A country’s economy is said to be in a recession when the GDP (Gross Domestic Product) falls below 5-10 per cent, lasting for two or more quarters consecutively. The GDP can be defined as the total market value of services, goods, investment and labour within a country in a given period of time, which is usually one year. Generally speaking, it is said that a recession is a less severe downturn in the economy, and it has a tendency of getting resolved faster.
To some economists, a recession is an economic downturn that lasts for about 6 months to 1½ years, while a depression can be defined as a sharp downturn lasting a number of years. To other economists, a recession occurs when 4,000,000 – 5,000,000 people are unemployed for a period of 6-18 months, whereas a depression occurs when 7,000,000 – 8,000,000 people are unemployed for a longer period of time lasting years.
Recession, in fact, means different things to different people. For example, according to retailers, a recession means a fall in sales, although they do not agree whether it is a 5 percent or a 20 percent drop. To stockbrokers, it means a fall in the prices of stocks. For manufacturers, on the other hand, industrial production is the criterion.
Global recession starts affecting Bangladesh's economy
Bangladesh began to feel the pinch of the ongoing global economic downturn as the country's export sectors and overseas employment have been affected lately, though officials termed it "temporary."
Bangladesh's Finance Minister AMA Muhith on Sunday admitted that there has been a negative impact of the global recession on the country's sectors of jute, jute goods, knitwear and woven clothing, frozen food and many other sectors.
"The impact of recession is becoming visible gradually...It's slowly affecting all the sectors," the finance minister told reporters here after a meeting with a delegation of knitwear manufacturers and exporters.
This is the first time that a high-ranked government functionary has admitted that there has been a knock-on effect of global economic recession on the country's major export sectors, leading English-language daily The Financial Express said.
According to the statistics of the Export Promotion Bureau (EPB), Bangladesh's export earning in December 2008 dropped by over 10 percent due to declining demand and prices in global markets.
The export orders from the country's main export markets -- Europe and the United States -- have declined modestly due to the global economic meltdown, EPB officials said.
President of the Bangladesh Knitwear Manufactures and Exporters Association (BKMEA) Fazlul Hoque said exports from knitwear, the country's largest exporting item that witnessed robust growth for years, went down by 2.5 percent in December 2008.
But he said the shipment slumped by 25 percent in real term in the month while the trend of export orders shows no sign of bouncing back for at least the next three months.
Besides, the raw jute and jute goods exports in Bangladesh, the largest exporter of raw jute and jute products in the world, declined by 6.84 percent and 12.47 percent respectively in the first five months of the current 2008-2009 fiscal year (July 2008-June 2009).
Meanwhile, the country also experienced a sharp fall of 45 percent in manpower export in January due to declining demand in some Middle East countries which downsized their development activities amid the financial slowdown.
The country's inflow of remittance, which plays a significant role in the economy, is mostly contributed by the country's millions of overseas workers.
However, the finance minister made an optimistic observation that the impact of the global recession will be "temporary" and the government is gearing up its efforts to face the challenge.
He said a committee to counter the fallout is being formed and the first meeting of the proposed public-private body would be held by the end of this month or early next month.
The government earlier also asked the garments and textiles manufacturers to give proposals to recommend measures to tackle the impacts of the global economic crisis on the sectors.
Finance Minister AMA Muhith said the government will evaluate the proposals including the demand of increasing cash incentive for the apparel export.
Meanwhile, Bangladesh's Textile and Jute Minister Abdul Latif Biswas on Sunday said the government will soon adopt a coordinated strategy to safeguard the textile and garments industry from the shocks of financial meltdown.
The government will move fast to address the problems, he said at an inaugural ceremony of a textile and garment machinery exhibition here.
Bangladesh's tax revenue miss target as global recession constricts major source
Bangladesh's tax revenue income in the immediately past fiscal year ending in June fell short of target by around 1.19 percent as the world economic recession constricted imports growth, chopping off big slice of earnings from customs duties, officials said on Monday.
According to provisional statistics of the country's National Board of Revenue (NBR), the board collected 523.71 billion taka ( about 7.48 billion US dollars) in tax revenues in the last 2008- 09 fiscal year (July 2008-June 2009).
Bangladesh's total revenue collection target in the 2008-09 fiscal year was earlier set at 693.82 billion taka, of which the government set a tax revenue target of 545 billion taka.
Later on in May this year, the tax revenue target was reduced to 530 billion taka following a sluggish trend in earnings of import duties amid a volatile global economic situation.
Director (Research and Statistics) of the NBR, Sachindra Nath Sarker, said the fall in import duties was due mainly to decline in customs and supplementary duties, triggered by a big prices erosion of imported goods in the global market in context of financial tsunami.
