Failure of macro management leads to this crisis

The pandemic brought the inflow of tourists to a virtual standstill in tourism-dependent nations of South Asia, casting a disaster on their economic lifeline. In the wake of the Ukraine-Russia war, the situation has now spiralled out of control, with prices of import-dependent goods experiencing a massive jump.

The deepening financial crises that they are going through are unmanageable; the situation could have been handled through sound macroeconomic management. But sadly, economic management in these countries has never been good. Conversely, government spending was rising uncontrollably in several countries, including Sri Lanka.

The turmoil in the global economy is to blame for the economic downturn in South Asia. The ongoing war has pushed up prices of energy, oil, food and other commodities.

Import costs have gone up significantly, while export earnings have not increased in the same way. As a result, the current account deficit has widened in these countries. To meet the deficit, they are having to take out fresh loans. Thus, the new loans add to the repayment pressure of old loans plus interests.

Revenue mobilisation in the countries, such as the Maldives and Nepal, plummeted as tourist arrivals came to a halt since Covid-19 hit this part of the world. For the same reason, Sri Lanka was also under some pressure. All these South Asian countries, which were trying to dispel pandemic blues, have now lost the ability to deal with the even more difficult situation arising out of the war.

A number of ambitious projects were taken up in the infrastructure sector with too much dependence on foreign loans. Proper feasibility study has not been done for these very costly projects. The projects, taken up in political consideration without taking losses or profits into calculation, are not generating revenue as expected, resulting in a huge pressure on government funds to repay loans. 

Sri Lanka has been forced to take supplier credits to cover the costs of infrastructure projects. To repay the old loans, the country took out high-interest from different sources. For all these reasons, the country's internal economy is now under enormous pressure.

The ongoing economic crises in Sri Lanka, the Maldives, and Nepal will not have much effect on Bangladesh as we do not have much trade with those countries. Nevertheless, we have to make sure that no such crisis comes to our country. 

Covid also affected our economy. At this time, new investment flows are comparatively low. We are also having to buy products from the world market at high prices. We are facing increasing prices of imported goods and pressure to pay off foreign debts. The costs of large projects in the infrastructure sector are rising at an uncontrolled rate too. If we do not control all these issues now, the situation in Bangladesh may take a serious turn.

Dr Mustafizur Rahman, distinguished fellow at CPD, talked to TBS Senior Correspondent Jahidul Islam over the phone