GLOBAL ECONOMIC RECESSION AND ITS IMPACT ON BANGLADESH

“Bangladesh is a victim of global economic crisis.” - Dr. Atiur Rahman, Economist

and former Governor, Bangladesh Bank.
One crisis ends and another begins, each one is seemingly bigger than the last. World has
been dealing with the pandemic, then it witnessed the Russia-Ukraine war break out. Now
the threat of global recession looms over the world.
What is Recession?
There is no official or globally recognized definition of a recession. In 1974, US economist
Julius Shiskin described a recession as “two consecutive quarters of declining growth” and
many countries still adhere to that. According to United States’ National Bureau of
Economic Research (NBER), “Economic recession is a significant decline in economic
activity spread across the economy, lasting more than a few months, normally visible in
production, employment, real income, and other indicators. A recession begins when the
economy reaches a peak of activity and ends when the economy reaches its trough.”
The world economy has gone through four major downturns over the past seven decades,
in 1975, 1982, 1991 and 2009. Recessions typically last for about a year in advanced
economies, according to the IMF.
Present Situation of Global Economic Recession:
The global outlook has deteriorated markedly throughout 2022 amid high inflation,
aggressive monetary tightening, and uncertainties from both the war in Ukraine and the
lingering pandemic.While the baseline forecast for 2023 is highly uncertain, most forward-
looking indicators suggest a further slowdown in global growth.
Causes of Global Economic Recession:
 Covid 19 crisis
 Russia-Ukraine war
 Supply chain crisis
 Loss of confidence in investment and the economy
 High interest rates
 A stock market crash
 Manufacturing orders slow down
 Deregulation
 Poor management
 Deflation
 Fuel crisis
Recent Global Financial Crisis:
 1. The world’s largest economies are facing sharp growth slowdowns.
2. Prospects for developing countries are weakening amid multiple challenges.
3. A global food crisis is hitting many developing countries.
4. Central banks are changing course: Surging inflation prompts aggressive monetary
tightening.

