Imtiaz A Hussain |
04 August 2022 21:59:21
With the public bathing in the presidential pool and picnicking on the palace lawns, Sri Lankans are feeling a smoldering pain elsewhere. Albania, Argentina, Ecuador, Gambia, Kenya, Panama, Pakistan, Rwanda, Spain, Sudan and Uzbekistan are among more than 100 countries to witness protests important. The number of anti-government eruptions doubled that figure, as the United Nations Development Program (UNDP) predicted that 71 million people would be “thrown into poverty”. Unless frankly defused, Bangladesh’s external debt of around US$90 billion in 2020-21 could also deepen discontent. It recorded a much higher annual increase (by around 25%) than the previous year (16.8% in 2019-20). Our debt-to-GDP (gross domestic production) ratio has consequently worsened, from 17.9% to 21.8%. Although well below Sri Lanka’s 110% debt-to-GDP ratio, our conspicuous consumption at a time of cost-cutting could also harm us.
Oil and petroleum, textiles and foodstuffs together account for a third of all recent import costs. These are necessary elements. The same goes for other inputs, such as iron and steel, edible oil, chemicals, as well as wire, plastic and rubber goods (still constituting 20% of our imports). Luxury and non-essential items dominate the rest of the import list, prompting the government to start cracking down on them from spring 2022. Timing is important. As the trade deficit heads to an all-time high of US$35 billion this year and remittances have fallen 15% to just over US$21 billion, banks have been instructed to raise the minimum payment for letters of credit (L/C) from 25 percent to 75 percent due to high luxury import components. Age-old factors have aggravated these endogenous dynamics: (a) the rising costs of the pandemic (lockdowns, which means partial or total shutdowns of production; and a shaken global supply network), (b) the aftermath of the Ukrainian war (pushing US crude oil prices $139 per barrel when the war broke out from US$64 in 2019 to US$39 in 2020, while gas prices instantly doubled from 3 US$1 per gallon in 2020 to nearly $7 now); and (c) food prices have risen an average of 65% since the outbreak of the pandemic, but this has actually doubled food prices from the Great Recession of 2008-2010.
While Bangladesh can easily become self-sufficient in food (some products, such as onions, must be imported; other products, such as even rice, can sometimes be exported), it will have to hold the line on prices to avoid public anger. . Huge floods disrupt public life in other ways: crops have been washed away, roads and railways have been submerged, and flooded homes and factories, especially upstream, have similar consequences downstream. Bangladesh will clearly have to review its fuel supply: the lower the imported share, the more its credibility is secure. Yet it is with luxury goods that she may need to take even more drastic measures.
Independently, Bangladesh hopes to become a developing country within five years. The urgency with which it shifts to diversifying its export monopoly RMG (prêt-à-porter) rather than fetching cash for goods on its own could be an indicator. Earning more than US$35 billion annually from RMG exports in the past fiscal year, the country’s plan to reach US$50 billion by 2025 remains an achievable priority, but further accelerating the diversification of exports can only change the situation. “Graduation” demands that we move faster through the assembly lines of automobiles, bicycles and ships, that we give a greater incentive to ICT (information and communications technology) exports, and that we design every year of promising new export items just to show the resilience needed to support ‘developing country’ credentials. There can be no shift to a “developed country” pathway by the 2040s unless these are in place. That would be our silver lining to defeating today’s three threats: pandemic costs, inflation, and emerging heat-related stresses.
Sri Lanka’s indebtedness is not the worst in the world, although it has proven to be the most crippling and devastating. Its 110% debt-to-GDP ratio is surpassed by at least 19 other countries, with Japan leading 257%, followed by Sudan (210), Greece (207), Eritrea (175), Cape Verde (161), from Italy. (159), Suriname (141), Barbados (138), Singapore (138), Maldives (137), Mozambique (134), United States (133), Portugal (131), Bhutan (123), Bahrain (123) , Spain (120), Belize (118), Aruba (118), France (116), Belgium (113) and Cyprus (111). Canada has the same ratio as Sri Lanka, but some of those lower than Sri Lanka include Pakistan (83) and Panama (83). As the debt-to-GDP ratio of 77% signals the start of an economic downturn, the question arises as to why protests have escalated in many countries barely above the 77% threshold, or even below, and why it remains so unclear. for higher ratios.
Three possible explanations shed light. First, the absence of a diverse trade list: just as debt-to-GDP ratios rise in its absence, its presence automatically serves as a sort of compensating trigger. The integration of sectors could be an idea whose time may have come with a bang.
Second, inflation hurts, especially if it affects a single vital import (or a few): fragility is exposed, which weakens confidence, intensifies economic patronage and monopolistic gaps, and widens gaps of income. Persistent inflation tightens and hardens policy responses, further worsening the climate, generating deeper and longer recessions (as in the 17th century and the Great Recession of 2008-10). This is where “thinking outside the box” can work wonders: it promotes innovation, and therefore a step towards the diversification of the economy.
The third is the need for greater flexibility in policy development. It should not only be ours, but also be exported: it takes two to dance the tango. Closed or ignored, trade opportunities invite economic collapse (such as the Soviet Union during the Cold War, Latin America under a policy approach of import-substitution industrialization; isolation, as in Myanmar or Korea North). Domestic deficits can be partially offset by trade; and therefore, the more trading partners there are (hint to policy makers: sign more free trade agreements for Bangladesh, immediately), the greater the chances of diversifying both exports and domestic production. More: the partner country also begins to loosen further, and in an ideal virtuous circle, the ripple effects could lift the world out of recession. These high-end thoughts when policy flexibility is low introduce at least a Midas touch for anyone willing to dive.
Although the anti-government protests sparked by the pandemic constitute a small proportion of the 100 (only about a quarter), according to the Carnegie Endowment for International Peace, we must bear in mind that more than three quarters took place in authoritarian countries. If prices or market tension spread to democratic countries, the ruckus would be unleashed. We’re standing near that point now.
This is a relief for Bangladesh. It doesn’t have an authoritarian government, but rising inflation and a lack of fabric cutting could make things worse. Controlling luxury goods is not enough: policies at the macro level must also absorb any public outcry.
Where the money is owed (or goes) may also matter: is it China, or the Western founders of the Bretton Woods edifice? Ironically, during the deepest modern global depression (the 1930s), Europeans saw their world leadership transit through the United States. “History strikes twice” is perhaps too far-fetched to currently describe China’s position as a world leader, just as the United States did then. Nevertheless, no future stability would be possible without China. However, this might be one of the biggest challenges today, but restoring global economic stability requires the access and positive participation of the world’s second largest economy. Smoothing out the three threats must be the Rubicon the world must cross to stabilize China-based relations. Bangladesh could show the way.
Professor Imtiaz A. Hussain, Department of Global Studies and Governance, Independent University, Bangladesh.