Wednesday 7, June 2023

Crisis in Sri Lanka: What is the lesson for Bangladesh?

Desk Report: Despite repeated warnings from economists, Bangladesh so far hasn't taken any major stride toward diversification of its export basket. It still depends heavily on the garment sector.

The economic crisis in Sri Lanka caused by factors including a slump in foreign currency flow from two main sources tourism and remittances once again gives a reminder that diversification is a necessity, not an option.

Though Bangladesh's economy is apparently doing well, the crisis in Sri Lanka sends clear messages to the policymakers: pay heed to cautions and suggestions by economists, avoid the temptation of undertaking large projects unless those are economically viable and sequence borrowing in a way that does not pile up repayment pressure.

"The Sri Lankan crisis once again reminds us of the importance of export diversification," Prof Mustafizur Rahman, a distinguished fellow of the Centre for Policy Dialogue (CPD), said, adding that Bangladesh would be better prepared for avoiding shock-induced export downfall if it diversifies its product basket.

He said the Sri Lankan economists rightly pointed out the risks to its tourism and remittance dependent economy. They also suggested diversifying exports. But the Sri Lankan government ignored the warnings and failed to diversify its exports, he added.

He said credible and timely data and evidence-based policymaking has become vital for Bangladesh as its economy is growing.

"If we are complacent and our decision-making is not evidence and data-driven, then our macroeconomic quality will suffer and put an adverse effect on economic momentum," he said.

Selim Raihan, executive director of South Asian Network on Economic Modeling (Sanem), said family-based politics is very strong in Sri Lanka and it has led to 'serious crony capitalism' in the Island nation.

President Gotabaya Rajapaksa, Prime Minister Mahinda and Finance Minister Basil Rajapaksa, and Chamal Rajapaksa are brothers.

"If cronies become too powerful and do not give return to the country properly, it can lead to such economic disaster sometimes," he said, noting that the problem persists in many South Asian countries.

Citing Sri Lanka's failure to manage debt, he said, "We must make big infrastructure projects economically viable and link these to our mainstream economic development process."

"Sri Lanka's failure is a big lesson for us."

He said loans that Bangladesh takes should be used in a way that increases domestic productive capacity with respect to export diversification, skill development and enhancing private investment.

"We have been in a much better position (debt servicing) until now. Our borrowing has increased in recent years. We have to remember that the scope for getting loans at a cheaper rate will not be available as we have become a lower-middle-income country," he cautioned.


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