5. Rising borrowing costs and worsening liquidity conditions hit developing countries.
6. Tightening fiscal space in developing countries: between a rock and a hard place.
7. The global energy crisis.
8. The looming debt crisis in developing countries, etc.
While global economy was recovering strongly from the COVID-19 pandemic, the war in
Ukraine posed a setback to the ongoing recovery. International organizations revised their
forecasts for economic growth prospects and inflations. These are….
 Due to the Russia-Ukraine war, the imposition of various economic sanctions on
Russia by the Western world and Europe, the world market system was severely
disrupted. On the one hand there is instability in the money market, on the other
hand there is a jump in commodity prices due to disruption of supply chain.
According to the IMF's World Economic Outlook report for April 2022, inflation
for 2022 is projected at 5.7 percent in developed countries and 8.7 percent in
developing countries, compared to 3.9 percent and 5.9 percent in January 2022,
respectively.
 As per the United Nations (UN) publication ‘World Economic Situation and
Prospect 2022’, the global economy grew by 5.5 percent in 2021, the highest growth
rate since 1976, after contracting 3.4 percent in 2020. Global economy is expected
to grow by 4.0 percent in 2022 and 3.5 percent in 2023.
 In the World Bank’s Global Economic Prospect, January 2022, the global economic
growth is projected 4.1 and 3.2 percent in 2022 and 2023 respectively, while growth
was estimated 5.5 percent in 2021.
  Sluggish growth rates between advanced economies and emerging and developing
economies will be divergent. Growth in advanced economies is expected to decline
from 5 percent in 2021 to 3.8 percent in 2022 and 2.3 percent in 2023.
 In emerging and developing economies, however, growth is expected to drop from
6.3 percent in 2021 to 4.6 percent in 2022 and 4.4 percent in 2023.
 For many vulnerable economies, the setback is even larger: output of fragile and
conflict-affected economies will be 7.5 percent below its pre-pandemic trend, and
output of small island states will be 8.5 percent below.
 In the World Economic Outlook (WEO) April 2022, International Monetary Fund
(IMF) projected that the global economy will grow by 3.6 percent both in 2022 and
2023. The projections for 2022 and 2023 are 0.8 and 0.2 percentage points lower
than in the January 2022 WEO update.
 Global growth is forecast to decline to about 3.3 percent over the medium term
beyond 2023.
Impact of Global Economic Recession on the Economy of Bangladesh:
“Global growth is slowing sharply, with further slowing likely as more countries fall
into recession. My deep concern is that these trends will persist, with long-lasting
consequences that are devastating for people in emerging market and developing
economies,” - World Bank Group President David Malpass.
The double disruption i.e. Covid-19 and Russia-Ukraine conflict has caused a massive
losses for the global supply chain and economic stability for all countries including
Bangladesh.
“Bangladesh is now facing an "economic crisis" that will not be over soon as the
global economy is also going through turmoil.”- Bangladesh’s Economists
1. GDP Growth:
Bangladesh economy was growing consistently high over a decade crossing 7.0 percent
milestone in FY 2015-16 and 8.0 percent milestone in FY 2018-19. However, the COVID-
19 pandemic reduced the growth rate to 3.45 percent in FY 2019-20.
2. Decrease in Per Capita GDP and Per Capita Income:
According to provisional estimate of BBS, per capita GDP and per capita national income
stood respectively at US$ 2,723 and US$ 2,824 in FY 2021-22 compared to US$ 2,462
and US$ 2,591 respectively in FY 2020-21.
3. Consumption:
The consumption increased to 78.44 percent of GDP in FY 2021- 22 from 74.66 percent
in FY 2020-21.
4. Inflation:
Like all other countries of the world, an upward trend of price level is being observed in
Bangladesh as the economic damages created by COVID-19 pandemic which is triggered
by war in Ukraine. The average rate of inflation in Bangladesh has already exceeded the
target of 5.3. The inflation rate in July, 2022 stood at 7.48% by point-to-point basis and
6.33% by twelve-month average which was 5.36% and 5.54% respectively in 2021. This
increased pressure on price level adds more miseries to the life of people who have been
struggling to overcome the covid-19 stricken economic doldrums.
5. Revenue Mobilization:
The revised revenue mobilization target was set at Tk. 3,89,000 crore in FY 2021-22,
which is 9.78 percent of the GDP. As per provisional data from iBAS++, total revenue
mobilization up to February 2022 stood at Tk. 2,25,116 crore, up by 16.39 percent of the
same period of previous fiscal year, achieving 57.87 percent of the target.
6. Expenditure Budget:
According to the revised budget, the total expenditure target for FY 2021-22 has been set
at Tk. 5,93,500 crore (14.93% of GDP), which is 10.11 percent higher compared to FY
2020-21.
7. External Debt:
The country's external debt outstanding at the end of February 2022 was US$ 55,826
million or 12.23 percent of GDP. At present, Bangladesh has over $90 billion in foreign
debt. Its debt doubled over the last five years due to the implementation of mega
infrastructure projects.
According to Debapriya Bhattacharya, distinguished fellow at CPD and convener of the
Citizen’s Platform for SDGs, “Bangladesh may face major shocks in 2024 and 2026 in
regards to its foreign debt repayment of 20 major mega projects.” This amounts to
around $43 billion owed mostly to Russia, Japan, and China.
8. Export and Import:
Although global trade has turned around in 2021 after the effects of COVID-19 pandemic,
the Russia-Ukraine conflict has been showing significant negative impact on world trade.
In July, 2021 the import payment was USD4.5 billion which stood at USD7.10 billion in
June, 2022. The export was USD3.48 billion in July, 2021 and it reached USD3.98 billion
in June, 2022. The slowdown in the global economy has impacted Bangladesh’s export
markets. 80% of Bangladesh’s exports are Ready Made Garments (RMG), and depressed
consumer demand in the developed and developing economies has seen far fewer orders
for RMG companies.
9. Trade Deficit:
The deficit of trade balance widened and stood at US$ 22,306 million in FY 2021-22 (July-
February) which was US$ 12,359 million in FY 2020-21 (July-February). This deficit
mainly occurred by the high growth in import payments relative to the growth in export
earnings.
10. Foreign Exchange Reserve:
In July, 2021 foreign exchange reserve was USD45.84 billion but in June, 2022 it was
USD41.83 billion.

