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Bangladesh, a potential deep-pocket ally for Sri Lanka

  Bangladesh is a country born amid famine and war. Even though it has been in constant need of relief work in the past, it has now emerged as one of the South Asian countries promising a sustainable development capacity. Not long back, it struggled for its independence from Pakistan. However, today Bangladesh, surplus Pakistan of 45 percent growth in the economy in the last 50 years.

The Spring 2021 World Bank Economic Update showed Sri Lanka facing a high risk of debt sustainability. The external debt growing up to 69 percent in 2019, mostly originated in the public sector. Amid the ongoing Global Crisis, the GDP of Sri Lanka sunk to (-3.6) percent in 2020.

Sri Lanka's Trade regime and its outcome is the main reason for the strange economic blow recently. With the introduction of non-transparent 'para-tariffs' in the calculation of the overall tariffs, Sri Lankan average tariff shoots up to 22.4 percent based on data from 2016. However, these average tariff calculations obscure the overall import protection as well, in sectors of domestic interest.

Sri Lanka is facing a hard time economically now. The reason behind this can be attributed to an increase in 'anti export bias.’ It hurts the macro-economic front of the country too. The trade to GDP in the early 2000 was around 89 percent but experienced an unmatched decline to 52 percent in 2019. Overall, the decline in exports and imports since 2009 had a huge effect on the small economy of the country.

The condition of Bangladesh is not like Sri Lanka. Even if Bangladesh centres its economy via trade and exports like Sri Lanka, though Bangladesh's exports have contributed significantly to its overall economic growth.

The apparel exports grew from 11.1 percent of GDP in 2004 to 15.3 percent in 2019, indicating the fast-growing export performance.

Sri Lanka's continuity in its trade and current account bought the country in dire need of capital inflow to cover the external deficit. To keep the economy growing, borrowing large projects added to the increase in debt. There is a slow inflow in foreign investment, which surely does not help. At the same time, Bangladesh's current deficits are rarely 2 percent of GDP.

Sri Lanka's soft loans from the World Bank and Asian Development Bank brought forth a huge rise in its external debt. The interest from 5.5 percent in 2005 rose to 31.7 percent in 2019. Starting from 2000 to 2019, Sri Lankan reserves from US$1 billion to US$7.7 billion, which slugged down to US$4.5 billion in 2021. Bangladesh rose to US$33 billion in 2019 with the same principal reserve and in April 2021, their reserve value stood US$45 billion, long enough to cover the imports of goods and services.

Bangladesh's central bank approved a sum of US$200 million, in Principle, as an aid to Sri Lanka. This is the first time that any other country except India has provided macro-economic support to a fellow South Asian country.

From a global perspective, the rise of Bangladesh is a promising and welcome development for the whole of South Asia. It opens up more opportunities for meaningful bilateral economic partnerships in the region, which was focused on the Indian economy all these years now, making it less dominant. Bangladesh, being called 'The New Royal Bengal Tiger of Asia,’ sets a encouraging example of sensible macro-economic management.

Sri Lanka can find an ally in Bangladesh as it does not come with an aggressive approach like China. It can be mutually beneficial for both the countries. As for India, the closest neighbour, it can have a positive impact too. Apart from deepening the international relationship between the two countries, it'll definitely help in playing a positive role for the rest of the world.
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