The year 2022 has seen Bangladesh breaking lingering records, the cause of which can be pointed towards the muscovite dictator-Putin and the former showman Zelenskyy's political dispute, also known as the Russo-Ukraine war. A mangling effect of this magnitude on our nation traced back to two countries in a different continent seems quite astounding, yet true.
This can be explained by the butterfly effect, an underlying principle of Edward Lorenz’s chaos theory -- sensitive dependence on initial conditions in which a small change in one state of a deterministic nonlinear system can result in a larger state is referred to as the butterfly effect.
Applying this theory on a global scale, we see a demonstration of this phenomenon in this instance.
In itself the Ukraine-Russia dispute cannot be referred to as a minor issue, however with regard to influencing the economy of a country in a different continent on this scale, it can be considered irrelevant with regard to our economy.
Regardless, the results have been detrimental for Bangladesh.
As an aftermath of the pandemic, pent up demand for services and commodities were an addition to the sky-high shipping costs, energy prices, and global inflation -- resulting in a 46% import cost rise, caused partially by the Ukraine-Russia war.
It has dumped considerable pressure on the foreign reserve, forcing it to drop to a record low of $40 billion, prompting a formal request to the International Monetary Fund (IMF) by Bangladesh for a loan in an attempt to curb the existing financial crisis.
Subsequently, the US dollar hit an all-time high against the Bangladeshi taka in trading history. Being a major contributor to the rising inflationary pressure, it is considered as a dire issue that needs a conclusion.
The hiking energy prices due to the war has also seen massive fuel price inflation on international markets. In accordance with Maciej Kolaczkowski’s statement: “High energy prices contribute to increased cost of virtually all goods and services further fuelling inflation expectations.”
The high prices are being handed down to consumers through fuel prices, electricity bills, gas bills etc. As anticipated, the Bangladesh government declared a 50% increase in fuel prices overnight in August, the highest in history.
It is deemed that such a move was fortified with the view of acquiring the IMF loan, the first and foremost condition of which is to not give subsidies on fuel.
However, during such volatile times when the country is already experiencing record inflation rates, such a decision would have adverse effects on the economy as they would lead to higher transport costs, irrigation costs, and taking up a larger portion of consumer real incomes.
Speaking of record inflation rates, Bangladesh witnessed the pinnacle of inflation in June, a record high of 7.56% for the first time in nine years. Overall the appalling state of Bangladesh is a concern for the government and its citizens, many even referring to it as “the next Sri Lanka.”
Despite such a challenge, fortunately, the country has been quite successful in tackling the issues.
Contrary to the dollar crisis, exports in the RMG sector have been strong, recently hitting a landmark and crossing $50 billion in exports, attracting foreign currency and decreasing the trade deficit.
If we consider this example as an indication of the Marshall-Lerner condition -- where if the combined price elasticities of a country’s exports and imports is greater than one, a depreciation of currency will improve the balance of trade in the long run -- Bangladesh has a prospective future where lies a solution for the deficit.
In addition to this, the government has recently resolved to let market forces decide the exchange rate for the Bangladeshi taka, which saw a fall once again but is projected to eventually stabilize in the foreign exchange market.
The acquisition of the $4.5bn loan from the IMF would also greatly impact the persisting economic state. Not to worry about a debt burden either; the external debt of Bangladesh only accounts for 21.8% of the GDP, hence the consequences of debt on a nation similar to the case study of Sri Lanka remains distant.
On account of adjusting the foreign currency reserves and decreasing dollar spending, the government has implemented legislations such as relaxing the drawing of remittances, stern measures regarding power expenditure, halting the foreign tours of civil servants, elevated import tax on luxury products etc.
The decrease in international oil prices has also led to a decrease per litre in fuel prices, in hopes of decreasing it further in the future. I believe the prevailing efforts of the PM’s administration such as these would consequentially curb the high inflation rates, overall enhancing the macroeconomic state of the country.
Nonetheless, the storm hasn’t passed yet, the global economic state of the world indicates that we are on the brink of a recession, therefore the measures to secure our nation’s welfare must be bolstered to its foremost limit.
Criticism and scepticism are unavoidable as they will always persist but let us look at the bigger picture and appreciate our consistent success.
Being on the prowl for more, having unity in the face of demise, we are standing together as a country on the road to redemption.
Nafis Uddin Chisty is a freelance contributor. E-mail: nafisuddin2910@gmail.com.