Fatema strolls on the Gulshan Avenue at high noon when she was supposed to be at work in her garment factory. But, things change fast maybe too fast for her. Two months ago, she lost her job as the factory was shut down in the teeth of poor order. Fatema does not know what she will do when she wakes up the next morning. So does the country as it walks into a new year with its economy in tatters -- uncertain still about how to face the worst-ever economic challenges in two decades.

Too absorbed in the election hoopla to piece together a crisis management package, holed up in its own shell of low value-added activities, the

country today is strapped in a mono-product volatility that was to happen sooner or later. Its major economic indicators are moving southward and chances are that the next year will prove to be an uphill task -- many term it impossible -- to head northward.

Export figures for the July-October period of this fiscal was 10.06 per cent short of last year's US$ 2,229 million earning. Imports also showed a similar trend with July-September figure shrinking by 5.53 per cent -- something that did not happen in last two decades.

Revenue collection dipped by Tk 449 crore from the target for the July-November period and the government's net borrowing spiked like anything with July-October figure up by 27.93 per cent. There is every sign that inflationary pressure is building up and foreign exchange reserve barely managing to hover over $1 billion-mark at $1.26 billion on Thursday.

With such a trail behind, the country's top economists observe that the new year will be the most crucial one for the country. It remains to be seen how much of the macro-economic stability achieved in the 1990s, especially in the first half when both growth and stability primed, the country can retain.

Dr Wahiduddin Mahmud said the year 2001 was important for significant economic turnaround. The exports and industrial growth shrunk drastically from 23 per cent and 11 per cent respectively in the first half of the last fiscal to 2.3 per cent and 1.2 per cent at the end of the year. After July, exports further dipped to a negative growth of 10 per cent-- for the first time in two decades.

It is still difficult to say for sure how much dent the ongoing global recession would leave on the country's economy as the global scenario is rapidly unfolding, making forecasts at this stage like shooting a moving target, he said.

The sudden collapse of the external trade may have its fallout on the general people and create social problems due to job loss in the readymade garment sector, especially of the women.

"The prime objective of macroeconomic management should be to backstop the sliding balance of payment (BOP) situation and restore fiscal balance, which should guide all other measures," said Dr. Debapriya Bhattacharya, executive director of the Centre for Policy Dialogue (CPD).

"The government has to make a choice between growth and stability and my view is that the main target should be to maintain stability with a moderate growth," he said.

The government should think of a strategy to shrug off recession without having to pay a big price so that excess monetary expansion does not hurt stability.

Amid all the downsides, the upside is the low inflation rate and robust growth in remittance, and strategies should be built up with these strengths, noted Dr. Bhattacharya.

On the export front, Bangladesh has now become a typical case of mono-product vulnerability.

All price-related adjustments such as reduction of revenue expenditure, pruning of Annual Development Expenditure, reduction of interest rates on savings instruments and increase in utility prices would yield little results in the medium-term if these are not supported by other measures in the financial sector and institutional interventions like corporatisation of the nationalised commercial banks, creation of debt management institutions, reduction of loss of the state-owned enterprises, putting in place infrastructure to support trade and completion of public administration reforms, he said.

The next budget will be critical, as this has to show a roadmap to overcome the odds so that the economic trends are predictable. Currently, the economy is in suspended animation and this uncertainty about future has to be

removed.

The other vital issue that has to be dealt with carefully is aid utililsation because high local content projects have to be cut in favour of project aid to save foreign reserves from being drained out, concluded Dr. Bhattacharya.

Dr Mustafizur Rahman, research director of CPD, said the country steps into a new year under the most challenging situation in last one decade because of a fragile external sector.

During the first half of FY2002, the country witnessed erosion in almost all of its external indicators including terms of trade, export volume and price and forex reserves.

The rapid globalisation in the first half of the 1990s that led to cut in tariff rates, emergence of new competitors and new trade initiatives like the USTDA and regional trade deals like the Indo-Nepal, Indo-Sri Lanka and Israel-Jordan-US agreements, created bottlenecks in market access for the country.

"But we worked out little response mechanism to offset the impact," he said. "We didn't develop backward linkage industry, nor did we diversify our products. There was no effort to turn our comparative advantage of cheap labour into technology-blended competitive advantage. Even we lagged behind other countries in developing the forward linkage industry to process products for higher value addition."

As a result, the product and market concentration led to the logical consequence of slippage in exports.

Dr. Mustafiz feels that the country should now look forward to the new year to take advantage of the Everything-But-Arms (EBA) facility offered by the European Union (EU) to process its agro-products and boost exports.

"Here, poultry holds big promises. Because, we have a well-developed poultry sub-sector, all we need is to standardise the product to export it to the EU."

Dr Azizul Islam, former director, Development, Research and Policy Analysis Division, ESCAP, said the primary challenge for the country in the new year is to increase export earnings through intense lobbying with the US at the highest level.

"On the other hand, the market has to be diversified and instead of looking toward the US or the EU, we should explore the Middle East, Russia and the CIS countries," he said.

Russian economy is set to grow by over five per cent this year and many of the CIS countries are well poised to develop, too. They promise a big market for Bangladesh.

For the next six to nine months, the country is going to have a testing time and it has to brace itself for the worse.

In the realm of public finance, the increasing government borrowing would create further strain on the economy unless immediate measures were taken to raise revenue collection. Revenue expenditure also needs to be trimmed to relieve the pressure on the economy.

Dr Mahmud said for the last 15 years, RMG sector fuelled both export and industrial growth and with the changed situation, the future looks uncertain.

Despite the depressed import demand, it would be difficult to

backstop the forex depletion because of pursued liberalised import policy and heavy dependence of the local industry on imported raw materials and intermediate goods. The slowdown in investments and industrial activities had a dampening effect on import trade as well. In view of the fragile forex reserves position, this has in fact proved to be a blessing in disguise, Dr. Mahmud observed.

The year 2001 was also politically volatile with three governments coming to office which was not conducive to initiation of major strategic moves to cope with the adverse effect of global slowdown.

A medium-term plan to face the adverse international trade conditions was missing, deepening today's woes.

"We have to coordinate economic policies in a way so as to minimise any adverse effect of the export debacle on economic growth, employment and living standard," Dr Mahmud said.

The country has to take into account the new geo-political realities if it were to derive benefit out of the new economic order. Economic reforms alone are not enough. How far Bangladesh can prove itself as a modern, democratic, well-governed, literate and non-communal state will determine its gainful engagement in international economy.

Regarding recourse to IMF and the World Bank for loans to meet BoP crisis, he said this may solve the immediate crisis but would not work in medium- or long-term since the forex crisis is not going to subside in a year or two. Such donor loans would also warrant major reforms in the economy and policymakers have to sit together and ponder if they have the political will to go ahead with the measures.

Whatever the policymakers decide whether to go for a bailout measure or to try to overcome the problem with a homegrown agenda Fatema and more of her likes are now set to face the brunt of the economic storm that would surely dot the new year.