By TON Bangladesh

Many in Bangladesh now fear that their country could face a similar situation to Sri Lanka, given the rising trade deficit and foreign debt burden. Bangladesh imported goods worth $61.52 billion (€58.48 billion) in the first nine months of the 2021-2022 fiscal year, a rise of 43.9% compared to the same period last year.

As exports rose at a slower pace of 32.9% while payments from Bangladeshis living abroad a key source of foreign exchange dropped about 20% in the first four months of 2022 from the year before, to $7 billion. This dealt a severe blow to foreign reserves and may further go down to a hazardous level.

As there are qualms that the trade deficit could grow in the coming years as imports are increasing at a faster pace than exports. Bangladesh imports are set to reach $85 billion by this year, while exports are estimated to not more than $50 billion. This shows a trade shortfall of $35 billion by remittances alone and is anticipated to be around a $10 billion deficit this year.

The foreign exchange reserves of Bangladesh have fallen from $48 billion to $42 billion over the past eight months. This is anxious that they may drop further in the coming months, probably down another $4 billion.

If the trend of more imports against exports continues and fails to minimize the gap with the remittances, then the foreign reserves will go down to an unsafe level in the next three to four years, underlining that this would lead to a significant deflation of the nation’s currency against the US dollar.

That's why the people have a grave apprehension that Bangladesh won’t be able to repay those loans at that time because of the shortage of income from the mega projects. The government of Bangladesh has to finish the mega projects carefully.

There is no room for carelessness and dishonesty. Those projects should neither be delayed nor the existing budget be increased. If these projects finish on time with profits, only then Bangladesh will be able to repay the loans.

Due to the debt and deficit, the soaring prices of essential items are hitting the poor people hard. The Russia-Ukraine war has also increased the inflationary pressure.

Bangladesh has been particularly vulnerable as the country imports significant amounts of goods like cooking oil, wheat, and other food items, as well as fuel. The poor people are suffering the most because of the skyrocketing prices of these items.

The government has to offer commodity goods subsidized to the poor people. Additional financial support should also be provided to them under a social security system. However, there are still prospects that Bangladesh can improve the current economy as the global economy recovers from the COVID pandemic.

Bangladesh has been observing inflation worldwide during the COVID recovery phase. The Ukraine war has added more uncertainty to it besides, and the economic crisis in Sri Lanka has also created fear among the masses.

Prime Minister Sheikh Hasina’s government has taken several steps to reduce spending and save foreign currency reserves and urged people to practice austerity. She has decided to suspend foreign trips of officials and postponed some less important projects that require imports from other countries.

She has also urged citizens to play their due role by performing austerity and being careful about spending decisions. The prime minister earlier gave some directives to the government officials on practicing austerity and called upon the private sector and the people to be economical.

At the moment, the government needs to be extremely careful with economic management, given the widespread suffering on account of soaring price rises, which could exacerbate the already high political tensions in the Muslim-majority country.

It will also decide the fate of the next upcoming elections. Bangladesh’s last election has been viewed by the opposition parties as a fraudulent one. Another national election is due in the next two years.

So the political situation will remain tense anyway and the economic uncertainty could fuel it even more. However, good governance and financial management are needed in Bangladesh to evade a situation like Sri Lanka.