11. Exchange rate of Taka:

Though the country's forex reserve decreased during this time, it failed to keep the
exchange rate under control. In July, 2021 the official exchange rate of USD/BDT was
84.80 but in June, 2022 it was 92.14. The kerb market rate also crossed 110 by this time.
During July-April, 2022, the exchange rate of Taka depreciated by 1.9 percent against US
dollar.
12. Decrease in Remittance:
At the same time, inward remittance was USD1.87 billion in July, 2021 and USD1.84
billion in June, 2022. Remittances from Bangladeshis working abroad (NRBs) have also
fallen, depleting foreign reserves. According to the World Bank, its remittance inflows hit
a record high of $24.77 billion in fiscal year 2020-21 but fell to $21.03 billion the following
year.
13. The price hike:
The price of almost every food item was increasing at a higher rate compared to the
inflation rate unveiled by the Bangladesh Bureau of Statistics in June this year. Rising
inflation has a more adverse impact on people with lower income groups, so they need to
be protected.
14. Money Laundering:
Bangladesh is listed as one of the 30 leading money laundering countries in the world.
Some analysts describe this problem as the cancer of its economy. A recent report of the
Swiss National Bank (SNB) says that “the amount of money deposited by Bangladeshis in
various banks in Switzerland stood at 871.1 million Swiss francs” (around $916.92 million)
at the end of 2021. The report reveals that the amount increased by $310 million in just
one year.
15. Ukraine war threatens food security of Bangladesh:

16. Disrupt trade with Russia:

17. Fuel Crisis:

The gas and oil crises created by the Russia-Ukraine war is also hurting Bangladesh
The IMF chief Kristalina Georgieva has warned in last May that “2022 is going to be
tough and possibly the 2023 is going to be even tougher”. However, Bangladesh has
almost overcome from covid pandemic but it has got massive shock of changing global
economic situation especially after Russia Ukraine war.
Steps taken by Government to deal with the crisis
The government of Bangladesh has adopted a conservative approach to deal with any
upcoming potential crisis.
 Bangladesh has sought a $4.5 billion loan from the IMF for its balance of payment
and budgetary needs
 Further talks are in progress with World Bank, JICA and with ADB for budget
assistance of USD 1.00 billion.
 To save dollars and to increase foreign currency reserves, the government has
restricted civil servants' foreign tours,
 Has imposed higher import tax on luxury items, relaxed restrictions to draw in
remittances,
 Has boosted exports, and introduced austerity measures in power expenditure.
 Government has reduced the use of electricity.
 Government has been careful to not take up projects without a high economic and
social rate.
Although these don't seem to be the long-term solution to economic woes, it's expected to
save huge money, positively influencing macro-economic stability.
Recommendations:
 The government should enhance the monitoring on imports to protect the forex
reserves, and tackling money laundering should be given emphasis
 We may encourage sectoral measures such as the rise in domestic production in
order to reduce the dependence on the global commodity market.
 Bangladesh should target both stabilizing the forex market and undertaking reform
measures responsible for weakening the forex reserves. This is mainly related to the
energy market where medium to long-term reform measures are essential.
 Bangladesh needs to undertake long-term reform measures such as subsidy
management, withdraw capacity payment for power production, develop clean
energy, and ensure market-based operation in exchange rate and interest rate.
 The country should explore more gas to reduce over-reliance on imports to meet its
energy demand and avoid quick rental power plants in order to tackle further
troubles in the foreseeable future.
  Good governance must be ensured in banks, withdrawing the lending interest rate
cap of 9 percent and managing foreign loans from different sources to keep the
reserves afloat.
 The central bank should increase the interest rate on loans to control the money
supply to the market.
 To check the declining trend of the ongoing foreign reserves, the government should
borrow from the Islamic Development Bank, International Monetary Fund and
World Bank and foreign nations.
 Exporting human resources should be given priority to get back the tempo of
remittances.
 Government should reduce public expenditure, etc.
Concluding Remark
“The collective economic stability Bangladesh acquired over the past one and a half
decades is under huge pressure due to the global financial unease.” - Dr Selim Raihan,
Executive Director at research organization SANEM
There is no denying the fact that the recent global economic crisis has profound
implications for the developing countries like Bangladesh. The upshots of the above
discussion point us to the fact that the economy of Bangladesh has been affected during
the global economic crisis, when growth in exports and remittances slowed down by great
margins and the economy suffered. Therefore, there is a need for the policy makers to take
necessary pragmatic steps to overcome the breathe situation as early as possible.
Source:
1. The Financial Express
2. The Business Standard
3. Bangladesh Post
4. The Daily Star
5. The Asian News
6. The Diplomat