The provisional statistics of the NBR, however, showed tax revenue earnings of the country was 10.41 percent higher than the collections in the previous 2007-08 fiscal year (July 2007-June 2008).
The South Asian country's tax revenue income in the previous 2007-08 fiscal year stood at 474.35 billion taka, with nearly 27 percent growth over that of the 2006-07 fiscal year.
"We missed a large sum of customs and supplementary duties because of price fall of imported items," a senior official in the customs department under the NBR said, requesting to be unnamed.
He said the NBR data showed the country's tax revenue earnings growth steadily decelerated from 19.80 percent in the first quarter of 2008-09 fiscal year to 13.24 percent in the first half and 12.21 percent in the first nine months.
However, of three major revenue wings including income tax, customs and value added tax (VAT), the official said earnings from the customs department, which accounts for more than 40 percent of the NBR's annual tax revenue collections, was 5.19 billion taka less than the revised target of 213.22 billion taka in last 2008- 09 fiscal year.
Apart from this, the provisional data showed earnings from VAT also fell short of target with around 4.55 billion taka in the last 2008-09 fiscal year, largely because of shortfall of supplementary duty collection.
The official of customs department said if the sliding trend in tax revenue collections continue, the government will face problem managing finance for its current 2009-10 fiscal year's budget.
Bangladesh Parliament last month passed 1.14 trillion taka ( about 16.5 billion US dollars) national budget for the current 2009-10 fiscal year began from July 1.
The budget set a revenue earning target of around total 794.60 billion taka for current fiscal year. Of total, the tax revenue collection target for the country's revenue board has been set at 610 billion taka. (1 US dollar equals about 70 taka)
Bangladesh Garment Trade Hit Hard by Global Recession, Seeking Aid
A garment-industry executive in Bangladesh says the global economic downturn has cost 50,000 garment workers their jobs, and he wants the government to provide financial support for the industry.
The president of the Bangladesh Garment Manufacturers and Exporters Association, Abdus Salam Murshedy, says factory owners also need more than $425 million from the government to pay salaries and bonuses due this month. Otherwise, he says, further layoffs may be necessary.
Garment manufacturing is the largest and most important sector of Bangladesh's economy. The $12 billion-a-year industry account for more than three-quarters of the nation's exports and foreign-exchange earnings.
Murshedy told reporters in Dhaka Thursday there have been major job losses due to 107 factory closures in recent months, even though trade statistics show the industry's overall performance improved during the last (2008-09) fiscal year.
Global Financial Recession & Bangladesh RMG exports
Garment exporters and major buyers say the global economic crisis will not affect Bangladesh’s ready made garment sector as it exports mainly basic products.
“Buyers will flock to Bangladesh for cheaper RMG products as major competitors such as China, India and Vietnam make mainly high-end garments,” said an official of a buying house, requesting anonymity. He said the sales of cheaper RMG products increased both in Europe and the US by 20 percent following the global financial turmoil. Manufacturers said only 5 percent of Bangladesh’s ready made garments are high-end.
KI Hossain, a local buyer, said the global financial recession might be a boon for Bangladesh and a bane for competitors. “The number of orders we are receiving from foreign buyers is still high as the buyers now look to cheaper RMG products,” he said.”I don’t see any negative impact of the financial turmoil on the export of Bangladeshi readymade garments,” said a senior official of an international buying house in Dhaka.
Talking to The Daily Star, Ghulam Faruque, chairman of SQ Group, one of the largest sweater exporting groups in Bangladesh, said: “Till now, the situation is good as the flow of foreign orders has been the same. It was rather higher in some cases”. “The bad impact of the global recession may be felt in February or March if the situation in the western financial markets does not improve,” Faruque said.
KM Rezaul Hasanat, managing director of Viyellatex Group, said the buyers of high-end ready made garments of India and China would now outsource products from Bangladesh. The orders are usually low from August to October and start peaking up from November. “So, we should not be worried about orders,” Hasanat said. He cautioned that some ’so-called’ buyers might want to take the opportunity of the recession. “They may demand rebates or concession. We must handle such a situation smartly,” Hasanat said. He said he did not receive any fewer orders than before.
A recent study of the International Monetary Fund (IMF) said Bangladesh’s abundant and relatively low-cost labour made it an attractive destination for investors. “Its success in the garment industry, which was the starting point in the industrialisation process for many of the East Asian economies, will make it attractive to investors as will its growing domestic market and good access to the huge Indian market,” said the IMF study report. According to the study released a week ago, “Although competition is becoming more intense, Bangladesh’s strong market position does not look like diminishing in the short term.”
