Are We Ready…?
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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
The resulting spiral underlay a developing financial crisis.
Causes behind US financial collapse
Several years deficit budget decreased real
US Housing Market Collapse was caused by:
• Easy Access to Credit inspired people to take loan.
• Relaxed Lending Standards inspired large number of sub-
• 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)
• 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%
lowest since 1978
back to 2004 levels
High level of
US Global Financial crisis
US financial institutions forwarded bad mortgages
Financial crisis caused an economic slowdown for US
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
Remittance from workers
Foreign Direct Investment (FDI)
Foreign Aid & Loans
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
Crisis can be a threat.
A long-term recession would cut demand for all
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
Diversion of some orders from other countries such as
Vietnam and China due to rising labor costs in those
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
Impact on remittance
There is unlikely to be any direct immediate impact on
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
So there is a possibility that growth may not be
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
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
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
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
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
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
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
• 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
• Country mix: Libya, Jordan, Qatar, and Syria
• Workforce mix: Nursing, carpenter, IT specialist,
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
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
To enhance manpower export...
Joint venture alliance with a
reputed international placement
agency for skilled workers
accountants are in higher
demand all over the world.
To maintain Current Export-Import
Reduce tax load for importing raw materials and
Cost oriented pricing need to be established in our high
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
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
Labor skill need to be increased to improve productivity
- Increasing training centers.
- Diversifying their skills in various departments
To maintain Current Export-Import Level
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
• 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
Regulatory environment should be created so
that no labor turmoil can occur through mobile
Labor-Management relation must be improved
through forming regulatory body in the
participation of :
• Management bodies
• Representative body for labors
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
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
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
Investment in modern technology, new
machinery and modern production processes
Improving Energy sector
Effective energy policy is a must to achieve more rapid
To make renewable energy economically viable, first
world funds and government subsidy need to play a vital
Investing in off shore gas exploration.
Independent power producers must be encouraged.
Wind energy in the coastline of bay of Bengal must be
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
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
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
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.
Banks in Bangladesh mostly offer traditional
commercial banking products.
Access to financial services is still low in the
Banking services are also expected to spread
into rural areas .
Risk Management .
Development of a Fixed Income Securities
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
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
• Ensuring its supply to marginal
Adopting stringent program and ensuring
adequate supply of necessary goods.
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.