Global Economic Crisis Impact on Bangladesh -Robiul Hoque Manik
Every time you open a newspaper, the news catches everyone’s attention- “The world economy is going to fall into recession in 2023.” 73% of WEF economists think that the world economy is heading for a recession, etc.
Most economists believe that “when a country’s gross domestic product (GDP) contracts for two consecutive quarters, it is called a recession. Here, one quarter is equal to three months. Usually, when a country’s economy shrinks by 10% in the second quarter, it is called a depression or recession; for instance, the Great Recession in the United States in 2008. At that time, GDP growth in the United States was negative for four quarters.
On the other hand, a “great recession” is a contraction of GDP over a period of several years during an economic recession. That is, when a depression or recession affects production, purchases, and sales for several years, it is called a “Great Depression” or “Great Depression. For example, the recession that occurred in the United States in the 1930s is called the Great Depression.
Hyperinflation, recessions, and stagflation are closely related to each other. Inflation usually occurs in an economy when the money supply in the market increases relative to production. Inflation reduces the purchasing power of money. As a result, the lives of people with limited income can become difficult.
The central bank then raises interest rates to bring back the excess money in the market, i.e., to control inflation. Since interest rates are negatively correlated with investment, an increase in interest rates increases investment costs. It reduces investment and production.
Again, if the interest rate increases, the tendency of people to deposit the excess money in the bank increases. As a result, the money supply in the market decreases. As a result, people’s demand also decreases. Thus, when the interest rate increases for a few quarters, the investment and production costs increase, which makes it difficult for the business to survive. So, many are forced to reduce or stop production. Thus, many people lose their jobs; the unemployment rate increases; people’s incomes decrease. This is roughly the recession.
Again, it may be that the central bank increased the interest rate to control high inflation, but it was found that inflation did not decrease; instead, the investment cost increased and the production cost increased. As a result, unemployment has increased. That means high inflation and high unemployment. This situation is called stagflation. In the 1970s, when the Arab world stopped supplying oil to Israeli terrorists and countries supporting America, Then the cost of living in all these countries increases, while production also decreases. At one point, the unemployment rate in the United States rose to 9 percent, and inflation was about 15 percent. This is the infamous stagflation, considered by many to be the ugliest economic scenario.
What is the status of Bangladesh with the current world economy?
Undoubtedly, the current world has fallen into an economic crisis. It started mainly with COVID-19. Many countries are forced to slow down their economies during the COVID-19 pandemic. Due to this, many people lose their jobs. To support this huge population, subsidies are given, loans are given on easy terms. The money supply in the market increases. But these loans come to the market as non-performing loans. That is, loans are coming into the market, but those loans are not being used for any productive purpose. They are only being used for consumption. As a result, the money supply in the market increases compared to production, so the value of money falls. That is, inflation continues unabated.
Almost all countries have faced this situation. However, its influence in the United States is a little greater because there is an unemployment benefit. As a result, the US government spent a lot of money at that time. Again, remember that the US currency is the main currency used for import and export. The contraction or expansion of the supply of this US currency in the market affects the imports and exports of each country. Let’s think about the current economic situation, for example.
The COVID-19 and the subsequent Ukraine-Russia war caused the US economy to experience chronic inflation. The U.S. government and the Federal Reserve Bank raised interest rates to stem inflation and withdraw the dollar from the market. But as inflation did not come down, the interest rate increased further. Thus, the interest has increased a total of four times so far. As a result, the supply of dollars in the market has decreased and there has been a shortage of dollars in the market. Since dollars are mainly used in international trade, i.e., import and export, the countries that meet their internal needs by importing essential goods have faced a dollar crisis.
For example, in the case of Bangladesh, due to the dollar crisis, the price of the dollar against the rupee has increased a lot. As a result, import costs have increased. That is, the amount of dollars that could previously be imported with the same amount of money can now be imported with fewer dollars and the same amount of money. Due to this, many importing companies have stopped importing. As a result, inflation is increasing in many countries like Bangladesh due to supply shortages.
