Zambia is bankrupt. Bankruptcy is going on in Sri Lanka. A few days ago Fitch rating was published. I also wrote a short article about it. Fitch Ratings has identified 17 countries as being at risk of bankruptcy.
Not to mention Turkey! The country’s net foreign currency reserves fell to just $7.38 billion in the latest report on June 23. Ego does not work in economics. The same applies to Turkey. Turkey’s reserves were over $88 billion in May 2021. In May 2022, the country’s reserves, including gold, decreased to 41.5 billion dollars. According to the latest data on June 17, Turkey’s reserves have been at their lowest level in the past 20 years. Turkey’s CDS (Country Default Swaps) score is 837 basis points, the country’s highest in 19 years. Turkey last saw such a situation in 2003. CDS points were not so high during the global recession of 2008.
Just as bond maturities were responsible for Sri Lanka’s bankruptcy, the majority of Turkey’s debt is now held by these bonds. The biggest headache is this bond. 10-year dollar bond yield is now 10.6%!
To support the lira, Turkey has released about $30 billion dollars since last December. Reserves have declined rapidly. Also in 2019-20, Turkey’s central bank intervened in the forex market and sold $124 billion. Turkey has to pay a huge price for artificially maintaining the value of the lira. It is safe to say that nothing has been done. In 2021, the value of the lira fell by 44%. Inflation stands at 73.5%. The lira has lost 24% so far in 2022. The latest reserves have reached such a level that the country is now at risk of bankruptcy.
Egypt is in a situation. The country’s foreign currency reserves have been declining for the past two months. Reserves fell to $33.37 billion on July 7.
The situation in Russia is dire. Russia does not have enough dollars to service the debt after the sanctions. It can be said that the country has tried to declare bankruptcy by force. Russia is also on the list of 17 countries identified by Fitch.
Other countries include Pakistan, Ethiopia, Ghana, Lebanon, Tunisia, Suriname, El Salvador, Belize, Ecuador, Tajikistan, Venezuela, Ukraine, and Belarus. Russia, Ukraine, and Belarus are basically the direct victims of the Russian-Ukraine war. If the current state of war continues for a long time, the list of bankruptcies will get longer.
Bangladesh’s reserves fall below $40 billion after Akur payments. In this scenario, we have to stabilize the reserves at any cost. Currently, the main reason behind the decline in dollar reserves is the high price of LNG and oil. Daily BPC has to calculate losses of more than 100 crore rupees. LNG at $3.5 is not even available at $40. Coal prices have also increased. Currently, reducing oil, LNG, and gas imports is the main temporary way to retain reserves. At this point, personal vehicle movement can be restricted to avoid major risks. It will reduce the consumption and demand for oil. Bangladesh can take the global price shock to some extent. In terms of power and LNG, the priority should now be industry. Disruption of production in industrial establishments will hamper our exports which will have a negative impact on our reserves. Gas and electricity supply to industries cannot be disconnected at any cost. There is talk of reducing the working hours of offices other than emergency services such as hospitals. If this is the case, the import of gas or oil for power generation can be reduced in addition to reducing the demand.
Already, Bangladesh Bank through BRPD circular has added the condition of ensuring margin from 100% own source on luxury goods, and electronic items to discourage imports. 75% margin maintenance has been mentioned in products other than daily products. This will reduce the import pressure. However, in the current situation, no risk can be completely avoided. Our main export destinations are Europe and America. A collapse of Europe’s economy will disrupt our industrial production. Exports will suffer. As a result, the value of money will decrease due to pressure on reserves. We don’t have enough dollars to do market intervention in the current situation. It is not right to do such risky work at this moment.
There is no transition without waste prevention. The only alternative to frugality is to rescue the world from the blockade and return to normalcy.