—Md Kafi Khan—

The global economy has long experienced certain imbalances, which affect the economies of various countries. These imbalances are primarily observed in two main areas: trade imbalance and saving and investment imbalance. A trade imbalance occurs when a country’s imports exceed its exports, or vice versa. On the other hand, saving and investment imbalance is seen when a country’s total savings are greater or less than its domestic investment, resulting in international capital flows. There are several key reasons behind these global economic imbalances:

Economic Policies of Different Countries: Economic policies adopted by governments of various nations, such as fiscal policy and monetary policy, play a role in creating global imbalances. If a country pursues an expansionary fiscal policy (i.e., increasing government spending relative to taxes) for a prolonged period, it can lead to a larger trade deficit. Conversely, if a country artificially keeps its currency exchange rate low, its exports increase and imports are discouraged, creating a trade surplus and deficits for other countries.

Disparity in Savings and Investment: Different countries exhibit variations in their rates of saving and investment. In some countries, like China and Germany, national savings significantly exceed their domestic investment. This surplus saving flows to other countries as investment capital, which can create trade deficits in the borrowing countries. Conversely, in countries like the United States, domestic investment exceeds national saving, contributing to trade deficits.

Global Saving Glut: Former U.S. Federal Reserve Chairman Ben Bernanke is the proponent of this theory. According to him, the volume of global savings increased unusually in the early 2000s, especially in Asian countries after the 1997-98 financial crisis. This excess saving flowed to Western countries at low interest rates, leading to asset bubbles and excessive borrowing.

Demographic Structure: The demographic structure of different countries also influences saving and investment rates. For instance, countries with a large elderly population may have lower saving rates as retirees draw on their accumulated funds. Conversely, countries with a larger working-age population may have higher saving rates.

Technological Changes: Rapid technological advancements in some countries increase their productivity, which enhances their export capabilities and alters the trade balance.

POTENTIAL IMPACTS ON BANGLADESH:

Foreign Debt: Bangladesh often needs to take out foreign loans to cover its trade deficit. If global economic imbalances lead to a contraction in the international lending market or an increase in interest rates on loans, Bangladesh may face difficulties in obtaining and repaying these loans.

Foreign Direct Investment (FDI): Instability in the global economy can negatively impact foreign direct investment. Investors may reduce their investments in uncertain situations or relocate to more stable countries.

Remittance Flow: Remittances sent by expatriates are a crucial driving force of Bangladesh’s economy. A global economic downturn or economic weakness in countries employing Bangladeshi workers can negatively affect the flow of remittances.

Development Assistance: Bangladesh receives development assistance from various international organisations and developed countries. If the economic conditions of donor countries worsen due to global economic imbalances, the amount of development aid may decrease.

INTERNATIONAL CONTEXT:

Global economic imbalance is a complex and multifaceted issue. Various international organizations, such as the International Monetary Fund (IMF) and the World Bank, monitor these imbalances and provide recommendations to address their potential negative impacts. In recent years, the COVID-19 pandemic and the Russia-Ukraine war have exacerbated global economic imbalances, affecting developing countries as well.

Global economic imbalance is an ongoing process, and its effects vary across different countries. It is crucial for policymakers in Bangladesh to monitor this changing situation and take timely measures. A national discussion and awareness on this issue are necessary so that all stakeholders can collectively address this challenge.

Bangladesh’s economy is increasingly integrating with the global economy. Therefore, these global economic imbalances can be a cause of concern for Bangladesh. The main reasons for this include:

Trade Deficit: Bangladesh has had a persistent trade deficit for a long time. This deficit arises because import expenditure exceeds export earnings. Global trade imbalances can further exacerbate this deficit. For example, if major export destination countries face an economic recession, Bangladesh’s exports may decline, making the trade deficit more severe. According to Bangladesh Bank data, the current account balance of Bangladesh was in deficit by US552 million during July-January of fiscal year 2024-25, compared to a deficit of US4.28 billion in the same period of the previous fiscal year. Although the deficit has decreased, it remains a concern. As of February 2025, Bangladesh’s trade deficit was BDT 222.63 billion, with imports at BDT 662.85 billion and exports at BDT 440.21 billion.

