Daily Times

Bangladeshi economy had been growing at the fastest pace for the last decade. This country earned tremendous applause for being out of any economic barrier like that of Sri Lanka and Pakistan. Everything was smoothly moving in the right direction. The unemployment rate was slightly up to 5.23 per cent. Even in per capita income, it had surpassed India. Then what happened that caused the economic crisis in Bangladesh and slowed down its rapid progress all at once is the scenario to be pondered over? According to some economists, there are many factors behind this emerging economic meltdown; however, the most contributing is the abrupt increase in fuel prices which is up to 52 per cent, which viciously impacted the industrial sector. It started with Covid-19 and Russia-Ukraine war, which badly affected global supply lines causing food and fuel prices to hike in the country. lt further led to dwindling foreign exchange reserves and lengthy power outages in the country. During this global economic turndown and rising inflation, Bangladesh could also not escape the repercussions. It is the third country in South Asia after Sri Lanka and Pakistan which is bearing the brunt of economic woes. However, the scale of the economic crisis in Bangladesh is not as severe as in Sri Lanka. It is evident that country’s 93 per cent of power production is based on thermal sources. About 63 per cent of electricity is generated from natural gas alone. while 10 per cent comes from diesel, five per cent is from coal, three per cent from the heavy oil and 3.3 per cent is from renewable resources.

Currently, Bangladesh’s more than 80 per cent economy is based on the garment Industry. It is the second in a row to export garments across the world after China. This heavy industry for its working consumes electricity solely produced from oil and gas. The actual fault lines lie here behind this emerging economic turmoil that after disruption in the global supply chain of oil and gas due to the Russia-Ukraine war, fuel prices abruptly jumped to more than 50 per cent across the globe. This is what caused Bangladesh to import less fuel and gas than is actually needed for power and energy generation. Secondly, Bangladesh could not afford to pay double-times for oil importation, which eventually hampered and lowered power generation. The breakdown in power supply to the garment industry ultimately caused it to halt its operations countrywide impacting its economy severely.

The breakdown in power supply to the garment industry ultimately caused it to halt its operations countrywide; impacting its economy severely.

Bangladesh’s economic overdependence on the garment Industry made this country face this worst financial crisis. Had they diversified their economy in different industrial sectors, they would have not come to this extent bearing this fallout. Therefore, it is always suggested to not “put all your eggs in one basket” in order to avoid any contingent risk and here Bangladesh is paying the cost of focusing more on one unit while ignoring all other options. However, economic experts opine that only Covid-19 and Russia-Ukraine war alone can not be held accountable for this surging financial crisis in Bangladesh. They say, there are myriads of other factors which led to this economic fallout.

For instance, The high cost of infrastructure projects impeded upward economic growth like Padma Bridge, one of the largest projects in the country, cost about $3.6 billion, which was previously estimated to be 1.16 billion in 2007. A Rooppur Nuclear Power Plant costs Bangladesh $12.65 billion; however, the actual amount for this project will still be unknown until it becomes fully operational. Similarly, Dhaka City Metro Rail Project reached $3.3 billion while the genuine estimates were $2.1 billion only. Another factor behind this crisis is the crashing of the banking sector due to the boundless default of loans. The central bank claimed that the total amount of defaulted loans was $11.11 billion which was contradicted by IMF saying the actual amount is even more than double. Likewise, the corruption in the power sector has full hands in triggering this economic crisis. In the period between 2010-2021, the Power Development Board received $7.1 billion, while Bangladesh Petroleum Corporation received $3 billion between 2010-2015. Regrettably, these gigantic amounts were not fully spent on power generation.

Similarly, capital flight from the country also caused this crisis. According to Global Finance Integrity Report, in the period between 2009 and 2018, an ample amount of $8.27 billion was illegally laundered to Swiss Banks annually by mis-invoicing the values of imports and exports. In 2022, it has increased by 55.1% reaching 871 million. As per the views of economists, Bangladeshi Taka has effectively slid against the US dollar by approximately 20% in just the past three months. Moreover, due to the Russia-Ukraine war, imports jumped to 39 per cent and exports could hardly grow 34 per cent during the fiscal year that ended on June 30. likewise, remittances from overseas Bangladeshis fell to 5 per cent until July this year. Currently, numerous austerity measures are being taken to alleviate economic woes. The Cabinet Secretary Khandker Anwarul Islam said, in Bangladesh, most Schools are closed on Fridays but now will also close on Saturdays to reduce electricity usage amid concerns over rising fuel prices. Government offices will cut their workdays to seven hours from eight hours but private offices will be allowed to set their schedules. The reduced hours will take effect on Tuesday.

Tens of thousands of mosques around the country have been asked to curtail their use of air conditioners to ease pressure on the electricity grid. With the power shortfalls compounded by the depreciating currency and dwindling foreign exchange reserves, Bangladesh’s precarious financial position has further worsened. In addition to electricity rationing, diesel power plants across the country accounting for 1500 megawatts of generation capacity have been taken off the grid. To overcome the lengthiest blackouts in the country, the government is struggling to source enough diesel and gas to meet the demand. As per reports, the government is planning to hold negotiations with Russia for oil deals to mitigate this energy crisis. The country’s leading newspaper, The Daily Star has reported that Bangladesh has sought a bailout package of $4.5 billion from the International Monetary Fund to cope with mounting pressure on its economy. Funds will specifically be used for the balance of payment and budgetary needs to bolster its big garment-exporting industry said Finance Minister A H M Mustafa Kamal. According to data from the central Bank, from May to July, the current account deficit was $17.2 billion compared with a deficit of $2.78 billion the year earlier. To encapsulate, if the deal is struck between IMF and Bangladesh as IMF says it is ready to support Bangladesh after the loan request, Bangladesh will certainly be in a secure position to escape this impending economic crisis to not meet the fate that Sri Lanka met. Furthermore, Bangladesh needs to revisit its economic policies according to the changing global trends and should focus on diversification of its economy to repel such mishaps.

The writer is a geopolitical analyst and freelance columnist and can be reached at waseemshabbir78@gmail.com