Bangladesh set an export target at $16.298 billion for fiscal 2008-09, with the readymade garment sector to earn the highest amount of foreign currency. Of $16.298 billion, $12.267 billion is expected to come from two main sub-sectors of RMG: knitwear and woven.
How can our governments work together to overcome the global recession?
Combine the finest minds in the field of Economics, Banking and Finance from all over the world and get them to agree a way in which we can tackle the problem, without political bias.
A politically neutral discussion with these experts, over the course of however long it may require, may be a better way to come up with a solution - as opposed to gathering World leaders to discuss a solution in one day to an infinitely complex issue. Remember that Governments may choose to pursue their own political ambitions - as opposed to the most suitable economic strategy - when deciding on policies. This can, in itself, have a disastrous effect on the economy
This is a problem that needs a very long term solution; in other words longer than a usual term for a President or Prime Minister. I dread to think of any proposed solutions made by a current leader (and agreed in G20) to be ignored by his/her successor simply because of a difference in his/her own political ideals.
We have numerous types of financial systems all over the world, each with different regulatory systems. I think maybe having cohesion and standard protocols in terms of finance and banking internationally may prevent such disaster in the future.
Look at the US for examples. There are 2 regulatory systems for banks; The Office of the Comptroller of the Currency, and The Fed (which has joint responsibility with State Banking Authorities). These 2 parties have overlapping jurisdictions when it comes to banks in the US. Furthermore, you also have the Securities and Exchange Commission overlooking the securities market.
I am no expert, but I know that having such a complicated regulatory system in the US can give rise to several problems which can lead to a financial crisis.
Maybe if we can set international standards by which ALL financial intermediaries can adhere to, it would perhaps be slightly easier to monitor and regulate financial systems all over the world, and hence equipping governing bodies with better means to prevent financial crisis from occurring.
With better monitoring, we can tackle the following factors:
1) Increases in Interest rates
2) Increases in uncertainty
3) Asset Market effects on Balance sheets
4) Problems in the Banking Sector
5) Government Fiscal Imbalances
6) Asymmetric information (e.g. adverse selection & moral hazard)
All of which are contributory factors in a financial crisis.
ADB projects 5.2pc GDP growth for Bangladesh
The Asian Development Bank (ADB) forecast Bangladesh's economic growth at 5.2 percent for the current fiscal year (2009-10), down from nearly 5.9 percent the previous year.
The ADB report blames the effects of global slowdown on exports and remittances and a low consumer spending and domestic demand for this downturn in growth.
“GDP growth is forecast to slide further to 5.2 percent in fiscal 2009-10 as the global economic slowdown persists with continued moderation in external and domestic demand,” said the Manila-based international lender in Asian Development Outlook (ADO) 2009 report, released Tuesday.
The report is an ADB's flagship annual economic publication. This year's report has forecast economic expansion in developing Asia to come in at 3.9 percent, up from the 3.4 percent predicted in March. In 2010, the growth projection is likewise upgraded to 6.4 percent from 6 percent. Stronger growth in East Asia and South Asia underpinned the improved prospects.
Prospects for South Asia improved to 5.6 percent this year, up from the previous forecasts of 4.8 percent as the outlook for five of the eight sub-regional economies were upgraded.
The sub-region's limited reliance on trade partly shielded it from the adverse effects of the global slump. Emerging signs of a recovery in private business confidence and a continued large fiscal stimulus announced in the July 2009 budget helped bolster India's projected economic expansion to 6 percent this year, upgraded from 5 percent in March. Bleaker prospects are projected for the Maldives, on account of weak tourism receipts, and for Pakistan and Sri Lanka due to tight domestic demand and the weak global economy.
Thus, there is hardly any cushion available to Bangladesh to mitigate the adverse impact of the ongoing recession. The purpose of this write up, however, is not to come up with policy suggestions for addressing the current debacle. This would call for a separate and serious professional exercise. As a matter of fact, a number of areas requiring policy interventions towards raising the competitiveness of domestic export-oriented sector and enhancing trade related capacity building have already been identified and put on the table. The task now is to seriously get on with the business of implementing the agendas. The upshot of the above discussion is to reemphasize that in the coming months and years Bangladesh’s increasingly globalized economy will, of necessity, have to be adequately prepared to face the consequences of the fluctuating fortunes of the global economy. The current debacle suffered by Bangladesh’s export sector should transmit appropriate signals to the country’s policy makers to the effect that it is only from strengthened global integration that Bangladesh stands to benefit in the context of her increasingly globalized economy; failing this, the price to be paid will rise in direct proportion to the degree of the country’s lack of preparedness. The ongoing global recession should thus serve Bangladesh both as a wake-up call, and as an warning bell.