Pressure on Foreign Exchange Reserves: Bangladesh needs to use its foreign exchange reserves to finance the trade deficit. If export earnings decrease or import costs increase due to global economic imbalances, there will be more pressure on the foreign exchange reserves. According to Bangladesh Bank data, the foreign exchange reserves of Bangladesh were US$22.04 billion (according to the IMF’s methodology) as of May 1, 2025. Although the reserve amount has recently increased, analysts believe it is still crucial to reach a more comfortable position.

Volatility of Exchange Rates: Global economic imbalances can create instability in the international currency market. This can lead to significant changes in the exchange rate of the Bangladeshi Taka against other major currencies, which can affect import costs and the repayment of foreign loans.

Capital Inflows and Outflows: Global economic imbalances can lead to increased capital inflows or outflows from developed to developing countries. Sudden capital outflows can put pressure on Bangladesh’s economy.

Geopolitical Impact: Global economic imbalances can often increase geopolitical instability, which can negatively impact the environment for international trade and investment.

FACTS AND FIGURES:

1. Current Account Balance: -US$552 million during July-January, 2024-25. (Source: The Daily Star)
2. Trade Deficit: -BDT 222.63 billion as of February 2025. (Source: Trading Economics)
3. Foreign Exchange Reserves: US$22.04 billion as of May 1, 2025 (IMF method). (Source: The Daily Star)
4. Trade Deficit: Bangladesh’s trade deficit in 2023 was US$20.42 billion, a 44.63% decrease compared to 2022. (Source: Macro Trends)

FURTHER EXPLANATION OF STATISTICS:

1. Current Account Balance: The current account balance is an important indicator of a country’s international transactions. It includes all types of foreign transactions, including goods and services, income (such as dividends and interest), and transfers (such as remittances and foreign aid). A negative current account balance (deficit) indicates that the country is spending more than it earns and has to use foreign assets to cover this deficit.
2. Trade Deficit: The trade deficit is essentially the difference between the value of goods imported and the value of goods exported. A high trade deficit puts pressure on a country’s foreign exchange reserves and can lead to the devaluation of the national currency.
3. Foreign Exchange Reserves: Foreign exchange reserves are foreign currency and other international assets held by a country’s central bank. They are crucial for meeting import expenses, repaying foreign debt, and stabilising the exchange rate. The adequacy of reserves is a key indicator of a country’s economic stability.

STEPS NEED TO WAY OUT:

To mitigate the risks of global economic imbalances, Bangladesh can take several steps:

1. Export Diversification: It is necessary to reduce dependence on readymade garments and increase exports in other promising sectors.
2. Import Substitution: Import dependence can be reduced by increasing domestic production.
3. Foreign Exchange Reserve Management: Proper utilization of foreign exchange reserves and diversification of their sources are essential.
4. 4. Exchange Rate Stability: Prudent monetary policy needs to be followed to maintain the stability of the exchange rate.
5. Regional Cooperation: Economic stability can be brought about through regional trade and investment.

STRATEGIC ACTIONS OR STANCE FOR BANGLADESH:

To maintain the stability of Bangladesh’s economy in this situation, it is crucial to adopt an integrated strategy. This may include:

1. Rationalising Government Expenditure: Reducing unnecessary government spending and increasing investment in productive sectors.
2. Increasing Revenue Collection: Expanding the tax net and preventing tax evasion to increase the government’s revenue income.
3. Human Resource Development: Increasing remittance flow and achieving the capacity to produce high value-added goods by creating a skilled workforce.
4. Infrastructure Development: Improved infrastructure helps attract investment and increase productivity.
5. Sustainable Development: Ensuring long-term economic stability by adopting environment-friendly policies.

Global economic imbalance is a matter of concern for Bangladesh. However, it is possible to mitigate these risks by adopting the right policies and realistic measures. Due attention to this issue is essential for the sake of the national economy.

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The writer is Company Secretary, City Bank PLC