Since November 28, I have been unable to obtain a single letter of credit (LC). I run a solely import-based business. I typically had 7 to 8 LCs every month, but since November 28, I haven’t been able to have one. How can I survive and pay for my stuff in such a circumstance? I’ve already told my employees to seek new employment. I doubt that I’ll be able to keep them. With sorrow, Mawla traders’ proprietor Anwar Hossain asked, “Where would they go? ”
Both the World Bank and the International Monetary Fund have depicted a dismal picture of the state of the world economy in 2023, citing the persisting uncertainty caused by the ongoing Russia-Ukraine conflict and the global energy market turbulence, and increased inflation. The recession is anticipated to hit the entire world.
According to the most recent World Bank prediction, the world economy is “perilously close to falling into recession.” It projects that the global economy will expand by just 1.7% this year, much less than the 3% projected in June. David Malpass, president of the World Bank, predicted that the recession would be “broad-based” and that global income growth would likely be slower than it had been in the decade prior to COVID-19.
On the other hand, the International Monetary Fund (IMF) chief has warned that a third of the global economy will be in a recession this year. IMF Managing Director Kristalina Georgieva predicted that 2023 would be “tougher” than previous years due to the slowing economies of the US, EU, and China. The global economy is currently being weighed down by the conflict in Ukraine, rising costs, higher interest rates, and the expansion of Covid in China. The IMF revised its forecast for 2023 global economic growth in October. “We expect one third of the world economy to be in recession,” Ms. Georgieva said on the CBS news programme, Face the Nation.
“Even countries that are not in recession, it would feel like recession for hundreds of millions of people,”
she added. Further interest rate rises are anticipated in 2023, although the UN cautioned prudence. Inflation reduction and maintaining consumer inflation expectations are priorities for the region’s central banks.
The UN stated that the economic outlook has drastically deteriorated as a result of high food and energy prices, monetary tightening, and fiscal vulnerabilities in South Asia, noting that Bangladesh, Pakistan, and Sri Lanka requested financial help from the IMF in 2022. According to the UN’s “World Economic Situation and Prospects 2023” study, average GDP growth in this region is predicted to slow down from 5.6% in 2022 to 4.8% in 2023.
To stabilise exchange values and reduce inflationary pressures, South Asian central banks have accelerated interest rate increases. In response to growing inflation and widening current account deficits, the central banks of Pakistan and Sri Lanka began vigorous monetary tightening cycles in the latter half of 2021. Unlike most advanced economies, the Reserve Bank of India and the Central Bank of Bangladesh started tightening during the second quarter of 2022.
To put things in perspective, the economy of Pakistan is projected to grow by only 2.5% in 2023 due to devastating floods that caused significant harm, particularly to the agricultural sector, with repercussions on related industrial and service sectors, while the economy of Sri Lanka is projected to shrink by an estimated 9% in 2022 and another 3.2% in 2023. However, as higher interest rates and a global downturn weigh on investment and export, growth in India is anticipated to remain strong at 5.8%, although being slightly lower than the projected 6.4% in 2022, it stated.
Bangladeshis will welcome 2023 with such a bleak outlook. The nation’s problems are becoming difficult despite expectations that it will safely surpass the average growth rate for the world. This is due to the economy starting 2023 off on the back foot as a result of the economy’s weakening foreign exchange reserves, rising US dollar rate, out-of-control inflation, gas shortage, decreased remittances, and moderate exports.
According to the annual report of the Bangladesh Bank, Bangladesh’s main problems in the near future would be maintaining stability in the exchange rate while controlling inflation.
Since the second part of FY22, Bangladesh has experienced significant inflationary and currency rate depreciating pressure despite an anticipated monetary expansion. This is mostly due to the spillover effect of unexpectedly higher global inflation rates together with large current account deficits. In FY22, the Consumer Price Index (CPI) increased to 6.15 percent, exceeding the goal of 5.30 percent. In FY21, it was 5.56 percent.
In its study titled “World Economic Situation and Prospects 2023,” the UN stated that Bangladesh is one of seven countries that are in the process of leaving the list of least developed countries. According to the UN, Bangladesh implemented temporary tax reforms, including lower tax rates, to deal with the crisis. To create fiscal space, these interim measures can be withdrawn. The UN urged the countries to carefully evaluate the process and gradually eliminate tax breaks, starting with industries that have recovered more quickly before moving on to those accomplishing slowly.
According to the World Food Program, Bangladesh is one of 28 nations that are especially at risk of food insecurity. Despite recovering from the impact of Covid, a study by the World Bank found that around 30% of the population in the country is experiencing a food deficit. In Bangladesh, 7% of people reported going to bed hungry in June 2021, according to a World Bank poll. In May 2022, it almost doubled to 13%.
The warning from the World Bank and the IMF is bad news for Bangladesh, according to Mustafizur Rahman, a distinguished fellow at the Centre for Policy Dialogue, because Bangladesh is intertwined with the global economy in many ways, notably through exports. The recession in big economies could impact foreign aid and foreign direct investment. However, considering that a significant percentage of the Bangladeshi economy depends on the domestic market, attention should be focused on guaranteeing a sufficient supply of gas and power to maintain factory operations. As there is little prospect of a recession in the Asian market, the nation must simultaneously concentrate on the Asian and regional markets to diversify product destinations. Therefore, he advised maintaining uninterrupted output in the factories focused on the export market.
Author-Muhammad Mujtaba
