“May you live in interesting times” is said to be an old Chinese curse.
The 2008 financial crisis, the pandemic, the floods, droughts, forest fires etc from climate change already fully qualify as “interesting.” Now the brutal invasion of Ukraine and sanctions on Russia are bringing about wheat, fertilizer, and vegetable oil shortages worldwide. Record energy prices add to tides of rising inflation, and both sovereign and household debt.
Global trade and economic growth are hit, but the damage and suffering are unequally shared. The US and Canada have grain and energy surpluses. Both edge up interest rates, but only to restrain over-heating economies. China’s growth is held back by its tight lockdowns, including Shanghai, in its intensifying struggle to try to attain zero-Covid sufferers.
By far the worst hit is lower income, developing countries. Some, like Somalia, Sudan, and Yemen combine drought, food inflation, and Covid-19 on top of malnutrition and conflict. Most have poor education and health systems. Their young populations have rising aspirations, but few jobs. All poor populations are particularly hit by record food prices since food is a large part of their expenditure. The UN Food and Agriculture Organization says food prices are still rising at the fastest rate for 14 years. In March, global vegetable oil prices went up by 56% compared to a year ago, and cereals by 17.1%.
Rich Western countries combated the 2008 financial crisis by massive fiscal stimulus and injections of cheap money. Many developing countries were already in debt but were now staying financially afloat by international donors, including IMF emergency disbursements and special drawing rights. This meant weak economies were taking on still more external debt, but at temptingly low or negligible rates of interest.
Yet now, cheap money is disappearing. Rising interest rates drain weak reserves and make raising fresh loans even more difficult. Even Lebanon, once a thriving financial centre, has declared bankruptcy. Argentina, a country of great natural wealth and a wheat exporter, hovers yet again on the brink of default.
In our own South Asian neighbourhood, Sri Lanka, long dominated by the Rajapaksa family -- and seemingly largely recovered from the civil war with the Tamil minority -- is in a dramatic economic and political crisis. Fuel, cooking gas, food and medicaments are scarce and increasingly unaffordable for many people. Power cuts last as long as 13 hours. Inflation last month was 18.7%.
This avalanche of problems came from the Rajapaksa government taking on heavy debt, particularly from China, but slashing taxes on the rich while trusting in restored tourism revenues. The Covid-19 pandemic and inflationary cost of imports has ruined that.
Widespread street protests have led to dismissal of the cabinet by President Rajapaksa, who is himself under strong pressure to resign.
Interest rates have been doubled by the new finance minister, Ali Sabry (who wisely resigned after only 24 hours in the job). A sum of $2.4 billion aid from India, plus $500m food credit is swallowed by a $7b gross debt due repayment by the end of the year. It is estimated that Sri Lanka needs $3bn in the next six months. Negotiations with the IMF and World Bank will be difficult.
Fortunately in India, with its 1.4 billion population, Prime Minister Narenda Modi is in much better shape. Foreign exchange reserves exceed $600bn and economic growth this year should be strong. Tax revenues have risen. Agricultural surpluses and grain exports will partly compensate for increased costs on energy imports. Even so, many low-paid and middle class are unhappy that controlled petrol, diesel, and kerosene prices have been swiftly rising in the wake of BJP’s success in winning four of five state elections, including Uttar Pradesh. Six increases came in a single week. India is heavily dependent on imports of oil and gas and current high prices of both are a heavy burden. Russia is offering very welcome discounts but deliveries from Baltic ports are limited and expensive.
What about Bangladesh? We are affected by energy and food inflation. Our export markets are sensitive to slowdowns in customer demand and global trade. Figures just released for the eight months till the end of March show higher import prices, especially for energy, and lower remittances have increased our trade deficit to an impressive $22bn, despite rising exports.
Fortunately, loans and aid flows compensate for most of this trade deficit, reflecting overseas confidence in Bangladesh’s stability and growth. Our balance of payments has moved into deficit, but only of $2.22bn. The present experts’ verdict is that this all represents pressure on our financial situation, but it is still manageable.
Amid the many global troubles, Bangladesh still progresses in its development. It can count itself fortunate compared with so many others. The Dhaka elevated metro and Padma bridge will be important steps in our economic and social progress. However, there is much still to be done to be in a better position.
The path to recovery will require appropriate structural reforms; good governance; employment generation for the millions of unemployed youth; improved transparency and accountability in all spheres to promote sustainable development.
Selina Mohsin is a former ambassador.