Bangladesh goes to IMF. How deep is its crisis, comparison with Sri Lanka, Pakistan & India

[Music] mutual fund investments are subject to market risks read all scheme related documents carefully [Music] so on wide popular demand janta ki bhari for maishp today's qatar clutter episode is devoted to bangladesh's economy in terms of bangladesh going out to the imf bangladesh finance minister is written to the imf seeking a 4.5 billion dollar loan or a combination combination of laws in in lose popular language we see a bailout but as we go along we we will explain to you that there are bailouts and bailouts and bailouts now four point billion is what bangladesh is asking the imf for so there is a wide reaction in india that oh just the other day bangladeshis are boasting that their per capita income is higher than india's and their growth rate is higher in india and look at this now they are with their vikka katura with the begging bowl in front of the imf so there is a lot of jubilation like that we will also put that in perspective besides other things remember that bangladesh is our closest friend in our neighborhood our closest and the most valuable friend in the neighborhood that doesn't change any reality so we'll stick to realities now we will answer five questions today or we'll go into five areas today and i'm trying to do this differently from our usual thing which is freewheeling i go on talking until i think my producer gets tired and starts telling me to stop so not like that i'm giving you the five points today to begin with and then we'll talk on these so number one is what's happening in bangladesh because that is everybody's immediate concern number two how similar or different is the crisis in bangladesh compared to the crisis in sri lanka or pakistan sri lanka is the worst in our neighborhood pakistan is the second worst and now bangladesh is the third country in our immediate neighborhood to approach the imf that tells you that the subcontinent i prefer supported into south asia by the way that the subcontinent is seeing stresses because in the in the recent times the only other countries who have gone to the imf are african countries ghana tanzania zambia and ethiopia so the remaining three countries are from the indian subcontinent now number three question can india also go the sri lanka way if you see a lot of critics of the modi government particularly those close to the congress party they are saying see learn from sri lanka india can also go the sri lanka way and they quote some data they quote inflation they quote unemployment etc etc so can india go they sri lanka away number four and this is very important point why do nations go to the imf why do sovereign nations go to the imf and five fifth question what happened when india went to imf last why did india have to do it and why because this will dovetail nicely into our question number four which is going to be why do nations go to the imf so first of all what is happening in bangladesh bangladesh is a democracy not a perfect democracy it also has large sections of the press which are quite free so you get lot of stuff from bangladesh because as you know there is no such thing as a perfect democracy it's easy to say bangladesh is an imperfect democracy army saying that we in india are a perfect democracy we are a work in progress pakistan is a democracy of another kind sri lanka america so any demo every democracy is an imperfect democracy and if the leader of any country says or a citizen of any country says that mine is a perfect democracy that means that is a perfect dictatorship so everybody has to say or it means that the person or the leader is chinese which is a perfect dictatorship all genuine democracies are imperfect as is bangladesh's but still from bangladesh you get a lot of data so i'm sharing these links from bangladeshi press with you so what is well known public is that bangladesh's finance minister who's ahm rcf mustafa kamal he has written a letter to crystalina georgieva who's the head of imf asking for a 4.5 billion facility what he's done is he's not just asked for it to be a loan to tied over troubled times bangladesh has been among the fastest growing economies in the world bangladesh bangladesh's per capita income has genuinely gone ahead of india and pakistan bangladesh's overall size of the economy that is the size of gdp today is 416 billion dollar charge of solar 416 416 billion dollars so if you take india's at around three trillion so it's about one seventh uh a little less than one seventh or about one seventh of india's economy but if you look at pakistan pakistan is now less than 300 billion so it's much bigger than pakistan's economy with a much smaller population so bangladesh has been a robust economy what are they seeking money for first of all they are seeking a resilience and sustainability facility so imf has now put on the block a certain amount of money to the less developed countries or poorer countries which now face the brunt of the climate change threat countries which are now very vulnerable to climate change but may not have the resources to mitigate it so under that head bangladesh can get up to say 1 to 1.5 billion dollars because bangladesh as we know is really threatened by climate change it's a very low lying country and they've seen all these floodings etc so that is about 1 to 1.5 billion if it comes will come interest free to bangladesh so that is clearly resilience and sustainability facility linked to climate change with that bangladesh is also seeking an accompanying program accompanying programmers want to show up of its foreign exchange reserves and second also to give it sustainability support in terms of its finances so what happens is if you are a smart country if you are a well-run country then you see your threats far ahead bangladesh's foreign exchange reserves this year have fallen compared to last year at the same time so last year at the same time bangladesh's foreign exchange reserves for about 45.5 billion dollars again to put it in perspective india's economy is seven times bigger than bangladesh's in gdp terms but india's foreign exchange reserves even today i would say about almost about 15 times higher than bangladesh's so compared to that bangladesh's foreign exchange reserves today are lower last year they were 45.5 billion today they have come down to 39.67 billion now once again if you see it