In May 2021, Bangladesh reported its Gross Domestic Product (GDP) per capita had grown by 9% during the last year, reaching to $2,227.[i] This surpassed every other economy in the region. It is undoubtedly a phenomenal performance, especially for an economy which is only 50 years old. It is sometime described as an economy with a huge population, without any significant industrial base and devastated by natural calamities every year. Yet, overcoming all the challenges, it has performed tremendously. It is undoubtedly a time for celebration for Bangladesh. In this connection, the current paper takes stock of some of the key factors that helped Bangladesh to achieve this position and the major challenges that still remain.
The report entitled “Bangladesh Development Update: Towards Regulatory Predictability”, released in April 2019 by the World Bank ranks Bangladesh among the top five fastest growing economies in the world. The report projected Bangladesh to grow at a rate of 7.3% during 2018-19. Bangladesh is preceded by two other South Asian neighbours India and Bhutan, which are estimated to grow at the rate of 7.5% and 7.6% respectively during the same period.
Bangladesh’s total exports increased at an annual rate of 8.6% between the period 2011 and 2019 compared to the world average of 0.4%.[ii] Sectors like Readymade Garment (RMG), agriculture and fishery are primarily credited for this success. Notably, Bangladesh is among few economies to take advantage of the US-China trade dispute while expanding the US market by 17.4%, compared with only 1.4% growth during the fiscal year 2017-18. To deepen its ties further with Bangladesh, the US Chamber of Commerce launched the US-Bangladesh Business Council to explore the investment potential for US business there, and also enhance two-way trade.[iii] The EU’s Generalised Preference Scheme has enormously helped Bangladesh to expand its RMG export in that common market.
Inflows of remittances in large amount also help the wheels of the Bangladeshi economy to move faster. Inward remittances have touched $200 billion while foreign exchange reserves reached to $45 billion in 2021[iv]. A stable index of the Dhaka Stock Exchange is an addition.
The Index of Industrial Production played a vital role which increased by 18.5% in 2018-19. The industries sector grew at 10.2 per cent in 2017 with a significant contribution from the large and medium scale manufacturing industries. Electricity is a key input for any industrial production and Bangladesh has invested heavily in this sector. This allowed energy generation to more than double over the last decade. Currently, it has an installed capacity of 18275 megawatts (MW).[v]
Thanks to macroeconomic policies, Bangladesh has been able to maintain, by and large, a stagnant inflation rate between 5 to 5.5% per cent for quite a long time.[vi] Further, the gap between rural and urban inflation has been narrowing in the last few years. The sustainable economic growth achieved by Bangladesh helped it to substantially reduce poverty. Poverty declined from 44 percent in 1991 to 15 percent in 2016, based on the international poverty line of $1.90 a day (using 2011 Purchasing Power Parity exchange rate).
It is an extraordinary achievement for Bangladesh to get recommendation from the United Nations Committee for Development Policy (CDP) for graduation from the category of Least Developed Country (LDC) in a relatively short time span fulfilling all the predefined eligibility criteria. Bangladesh got this recommendation in 2018 and is required to prepare for the transition to the status of a developing country by 2026[vii].
Although Bangladesh achieved remarkable progress in short period of time, a number of challenges still remain. Bangladesh needs to overcome those challenges to perform better and achieve success to its full potential. Among the remaining constrain are poor environment for foreign investment, lack of proper transport infrastructure, and an opaque regulatory environment, are some of the prominent issues that Bangladesh needs to overcome. Shortages of land, natural gas, and power remain major impediments to investment to its full potential. Despite making commendable progress in the power generation, Bangladesh is still struggling with energy deficiency for its growing industry.
Bangladesh export sector is highly concentrated to RMG. It contributes around 80 percent of Bangladesh’s export earnings. There is an urgent need to diversify its export basket. A wide gap between export and import led to a surge in the Balance of payment deficit and there is a pressing need to address it.
Maintaining a stable exchange is another crucial challenge. A misaligned exchange rate regime combined with high tariff rates on imports, lead to significant anti-export bias. In other words, the current exchange rate and trade policies are not favourable for rapid export expansion in Bangladesh[viii].
Containing inflation is a critical challenge. Despite being adopting so many steps inflation remain high in Bangladesh. The overall inflation rate has remained around 7 percent and it should be corrected urgently.
The graduation of Bangladesh to a developing country will also bring some challenges for it. It will no longer be eligible for certain preferential provisions in export, provision of subsidy to agriculture and infant industries and access to climate finance.
Yes, Bangladesh economy has made impressive growth during the last few years. The manner in which the above discussed challenges will be addressed will determine the sustainability of the current growth and fetch a higher level. Policies should be devised that complements the social development along with the economic acceleration.
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* Dr. Rahul Nath Choudhury is a Research Fellow at the Indian Council of World Affairs, New Delhi.
Disclaimer: The views are of the author.
Endnotes
[i] Sharma, M. S. (June 01, 2021). Bangladesh rises to be South Asia's standout star as India, Pak fall behind. Business Standard, New Delhi Edition. Accessed on 02.06.2021
[ii]World Bank (2019). Bangladesh Development Update: Towards Regulatory Predictability. The World Bank. Washington DC
[iii]Basu, N. (May 28, 2021). Covid aid to India, financial help to Sri Lanka — Bangladesh is showcasing its economic rise. The Print. Accessed on 01.06.2021
[iv]Ibid
[v]Choudhury, R.(2019).Bangladesh among Five Fastest Growing Economies, ISAS Brief No 649, Institute of South Asian Studies, National University of Singapore
[vi]Ibid
[vii] DD News (27 Feb. 2021) UN body recommends Bangladesh graduation from LDC. DD News. Available at: https://ddnews.gov.in/international/un-body-recommends-bangladesh-graduation-ldc Accessed on 10.9.21
[viii] Raihan Selim (7 Feb., 2019). Six Macroeconomic Challenges. The Daily Star. Available at: https://www.thedailystar.net/opinion/economics/news/six-macroeconomic-challenges-1698601 Accessed on 10.9.21