Tag: IMF

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Analysis

Economic Crisis in Bangladesh and Talks with the IMF

Introduction

Bangladesh’s economy was already under much stress due to the COVID-19 pandemic, however, the global political and economic situation has not made it any easier for this South Asian country’s economy to bounce back up. Bangladesh is already the third country after Pakistan and Sri Lanka to apply for a bailout from the International Monetary Fund (IMF) to avoid “running out of cash” (The Guardian).

Why was the decision made?

It comes as no surprise that the pandemic has slowed down the global economy and that in 2022, countries are still desperately trying to resolve the issues that came with this pause such as inflation, the supply chain crisis, etc. On top of that, the ongoing conflict between Russia and Ukraine has had consequences that are felt everywhere with prices of energy and food growing at a fast pace.

The global economy by itself has been predicted to go into recession, and thus Bangladesh is struggling due to the substantial fall in exports and rising prices of imports that grow by the day. Despite many countries seeking help from the IMF during the pandemic, only several (including Bangladesh) have sought bailouts to avoid going into debt or “being unable to pay the bills” (The Guardian). Talks about Bangladesh’s bailout are expected to begin after the IMF and World Bank annual meetings in October, which is also when the size of the loan will be decided. 

On the 22nd of August, Bangladesh Cabinet Secretary announced that schools will now be closed on Saturdays in addition to Fridays and office hours will be lessened, in order to reduce the electricity shortage experienced in the country. In the past month, petrol prices increased by 50% while the prices of diesel and kerosene rose by at least 40% as well. Thus, it comes as no surprise that frustrated citizens have taken to the streets to protest the insupportable fuel prices.

International Impacts

Up until COVID-19 slowed its quick development, Bangladesh’s economy was “one of the fastest-growing in the world for years.” The economic growth was largely due to Bangladesh’s garment industry, which exports to retailers in Europe, the US, and South America. This industry is likely to suffer from the slowdown in the global economy as well, especially if demand falls in Europe and the United States. However as the global economy recovers, it will only be beneficial for Bangladesh’s financial state to be on the mend, ready to supply other countries with their main exports. 

As for the IMF, Bangladesh has expressed its interest in its resilience and sustainability facility, which is designed to help countries resolve climate change challenges. Aside from that, however, the IMF is open to supporting Bangladesh in its economic crisis and has said that “staff will engage with the authorities on program design”.

Conclusion

The IMF is eager to support Bangladesh and will start negotiating the amount of the loan sometime after the October meeting between the IMF and the World Bank. Despite this, prices are continuing to rise not only in Bangladesh but internationally, as the conflict between Russia and Ukraine doesn’t seem to be near its end. This has already caused various protests in many countries due to inflated costs of energy and food, which in low-income countries, affect citizens even more. However, with countries trying to become less reliant on Russia for their energy supply, it is interesting how they will come back from this crisis in the years to come.

Sources

Inman, Phillip. “Bangladesh to Hold Talks with IMF after Applying for Bailout.” The Guardian, 28 July 2022, http://www.theguardian.com/world/2022/jul/28/bangladesh-to-hold-talks-with-imf-after-applying-for-bailout.

Lawder, David. “IMF Says It Is Working with Bangladesh on RST Loan with “Safeguards.”” Reuters, 3 Aug. 2022, http://www.reuters.com/markets/us/imf-says-it-is-working-with-bangladesh-rst-loan-with-safeguards-2022-08-03/. Accessed 29 Aug. 2022.

“Now It’s Bangladesh’s Turn to Ask the IMF for a Loan.” http://www.aljazeera.com, 27 July 2022, http://www.aljazeera.com/economy/2022/7/27/now-its-bangladeshs-turn-to-ask-the-imf-for-a-loan. Accessed 29 Aug. 2022.

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Weekly Summaries

23rd of August – 29th of August

Afghan refugees and an increasingly dramatic situation at the airport in Kabul

Thousands of people are still waiting at the airport in Kabul for a flight out of Afghanistan and the August 31st deadline to complete the Afghanistan operation is fast approaching. To make the situation even more urgent, Taliban leaders rejected President Biden’s suggestion to extend the deadline for the completion of the operation. Last Wednesday, President Biden then announced that the U.S. was “on track” for a military departure from Afghanistan on August 31st.

