Is Bangladesh falling into a China’s Debt-Trap Like Sri-Lanka?
Bangladesh is the second highest investment destination for China in South Asia. Referring to the incident of Sri Lanka, lease of Hambantota port by China, critics say that greater dependency of Bangladesh on China will make the country a victim of Chinese debt-trap. Is Bangladesh really going to be a victim of China’s debt-trap?
Bangladesh reached lower-middle-income country status in 2015. Bangladesh has met, for the second time, all the three criteria for graduating from the Least Developed Country (LDC) and if everything goes right, will finally be graduated in 2026.
Sri Lanka became middle income country in 1997. The country is facing economic downturn due to wrong economic policies. Recently, Bangladesh has agreed to lend $200 million to debt-ridden Sri Lanka which is struggling to maintain a moderate foreign exchange reserve. Undoubtedly, it is matter of pride for Bangladesh. At the same time, Bangladesh should take lessons from Sri Lanka for upcoming days to avoid unexpected economic crisis.
Bangladesh and Sri Lanka have similar economic weak point. In both countries, the Tax-GDP ratio is not at expected percentage. The economy of both countries depends on a single product, for example- Bangladesh’s economy is dependent on RMG and Sri Lankan economy is dependent on tourism industry. The good news for Bangladesh is that, though Sri Lanka is struggling with its economy but Bangladesh has enough time to confront the upcoming challenges.
The benefits, such as lowest interest rate; longer grace period, that Bangladesh receives as a LDC from different donor organizations like World Bank (WB), International Monetary Fund (IMF), Japan International Cooperation Agency (JICA) etc. will be available till 2027. Now donor agencies like WB, IMF etc. lend Bangladesh with 2% interest rate. These loans have very long tenure, 25-40 years, and the grace period is almost 10-12 years. After 2027, Bangladesh will have to pay higher interest rate.
As Sri Lanka is a middle-income country, it has to pay higher interest rate and gets lower grace period for the loan from donor agencies. Besides, Sri Lanka also borrows from international market through bonds with almost 6 percent interest rate. According to the Central Bank of Sri Lanka, the loan borrowed by Sri Lanka through Sovereign bond was almost 50% of its total external debt.
There are sharp differences between the loans from Donor agencies and loans through Sovereign bonds. Donor agencies offer loans with low interest rates and long tenure. They also come with flexible terms and conditions such as grace periods of around 10-12 years. When the grace period matures, the repayment takes place for next 30-40 years. On the other hand, loans through bonds come with high interest rates, short tenure and no grace periods. Generally, these loans have to be paid within 10 years and the interests are also payable from day one.
Bangladesh needs precise plans for its graduation journey from LDC to Developing country. Plans are also crucial for post-graduation phase for proper implementation of development projects. Otherwise, Bangladesh may also have to face economic crisis like Sri Lanka in near future.
There is a common misconception that Bangladesh is burdened with foreign loans. But the reality begs to differ. According to Economic Relations Department’s (ERD) ‘Flow of External Resources into Bangladesh’ report, in 2019-20 fiscal years, total external debt outstanding of Bangladesh was USD 4409.51 Crore which is equal to BDT 3,74,898.35 crore in local currency. According to this figure, the per capita loan is BDT 23,425 considering the total population as 16 crores.
According to IMF and World Bank’s Standard, it is only dangerous for an economy if its external debts exceed 40% of GDP. Currently, Bangladesh’s total external debts is less than 15% of GDP which is far from danger mark. Interestingly, USA has the world’s largest external debt which is almost 102% of its GDP. However, the country’s economy is still vibrant because of the strength of US dollar.
There is propaganda against Bangladesh that, it is burdened with Chinese soft loans and soon the consequences will be like Sri Lanka. External debts are mostly used in Bangladesh to cover the budget shortage. In current fiscal year, Bangladesh has taken 38% from World Bank, 24.5% from Asian Development Bank, 17% from Japan, 3% from China and 1% from India as external debt. Bangladesh has taken 80% of total external debt from WB, ADB and JICA.
