Essay: World Economic Crisis and Bangladesh Response

Introduction

A global financial crisis is a financial crisis that affects many countries at the same time.It is a period of severe difficulties which financial institutions, markets, companies and consumers experience simultaneously. During a global financial crisis, financial institutions lose faith and stop lending to each other and traders stop buying financial instruments. Eventually, most lending stops and businesses suffer significantly.

A series of severe and mutually reinforcing shocks hit the world economy in 2022, as it approached the mid-point for achieving the sustainable development Goals by 2030. While the impacts of the COVID-19 pandemic continue to reverberate worldwide, the war in Ukraine unleashed a new crisis, disrupting food and energy markets and exacerbating food insecurity and malnutrition in many developing countries. High inflation is eroding real incomes, triggering a global cost-of-living crisis that has pushed millions into poverty and economic hardship. At the same time, the climate crisis is taking a heavy toll on many countries, with heat waves, wildfires, floods and hurricanes inflicting massive humanitarian and economic damage.

Major contributor economic crisis

These shocks will eeigh heavily on the world economy in 2023 and further. Persistently high inflation which averaged over 9 per cent in 2022–has prompted aggressive monetary tightening in many developed and developing countries. Rapid interest rate hikez by the the Federal Reserve of the United States have triggered capital outflows and currency depreciations in developing countries, increasing balance-of-payment pressures and intensifying dept sustainability risks. Financing conditions have tightened sharply amid high levels of private and lublic debt, pushing up dept servicing costs, constraining fiscal space, and increasing sovereign credit risks. Rising interest rates and diminishing purchasing power have weaked consumer confidence and investor sentiment, and further clouding near-term growth prospects of the world economy. Global trade has softened due to tapering demand for consumer goods, the protracted war in Ukraine, and 

Bangladesh response to global economic crisis

There a two dimensions of Bangladedh's response to the on-going global economic crissia. The response has been a mix of both domestic and external in nature.

i). Domestic respose

⇨ The domestic response has been focused mostly on promoting domestic supplies in the fast-advancing deglobalised world following the Ukrsine-Russia war.

⇨ One desirable option has been to ensure sustainable agricultural development to avoid a food crisis in.the country. Of course, the country will still have to import some food to build up the stocks to ensure desired food security.

⇨ We now have a food stock of about two million metric tons. Ideally, we must aim to raise this stock to three million metric tons through both domestic and external procurement process. Bangladesh is exactly following this strategy. Thriving agriculture is, of course, a boon for an emerging economy like ours with a huge population.

⇨ Besides feeding the millions, it has also been provinfing necessary employment to the rural population and raw materials and souces of demand for industrial products.

⇨ The growth of the agricultural processing industry depends largely on thriving agriculture. The agricultural processing industry has also come of age in Bangladesh mainly due to better-performing agriculture.

⇨ Thanks to robust financial inclusion, including mobile financial services and microfinance penetration into the rural economy, the rural economy of Bangladesh has been transformed into a vibrant landscape of smaller entrepreneurs providing strength to the macroeconomic stability.

⇨ Indeed, sustainable agriculture has been synonymous with import-substituting industrialisation in Bangladesh. Bangladesh avoided billions of dollars of food imports mainly due to its better-performing agriculture. Howerver, in a globalized world, diversified agriculture and MSMEs alone cannot do much in ensuring a stable macfoeconomic outcome.

ii) External economy response:

⇨ The external economy, including the regional one, is also crucial in responding to the global economic crisis.

⇨ In particular, the growth of the low-skilled manufacturing industry, particularly in the textile sector, has been the key to Bangladesh's transition to a devrloping country from its Least Developed Country (LDC) status.

⇨ The export of textle products has given special comfort to Bangladesh in not only earning continued foreign exchanges but also providing abundant employment to low-skilled rural youths, including the overwhelming proportion of women.

⇨ The contribution of low-skilled remittance earners in providing both employment and foreign exchange earnings has also been equally strategic for Bangladesh.

⇨ Besides making a significant contribution of the domestic response to the global ecpnomic crisis by these three sectors, namely agriculture, export, and remittance, their role in shaping the external sector economy has also been highly strategic.  Despite some headwinds, Bangladesh's external economyb looks much more resilient than many of its peers.

Impacts of Bangladesh Economy

i) Inflation:

One of the external sector vulnerabilities of Bangladesj, like many other developing countries, is certainly rising inflation which has been pushed to this level mostly by the higher prices of imported goods.

ii) Disruptions of supply chain:

The supply-chain disruptions due to the Ukraine-Russia war and the lagged effect of the devastating pandemic are at the root of higher fuel, fertiliser and food prices (e.g. wheat, efible oil, etc.).

iii) Monetary policy:

In addition, the unprecedented tightening of the monetary policy of the Fed has been raising the primary rate of interest in the US financial market leading to speedy gains in the yields of the US long and medium-term bonds.

iv) Devaluation of currency:

Simultaneuosly,  the exchange rate of the US dollars against the major currencies has been gaining the strength making the world's foreign exchange market seriously turbulent. Almost all currencies, including Euro, Pound, Sterling, and Indian Rupee, have been weakening consistently to keep pace with the gaining spree (uninhibited activity) of the USD. The dollar has gained 13 per cent against Euro, 15 per cent against the Pound, and 20 per cent against Yen. Bangladesh Taka has not been an exception. Since most international import products are dollar-dominated, the landing prices of almost all the imported goods and services in non-US economies, including Bangladesh, are experiencing phenomenal price rises leading to higher inflation.

Sources:

1. Unique BCS লিখিত বাংলা রচনা ও English Essay