Global Financial Crisis

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   “The financial crisis of 2007–2009 began in July 2007

   Loss of confidence by investors in the value of securitized
    mortgages in the United States resulted in a liquidity crisis that
    prompted a substantial injection of capital into financial markets

   Excessive lending under loosened underwriting standards resulted
    in a very large number of sub prime mortgage crisis.

   Excessive buying of homes decreased the value of other
    surrounding homes which themselves became subject to foreclosure
    or abandonment.

   The resulting spiral underlay a developing financial crisis.
Causes behind US financial collapse
    Several years deficit budget decreased real
     income
    US Housing Market Collapse was caused by:

 •   Easy Access to Credit inspired people to take loan.

 •   Relaxed Lending Standards inspired large number of sub-
     prime loan.

 •   Inadequate Regulations lead to much higher complexity,
     poor transparency and greater risk.

 •   Complex Credit Derivatives rise default rates.

 •   Market Collapse.
Causes behind US financial collapse (cont’d)
 Alternative Viewpoints

 •    New Bank Capital Requirements encouraged
     banks to get rid of risky loans by turning them into
     securities to be sold to investors.

 •   Unethical Role of the Credit Rating Agencies

 •   Riskier Investment Decisions by Banks: keeping
     huge amounts of MBS on their balance sheets in
     spite of the sub-prime risk involved

 •   Misleading Economic Statistics that showed the
     best possible picture of US economy
    Immediate effects of current
          crisis on USA
   Slowdown in GDP
    from 1.6% to .06%

   Consumer confidence
    lowest since 1978

   Case-Schiller Index
    back to 2004 levels

   Construction activity
    much worse

   High level of
    unemployment
US Global Financial crisis
   US financial institutions forwarded bad mortgages

   Financial crisis caused an economic slowdown for US
    economy

   Persistence of global economic imbalances

   Increased negative effect on the real economy.

   Large current account deficit mirrored by large current
    account surplus of China.

   Falling demand by the US is yet to be balanced by an
    increasing demand of surplus
The Effects of the Global Financial Crisis
   Worst recession in advanced economies:
           •   heavy job cut
           •   increasing price level.
           •
   Zero nominal growth rate in G7 countries.

   Reduced world demand for Developing countries’ products.

   Diminished demand for their services and fall in remittances.

   Increased cost of borrowing through higher spreads and
    higher risks for rollover of existing government debts.

   Potential drop in ODA (Official Development Assistance) in
    Developing countries .
            Impact on Bangladesh
   Exports

   Remittance from workers

   Foreign Direct Investment (FDI)

   Foreign Aid & Loans

   Inflation

   Interest Rate

   Banking sector
Impact on export earnings
   October ‘08 export is less than that of ‘07.

   In November it marked a significant rise.

   Despite the decline in exports in October, in the five
    months of the current fiscal year 2008-09, total export
    earnings from the entire world has risen by 26.80%
    compared to the last fiscal year 2007-08.

   Except high-end goods, exports from other sectors
    haven’t been affected yet.

   Rather the exports grew. Hence a single month’s
    decline should not be assessed as the bottom-line.
Impact on export earnings (cont’d)
    RMG sector plays a important role in our export
     earnings.

    Crisis can be a threat.

    A long-term recession would cut demand for all
     consumer items

    Currencies of Bangladesh's competitors like India,
     Pakistan, Vietnam, Thailand and even China have
     depreciated enhancing competition.

    It will be difficult to sustain external shocks like
     falling export orders while it is suffering from erratic
     energy supplies, labor unrest and growing production
     costs at home.
Why Bangladesh is still safe
   Mainly produces basic items like shirts, trousers and
    sweaters.

   Diversion of some orders from other countries such as
    Vietnam and China due to rising labor costs in those
    countries.

   The current economic crisis in the US has increased the
    demand for Wal-Mart products.

   Bangladesh’s labor cost is one of the lowest in the
    world.
Impact on remittance
   There is unlikely to be any direct immediate impact on
    remittances.

   Over 60 percent of Bangladesh’s remittances comes
    from the Middle East, and less than one-third comes
    from the USA, UK.

   Strong remittance growth (44%) has continued in the
    first quarter of FY 2008-09

    If a deep and protracted recession ensues in the USA
    and EU, then the Middle-Eastern economies are likely
    to be adversely affected.
Impact on remittance (cont’d)
   It is likely that remittances will be less because there will
    be jobs-cut in the countries of economic slowdown

   Some countries have already decreased the issuance of
    visas.

   So there is a possibility that growth may not be
    sustained.
Impact on inflation
   The rising inflation has become a major threat to people
    from all segments of the society.

   This higher inflationary trend does not bode well with
    respect to the socio-economic progress, particularly, on
    the poor and vulnerable groups.

