The impact of the global Financial crisis on BANGLADESH.

The global financial crisis of September-October 2008 is a major ongoing financial crisis, the worst of its kind since the Great Depression of 1930s. It became prominently visible in September, 2008 with the failure, merger or conservatorship of several large United States-based financial institutions. The underlying causes leading to the crisis have been reported in business journals for many months before September with commentaries about the financial stability of the leading US and European investment banks, insurance companies and mortgage banks consequent to the sub-prime mortgage crisis. The question is why these problem arise? In the American financial system fannei mae and freddie mac are two largest financial institution. both of which had originated as government organization to help fund housing. They work in two ways-firstly, they purchased mortgages made by bank, thus refinancing the lending bank and enabling them to make still more loans. Secondly they guaranteed mortgages so that the lending bank did ot face any risk and could cover its potential loss from default by paying the insurance premium to these two insurer. This pooling of the risk meant could be made available to the guy that want to buy a house. these two organization got their money by borrowing from the capital markets. they borrowed from the central banks around the world with the encouragement of the us treasury, which assured everyone that this was as sound as a us government security. This channeled substantial foreign saving into the mortgage market in the united states, enabling more and more to be directed to housing. Those housing loan were called prime mortgages. the availability of fund from the foreign lending to the us was so great that the financial institutions needed to increase the amount of lending and hence, the so called sub-prime mortgage market emerged. this market comprised loans that did not meet the condition of fannie or freddie and so were generally riskier. of course such sub-prime loans could not be refinanced through the two institution. As the price of house inreased American found that their house were more valuable. For example I bought a house for $300000 in 1995. I took a mortgages for 20 years for $250000 and paid from my savings for the rest. in 2003 I had repaid $50000 of the principal. so I owed $200000.but the market value of the house had increased to $450000. The bank will allow me to borrow 80% of the value of the house or $360000; I owed $200000 so I can borrowed another $160000 as a home equity loan. I did this, borrowing $100000, which I used to buy a car(40000) and to make the down payment on a summer home that a cost $300000(say I paid $60000 in cash and borrowed the rest).now I owed $540000 altogether and by purchasing a second hose I added to demand in the housing sector. That was what upper middle class American were doing.

This scribe will now focus on remittance issue. at the same time the American economy slowed somewhat. especially the RMG and remittance will feel the first pinch as the galvanising effect of the global financial meltdown. Now it is not only a problem of America or related nation it becomes a global problem. . On the other hand. On the other hand. The impact of this global crisis on our economy. surely is one of the most serious financial crisis since the wall street crash in 1929. the bankruptcy of fannie and fraeddie mac and federal takeover of these institutions. the crisis began when fannie mae and mreddie mac re two most largest mortgages lender went bankrupt . there were dramatic increases in the prices of food and gasoline. Several things happened more or less conjunction: the mortgages market in the united states had build in increase in interest rate. making it even more difficult as people lost jobs and bonuses and overtime were reduced. so they are less vulnerable to the risk of job-loss. the Bangladesh RMG is enjoying a competitive edge over China and Vietnam which is also a boon for our export promotion. undermining consumer purchasing power. In 2007 us economy began to crumble. These price increase also arose from the high demand levels in a rapidly a growing world economy. It is also apparently clear that the flow of foreign aid and donation in our annual budget will decline because of the global crisis. The price of per barrel of oil declined to US $ 65 from that of $ 147 and it is expected that the oil price will hover between $ 80 and $ 90 per barrel in the years to come.The world economy is facing very serious problems because of plunging house prices. But this is true that the global crisis originating in the developed world will create new opportunity for our export products as the buyers of those countries will be compelled to buy low-cost RMG products raising the demand for our apparels. A large number of non-resident Bangladeshis (NRBs) are employed as unskilled workers. falling credit availability and decreasing real incomes in many countries. Apparently. The projected havoc will consequently create unemployment in society and reduce the purchasing power of the general masses. the continuous price fall of oil will help the international entrepreneurs to undertake new business efforts creating fresh employment opportunities which will ultimately save our remittance flow. as the market for house prices stopped and it became more difficult to use home equity financing as a cushion. The ongoing global crisis will largely hit heavy and hi-tech industries absorbing white color job holders and skilled labourers where Bangladesh remains insulated because of its very poor presence in the international companies or factories. suddenly increasing the required payment. the export sector.

