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The effects of the global economic crisis, which is being predicted to turn into a recession, are beginning to show in developing countries. Low income countries such as Bangladesh are confronted with a number of critical challenges, particularly in the area of macroeconomic management. This paper examines which policy stance would be appropriate for Bangladesh to best accommodate the possible negative consequences of the crisis. It argues that correct policy measures should be flexible enough to respond to emerging situations.

The paper finds that the negative impacts of global financial crisis are beginning to show on the increasingly globalising economy of Bangladesh:

• Bangladesh’s export growth rate experienced has turned negative
  
• export of non-apparels items has seen a significant deceleration
  
• depreciation of currencies by competing countries ranging from 6-30 per cent over the last one year and their stimulus packages that provide wide ranging incentives to export-oriented sectors, have led to erosion of Bangladesh’s competitive strength in the global market
• remittance earnings could be adversely affected in near future as number of job-seekers going abroad halved as some countries have either revoked earlier job-contracts or have stopped issuing new visas
• the adverse affects are likely to have negative implications for GDP growth, labour market and consequently attainment of poverty alleviation targets and MDGs by Bangladesh
• there are clear indicators of weakening macroeconomic performance.

The paper suggests that this is a time to infuse confidence and inject cash into the economy. The falling commodity prices in the global market will create additional resources in domestic finances for providing a stimulus package. It recommends that:

• policy makers should pursue a moderately expansionary monetary policy to stimulate domestic investment, and domestic demand
• provide fiscal incentives and stimuli to incentivise export-oriented sectors
• inject cash to enhance coverage and deepen entitlement under the various safety-net programmes so that Bangladesh remains on track with regard to poverty alleviation and MDG attainment.

The paper says that such measures could be temporary in nature but need to be fine-tuned in response to the emerging scenario. The stimulus package could include:

• sector-specific cash subsidy scheme
• tariff rationalisation particularly for industrial inputs and capital machineries
• setting up of a dedicated fund for credit disbursement at reduced rate
• establishing a technology upgradation fund
• compensation against export earnings
• special package for exports to new markets
• a dedicated fund for skill upgradation of migrant workers.

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