It is noteworthy that the price of many products in the world market is decreasing now but it is increasing in Bangladesh because Bangladesh is unable to import the necessary products due to the high value of the dollar or due to the dollar crisis. As a result, the prices of these products are increasing due to the supply shortage.
There are many other such industries that produce export-oriented products and have reduced production only due to a lack of purchase orders. As a result, many workers in these industries will lose their jobs. As a result, unemployment, i.e., the recession in the economy, will intensify.
But now a question may arise as to why inflation did not come down even after the Federal Reserve Bank increased the interest rate. When the Great Depression hit in the 1930s, the US government increased the flow of cash into people’s hands to stave off the recession after World War II. This resulted in severe inflation in the United States in the 60s and 70s. The Federal Reserve then raised bank rates to curb inflation and reap the benefits. Until now, the central banks of every country in the world have been following this policy to prevent inflation. Inflation this year has mainly been fueled by shortages in global supply chains or supply lines following the outbreak of the Ukraine-Russia war. When the war started, the export of wheat and other food products like oil and gas from these two countries to the world market was stopped.
In order to isolate Russia from the world market, the West imposed various sanctions on Russia. It resulted in severe inflation due to shortages in supply chains in many countries in Europe, Asia, and Africa that depend on Ukraine-Russia food products, including Russian oil and gas. Again, many European countries have turned to the Middle East without getting the necessary oil and gas from Russia. Because of that, some oil production has increased in the Middle East under pressure from the West, but it is very low compared to demand.
Again, Saudi Arabia sold oil to the United States at a lower price but increased the price of oil in Asia. As a result, oil prices rise due to excess demand. However, the price of oil on the global market has recently dropped dramatically.But poor countries, including Bangladesh, are not able to easily import oil due to the dollar crisis. As a result, many industrial plants are not getting the required electricity due to the reduced power generation due to the lack of oil and gas. Many industries are forced to close down.
What can Bangladesh do?
It is a global crisis. To overcome this crisis, everyone has to come forward from their place. As long as the dollar crisis is not over and the West does not get out of its so-called embargo, which paralyzes one country and paralyzes the whole world, these problems will continue.
However, even if Bangladesh cannot get out of this crisis completely, the government should take steps to reduce the intensity of this crisis.
First of all, initiatives should be taken to increase the production of daily necessities in the country. During this crisis, the poor have no access to common vegetables, rice, or pulses.The unbridled rise in the prices of goods has gone beyond the reach of the common man. But Bangladesh is a major agricultural country, but why are the prices of these products produced in the country unbridled? The reason is that the production is less than the demand. But why is production lower?
Marginal farmers do not get a fair price for the same produce. Also, ordinary people can’t afford to buy. Sometimes a group of syndicates and middlemen loot everything. Why should a farmer produce if he does not get a fair price for his product? He will have to worry about making ends meet by producing enough to survive. Why would he overproduce if his profit is far away and the cost of production does not rise?
Now the solution is that between a marginal farmer and the common consumer, as there are middlemen and syndicates, the government has to take action and the government itself has to act as a middleman. They bring farmers’ products to the cities, where there is a large demand. It can be like the Mango Train in Chapainawabganj. If a mango train can be arranged for a fair price of mango during mango season, then why not a vegetable train? Why can’t there be a rice train? Moreover, if we can export our surplus agricultural products, it will create a demand for these agricultural products, which will encourage the farmers to produce them.
Besides, the main food in our country is rice. The price of its ingredient, rice, has increased a lot now. For this reason, the government should take the initiative to establish auto-rice mills in the places where paddy is produced. The number of rice storage warehouses should be increased.
If we can stop importing cows from India and produce locally to meet the country’s needs, why can’t we do that at least in terms of products? Cold storage should be built at the doorstep of farmers for each product so that they can be stored for the required time. Then the farmers will also get a fair price and the required demand can be supplied at the time.
And at the individual level, people have to take the initiative to save themselves from this recession. If you can produce any daily necessities, including vegetables, in the empty space in front of the house, you have to produce them. If there is agricultural land, it should be used for production. It will reduce the amount of money spent on the market. In luxury life, unnecessary things should be avoided.
The author of this article is a freelance writer and regularly contributes in national dailies.