Summary:

• Bangladesh’s economy suffered from inflation, forex crisis, and soaring fuel costs
• War disrupted global supply chains, raising shipping costs and product prices
• Wheat, oil, and essential food prices surged but may drop post-war
• Bangladesh’s garment exports declined sharply due to inflation in Europe
• A peace deal could stabilize trade, strengthen exports, and ease import costs

As Russia’s invasion of Ukraine approaches three years on 22 February, a fresh attempt at peace is emerging – this time led by reelected US president Donald Trump. The deal he is trying to broker to end the war is not just about diplomacy between Moscow and Kyiv. For countries like Bangladesh, this could be a much-needed economic lifeline.

Before the conflict, Bangladesh’s economy was riding high – boasting a decade of stable, high growth and even weathering the storm of the Covid-19 pandemic.

Then came the shockwaves from the war and within weeks, the country’s economic resilience was tested.

The taka nosedived from Tk85-86 per US dollar to over Tk120 within a year. Inflation spiked from 6% to nearly 9% within six months, before breaching double digits. Fuel prices shot up by 42.5% to 51.5%, pushing the cost of living higher. Power generation took a hit as expensive oil and gas imports became unaffordable. Foreign exchange reserves tumbled to around $20 billion now from $48 billion in August 2021.

Prices of essential imports – fertiliser, wheat, and poultry feed – soared. Ukraine, a key supplier of corn, saw its exports disrupted, leading to a surge in poultry feed costs and, in turn, the price of chicken and eggs. For millions of Bangladeshis, this meant cutting back on a limited protein intake.

The Russia-Ukraine war badly disrupted global supply chains, limiting Ukrainian exports through Black Sea, affecting availability of food and increasing freight costs and commodity prices.

Even as global commodity prices have eased in recent months, a formal end to the war could bring a fresh wave of relief. Europe, Bangladesh’s largest readymade garments (RMG) export destination, has been battling inflation, eroding consumer purchasing power.

Bangladesh’s garment exports to Russia also tell a stark story. Before the war, shipments were on track to hit $1 billion. Instead, they shrank to $369 million in 2023-24 and a mere $148 million in the first half of 2024-25 – less than a quarter of the nearly $700 million recorded in FY21. Moreover, the war brought western sanctions on Russia, making Bangladesh’s transactions difficult for Rooppur Nuclear Power Plant work. Bangladesh could not even access low-cost Russian fuel oil in fear of repercussions from the west.

Businesses and economists are hopeful that a peace deal could unlock closed markets, reignite trade, stabilise the taka, and deliver a much-needed reprieve for Bangladesh’s economy.

However, the optimism is tempered with caution.

Khondaker Golam Moazzem, research director at the Centre for Policy Dialogue, said if a resolution is reached, Bangladesh could benefit through increased exports to Russia, smoother imports, and resolved investment issues.

“Payment challenges related to the Rooppur Nuclear Power Plant would also be resolved, and a more efficient supply chain would reduce import costs,” he told The Business Standard.

However, the economist noted that while Russia and the US seem to be making decisions together, the European Union and Ukraine are excluded from these talks.

“This exclusion creates uncertainty about how the other parties will react. If NATO members oppose or refuse to lift sanctions on Russia, Bangladesh may miss out on EU market opportunities,” he added.

Hope for smoother supply chain

The war has heavily impacted global supply chains. Industry insiders report that shipping companies have imposed war risk surcharges, further increasing costs and product prices.

The conflict also led to shipping bans, disrupting the flow of goods. Sanctions on Russian vessels have caused a shortage of ships and containers, significantly driving up freight charges.

On 2 March 2022, the Bangladeshi-flagged ship Banglar Samriddhi was struck by a missile at Ukraine’s Olvia port, killing an officer while the remaining crew was safely rescued.

Syed Mohammad Arif, chairman of the Bangladesh Shipping Agents Association, believes shipping costs will fall and the supply chain will stabilise once the war ends.

Mohammed Amirul Haque, MD of Delta Agro Limited, noted that the cost of transporting food and fuel has soared, with crude oil prices climbing from $70 to $120 per barrel, along with LPG price hikes.

He expects these costs to decrease and the supply chain to smooth out after the war.

Food prices may drop

The war had a profound impact on global food markets. Ukraine and Russia supply 60% of Bangladesh’s wheat demand and 28% globally. As a result of the war, wheat prices surged from $360 to $522 per tonne. However, prices have since decreased to $254 per tonne.

Tarik Ahmed, director of operations at TK Group, a leader in the vegetable oil business, said lower prices, coupled with an easier supply chain, would be a significant blessing if the war ends. 

“The war caused a collapse in the supply chain, with freight charges multiplying by three to four times and creating a dollar crisis. This pushed up business costs. Ending the war would ease these issues,” he said.

In addition to wheat, traders expect relief in the markets for palm oil, soybean oil, and other cooking oils.

Bishwajit Saha, City Group’s executive director for corporate affairs, noted that the war triggered a dollar crisis, making it impossible for banks to issue LCs. LC margins skyrocketed from 20% to over 100%, forcing many small and medium-sized businesses to close.

Although the situation has improved somewhat, the LC problem persists. Still, he hopes a peace deal, if it comes true, will resolve these issues.

Delta Agro Chairman Amirul Haque believes the costs of importing lentils, maize, and chemicals will also decrease with the war’s end.

However, he stressed that expanding commercial relationships will be key to realising these benefits.

Potential boost for garment exports

Among the hardest-hit by the war is Bangladesh’s key garment export market, Europe, which accounts for over 50% of total export revenue. Since the war began, the European market has faced a downturn, with inflation surpassing 30% in some countries.

As a result, export growth to Europe in the first 11 months of 2024 was just 1.89%, a sharp decline from previous years, including 2013, when growth was under 1%.

Rokibul Alam Chowdhury, former vice president of the Bangladesh Garment Manufacturers and Exporters Association, explained that the war has disrupted Bangladesh’s garment sector and broader economy.

He believes that peace would resolve the dollar crisis, allowing importers to meet their demand and enabling smoother, timelier exports. With the end of the war, he expects an increase in demand in the European market and renewed opportunities for Bangladeshi exporters in Russia.