Inam Ahmed
We have been acting like an ostrich for quite some time and we can keep on doing that. The wave will nevertheless wash over the economy; it actually is making its ripples bigger. The recession is knocking at the door. Take it or not.
For a country that is so perilously poised on a mono product for its balance of trade garments, no news is worse than this. Orders are falling and they are falling fast. In just about a month, so much has been wiped out of the board, utilisation declaration (UD) dipped more than 17 percent in the garment sector. In a recent and belated clamour, the FBCCI has claimed a Tk 6,000 crore bailout package. As we understand, it is just a figure, no serious studies had been undertaken to arrive at the figure, nor were efforts to look at the ways of doing it. Even then it was a figure.
The Rip Van Winkle is too lazy to wake up.
The government has finally formed a committee to look into the recession and come out with some packages.
Bangladesh is already looking like a turtle in a race to support its economy. In a country so vulnerably poised, many may call it an overstatement by pointing out the state of the US economy that had been on a spending binge depending on cheap Middle Eastern money and heavy borrowing at the cost of its macroeconomic balance.
Strangely enough, the country’s central bank — we know it has so little of autonomy, no matter what is written on the book — has been following in the footsteps of the IMF and, to some extent, of the World Bank as it kept preaching a conservative monetary stance, secretly. Its main goal was inflation and from the classic point of view kept on keeping a tight hold on the credit rein. The world paced otherwise. It kept cutting rates to such an extent that the Bank of England has now landed in a regime of historically lowest interest rate.
For a country that is so inefficiently run, it is difficult to make an exact picture of what the situation might be once the wave washed over the shore. For a country with very little hard choices to make, the maneuvering spaces are small. The demand of the FBCCI is, to some extent, easier to meet because we have a saving grace on account of low oil and fertiliser prices to find money to meet the bailout demand and still maintain the 5 percent planned budget deficit. The story does not end here.
Nobody really knows how long the recession will really linger. Some estimate it would take at least two years for the global system to realign. Bangladesh is among the few that have little surplus to dole out and yet have a margin for the public spending. Imagine we can meet the demands of the FBCCI or the BGMEA. That would see a significant fall in revenues on various counts.
BGMEA demanded a 10 percent cash incentive for RMG exporters, but FBCCI said its demand for Tk 6,000 crore is based on a 5 percent cash incentive, not 10 percent.
Which is more logical?
Domestic demand will depress with the economy in rewind and so VAT collections will fall. Already, the NBR is under severe strains to keep close to its target for this fiscal year. This would bode unwell on the public finance.
Can the government find enough coins to keep its public works going for the next fiscal year? And where will it get the fund to meet its promise to enhance the defence and meet the power supply demand? Public works after all are so very important for Bangladesh as well as for the rest of the world — remember America’s $700 billion package that mainly focuses on public works to crate demand and boost the economy — to keep its ailing population feeding.
We can think for now that a shortfall in ADP is a great boon to keep its deficit low and inflation contained by way of keeping out the need for bank borrowing. But that would only prove a bane in the long run. Can we think up more bailouts for next year when public finances are in a sorry state now? Probably not. It would then lead to a situation when we are cash-starved. Who would bail us out then? The IMF probably. But with its myopic vision of the Washington Consensus that had already delayed our response to the recession.
For Bangladesh where 40 percent of the population lives under the poverty line, the risks are even higher. The World Bank expects some 53 million people to fall into extreme poverty this year and surely a portion of this hapless mass would be in Bangladesh. With virtually no social safety network in place — even America with its notorious reputation of being a non-social welfare state had thrown in money for unemployment benefit — this generation of the recession will be lost for ever — they will cut their health and education spending and nutrition intake as well. The much-vaunted MDG goal will remain a far cry. With the world in its deepest recession since the 1930s and global trade shrinking at its fastest pace in 80 years, the misery of mass employment looms.
Garment owners give out chilling facts. One owner, who happens to be a close friend, said his factory has lost 30-40 percent orders. Whatever is trickling in is placed at a very low margin.
“I have been giving subsidies for the last one year,” he said. “We cannot lay off because that would lead to huge repercussion.”
He has not been able to give the annual increment to workers and dreads labour unrest any time. He had been constructing a 50,000 square feet factory. Now with orders falling, he wants to rent the space out to any commercial venture. There are no takers, sadly.
Why they cannot sustain a year or so with the profits they made over the last decade? He had a thoughtful answer.
“Look, we had been expanding our business over the years. Whatever profits we made we poured it back into new ventures. We never thought of such a doomsday to appear on the horizon. So if banks don’t support us, we will not have the strength to stay on,” he said.
Every downturn has a silver lining too and so has this one. The commodity market is at its lowest ebb. Prices of manufactured goods are falling too. And the cost of goods transfer is unbelievably low as well. Imagine, zero dollar — zip zero — not counting fuel and handling: that is the cheapest quote right now if you want to ship a container from southern China to Europe. If you were a smart entrepreneur, you would have known that nothing could remain depressed forever and the recovery would come sooner or later.
If you are a better-prepared entrepreneur by the time the upsurge came, you would remain ahead of the pack. That is exactly what many Chinese entrepreneurs are doing — snapping up vital industries, acquiring capital and getting ready for the heyday again. Could we not do it? Well, that would need a proper supply of finance at a right price. With the country’s banking system going at a strange pace — so decoupled from the reality — entrepreneurs get little encouragement to go in that direction.
Courtesy of The Daily Star
