A sobering call for austerity

In a rare public appeal, our Prime Minister asked all of us to maintain austerity to deal with the economic fallout caused by the Russian-Ukrainian war. As a political figure, she reminded us of the consequences of war that we face in the developing world. Sanctions against Russia, following its invasion of Ukraine, have disrupted our energy supply chain, crippling our electricity production, forcing us back to the nightmare of load shedding that was recurring 20 years ago. The domino effects of economic sanctions against Russia are causing a humanitarian crisis in the world via inflation and soaring food prices.

Prime Minister Sheikh Hasina has made a further call to use every available piece of land to grow food, so that we can be self-sufficient in food. The idea is simple: we must reduce food imports to save foreign currency. She also, probably for the first time, admitted that the “burden” of 1.1 million Rohingya refugees is a bit too much at a time when we are all suffering and the world should do something about their repatriation. The message is clear: we cannot afford to be generous when the world is not ready to reciprocate. The government knows that now that the Western world is focused on the influx of ‘blue-eyed’, ‘light-skinned’ refugees from Ukraine, little attention will be given to the forgotten people forcibly displaced from Rakhine. . Myanmar’s mineral-rich and strategically located junta can trample democracy and persecute its own people as refugees, while remaining a darling of the West. Such is realpolitik.

It reminds me of an African proverb: “When elephants fight, it’s the grass that suffers”. The Prime Minister’s remarks are sobering. Already, there have been office orders to reduce power generation to save fuel for power generation. Electricity rationing was planned and special decorative lights for social events in community centers, shops, offices and homes were banned to save electricity. Load shedding is back in force. Earlier, we heard about a restriction of unnecessary trips abroad by government officials and the postponement of some smaller development projects. The campaign included the devaluation of our local currency. Now there are indications that all types of subsidies, such as for fuel, water and electricity, will be reduced – a World Bank/IMF prescription.

So what went wrong? Our economy was doing well even during the pandemic. We had extravagant events even when the world was reeling from the ills of the coronavirus. Our diligent remittance workers continued to send money to help their loved ones back home. Our hardworking workers have defied the threats of the pandemic to meet export deadlines to keep the economy alive. And we have shown extreme resilience in adapting to a digital reality over the past two years.

Then came the Russian invasion of Ukraine; no one expected it to last this long. Everyone started to feel the pinch. Most countries were candid in their responses. Some of them have increased their military budgets, some have compromised their climate action plans to secure immediate fossil fuel supplies, some have taken economic measures to protect their vulnerable groups and some have pursued austerity. It’s every man for himself.

The West’s double standard became evident as European countries continued to import Russian gas despite sanctions. Political analysts believe that these countries have undermined the effectiveness of the sanctions by replenishing Russia’s depleted currency reserves. When, during a ministerial-level meeting between the United States and India, the Indian foreign minister was asked to stop importing Russian oil, he said emphatically: “If you look at the purchases of energy from Russia, I would suggest that your attention be focused on Europe. We are buying energy, which is necessary for our energy security. But I suspect, looking at the numbers, that our total purchases for the months would be less than what Europe does in an afternoon.

Unfortunately, we do not have the strength to express our needs. Although we criticized the sanction, we could not say that we would buy the cheapest raw material for our energy production. Instead, we ruminate on paying $41 per unit of LNG, which was $4 pre-Covid. Most of our energy production relies on imported LNG. What happened to our gas, coal, hydro and solar power projects? Have we over-emphasized a quick fix while ignoring a wide range of power generation sources? Is there any follow up on the solar panels we are all required to install?

How effective will our local austerity solution be if we don’t tackle the problem from a global perspective? The World Bank predicts long-term damage to global growth due to this ongoing crisis. It calculates that global growth will fall from 5.7% in 2021 to 2.9% in 2022. “Due to the damage caused by the pandemic and war, the level of per capita income in developing economies this year will be almost 5% below its level – pandemic trend,” he says.

Our Prime Minister’s message is a wake-up call for the next recession. While austerity is a tool to arrest economic decline, we also need programs for robust fiscal activism. Given the devaluation of the currency, there is no political and public mood for savings. It will be difficult to inculcate a desire for austerity. The challenge is therefore to dare to think big, to act big: to gain the confidence of the major economic blocs, to encourage trade and investment. Provide social security to vulnerable groups. It’s time to have a new dream, make it happen and get back on the world stage.

Dr. Shamsad Mortuza is the Pro-Vice Chancellor of University of Liberal Arts Bangladesh (ULAB).