Countries unaffected by first round of global meltdown have to watch out for second wave.
Bhutan is vulnerable to the second round effects of the global economic slowdown, through export earnings, tourism receipts, remittances and external financing for infrastructure, warns the World Bank.
A report on Impact of Global Financial Crisis on South Asia released recently states that countries such as Bhutan, Bangladesh, and Nepal were mostly insulated from the first round effects of the financial crisis, owing partly to their sound macroeconomic management and the underdeveloped nature of financial markets that are not exposed to international markets.
“Additionally, their reliance on foreign funding has been relatively large. The global financial crisis worsened their macroeconomic difficulties as sources of funding contracted,” stated the report.
World Bank recommends that policy attention should be focused on creating as much additional fiscal space as possible to prop up the domestic economy, while preserving macro economic stability.
World Bank also suggests continuing ongoing efforts to increase the efficiency and effectiveness of banking, meaning measures should aim to lower intermediation cost, reduce non-performing loans, improve banking services, and strengthen prudential regulations.
“In an environment of constrained resources, greater attention to improving implementation capacity and corruption prevention in public spending becomes even more important,” adds the report.
According to local economists, tourism and industry will be severely hit if government does not come up with economic stimulus packages to shore up their faltering economies, stimulate growth and avoid slipping into recession. The effect of meltdown would also result in exports plunging and workers losing their jobs.
“Economic growth in Asia has been severely affected by the global collapse in demand for goods. The sharp drop underscores the vulnerability of Asia’s export-driven economies during global downturns and points to more cuts in jobs, production and profits in the coming years,” said an economist.
“The economic slowdown this time would be much worse than the one in 1997 because it is more widespread globally and Bhutan mostly relying on foreign funding would see contracted funds.”
Economists and corporate officials say that, with trade figures, industrial production and export figures slumping, economic growth would decrease drastically. Most also project that weakening demand and job cuts abroad will cause foreign exchange remittances and export earnings to decline.
“Though the present effect on the manufacturing industries has screeched to a halt, no one knows what will happen next,” said an industrialist. Bankers too say that their reaction would only be when the meltdown shows its effects. “But we are aware of global happenings,” said a banker.
Private businessmen say that many who are in process of starting new businesses fear the recession and are having second thoughts. During the SAARC foreign ministers’ meet earlier this year, the ministers agreed that special stimulus packages are needed for developing countries to cushion the impact of the crisis, while deepening and broadening regional and sub-regional economic links in the Asia-Pacific and other regions is a necessity.
It calls for development of mechanisms to create bilateral arrangements in the region to address short-term liquidity difficulties and to supplement international financing arrangements, according to the ministers.
By: Passang Norbu
Source: Kuenselonline