Global financial crisis and its impact on Bangladesh Economy

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Presentation on

Group MembersNAME ID NO

1.Sudeshna Das 0816112280

2. Susmita Sen 0816112275

3. Farjana Karim 0816112289

4. Munmun Dev Nath 0816112271

5. Prasenjit Roy Chowdhury 0816112308

Origin of the crisis

The crisis in the global financial markets that

became manifest in August 2007 is the

byproduct of developments since 2001 when

the US economy was experiencing a severe

recession.

How the crisis did spread?

The crisis that originated from plunging

house prices and stock price declines in

the US, spread to Europe and Asia &

developing countries.

Impact on Bangladesh Economy

1. Impact on the macro economy

2. Impact of GFC on different sectors of the economy like agriculture, manufacturing, construction, SME, trade etc.

3. Micro level impact: on households, rural-urban poverty, inequality, gender issues

4. Mitigation and policy: policies adopted, recommendations

Bangladesh: Export Performance

Bangladesh’s export earnings have risen rapidly since the early 1990s

driver of our exports sector is the ready-made garments industry (RMG)

The export sector was potentially vulnerable to the financial crisis as it heavily depends on the EU and US markets which have been badly hit

any impact on the country’s export processing sector, and in particular on the large RMG sector, will adversely affect economic performance.

Export performance in 2008

The country’s exports grew by 16.7 percent in 2008 compared to less than 7 percent in 2007 and around 23 percent in 2006

Impact on ExportsBangladesh had been facing problems in the EU market

The main advantage of Bangladesh over its competitors is its price.

RMG Sector:

Global recession may generate two possible opposing forces towards export of RMG:

Decline in order due to recession

Increase in order due to substitution of orders towards cheaper products and low cost source

Impact on Imports

The country is dependent on POL imports from the world market and is also a significant importer of food. The domestic economy was quite sensitive to movements in the world price of these key commodities during GFC.

The advent of the recession brought prices down drastically

Bangladesh benefited greatly with domestic price pressures falling quickly, and the government making large savings from reduced subsidies, especially on diesel.

Bangladesh has also benefited from the terms of trade effect as the import prices faced fell more sharply than export prices.

Total merchandise imports to Bangladesh during FY08 amounted to USD21.63 billion, registering a growth of 26.07 per cent compared to the corresponding period of FY07.

IMPACT ON REMTTANCES

Remittance is 10% of BD’s GDP.FY 2009 $9.7 billions.Out Migration reduced by 30% in FY 2009.

Impact on Banking

Causes of financial crisis in banking: Relentless lending of mortgage loans.

Mortgage backed securities. Real estate market crash the bank

accounts.

Reasons for problem in banking sectors Volatility in the macro

economy. The structural weaknesses. Hazardous banking practices . Ineffective regulation and

monitoring.

Global financial crisis and Bangladeshi Banking Sector

Accommodative monetary policy.TAKA is not freely convertible.Foreign reserve in Bangladesh Bank.Steps to avoid risk.

Impact on Capital Market

Foreign portfolio investment.

Equity marketsituation.

Good news

Impact on Unemployment

Bangladeshi workers working overseas.

Private sectors within the country.

Vulnerable sectors.More Poverty.

the lending rate is not feasible• 12.29 percent in June, 2008 as compared to 12.75 per cent in December, 2007

the business community was pursuing for a higher cut in the lending rate

Liquidity crisis•Lower deposit rate due to lower lending rate

Global financial crisis and its impact on interest rate

Lower lending

rate

Lower deposit

rate

Inflation

At the end of August, 2008 Taka per USD decreased to Tk.68.52 from Tk.68.70 at the end of August, 2007.

Taka

USD

Impact on Foreign exchange

After August 2008 taka was appreciating against the EURO owing to the global financial crisis.

BDT

EURO

Impact on Foreign exchange

The prices had taken a downward in the face of global financial crisis. Except for soybean oil……

prices of all other major commodities including rice, wheat and crude oil suffered a falling price since September 2008.

Impact on inflation

Inflation rate decline from 10.82 percent in July’08 to 6.03 percent in December’08, currently hovering at around 5 percent (in July 2009).

Bangladeshi expatriates living in the USA, Britain and other countries might face job cuts.

The country's real estate sector which had been growing at a pace of double digit until 2006 could have a negative growth in 2009 and 2010 as a result of global recession.

Impact on Real Estate Sector

The global financial crisis hit FDI inflows from US and Europe. Already, the FDI inflows to the country have started declining.

Global financial crisis and its impact on Bangladesh economy

IMPACT ON AGRICULTUREIMPACT ON GDP GROWTH

IMPACT ON PUBLIC BUDGETIMPACT ON FOREIGN AID

Price slumpFarmers were in distress

Impact on Agriculture

Slowdown in overall economic growth.

Bangladesh’s GDP growth may fall to 6.19 percent this year.

Probable effects of the global financial turmoil on exports and remittances.

Impact on GDP Growth

Total revenue collection in 2008-09 was estimated to fall short of target by around 2 percent.First stemming from the sharp rise in food and fuel prices.A collapse in world commodity markets and reduction in import-based duties and taxes The size of the budget deficit was estimated to be 3.19 percent of GDP in 2008-09 & rising to 4.5 percent in 2009-10.

Public Finance/ Budget

Impact on Public Finance/ Budget

Food aid declined dramaticallyCuts in aid would mount a pressure on

Bangladesh government’s budget

Impact on Foreign

Aid

Why Bangladesh remained Less Affected

@ Bangladesh's financial system has reasonable resilience capacity to safeguard the stability of banking and financial systems.@ The robust growth of agriculture@ overwhelming dominance of RMGs in the export @ In case of imports@ Remittance inflow

FINDINGS Bangladesh’s export growth rate. Export of non-apparels items. Depreciation of currencies. Remittance earnings. The adverse affects. Indicators of macroeconomic.

Thank you

Any questions???