as a percentage of gdp this is not too bad this is worse than last year but it's not too bad but the country sees that fuel prices are still up inflation is still up because many of the countries consumers in the country is very tech sports biggest foreign exchange earner obviously is exports in bangladesh's case that export is garment so people like say walmart h m these are the large selling shops or brands or stores or chain stores in the western world those are now suffering in terms of sales because their consumers feel the impact of inflation so that's why these exports have come down and second because of kovit a lot of bangladeshi workers had to come back and their remittances have stopped so bangladesh's second foreign exchange earner after government exports is remittances from bangladesh is working overseas that's a big that's a big head under which india also earns foreign exchange but india is not as dependent as india used to be on this because india has built a big strength in services export which is what we loosely call software so 39.6 billion dollars that is good enough for about five and a half months of imports in bangladesh so so a country for comfort might want might want to have foreign exchange that supports imports for a longer period but five and a half months is not too bad in comparison pakistan's reserves today for about eight billion dollars they only account for at the most five weeks in port so that is what tells you the difference between the bangladeshi situation and pakistani situation again to understand again this gives you an idea that bangladesh situation is not as perilous as pakistan's and definitely not as perilous as sri lanka which today has seen the bottom completely drop out of its economic situation sri lanka at this point has inflation running upwards of 60 percent bangladesh is about 7.56 percent now there are critics in the bangladesh media and think tanks and i see a report from a think tank called center for policy dialogue so they produced a report which is called independent review of bangladesh development that says that possibly bangladesh's inflation is underestimated because correct weightage is not given to food prices inflation and see this chart from this paper so thank you very much cpd uh we are borrowing this chart from you this chart tells you that a lot of the essential food products have gone up and the product that's gone up most of all is ata wheat flour but if you look at these this isn't that different from how these prices have gone up in india as well again bangladesh dhaka bangladesh taka is also weakened against the dollar like most currencies have so bangladesh dhaka in the last year last 11 months has weakened say by 10 taka so it was 85 taka to a dollar about a year back today it's 95 taka to a dollar so once again it has weakened but not it hasn't seen the bottom fall of it as the pakistani rupee which has now gone to 235 to 32 and god knows where else will it head so that is a currency in free fall sri lanka's currency is in a free fall on on double turbo engines going vertically downwards but bangladeshis is not like that it's weakened if anything only slightly faster than india's only marginally faster than india so quite a bit of strength still exists there now what exactly caused this problem in bangladesh bangladesh is not bankrupt bangladesh is seeing a current account deficit rising now current account deficit in bangladesh's case has been about 1.5 percent or so but last year last couple of years most countries like bangladesh india they benefited in a way now we know that kovid was a huge calamity but sometimes some blessings also come wrapped in these calamities so for india in the year 2021 our current account deficit did not exist in fact we had a current account surplus why because our imports had gone down particularly imports of fuel because we had long spells of lockdown every country had some of that so these two years most of the countries with great accounts they benefited this year because bangladesh's exports have come down i told you that their remittances have come down because workers have come back and also exports have government sales have come down because western customers are suffering from high inflation their trade gap has increased so this year if you look at their trade data it is 81.5 billion dollars of imports it's gone up because fuel prices have gone up crude prices have gone up and 64.3 billion dollars of exports that results in a deficit of 17. billion dollars for bangladesh's economy that's a large number last year it was just 2.78 billion dollars of deficit but that you can also understand because last year two years as i told you just now have been unusual years now bangladesh already has quite a bit of eight and when you see eight eight these days means something else it also means if japanese give you very easy credits very easy loans to build your metro that's also eight so when you count aid like that bangladesh this year had 10 billion dollars of aid and once again if you want to break it down i can generally break it down for you 1.2 billion surprisingly and very interestingly is from russia in spite of all the in spite of all these sanctions and banks and that money has come in mainly in the form of machinery expertise etc etc for a nuclear power plant rupa nuclear power plant that's being built adb asian development bank 2.57 billion dollars japan some of this money is also being used to build metros japan 2.20 billion world bank has given 1.5 billion and then china has 1 billion so this is about 10 billion this is part of an ongoing program what the bangladeshis are now doing is they are being extra cautious their finance minister says says that my economy is not at all in crisis there is not at all a sign of economic crisis now that maybe that may be overstating the fact a little bit but it is also a wise government which is shoring up its defenses in case fuel prices remain high or they go up further because nobody knows what the war in ukraine will be like so in september an imf team will visit bangladesh they will start figuring out what to tell bangladesh to do and if i again i read bangladeshi press and bangladeshi think tanks i can see that they will ask bangladesh to cut their fuel subsidies which india has done already remember now i know that it's tough when you're in the government to cut subsidies but cutting