While national debt of the United States is US$31 trillion and it is growing further and majority of the nations in Asian continent are seeing growth in its foreign exchange reserve, according to latest media reports, Bangladesh is witnessing decline in its forex reserve.
Until April 2023, Singapore’s forex reserve stood at US$1.64 trillion, India US$588.78 billion, Indonesia $145.2 billion, Malaysia US$114.3 billion, Philippines US$100.2 billion, Vietnam US$88.3 billion, and Bangladesh US$31 billion. Foreign exchange reserve of Pakistan and Sri Lanka are at alarming level with US$8.7 billion and US$2.69 billion respectively.
Recently, Indian news channel WION in a report said “Bangladesh’s economy is facing significant challenges, according to a recent statement by the International Monetary Fund (IMF)”.
It said, “In January, Bangladesh secured a $4.7 billion loan from the IMF to help address mounting economic troubles. The country has already received $476 million as the first installment, with the second part of the loan expected in November.
“Bangladesh’s foreign reserves are expected to fall to $29.86 billion, the lowest in seven years, after import payments for two months next week.
“The fall in exports and remittances, two key sources of foreign currency, have not helped improve Bangladesh’s current account deficit.
“Exports fell 16.5 percent to $3.95 billion in April from a year earlier, as orders from clothing retailers slowed. Inward remittances, on the other hand, declined 16 percent year-on-year to $1.68 billion in April.
“Nevertheless, the IMF has called Bangladesh “one of the fastest growing economies in the Asia-Pacific region””.
WION further said:
Once touted as a strong emerging economy, Bangladesh has been struggling since the pandemic hit the global economy. Depleting foreign reserves due to a decline in exports widened Bangladesh’s current account deficit to a record $18.7 billion in the last financial year, which ended on June 30, 2022.
The government has also raised fuel and energy prices in recent months after it approached the IMF for assistance.
According to estimates, the Bangladeshi economy is expected to deaccelerate from 7.1 percent in 2021-22 to 5.2 percent in 2022-23 due to weaker macroeconomic outlook.
However, FY24 (July 2023 to June 2024) is expected to be much better for Bangladesh, according to World Bank estimates.
Economic growth is expected to accelerate in FY24 to around 6.5 percent over the medium term, as inflation eases, external economic conditions improve, and reform implementation gains momentum.
World Bank’s Bangladesh Development Update 2023 said:
“Bangladesh needs to create jobs and employment opportunities by creating a competitive business environment, diversifying exports, increasing human capital, building efficient infrastructure, deepening the financial sector, and establishing an enabling policy environment that attracts private investment”.
It may be mentioned here that, responding to calls by Bangladesh Nationalist Party (BNP), Jamaat-e-Islami and anti-Awami League forces, almost 60 percent of expatriate Bangladeshis are not sending their income through banking channels, which is one of the key reasons behind decline in foreign currency reserve. Although government has been repeatedly asking the expatriates to send their income through banking channel, it seems to have not succeeded in having any positive result.
Another reason behind decline in foreign currency reserve is smuggling-out of billions of dollars each year which has been increasing at an alarming level. The government has not succeeded in checking such evil practices as the ruling Awami League is yet to take any urgent measures in launching a massive crackdown on corruption and black money. For getting expected result in combating corruption and black money, government needs to immediately adopt stricter policy by amending the prevailing Anti-Corruption and Money-Laundering laws thus incorporating provisions of capital punishment for the perpetrators of such crimes. There should also be crackdown on illegal hundi rackets, which are mainly handling the non-banking channel transactions of foreign exchange of the expatriate Bangladeshis.
According to sources, dozens of hundi rackets are active in the United States, Britain, Middle Eastern countries, Malaysia, Singapore, Japan, South Korea and few more countries where size of expatriate Bangladeshis is huge.
American economy in crisis
According to media reports, the United States may default as soon as June 1, 2023 – weeks from now – causing a global economic catastrophe, if the limit is not raised by Congress before then.
Democratic leaders are calling for the limit to be raised, but Republicans want spending cuts and other conditions to be agreed first.
On Tuesday, Joe Biden and the House and Senate leaders of both parties met to discuss this impending economic crisis of their own making.
The closer the nation approaches to the edge of the debt limit brink, the more skittish US and global financial markets may become. The last time this happened, the US saw its credit rating downgraded and interest rates on its existing debt go up. Even if the nation avoids tumbling over the fiscal cliff, the US economy could suffer.
The political consequences for this are difficult to predict. One recent poll shows that opinion on this is evenly divided – while a third of the public would blame Joe Biden in such a scenario, a third would blame Republicans and a third is uncertain. And for the president and Democrats in Congress seeking re-election next year, that uncertainty is the stuff of many sleepless nights.
If the economy is wrecked in this standoff, Democrats – as the incumbents – have more to lose. Because they are in power, they are likely to be blamed when unemployment rises and the stock market tanks. For many Democrats, the cost of defeat at the ballot box is higher than that of any short-term concessions to Republicans. If their party regains unified control of Congress and the presidency next year, these could be reversed, they argue.
Some Democrats in Congress are calling for Biden to yield ground to Republicans. If the party breaks rank, Joe Biden could be forced to back down, angering his party’s debt-limit hard-liners. It would make him appear weak at a time some in his party are already worried about his ability to hold up as his party’s standard-bearer next year.
What is debt ceiling?
Also known as the debt limit, this is a law that limits the total amount of money the government can borrow to pay its bills.
This includes paying for federal employees, the military, Social Security and Medicare, as well as interest on the national debt and tax refunds.
Every so often US Congress votes to raise or suspend the ceiling so it can borrow more.
The cap currently stands at roughly US$31.4 trillion. That limit was breached in January, but the Treasury Department used “extraordinary measures” to provide the government with more cash while it figured out what to do.
Usually it’s a formality for Congress to raise the limit as needed but this time it can’t seem to agree on the terms.
Treasury Secretary Janet Yellen has warned that without more borrowing, the US will not have enough money to meet all of its financial obligations as soon as June 1.
While people are asking the consequences if debt ceiling is not raised. Commenting on it, economist say – this has never happened before so it is not entirely clear, but it would cause major economic damage.
The government would no longer be able to pay the salaries of federal and military employees, or pensions.
National parks and other agencies would shut down, while companies and charities that count on government funds would be in peril.
If the government stops making interest payments on its debt, that would also put the country into default. The US briefly entered default in 1979, which the Treasury blamed on an accidental cheque processing issue, but an intentional default would shock the financial system where more than US$500 billion in US debt gets traded every day.
Moody’s Analytics predicts that in a prolonged stand-off, stock prices would fall by almost a fifth and the economy would contract more than 4 percent, leading to the loss of more than seven million jobs.
This truly is a complicated situation for Joe Biden and his government, whereas Republican-majority Congress may take full advantage of this situation. Once the June 1 deadline is missed – Joe Biden shall not only be in serious jeopardy – his hope of getting reelected in 2024 shall possibly turn into mission impossible.
