Bangladesh

Research reports and studies
April 2009
Mustafizur Rahman, Debapriya Bhattacharya, Md Ashiq Iqbal, Towfiqul Islam Khan and Tapas Kumar Paul

The global financial crisis has already started to have a negative impact on the increasingly globalising economy of Bangladesh. The export growth rate has slowed in recent times, particularly during the October 2008 to January 2009 period – indeed, the second quarter of FY2008/09 (October-December 2008) experienced a first-time negative growth of Bangladesh’s export in recent history; export of non-apparels items has seen significant deceleration in growth. Depreciation of currencies by competing countries ranging from 6% to 30% over the past one year and their stimulus packages that provide wide-ranging incentives to export-oriented sectors have led to erosion of Bangladesh’s competitive strength in the global market in recent times. Remittance earnings, although robust until now, could be adversely affected in the near future: the number of job seekers leaving in January and February 2009 halved compared with the same period of 2008. Some countries (such as Malaysia) have revoked earlier job contracts and yet others have stopped issuing new visas (Saudi Arabia, United Arab Emirates – UAE).

The resultant adverse effects are likely to have negative implications for gross domestic product (GDP) growth, labour markets and consequently the attainment of poverty alleviation targets and the Millennium Development Goals (MDGs) by Bangladesh. In view of falling commodity prices, import-dependent domestic revenue mobilisation has suffered in recent months. Proxy indicators such as industrial output, import of capital machineries, letters of credit (L/Cs) opened for industrial raw materials and term loan disbursement, when taken together, allude to signs of weakening macroeconomic performance.

In view of these emerging disquieting signals, it is argued here that it will be both timely and appropriate for Bangladesh to design her own stimulus package. It is reckoned that in the context of falling commodity prices in the global market and the resultant low subsidy burden on account of fertiliser and fuel, some fiscal space will be created in this year’s budget which could provide additional resources for the stimulus package. This is a time to infuse confidence and inject cash into the economy. Policymakers may consider pursuing a moderately expansionary monetary policy to stimulate domestic investment and domestic demand, providing fiscal incentives and stimuli to incentivise export-oriented sectors and injecting cash to enhance coverage and deepen entitlement under the various safety net programmes, so that Bangladesh remains on track with regard to poverty alleviation and MDG attainment. The paper argues that such measures could be time-bound in nature but fine-tuned in response to the emerging scenario. Such a stimulus package could include a sector-specific cash subsidy scheme; tariff rationalisation, particularly for industrial inputs and capital machineries; setting-up of a dedicated fund for credit disbursement at reduced rate; establishing a technology upgradation fund; compensation against export earnings; a special package for exports to new markets; and a dedicated fund for skill upgradation of migrant workers.

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