   The adverse impact of inflation has created a stumbling
    block to macroeconomic stability and curtailed the pace
    of economic growth, which is necessary to poverty
    reduction and meeting other development challenges
    and goals
Impact on inflation (cont’d)
   The annual average rate of inflation (12-month
    annual average CPI, 1995-96=100) decreased to
    9.37 percent in November, 2008 from 9.80
    percent of October, 2008.

   The rate of inflation on point to point basis also
    decreased to 6.12 percent in November, 2008
    from 7.26 percent of October, 2008.
Impact on Interest Rate and Bank Credits

   Many private banks have gone for rapid expansion of their
    consumer lending.

   Growth of credit to private sector remained strong .

   Year on year growth in November 08 was 24.3 percent .

   It is advisable to put greater attention on incentives in order to
    ensure that the financial sector contributed more meaningfully
    to equitable growth.
Impact on foreign aid
   Foreign Aid assistance is considered a significant factor in
    the economic development of Bangladesh .

   The governments which are struggling hard to come out of
    the running global financial crisis are disbursing a lot of
    money for saving their public and private institutions from
    collapsing.

   As Bangladesh have the potentials to do well at a time
    when other countries are trying to come out of the black
    grasp of recession, aid groups will be divert some of their
    fund to this country.
Impact on capital market
   Capital market only experienced a mild
    correction - down 11 per cent from their peaks
    in couple of month, because:
        -Stock market has been limited
        -There is not a whole lot of foreign capital
    in the Bangladeshi stock market.

   Fall of Bangladesh stock market was caused
    mostly due to internal reasons rather than a
    consequence of the global financial meltdown.
Reasons behind the fall of stock market
    Price correction of the market as market was
     overpriced

    Uncertainty over the transition of Government and
     rise in political instability

    Yearly margin loan adjustment for retail investors that
     caused pressure sale of shares and thereby a gap
     between supply and demand in market mechanism

    Psychological stimuli

    New ordinance by SEC restricting close-end Mutual
     Fund to offer any bonus or right shares
Impact on Banking sector
   No immediate effect
    on the banking
    sector as proper
    asset securitization
    has been
    maintained.
    Policy need to be taken
   To Ensure Remittance Inflows:

                Strengthening the Remittance Transfer Process by:

             •   Differential exchange rates .

             • Increasing efficiency or quickness in transfer of
               remittance .

             • Specific branches or booths in remote areas .

             • Lower charges of remittance transfer process.

             • Specific tax exemption for remittance charges for
               Commercial Banks and money transferring institutions.

             • National recognitions to highest remittance senders   .
To Ensure Remittance Inflows (cont’d)
            Searching Country and workforce mix for
             exporting manpower
       •     Country mix: Libya, Jordan, Qatar, and Syria
       •     Workforce mix: Nursing, carpenter, IT specialist,
                                and chef.


   Government need to form a Commission to protect the rights
    of workers abroad that will also ensure a good image of our
    country in abroad.

   Different language training institutions need to be established.

   They need to be given a wide range of training before leaving
    Bangladesh.
To enhance manpower export...
   The identification, screening and regulation of
    recruitment agencies in Bangladesh and at destination
    locations are a priority .

   A combined marketing effort both from private and
    public sector showcasing the substantial manpower
    resources needs to be formulated and executed.

   Bangladesh has the opportunity to serve the Emerging
    European economies from where workers are leaving for
    better opportunities.
To enhance manpower export...
   Joint venture alliance with a
    reputed international placement
    agency for skilled workers

   Engineers, software
    programmers, scientists,
    managers, teachers,
    accountants are in higher
    demand all over the world.
To maintain Current Export-Import
Level...
   Reduce tax load for importing raw materials and
    machineries.

   Cost oriented pricing need to be established in our high
    end products.

   Export level need to be improved to those countries
    where our currency has depreciated.

   Import more from the countries like India whose
    currency has depreciated

   To reduce the overwhelming dependence on RMG,
    measures need to be taken to diversify exports.
To maintain Current Export-Import Level
(cont’d)
   Find new markets for our product ( jute, leather,
    ceramics, frozen foods etc) need to be created

   Engaging in co-branding with renowned multinational
    companies to promote our local brands worldwide.

   Arranging and participating in more trade fairs
    worldwide.

   Labor skill need to be increased to improve productivity
    by
           - Increasing training centers.
           - Diversifying their skills in various departments
To maintain Current Export-Import Level
(cont’d)
   Political involvement must be reduced in labor unions. it
    must be ensure by the elected government.
   Raw materials need to be produced more within the
    country :
            • Sectors: Apparels, pharmaceuticals etc. specialize
              production area need to be established for them.

           • Incentives: Tax benefits for raw material producing
             companies, for industries producing high end
             goods like frozen foods, leather).

