The Impact of the Global Financial Crisis in Bangladesh

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The Impact of the Global Financial Crisis in Bangladesh

20-Aug-2010

Prepared by
Mojadda Alfa Azam
ID.: 10916047
Dept.: Accounting Information System
EMBA, DU

Course name: Micro & Macro Economics
Course no.: 4102

Acknowledgements

I would like to give thanks to Prof. Dr. Tahmina Khatun, professor of AIS Department, EMBA, DU, for her continuous guidance and supreme supervision throughout the course.

I am solely responsible for any remaining errors.

Finally all praise to Almighty Allah for giving us the strength and courage to complete the course.

1. Background and Objectives

Political instability, natural disasters, the global food and fuel price hikes: Bangladesh’s economy has withstood several challenges since 2006. The global financial and economic crisis is another challenge that is testing its resilience coming on top of the former adversities.

The global financial crisis started in mid-2007 has culminated in widespread financial stress among major financial institutions since September 2008. The economic downturn has now degenerated into recession. Projections of the gross domestic product (GDP) provide a gloomy picture for 2009. The 2009 world growth forecast has been revised downward by 1.0-1.5 percentage points to -1.0 to -0.5 percent in March 2009 compared with the last IMF projection of 0.5 percent made in January 20093. While developed countries were the first hit by the recession, developing and least developed countries (LDCs) have also started to feel the consequences of the crisis on commodity prices, trade volumes, access to international financial markets and job losses, though to various degrees. These developments have led to shifting the debate from the causes to the consequences and policy actions required to mitigate the adverse impacts of the crisis.

1.1. The Legacy of the High Food Prices

As most of the developing countries, Bangladesh has no hiding place as the impact of the global financial crisis could compound the impacts of the food price rises. Although the recent food security situation cannot be attributed solely to the food price rises, there is evidence in the literature that the food price crisis has sent a substantial number of households back to poverty, after a decade of progress. The recent joint WFP/UNICEF/IPHN household survey suggests that 25 percent of the population has become food insecure as of December 2008, as many as the food poverty percentage of 1995-96. The most affected households are overwhelmingly headed by female (38 percent food insecure), they have higher dependency ratio (45 percent), the head of households are less educated (70 percent), and they have less assets (asset score of 4 against a national average of 9.4).

In terms of livelihood, household have barely 1 income earner (1.38 on average), depend on agriculture wage labor (23.7 percent), non agriculture wage labor (19.1 percent) and casual labor (5.2 percent). Most of them are landless (48.6 percent) and net food buyers (39.6 percent). The highest increases in the proportion of net food buyer households are non-agriculture wage laborers (59 percent), remittances earners (53 percent) and casual workers (55 percent). Female headed households included a much higher increase of the proportion of net food buyer (64 percent) compared to male headed households (26 percent).

On average, households spend 62.2 percent of their budget on food, up from 52 percent in 2005. Unfortunately, such an increase of the food budget share is made possible at a high opportunity cost, using multiple coping mechanisms. In addition to eating less than 3 meals a day for adults and less than 4 meals a day for children under 5, 22 percent of households recourse to negative coping mechanisms such as cutting expenditure on health and 33 percent of them getting further indebted from the financial institutions. As a consequence, severe malnutrition rates increased. Severe acute malnutrition...
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