In 2016, Bangladesh and China transformed their bilateral relations to ‘Strategic Partnership’. In the recent time, like other parts of Asia, Chinese funding is also rising rapidly in South Asia. This has created a good opportunity for fast growing economies like Bangladesh as Chinese Development Finances (DFIs) are offering alternative sources of loans. Chinese DFIs are also creating a competitive and sustainable alternative funding source for Bangladesh since now other countries like India and Japan are also focusing on providing flexible conditions while financing Bangladesh. Based on the analysis, it can be concluded that the propaganda that Bangladesh is going to fall in the Chinese debt-trap is nothing but a myth.
Price hike in Pakistan: the worst of all worries
The most serious issue Pakistan’s economy is currently dealing with is price increases or inflation. Life has become miserable for the average person as a result of the ongoing increase in the cost of necessities like food, fuel, and medicine. The general public’s standard of living is not the only thing this phenomenon is affecting; it is also fueling social unrest across the nation.
There are numerous factors contributing to the price increase. The rise in the price of oil on the global market comes first. Pakistan relies heavily on imported oil, and when the price of crude oil increases globally, it has a negative impact on the regional economy. The issue has also been exacerbated by Pakistan’s struggling economy, high-interest rates, and currency devaluation.
However, several causes can be identified for Pakistan’s dollar exchange rate’s ongoing rise. One of the main causes is the nation’s substantial import bill, which raises the demand for dollars. Energy and other necessities must be imported into Pakistan, and the pressure on its foreign exchange reserves is increased by the high demand for dollars to pay for these imports. Further weakening Pakistan’s currency is the fact that its exports have not been able to keep up with its imports, resulting in a trade deficit. Due to investors’ reluctance to invest in a nation with an unstable economy, political unrest, and economic ambiguity have also boosted the dollar rate.
Similarly, the debt incurred by Pakistan is a sizable additional factor in raising the dollar rate in that country. Pakistan has one of the highest debt-to-GDP ratios in the world and has borrowed a significant amount of money from international financial institutions to meet its financial needs. The pressure from this borrowing has reduced the nation’s foreign exchange reserves and devalued its currency. The country’s economy has been severely impacted by the COVID-19 pandemic, necessitating a significant fiscal stimulus on the part of the government. This has further aggravated the situation. In Pakistan, the dollar rate has been rising steadily as a result of all these factors working together.
Simultaneously, inflation and price increases affect Pakistan’s politics as well as its economy. The opposition parties are using the government’s inability to control the price increase as a major issue to attack it and win over the public. The opposition parties are protesting and demonstrating against the government, accusing it of being responsible for the price increase. They contend that the general populace is suffering because the government’s policies have failed to control inflation. The price increase controversy is being manipulated by the opposition to advance their own political goals and turn the public against the ruling party.
The government, on the other hand, is making an effort to address the issue by implementing a variety of measures, including raising subsidies for necessities and lowering import taxes. However, the opposition parties are utilizing this failure to their advantage because these measures have failed to contain inflation. Similarly, the price increase has important political repercussions. Public support for the opposition parties is growing, while support for the government is eroding. If the government is unable to control the price increase, it may trigger more political unrest, demonstrations, and even violence.
Therefore, a price increase has far-reaching effects. The groups with lower incomes are most negatively impacted because they cannot afford the necessities of life. They are compelled to reduce their food intake as well as their health and education spending. The middle class is also suffering. After all, they must second-guess any major purchases because their purchasing power has significantly dropped.
In addition to economic issues, the price increase is also creating social ones. As they struggle to meet their basic needs, people are growing agitated and desperate. Riots, demonstrations, and protests against the government are being sparked by this annoyance. As people struggle more to make ends meet, inflation also causes a rise in the crime rate.