On the other hand. Also the country is about to enter a coal era with the commencement of the commercial coal production from the first major underground coal mine in North Bengal.But our national priority should be to reduce the dependency on foreign aid. We have to ensure our self-esteem in the world as a self-dependent nation. which in turn will create effective demand in the economy through increasing the purchasing power of common people. but remains manageable in view of falling global oil and food prices from their global peaks last fiscal year. The food safety net should be created through enhancing domestic production. Yet there have been significant discoveries of commercial energy resources in the country. External debt is low and reserves . Bangladesh. Bangladesh is relatively more exposed from the real economy effects of a possible slowdown in exports. is now coming down due to falling food prices. The balance of payments is in surplus owing to rapidly rising remittances and prudent demand management. The financial sector is showing signs of improved health from past reforms and is mostly insulated from foreign markets because of very low foreign capital inflows. New entrepreneurship will lead to generating new employment opportunities. like many other developing countries. Inflation. according to a World Bank South Asia report. which reached double digit. the energy safety net should be created as the pace of development of any nation is intimately linked to its level of energy consumption. the nation's aspiration for achieving an energy security fin the near future still remains unfulfilled. the effect of the global financial crisis on the financial sector of Bangladesh is likely to be negligible. the middle and lower middle segments of the population. As the energy sector opens up its potential for the present time. has been rated poorly for its low per capita energy use. The first benefit with the implementation of food safety net and energy safety net will be in the field of price stability which will directly create new entrepreneurship. We must create food safety net and energy safety net right now to ensure our national growth to withstand the challenges. there have been significant activities in the gas exploration and production sectors of the country. can ensure a stable economic situation for the country as long as they have the purchasing power. Successful exploration and exploitation of these energy resources can boost the economic development through industrial growth. who constitute a potent force in society and economy and are verily termed "the life blood of economy". and from remittances. Lately. Fiscal deficit has increased to 5-6 per cent. Nevertheless. especially natural gas and coal. adopting stringent program and ensuring adequate supply. especially garments. Meanwhile. Such a condition will guarantee momentum to the economic growth leading to the longed-for economic prosperity in the life of the nation. meeting shortfall through import in time.

are comfortable. . the IMF and ADB will not dole out credits and grants due to bankrupt or are bailing out their on economies. so we can now in a position to sum up all of the problems we are going to face because of global financial crisis  Our exports and garments are going to slow down slowly.  Remittance will also reduced.  International financial institution and development agencies such as the world bank.

Chittagong port.2 in FY08 which shows significant rise over earlier years.1 in December 2007 and 17. Because our astock market is too much volatile. Continuation of current accommodate monetary policy: Many change has come in the country . They have to manage it.8 in June 2008 from 12. from the political point of view. Maintenance of the pace of institutional reform: Change has come in anti corruption commission. Government has to monitor it with high priority. was recorded at 46. Increasing the production of power: Without improving and increasing power supply no nation can improve in industrial sector. speciaaaaly in the financial sector. To ensure sound economy it must have to be managed. managing them will be another big challenge Confirming food security: . a higher P/E ratio is risky since this may be due to the fact that current prices do not reflect company fundamentals raising the possibility of price fall in future The average volatility of DSI (a market barometer). Managing inflation: Inflation is now almost 7%. it was in their manifesto to make the commodity price reachable. their financial plane budget was also different. as it was a caretaker government not a general one. Cope up with the global financial crisis: We have to be specialized in producing our commodities so that we can compute in the world market and can survive. From the perspective of the investors.THE CHALLENGES ON FINANCIAL SECTOR FOR THE NEXT ELECTED GOVERNMENT: Decreasing market volatility: Government have to manage stock market with strong hand. banking sector.3 in June 2007. the average price-earning (P/E) ratio of listed companies on Dhaka Stock Exchange (DSE) rose to 22. as measured by standard deviation. To cope up with it with our limited capacity will be their one of their main challenges. to cope up it the world economy and decreasing commodity price will be their another big challenges. to cope up with it and continue it in the next 6 month will also be a challenge.

Adulterated fertiliser is also a major cause for concern. seed and diesel. . ." To do this. So ensuring sustainable economic growth will be another big challenge of the upcoming elected government. Fertiliser crisis during the peak season has become a perennial problem. Middle and poor farmers are struggling to cope with high prices and short supply of fertiliser. Maintaining economic growth: The Asian Development Bank (ADB) warned that The global financial hurricane will put "a mild brake" on Bangladesh's growth pattern in the current fiscal. public investment must be increased by accelerating implementation of the annual development program (ADP). The new government must ensure adequate supply of quality seed and fertiliser and provide irrigation facilities as uncertainty of input supply.New government must have to ensure food for everybody and so for that they have to increase the production of food. Besides. there is a need to boost the economy's productive capacity over the longer term in order to keep the country on "a strong growth path. hoping the next government will speed up reforms to spur growth and create jobs. farmers have to pay bribes for getting loans. In almost all cases. including electricity and diesel for irrigation. the farmers suffer a lot of troubles in getting loans. though there is no fertiliser shortage for the rest of the year. has made farming difficult nowadays.

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