off petrol diesel subsidies and great reduction in lpg subsidies is the main reason why india today is in a much much better situation that forget any of its neighbors but then anybody had expected because india took it on the chin and not only did not give subsidiary and fuel petrol and diesel despite all the gali galosh that was going on but in fact kept on upping excise on that now i know a lot of people get upset when i say that but that was a wise thing to do and it's correct it is wrong to subsidize fuel which people who own vehicles mostly they use because that comes at the cost of the poor so india did not do it bangladesh will probably be told now by imf now to not do it so bangladesh is then moving preemptively because once you know that you have this money available then even in the marketplace people don't people think twice before starting a run on your currency or run on the dollar in your currency market so that is that is a hedging strategy and that is what we need to understand realistically because these are the facts now can bangla what is the difference between bangladesh pakistan and sri lanka i told you bangladesh has 39.5 billion dollars now pakistan about three weeks back had just eight point five seven billion dollars that is good for four to five weeks and by this time who knows it may have come down also and they owe some money to saudis etc which has to be repaid pretty soon sri lanka on the other hand is so badly off that they just have 1.86 billion dollars of foreign exchange reserves this is for a very wealthy country by subcontinental standards sri lanka's per capita income is twice as much as ours as india's and yet their forex reserves are only 1.86 billion dollars out of this also 1.5 billion actually is a conditional swap facility from china again the difference between say sri lanka bangladesh and pakistan is that pakistan is checking around with chinese the saudis uae imf anybody who will give them a bailout sri lankans are out looking for a bailout with whoever will gather give them a bailout bangladesh on the other hand just as india has given a lot of help to sri lankans bangladesh also has given a credit of 250 million dollars to sri lankans acting like good neighbors so bangladesh is still in a place although they are going to imf preemptively but they are still in a place where they can spare some money that is 250 billion dollars out of their reserves for neighbor being sri lanka so let me try and explain to you differently who is in deeper crisis who's in the deepest crisis if this is sri lanka this is pakistan if this is pakistan then this is bangladesh and if this is bangladesh india is somewhere there right so you can see india is in a situation where it can give more than two billion dollars worth of aid and credits to sri lanka to build them out of crisis even bangladesh is in a situation sitting here that they can give to 50 million dollars to sri lanka to further help them survive this crisis then there is pakistan which obviously can't do any such thing but is looking for money and then sri lanka which is much worse off so that is how you understand the difference between the bangladesh situation and pakistan on the one hand and sri lanka on the other three are in very different categories now we come to the third question can india go the sri lanka way that's easily answered just listen to the words of raghuram rajan a former rbi governor a well-known economist former chief economist of ims he knows this stuff better than any of us does and he's by no means a fan of the modi government right if anything he was speaking at an event of all india professional congress and there he said in chhattisgard in raipur and there he said that no india is nowhere near reaching the sri lanka level because india has large foreign exchange reserves india's reserves were upwards of 640 billion dollars about a year ago these reserves of reserves have come down they've come down to about 570 billion last friday's data i haven't yet seen from rbi it hasn't yet been put up but when you it comes out it may have gone down to 565 if at all so rbi is spending some money some of its dollars to shore up the rupee so the fall of the rupee is not disorderly it does not suddenly fall although i personally i might have differences with that i think all currency should fight should find its level we should not be afraid of our currency weakening as long as it's following the market forces nevertheless that is out of our syllabus for today rbi is spending a little bit some of the money has some of the foreign exchange reserves have gone down because we've had a widespread withdrawal from india by foreign institutional investors and foreign portfolio investors last week we have seen that trend turn a little bit just a little but it has turned a little bit but still the fact is for everything that foreign investors are now selling in indian markets today equity cult has grown so much in india that indian investors are buying into it this is very different from what happened in india in 2013. in 2013 between march and the next three months indian rupee fell nearly 30 percent about 28 29 to the dollar within three months and what happened in the process was that our markets also fell stock markets also collapsed today so stock markets might have fallen some but they haven't collapsed they haven't collapsed because now there is an equity cult and indian investors are willing to buy these shares in 2013 such a thing was not available so india has these strengths and the other thing is india gets a lot of fdi so last year india got 83 billion dollars of fdi so all of that helps india show this up now you see some stories saying india's big debt repayments etc etc coming up they will come up but that is that is what you keep your foreign exchange reserves for so the chances of india going the sri lanka way will have to be extremely stupid over a fair bit of time even if you are stupid for two or three months we can't get to sri lanka that will take a lot of hard work over a long time maybe maybe a couple of years of completely nutty political economy but we haven't seen any evidence evidence of that so for so again stop worrying about that you know in india we have a problem we used to say oh we intricate in hockey we tend to steal defeat from the jaws of victory right in india we also have a special trait that we go and snatch someone