           • Increasing private sector involvement in processing
             orders and delivering product, especially in
             shipping and land ports.
To maintaining Current Export-Import
Level...
   Regulatory environment should be created so
    that no labor turmoil can occur through mobile
    court.

   Labor-Management relation must be improved
    through forming regulatory body in the
    participation of :

          •   Government
          •   Management bodies
          •   Representative body for labors
Exchange Rate:
   No intervention in the exchange rate in
    favor of the exporters by Central bank.

   Decreasing the charge of opening L/C.

   Not buying dollar ( current practice of
    Bangladesh Bank) in long term from
    market.
Ensuring Employment
   Spending money on infrastructure with the
    benefit of enhancing employment and
    ultimately increasing productivity.

   Encouraging private sectors to invest in power
    supply, transportation and communication
    developments with effective government
    regulation.

   Govt. should minimize the tax bracket for
    those companies who meet up the employment
    demand by optimum usage.
Domestic investment idea
   Complying with Basel II.

   Bangladesh can develop its comparative
    advantage given increasing labor costs in the
    traditional outsourcing/off shoring destinations
    such as India and China.

   Contract/toll manufacturing for bulk drugs with
    foreign joint venture partners

   Develop tourism infrastructure in Cox’s Bazar,
    Chittagong and Sylhet
Domestic investment idea
(cont’d)

   Investment in modern technology, new
    machinery and modern production processes

   Targeting NRBs
Improving Energy sector
   Effective energy policy is a must to achieve more rapid
    economic growth.

   To make renewable energy economically viable, first
    world funds and government subsidy need to play a vital
    role.

   Investing in off shore gas exploration.

   Independent power producers must be encouraged.

   Wind energy in the coastline of bay of Bengal must be
    utilized.
To encourage local investment...
   Easier lending system through
           •        quicker distribution process
           •        Build trust on lenders.

   Giving loan under a committee i.e. group wise loan
    sanctioning.

   Reduce the spread between lending and deposit rate and
    proportionately increasing bank charge.

   Creating a dynamic SME sector by encouraging small
    private investors through various financial incentives.

   Opportunity of turning un taxed money into taxed money
    should be offered through some government benefit.
To improve Foreign Direct
Investment...
   Favorable regulatory environment .

   Investment incentives .

   Removing inefficient bureaucratic procedures.

   The port services must be improved both in term of
    service time and cost.

   Strengthening economic and commercial
    diplomacy .
To Ensure Foreign Investors’
Participation in Financial Market
   The government can launch different types of programs to
    give a rise of investment in the financial market.

           • Equity based futures market

           • Exchange traded fund

           • Bond market (commercial bond)

           • Developing OTC market

           • Certain percentage of Govt. holdings of MNCs’ share
             should be off-loaded.
Banking Sector
   Banks in Bangladesh mostly offer traditional
    commercial banking products.

   Access to financial services is still low in the
    country.

   Banking services are also expected to spread
    into rural areas .

   Risk Management .

   Development of a Fixed Income Securities
    Market .
Outsourcing
   The global off shoring market is estimated to be USD 300billion

   The growth of IT related universities, institutions, and training
    centers has led to the emergence of about 400 IT and
    Information Technology Enabled Services (ITES)

   Bangladesh already has a large number of NRBs working in IT
    related professions around the world.

   Government role to increase local demand for local software is
    very important for our local software developing companies .

   Capable human capital should be developed by setting up
    training centers for English, IT and other necessary skills.

   Joint ventures can provide knowledge transfer .

   Knowledge process outsourcing (KPO) work can be a
    developed
Tourism Sector
   Tourism in Bangladesh provides a number of
    untapped opportunities .

   There are significant areas for investment which
    could show substantial growth in the future

-Tourism Master Plan.

-Rebranding Bangladesh Parjatan Corporation and
   greater private sector participation .

-Better marketing of local hotels .

-Targeting the Non-Resident Bangladeshi (NRB).

-Tourism branding .
Ensuring Food Security:
   Enhancing domestic production by:

          • Maintaining the current subsidy in
            fertilizers.
          • Ensuring its supply to marginal
            farmers.

   Adopting stringent program and ensuring
    adequate supply of necessary goods.
Branding Bangladesh
   Develop infrastructure e.g. Dhaka Chittagong highway,
    Mongla Sea port must be utilized.

   Engage in co-branding with renowned multinational
    companies to promote our local brands worldwide.

   Arrange and participate in more trade fairs worldwide.

   Increase power generation and gas supply. And to do so
    private sector participation in power sector must be promoted.

   Establish more Skill development and vocational training
    institutions and improve them for the local worker.

   Improving easy access to financing and funds

   New business friendly policies should be taken.
.

				
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posted:9/20/2011
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