The government must act swiftly and effectively to stop the price increase. Controlling the hoarding and smuggling of essential commodities is the first step. Second, to lessen their reliance on imports, they must make investments in regional industries. Additionally, the government should prioritize economic expansion because it can result in more job opportunities and, ultimately, greater purchasing power for the average citizen.
The government needs to pay attention to it right away and take action. The stability of the nation’s social and economic systems is in jeopardy, and if the issue is not quickly resolved, it might fuel more unrest and instability. This issue requires both political and economic solutions. The public must see that the government is acting practically to control inflation by effectively communicating its policies to them. Furthermore, the opposition parties should cooperate with the government to find a solution rather than use the price increase issue for political purposes.
To address the issue, the government must take a comprehensive approach that includes both immediate and long-term actions. The private sector and civil society can both be crucial players in finding solutions to the issue. The only way the nation can hope to overcome the problem of price increases and guarantee a higher standard of living for its citizens is through collective effort.
The opposition parties should work with the government to find a solution to this issue, as the government must act quickly and effectively to control inflation. The common people’s lives are being impacted by the price increase, and resolving it will require a collaborative effort from all parties involved. The federal government ought to prioritize long-term economic plans that can boost employment opportunities, reduce reliance on imports, and promote sustainable economic growth. To encourage trade and commerce, the government ought to work on enhancing the infrastructure, such as the roads and communication systems.
Additionally, the government needs to take strict action against anyone hoarding, smuggling, or profiting from the situation in order to make extra money. In order to boost production and lessen reliance on imports, the government should also support local industries by offering incentives and support.
Vietnam’s macroeconomic policy and post COVID recovery
As per the latest IMF reports real Gross Domestic Product(GDP) of Vietnam in 2023 is estimated at 6.2 percent. This clearly shows that Vietnam has been avoiding the usual recessionary trends across the Asian markets and is showing better than average growth .With inflation rate being less than 4 per cent, it clearly shows that Vietnam is likely to emerge as a promising economy in Asia. According to the regional economic outlook which has been released by the IMF , it clearly projects that there are high expectations of uncharacteristic slow down in China benefitting competitors such as Vietnam, Philippines and Indonesia .
Asian Development Bank(ADB) has forecasted that Vietnam’s GDP was expected to grow by 6.5% in 2022 and nearly 6.7% forecasted for the year 2023. If one looks into the comparative forecast for countries in Southeast Asia it is stated that Philippines will grow by 6.3 per cent ,Cambodia 6.2 per cent ,Indonesia 5 per cent, Thailand 4.2 per cent , Laos 3.5 per cent ,and so on. If one looks into the core fundamentals of Vietnam following the COVID-19 pandemic, it has been clearly stated that Vietnam’s annual economic growth rate hovered between 6.3 per cent to 6.5 per cent for the decade preceding the current one.
One of the major aspects of this better than average economic growth was high foreign direct investment, increased domestic consumption, sizeable increase in the middle class, and Vietnam’s focus on promoting its manufacturing to be export oriented. In terms of other critical aspects Vietnam has been securing loans from many other international agencies over the past few years. With funding and grants from different international economic agencies ,Vietnam has been able to upgrade its road, rail transport and border connectivity infrastructure along with promoting social economic growth of nearly 243,000 people across the provinces.
One of the mainstays of Vietnam economy has been small and medium enterprises along with active participation of women.These enterprises have been getting bank credit and technical assistance through different initiatives such as public private partnerships, promotion of private sector development, and extensive reforms in state owned enterprises. Vietnam has been preparing well for facing the severity of climate change and also undertaking pilot projects for post disaster reconstruction and rehabilitation. It has institutional arrangements with World bank and Netherlands to develop resilience for the coastal areas particularly Mekong delta to undertake comprehensive efforts in mitigating the climate change effects.
Over a period of time Vietnam has been making serious efforts in emerging as a knowledge network society. This includes improving policy applications, enhancing capacities of stakeholders and providing information to the communities on a regular basis. Vietnam has also received more than USD $ 2 million grant for climate resilient inclusive infrastructure through high technology fund from ADB. In terms of meeting UN sustainable development goals, Vietnam has successfully provided electricity to its cent percent population.