else's defeat so if sri lanka is collapsing india will also be collapsing the way the same way no such thing is going to happen india is very strong in terms of the reserves in terms of its macro economic indicators and the strength of its economy so that answers our third question now fourth question why do countries go to the imf so countries go to the iamf then countries decide to be leaders decide to be stupid over its reasonable period of time reasonable means it can be 10 years but in case of champion countries it can be as little as less than three years so see i will share three tables with you and these are from the imf website this is the lending history from imf to various countries and see what it tells you it tells you that the biggest addict imf addict is pakistan which has had the most responsible governance all these years in fact for most of these decades the single purpose of fighting a war with india defeating india in a war and taking kashmir so see what's happened to pakistan in pakistan started out with an economy much more robust than india's in the 60s early 70s pakistan was doing much better than india pakistan took its first loan from the imf in 1958 india took its first loan from the imf in 1957 i'll share that table also with you so 1958 pakistan took the first one 2022 they've now been sanctioned their last one it has not been disbursed yes yet because negotiations are going on and october 2 this year will be the expiry date of this loan which means the whole thing has to be done all over again that's why the pakistanis have a deadline so between 1958 and 2022 pakistan has gone to imf 22 times 22 times in 64 years so 22 threes are 66 bystia as we say in 66 that means even for them to average one imf bailout for three years they would have had to spend 66 years but they've done that in 64 years so they are the champion country they are addicted to the imf opm and it's quite quite easy to understand why this happens to them because everybody curses the imf for their conditionalities but if you don't follow the conditionalities you don't get your act together you don't clean up your act then you end up going back so pakistan is a bad example of imf then look at sri lanka first sri lanka took its last loan from if in 2016. so within six years now they are back to imf but look at their history from the beginning in 1965 sri lanka took its first loan of first bailout from the imf in 57 years sri lanka have gone to the imf 15 times so that is just a little over four years per bailout so once again it's a country that's an imf addict not as bad as pakistan but i would say bad enough similarly if you see bangladesh because that's a country we seem to be most interested in for today's qatar clutter in 1974 they took their first facility as the bailouts are called from imf 2012 they took their last one and 10 years after that now they are going back to the imf between 1974 and now that is 58 years and 10th time so about 5.8 years 5.6 years per bailout so again again addicts but not as bad it's a question of degree i told you pakistan sri lanka bangladesh are in different categories and india now india's own recorded the imf it's not as if india only went to the imf in 1991 that's a celebrated story that's when narasimha and manmohan singh went to the imf and that's when india's economic reform started india first went to the imf in 1957. first imf borrowing was 15 1957 the last borrowing was 1991 that is that is 31 years ago and there is no prospect at least in the near future foreseeable future of india having to go to the imf anybody can go to the imf for various things there is no family shame in that but that is not something we can talk about because we've talked for too long anyway but between 1957 and 1991 india had a total of six total of six imf bailouts six imf bailouts over 65 years that is counting until today so six bailouts in 65 years that's like one bailout every 11 years so you can see you can see i will show you a table for pakistan sri lanka bangladesh and india the number of years that each country has needed for every bailout from the imf now india's 1991 bailout we have to understand one thing that is when india started reform and please do read this book backstage by one take saying aloe valia because he was very much part of that process and he tells you what that situation was and it tells you in graphic detail in fact i've marked many passages i thought i'll read some to you but we've talked for too long how india got itself into that mess with leader after leader not addressing the right questions and how while everybody was afraid of the imf conditionalities india carried out immediately much more reform than imf had demanded and surprised everybody including the imf but most importantly the critics of economic reform in india because india's economy rebounded so quickly after the 91 reform that last two tranches are of our imf loan which was due to us we even refused to take it that was a show of strength by india so that answers the last last question what happened when india went to the imf last the fact is because india used that as a kick in the butt to reform its economy to get rid of our fake old socialism that india has never needed to go to the imf again and i will give you one very important fact how much was the loan that india sought from the imf in 1991 it was 2.1 billion dollars today india has already extended a bigger facility than that to sri lanka in their time of crisis so that is what happens when you reform your economy you don't have to go to the imf countries have to go to the imf when the countries and their leaders mess up their economy because of their messed up politics or ideology and there in india's case i cannot but tell you in fact i cannot resist the temptation of telling you that each visit that india made to the imf was in india's thick socialist times 1957 1962 1963 1965 1981 and 1991 and ever since we got rid of the license kota raj those elements of the most most toxic elements of the socialist economy that we haven't faced that calamity again [Music]

Channel: ThePrint

Views: 441,747

Keywords: ThePrint, shekhar gupta, theprint india, theprint hindi, Bangladesh Economy, Pakistan Economy, Bangladesh goes to IMF, IMF loan to Bangladesh, IMF loans, IMF loans Explained, Indian loans from IMF

Id: VPLFaLG726o

Length: 29min 53sec (1793 seconds)

Published: Mon Aug 01 2022