The pandemic has all but halted the influx of tourists to tourism-dependent South Asian countries, casting disaster on their economic lifeline. In the wake of the war between Ukraine and Russia, the situation spiraled out of control, with the prices of import-dependent goods skyrocketing.

The worsening financial crises they are going through is unmanageable; the situation could have been managed through sound macroeconomic management. But sadis lying, the economic management of these countries has never been good. Conversely, government spending was growing out of control in several countries, including Sri Lanka.

Turbulence in the global economy is behind the economic slowdown in South Asia. The ongoing war has driven up the prices of energy, oil, food and other basic commodities.

Import costs have increased significantly, while export earnings have not increased in the same way. As a result, the current account deficit widened in these countries. To make up the deficit, they are forced to contract new loans. Thus, new loans add to the repayment pressure of old loans plus interest.

Revenue mobilization in countries, such as the Maldives and Nepal, has plummeted as tourist arrivals have come to a halt since Covid-19 hit that part of the world. For the same reason, Sri Lanka was also under pressure. All those South Asian countries, which were trying to dispel the pandemic blues, have now lost the ability to cope with the even more difficult situation born of war.

A number of ambitious projects have been launched in the infrastructure sector, overly dependent on foreign loans. A proper feasibility study has not been carried out for these very expensive projects. The projects, taken into consideration politically without taking losses or profits into account in the calculation, do not generate income as expected, which leads to enormous pressure on public funds to repay loans.

Sri Lanka has been forced to take supplier credits to cover the costs of infrastructure projects. To repay old loans, the country has contracted high interest rates from different sources. For all these reasons, the country’s internal economy is today under enormous pressure.

The ongoing economic crises in Sri Lanka, Maldives and Nepal will not have much effect on Bangladesh as we do not have much trade with these countries. Nevertheless, we must ensure that no such crisis arises in our country.

Covid has also affected our economy. Currently, new investment flows are relatively small. We also have to buy products on the world market at high prices. We face rising prices for imported goods and pressure to repay external debts. The costs of major projects in the infrastructure sector are also increasing at an uncontrolled rate. If we don’t get all these issues under control now, the situation in Bangladesh could take a serious turn.

Dr Mustafizur Rahman, distinguished member of CPD, spoke by telephone with TBS Senior Correspondent, Jahidul Islam

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