It has been stated that Vietnam is one of the economies which is going to benefit from Regional Comprehensive Economic Partnership(RCEP) given the reduction in tariffs during the period 2020 to 2035 and because of these reductions the export of electrical equipment and machinery from Vietnam is going to grow to the level of 12.1% while the main stay of its exports primarily textiles and apparels are going to grow by nearly 10%. Given the fact that RCEP would facilitate Vietnam’s entry into high end markets such as Japan, Australia and New Zealand might translate into better trade revenues.
In fact better integration with regional economies would promote its sectors such as tourism, entertainment, education, agriculture, automobile telecommunication, and IT. Two different aspects have gained international attention because of Vietnam ranked 70th out of 190 countries in terms of ease of doing business, and its major strength has been the young population as nearly 70 per cent of its population is aged between 15 to 64. This large working population reduces social security liabilities to the aging population. Major work which has been done by the current Vietnamese government is its national strategy for Environmental Protection 2030 with a comprehensive plan under Vision 2050.
It is expected that Vietnam’s construction sector is going to grow because of increase spending on infrastructure projects along with improvement in regional connectivity through rail, road, and air transport infrastructure. There are high expectations that Vietnam tourism sector will post impressive recovery, and last year the country witnessed an increase of tourist arrivals by more than 185 per cent in the first four months of 2022. The tourism sector is going to increase further given the fact that Vietnam has signed a comprehensive agreement in boosting sustainable tourism and post COVID recovery at the national level. During the period 2022 to 2025 it is expected that the cumulative average growth rate of tourism would be 13.5% average each year .
As per the global data set and the General Statistical Office of Vietnam, the industrial production is also going to increase substantially and export orders as well as internal domestic demand is going to bring about remarkable improvement in production as well as exports. Last year, the G7 countries have agreed to grant a loan of US $5.5 billion for helping Vietnam transition from coal to other sources for power generation. This was based on the promise that Vietnam should make plans for shifting to nearly 50 per cent of its power requirements from renewable energy by the year 2030. It is also expected that foreign direct investment in Vietnam is going to be steady with high tech industries, knowledge based service industries, and education gaining the maximum investments. The real estate and construction sector are other sectors which are going to gain international attention.
This year it is expected that public investment would be helpful in post pandemic recovery and under the Socio Economic Recovery and Development Programme nearly US $15.4 billion has been approved for accelerating the economic growth. Furthermore, commodity exports is likely to see a remarkable two digit jump and the FTAs that Vietnam has signed with various partners will help in building the capacities of Vietnamese manufacturing sector in product transformation, exploring diversified markets, better restructuring, and skill development at different levels. The transformation is also happening in terms of fiscal and monetary prudence as well as undertaking reforms within banking system and financial governance. The anti corruption drive that the Vietnam has undertaken in the last few years have built the investor confidence and it is expected that Vietnam will reap the dividends of better business environment, market connectivity, and relatively comparative advantage among other competitors in Southeast Asia. As expected the fundamentals are getting stronger, and therefore Vietnam can witness a stronger economic growth and better macroeconomic stability in the year 2023.
Azerbaijan’s Favorable Climate for Foreign Investments
Azerbaijan, situated at the crossroads of Europe and Asia, presents investors with plentiful opportunities, chiefly in the area of oil and gas, tourism, and agriculture, as well as policies developed to stimulate foreign investment and enhance the investment environment. Furthermore, Azerbaijan invested in order to gain access to additional markets and strengthen its presence in the international economy, and the country has committed capital to sectors such as energy, real estate, infrastructure, and tourism.
