Impacts on neighbouring economy affects integrated regions

South Asian countries are largely integrated geographically and economically. Any impact on neighbouring economies affects regionally with no exception to Bangladesh to some extent. India, Bangladesh, Sri Lanka and Maldives belong to both SAARC and economic bloc SAFTA. Regional integration is always powerful for any member countries. Slump of any economy will bring in some challenges on others due to trade related interdependence.

In the bilateral trade and economic relation, the total trade between Bangladesh and Sri Lanka was $200m and Bangladesh imports $153.44m. Trade between Bangladesh and Pakistan is $550m of which Bangladesh imports around $493.36m. The bilateral trade between India and Pakistan is around $244 million where India leads.

Pakistan has 10% inflation, 12% currency devaluation and $5 billion trade deficit. Sri Lanka is left with $2.31 billion reserves but faces a foreign debt of $12.55 billion. Hyperinflation in the country stands at 17% while fuel price hike and inadequate supply have led to extreme economic crisis.

Delayed recovery from Covid-19 and economic stress have enfeebled the economic revival trend in both Pakistan and Sri Lanka. These two economies are undergoing stagflation featured by higher inflation, job cuts and poverty hike. This situation will upset regional growth, harmony and shared development.  Meanwhile, Sri Lanka sought $1 billion debt support from India and received a promise of $200 million credit from Bangladesh for their recovery.

Since trade of Bangladesh with Sri Lanka and Pakistan is apparently small, it will hit our trade and market to a small extent. Bangladesh needs to find alternatives if these sources get dry. Cumulative export of Bangladesh to these countries is around $100 million. Since India is our second largest trading partner, any economic volatility in India may affect us much. Our supply and regional value chain will be affected as Bangladesh uses ports of Sri Lanka in import.

Since our Taka is devaluing against the dollar, our import and debt repayment costs will increase and the net value of foreign reserves will decline, challenging our 9 months' import security. This economic crisis will widen our negative trade balance and balance of payment. All bilateral economic and investment potentials may be shattered.

The recession in these economies will also slim the trade and investment growth of other economies having investment in those countries. SAFTA has cumulative trade of around $28 billion which is flexible by nature due to manifold non-tariff barriers though the potential is almost double. The desired trade growth, investment, human mobility, skills, technology transfer, value chain expansion and employment growth will be challenged to some extent. Their regional recovery and growth pattern will be skewed. Since Bangladesh, India and Sri Lanka and Nepal and Bhutan are members of BIMSTEC, the economic strength of this bloc may be hurt.

Though Bangladesh does not have any FTA or PTA with Pakistan and Sri Lanka, current trade may squeeze and our trade related stakeholders and import tariff earning may be affected. To overcome recessionary repercussions regionally, the following may be recommended:

• WTO can intervene and request other trading partners of these economies to liberalise the trade terms, LC deals and contracts to ease the recovery.
• All regional leaders need to set some regional agenda towards focused recovery led by Saarc.
• International agencies; WB, EBRD, IDB and IMF should extend low-cost lending with larger repayment facilities. Reduced customs formality and shipping cost for trade crisis-stricken economies.
• Export and import tariffs can be reduced to zero for the interim period and non-tariff rationalisation.
• Barter system in international trade for the time being can be preferred.
• Regional CEPA can be dealt with to support one another in case of any economic emergency as CEPA allows broad-based cooperation among members.

Sri Lanka has also been a victim of Rajapakse family control and democracy can be hampered if nepotism gets deeply involved.

Rizwan Rahman is the President of DCCI