February 24 marked one year since the Russian invasion of Ukraine. Although the war took place some 5,800 kilometers away, the maelstrom laid bare upheaval in the country's economic and financial sectors. The severity of the blow of the war was duly felt when Bangladesh Foreign Minister AK Abdul Momen stated “the war should stop, and G20 nations should try their best to stop the war” at the G20 in New Delhi this month. With the onset of the war the price of global commodities has spiked, resulting in a negative impact on both macro and microeconomic dimensions of the country.
Ever since the war began on February 24, inflation averaged at 8.14%, way higher than the reasonable 5%. With this, the Bangladeshi Taka has depreciated by about 25% and reserves have shrunk by about 28%. Furthermore, the Bangladeshi Taka lost value against the US Dollar by 10.08%. Since the advent of war, during the first nine months (July-March) of the 2021-22 fiscal year, import payments increased by 44% whereas export income increased by 33% and remittances had fallen by 18%.
Being a trading country and one that is highly import-dependent for fuel and industrial raw materials, many companies have been facing trouble in opening LCs since banks are unwilling to do so given the forex shortages.
Bilateral trade with Russia, which stood at $1.14bn in the last fiscal year (FY21), is small compared to Bangladesh's total global trade worth $104.35bn. Understandably, disruption in trade, especially export, will be costly. In the last fiscal year, Bangladesh exported $665.30m to Russia of which around 95% was textile and clothing. Due to the war, it has been difficult to continue export as the cost of shipping has likely surged. Bangladeshi exports to Russia started falling in March of last year and it is likely to fall even drastically in FY 2022-2023.
More challenging has been retaining the export receipts as the US, along with the EU, has imposed sanctions on Russian banks to cut the country off from the global financial system.
The negative impact of the financial sanctions on Russia will disrupt the Rooppur Nuclear Power Plant project, the largest project with Russian credit in Bangladesh -- worth $11.38bn. The Russian bank VEB has already asked Sonali Bank -- which transacts the fund for the project -- to hold transactions for the time being. The Russian counterpart is now facing sanctions regarding access to SWIFT.
Where the global commodity prices have hiked, the net income of industrial workers has decreased to 30-40% since the inception of the war due to inflation, according to Anu Mohammad, a former professor of Jahangirnagar University's Economics Department.
In order to combat economic stagnation, Bangladesh Bank is now on the lookout for an alternative payment system for carrying out smooth trade and commerce between Dhaka and Moscow. Russia has a few experimental international transaction methods which employ bartering and cryptocurrency. The Russian authorities and companies are inventing new ways to stop relying on dollars and euros and increasingly turning to the Chinese yuan and Bangladesh is considering opting for these alternative methods to get the economic wheel moving.
Economic uncertainty, along with geo-political complexities, have heaped and piled as Bangladesh is concurrently dealing with the two fronts. With the Western sanctions incumbent upon Russia, Bangladesh is faced with both an economic and a political quandary.
Bangladesh has been walking a tightrope on the geo-political front. Recently, our nation has found itself in hot water regarding the issue of the Russian ship Ursa Major, as it is among the 69 ships facing Western sanction. Bangladesh, in line with the sanctions, agreed to not allow any of the ships targeted by the sanctions from sailing into Bangladesh waters.
The ship, carrying much needed raw material for the Rooppur nuclear power plant, was not allowed onto our shores, clearly under pressure from the US authorities. The move did not make President Putin and his government happy. The outcome was the summoning of Kamrul Ahsan, Bangladesh's Ambassador to Russia to the Foreign Ministry in Moscow.
Under this geo-political rubble, Bangladesh has been maneuvering its foreign policy carefully in order to not disrupt the delicate balance of power. In the coming days, the ball is clearly in the court of the international community to effectively put an end to the war. In an increasing inter-dependent and multilateral world, ostracizing one country will not result in any long-term benefit.
Polarization will only increase alienation of smaller states, which will inevitably risk a rule-based, multilateral Western world order. Our world leaders must commence effective and peaceful measures to stop the war and end the plight of the global community. Otherwise, it is countries like Bangladesh, which are on the verge of attaining middle income status, which stand to be adversely affected the most.
Syeda Noshin Sharmily is a freelance contributor.