Azerbaijan’s economy has seen an impressive rate of growth over the past decade. According to the World Bank, the country’s Gross Domestic Product (GDP) increased by 1.4% in 2020, despite the global pandemic. This serves as a testament to the fortitude of Azerbaijan’s economy, which has endured multiple economic disturbances in the past. Estimations suggest that Azerbaijan’s Gross Domestic Product is approximately $54 billion, with an average annual increase of 1.9% over the past four years. Azerbaijan has experienced a steady low rate of unemployment over the past decade, with an average of 5%, indicating a strong labor market and a prosperous business environment.
Azerbaijan has cultivated wise investments in fields that demonstrate promising growth and profitability. The efforts of the nation to broaden its economic base have proven successful, resulting in a decrease in its reliance on petroleum. Azerbaijan has achieved notable success in diversifying its economic base and diminishing its dependence on oil exports. The non-oil exports of Azerbaijan have been rising continuously in the recent years; as reported by the Azerbaijan Export and Investment Promotion Agency (AZPROMO), there was a 47.2% ($2713.40 million) and 12.3% ($3047.67 million) increase in 2021 and 2022 respectively. Between January and February of 2023, the country recorded an increase of 36.6% in non-oil export earnings, amounting to approximately $651.42 million, compared to the same period the year before.
Multinational corporations from around the world are highly eager to access Azerbaijan’s natural resources, mainly its oil and gas reserves. In 2020, Azerbaijan’s oil production reached 33.5 million tons, followed by 29.5 million tons and 32.8 million tons in 2021 and 2022 respectively, as reported by the State Oil Company of the Republic of Azerbaijan (SOCAR), thus placing the nation among the major oil-producing countries in the region. Oil production is projected to reach 35 million barrels in 2023. According to the Oil and Gas Journal, Azerbaijan has more than 2 trillion cubic meters of natural gas reserves, representing a significant opportunity for energy companies worldwide.
In 2020, Azerbaijan attracted a total of $4.5 billion in foreign direct investment (FDI):
Azerbaijan saw a 5.9% increase in Foreign Direct Investment (FDI) compared to the past year, which made it one of the most prominent FDI recipients within the Commonwealth of Independent States (CIS) area. In 2020, the United Kingdom, Turkey and the United States were the top three countries by FDI in Azerbaijan, with the United Kingdom contributing $1.7 billion, Turkey investing $577 million and the United States investing $475 million, according to the Central Bank of Azerbaijan.
Furthermore, the Sustainable Development Goals (SDG) Index reveals that Azerbaijan has made substantial strides in reaching the objectives that were put in place by the United Nations across multiple domains. According to the SDG Index, the rate of global poverty has decreased from 49.6% in 2010 to 5.9% by 2022. Azerbaijan’s Global Hunger Index (GHI) has seen a positive trend, decreasing from 14.5 in 2010 to 9.7 in 2019 and further to 7.5 in 2022. The citizens of the country have reaped the benefits of its efforts to bolster health and well-being, as evident by the increase in life expectancy from 68.6 years in 2010 to 73.3 years in 2022. Azerbaijan’s commitment to improving the standard of living for its people and promoting economic growth in a sustainable manner are reflective of its commitment to the achievement of the Sustainable Development Goals.
In 2019, Azerbaijan achieved a ranking of 25th place in the World Bank’s Ease of Doing Business report, which marks a notable enhancement of 32 places from the previous year and highlights a favorable business climate for foreign investors. In 2020, the World Bank’s Ease of Doing Business Report ranked Azerbaijan 34th among 190 countries, with a score of 76.7 for the ease of setting up a business.
Taking all factors into consideration, Azerbaijan is a highly attractive investment opportunity for a variety of industries, including energy, tourism, agriculture, and technology. In order to stimulate foreign investment, the government has put in place a variety of incentives to simplify the foreign investment process. Azerbaijan is an attractive option for investors to expand their investment portfolios and explore new markets due to its attractive business environment, strategic location, and robust economic growth. Moreover, Azerbaijan’s foreign investments have had a considerable influence on the nation’s economic growth. The country has leveraged investments to expand its portfolio and reduce its reliance on oil and gas industries, as well as to access novel markets.
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