On Thursday, two suicide bombers outside of Kabul’s airport killed at least 13 U.S. troops and many Afghans, including children. The Islamic State has since claimed responsibility for the attack. President Biden vowed retaliation, saying “we will not forgive.”

This past week reports also surfaced which state that weeks before Kabul fell to the Taliban, tens of thousands of Afghans were already traveling across Iran, hoping to cross Turkey to reach Europe. However, President Erdogan of Turkey has claimed that Turkey will not be “able to shoulder the additional burden” as it has already taken in 5 million refugees. Last week alone, more than 1,400 Afghans who were in Turkey were rounded up and pushed back by the police in a single operation.

Other News

  • The IMF (International Monetary Fund) gave financial aid to poor countries worth US $650 billion to help them “pay down debt and withstand the costs of combating the coronavirus pandemic,” the New York Times reports
  • The highest point on Greenland’s ice sheet has never experienced rainfall that is until last week
  • To prevent Belarusian migrants from entering, Poland and Lithuania are planning to build fences along their shared borders with Belarus, according to the New York Times
Categories
Analysis

The Economic Situation of Italy

Italy’s economic context

In 2020 Italy’s economy was severely affected by the COVID-19 global crisis, in relation to the fact for which this country was the first in Europe to be influenced by the pandemic consequences.

IMF and GDP growths and losses in WEO’s view

The IMF (International Monetary Fund) estimated a GDP (gross domestic product) loss of 10.5% in 2020 after an output contracted by 18% in the first half of the year.

In fact, the rebound of construction and industrial contributions could not offset the loss of other sectors (especially services and tourism, which accounts for 13% of GDP alone), despite government support. In 2021, a substantial carryover effect should have underpined a GDP rebound of 5.2%, followed by further growth of 2.6% in 2022 (IMF’s October 2020 forecast), though the situation is still uncertain under the nowadays time of the pandemic and the tightening of containment measures in the last quarter of 2020.
In its most recent January 2021 update of the World Economic Outlook, the IMF has revised its GDP growth projections for Italy to 3% in 2021 and 3.6% in 2022 (representing a difference from October 2020 WEO( world economic outlook) projections of -2.2% and +1%, respectively).

Government revenues should benefit from the rebound in economic activity in 2021, so that the deficit is expected to decline to 3.4%. The historically-high debt-to-GDP ratio spiked to a worrying 161.8% in 2020, though it is set to slowly decline to about 156.6% in 2022, thanks to nominal GDP growth and more favourable interest expenditure.
Inflation stagnated in 2020 (0.1%) due to downward pressure from oil prices and private consumption, and should remain subdued in 2021 and 2022 (0.6% and 0.9%, respectively – IMF).
 
Main Indicators 2020 (e) 2021 (e) 2022 (e)
GDP (billions USD) 1.00 2.00 2.00
GDP (Constant Prices, Annual % Change) -10.6 3.0 3.6
GDP per Capita (USD) 30 35 36
General Government Balance (in % of GDP) -3.8 -3.4 -2.9
General Government Gross Debt (in % of GDP) 161.8 158.3 156.6
Inflation Rate (%) 0.1 0.6 0.9
Unemployment Rate (% of the Labour Force) 11.0 11.8 10.8
Current Account (billions USD) 59.64 63.21 68.59
Current Account (in % of GDP) 3.2 3.0 3.1
•Source: IMF – World Economic Outlook •Database: October 2020
•Note 1: (e) Estimated Data
•Note 2: The GDP growth projections for 2021 and 2022 (Constant Prices, Annual % Change) were updated by the IMF in January 2021

Agriculture and economics by 2020

Italy is one of the main agricultural players in the EU, being the biggest European producer of rice, fruits, vegetables and wine.

The agricultural sector represents 1.9% of Italian GDP and is reliant on the import of raw materials utilised in agricultural production due to the country’s limited natural resources (Italian imports of raw materials are responsible for more than 80% of the country’s energy). The country has 12.6 million grounds of agricultural land and its main crops include cereals (particularly wheat), corn, barley, rice and oats. Italy is also the first world producer of wine. In order to respond to the COVID-19-related crisis, the Italian government set up specific schemes for the agro-food sector allocating more than € 1.1 billion.
Nevertheless, in the second quarter of 2020 the primary sector recorded a 12.8% decrease compared to the previous quarter (Italian Council for Agricultural Research and Analysis of Agricultural Economics).