Coping with a Perfect Economic Storm with IMF Support

Economies around the world are in ferment. The disruptions experienced in 2022 following the outbreak of the Russo-Ukraine war were nothing short of a ‘perfect storm’ for the global economy. The headwinds of that storm continue to ravage economies to this day. New and old elements of crises have emerged: global inflation, higher interest rates, appreciation of the US dollar (the predominant global reserve currency and means of international payments), rising fiscal and current account deficits, and debt distress. This looks and feels like a perfect economic storm with all its fury. My take on the state of the Bangladesh economy under its impact is that the economy buckled but did not break. However, challenges remain. 

After the Covid-19 pandemic of 2020, there is talk of a debt pandemic around the world. According to the World Bank, debt distress has gripped 60% of all emerging markets and developing economies. The IMF has identified at least 53 most vulnerable economies, some of them on the verge of, if not already, approaching sovereign debt default. Ghana recently joined Sri Lanka in that latter group, with Pakistan not far behind. Thanks to three decades of prudent macroeconomic management that ensured macroeconomic stability, IMF found Bangladesh to have low risk of debt distress with adequate capacity to repay the Fund. A Debt Sustainability Analysis of IMF-WB assessed Bangladesh’s debt-carrying capacity in the “medium” range. Most of Bangladesh’s debt indicators were below IMF thresholds. Total public debt was at 38% of FY2022 GDP, external debt at 12% of GDP, and debt service payments of USD 3.7 billion in FY2022 was barely 5% of total foreign exchange earnings, all in very comfortable range. Make no mistake, Bangladesh’s favorable standing on debt was a critical element in moving the multilateral agency to a quick decision.