as a result of the external factors and global economic downturn, Bangladesh is also reportedly seeking $4.5 billion loan from the IMF. Reuters reported that work on the loan from IMF's new Resilience and Sustainability Trust or RST will proceed and IMF will engage with Dhaka to design a reform program that will be required for the loan. "As part of the policy response, Bangladesh's request for an RST and accompanying IMF-supported program will provide safeguards in the event of further deterioration of external conditions, while supporting the country's efforts to address the longer term macroeconomic implications of climate change," the news agency quoted IMF as saying.

A single cause hasn't brought the beautiful island nation of Sri Lanka to where it is finding it today. A combination of national and international factors and of course the pandemic of COVID-19 is responsible for the current crisis in Sri Lanka. The situation of Bangladesh is very different from that in the island nation. So, there is no likelihood of Bangladesh going the Sri Lanka way. Even though there has been a decline in the earning of foreign currency due to a global economic slowdown, the national economy of Bangladesh is resilient. The ongoing Russia-Ukraine war is largely responsible for rising food and fuel prices across the world.

It's not just Bangladesh; country after country across the globe is currently experiencing economic hardships under the impacts of the prolonged pandemic of COVID-19 and the ongoing war in Ukraine. However, this doesn't mean that the country after country in the world will go the Sri Lanka way. The war will not go on forever. It will certainly come to an end -- hopefully sooner than later. And the world will be back to normal.  
The writer is a Toronto-based
journalist who also writes for the Toronto Sun as a guest columnist.







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