February 24th marked one year since the Russian invasion of Ukraine. Although the war took place some 5800 kilometers away, the maelstrom laid bare upheaval in the country’s economic and financial sectors. The severity of the blow of the war was duly felt when Foreign Minister A.K Abdul Momen summoned at the world leaders orating, “The war should stop, and G20 nations should try their best to stop the war”, at the G20 Foreign Ministers Meet in New Delhi, of March 2023. With the onset of war, the price of global commodities have spiked resulting negative impact on both macro and microeconomic dimensions of the country.
Ever since the war began on February 24, inflation averaged 8.14 percent, way higher than the reasonable 5 percent. With this, the taka has depreciated by about 25 percent and reserves have shrunk by about 28 percent. Furthermore, BDT lost value against the dollar by 10.08%. Since the advent of war, during the first nine months (July-March) of the 2021-22 fiscal year import payments increased by 44% whereas export income increased by 33% and remittances has fallen by 18%. Being a trading country and highly import dependent for fuel and industrial raw materials, many companies have been facing trouble in opening LCs since banks are unwilling to open LCs due to forex shortages.
Bilateral trade with Russia, US$1.14 billion in the last fiscal year (FY21), is small compare to Bangladesh’s total global trade worth US$ 104.35 billion. Understandably, disruption in trade, especially export, will be costly. In the last fiscal year, Bangladesh exported $665.30 million to Russia of which around 95 per cent was textile and clothing. Due to war, it has been difficult to continue the export as cost of shipping has likely surged. Bangladeshi exports to Russia started falling in March 2022 and it is likely to fall drastically in fiscal year (FY) 2022-2023.
The more challenging has been retaining the export receipts as the United States (US) along with European Union (EU) has imposed sanctions on Russian banks to cut off the country from the global financial system.
The negative impact of the financial sanction on Russia will disrupt the Rooppur nuclear power plant project, the largest project with Russian credit in Bangladesh worth US$ 11.38 billion. Already the Russian bank, Bank for Development and Foreign Economic Affairs (VEB) has asked Sonali Bank, which transacts the fund for the project to hold up transactions for the time being. The Russian counterpart is facing sanctions regarding the SWIFT’s service.
Where the global commodity price have hiked, the net income of industrial workers has decreased to 30-40 percent since the inception of the war due to inflation, according to Anu Mohammad, a former professor of Jahangirnagar University’s economics department.
In order to combat the economic stagnation, Bangladesh Bank is on the lookout for an alternative payment system for carrying out smooth trade and commerce between Dhaka and Moscow. Russian has a few experimental international transaction method employing bartering, cryptocurrency with Brazil, Indonesia and a few of the African countries. The Russian authorities and companies are inventing new ways to stop relying on dollars and euros and increasingly turning to Chinese yuan and Bangladesh is considering to opt for the alternative method to get the economic wheel moving.
Economic hullabaloo along with geo-political complexities are heaped and piled as Bangladesh is concurrently dealing with the two fronts. With the Western sanction incumbent upon Russia, Bangladesh is faced with both economic and political quandary.
Bangladesh has been walking on a tightrope at the geopolitical front. Recently, Bangladesh has found herself in hot waters regarding the issue of Russian ship Ursa Major, among the 69 ships facing western sanction. Bangladesh, in line with the sanctions has agreed not to allow any of the ships targeted by the sanctions from sailing into Bangladesh waters. The ship carrying much needed raw materials for Bangladesh’s Rooppur nuclear power plant, was not allowed into Bangladesh by Dhaka, clearly under pressure from the US authorities. The move did not make President Putin and his government happy. The outcome was the summoning of Kamrul Ahsan, Bangladesh’s Ambassador to Russia to the Foreign Ministry in Moscow.
Under this geopolitical rubble, Bangladesh has been maneuvering her foreign policy carefully not to disrupt the delicate power balancing. With coming days, the mantle is at the hands of the international community to effectively put an end to the war. In an increasing interdependent and multilateral world, ostracizing one country will not beget any long-term benefit. Polarization will only increase alienation of the smaller states which will inevitably risk a rule-based, multilateral Western world order. Ergo, in the light of such ethos the world leaders must commence effective and peaceful measures to stop the war and end the plight of global community.