by Vedika Bhagat
A third world country that started its journey in 1971 with a negative growth rate (-5.5%) and with 70% of its population living below the poverty line yet deemed to be the fastest-growing economy in South Asia, surpassing China, Vietnam, and India; Bangladesh’s economy was particularly characterized by the upheavals of the Liberation war.
The war not only crippled the transportation system but also drastically affected the inhabitants of the country, who were forced to migrate. There were critical shortages of food grains and staples because of wartime disruptions.
The banking and monetary system was viewed to be unreliable. Earnings from the export of jute diminished due to the interruption of the supply of goods.
As a result, Bangladesh had to seek economic assistance from India, the United States, and the World Bank, which organized an aid group consisting of twenty-six international financial institutions to assist Bangladesh inits development.
Despite its internal challenges, external pressure from international factors, and over-dependency on foreign aid, Bangladesh’s economy has proved to be resilient and has maintained consistent economic growth.
Supported by sustained economic growth, the poverty line of Bangladesh has dropped down to 14.8% in 2016/17 from 44.2% in 1991. According to HSBC Bank, Bangladesh would be the 26th largest economy in the world by 2030.
In 1971, the main contribution made to Bangladesh’s GDP was from the agricultural sector (51%) and the services sector (41.2%).
However, as the size of its economy kept on increasing, the share of the agriculture sector reduced (This, however, doesn’t mean that the agricultural produce was low because Bangladesh attained self-sufficiency in agriculture, becoming the fourth-largest producer of rice, inland fisheries, and mango in the world).
The share of the industrial sector on the other hand was rising, which signified that Bangladesh was moving from an agrarian economy to an industrialized one.
Bangladesh made enormous strides, by finding new markets for its exports of textiles, jute, leather, yarn, and tea, which grew by 4.5% in 2018, to attract foreign investment. This was augmented by the Foreign Private Investment Act of 1980 which restored the confidence of the investors regarding the security of their investments in Bangladesh.
Furthermore, Bangladesh attracted USD 3.61 billion of FDI in 2018, the highest among South Asian countries. Since then, it’s net foreign direct investment (FDI) increased by 42.9 %.
The country also has a resonant industrial sector, which allows it to generate more employment prospects when compared to other South Asian countries, such as India, whose economies are predominantly characterized by the services sector.
The Readymade Garment (RMG) industry, which is considered to be Bangladesh’s economic backbone, is booming due to the increasing demand for Bangladeshi garments in the United States and a need for newer markets in countries like Australia, Canada, and India.
Despite the trade war between the United States and China, Bangladesh’s garment exports rose from 8.8% in 2018 to 11.5% in 2019. But we must remember that this boost is a result of low labor costs and production outsourcing as well.
Despite the growth of the industrial sector, Bangladesh is quickly moving towards becoming a knowledge-intensive economy.
As per data from the UNESCO Institute of Statistics, the literacy rates soared to 72.6% in 2016. It exported 12 industrial robots to Korea and sold a large number of refrigerators to Reliance Industries.
Furthermore, it harbors the largest freelancing community in the world, illustrating how people are becoming more innovative and adaptive in Bangladesh. This allows the country to harness the productivity of its youth.
If we look at the GDP trends for Bangladesh from 2016 to date, we can see that it has climbed from 7.1% to 8.2% in a span of merely three years. This shows that Bangladesh can emerge as the new leader if we compare it with other South-Asian countries like India, Pakistan, and Sri Lanka.
Sheikh Hasina’s pragmatic approach and policies to blend capitalistic and socialistic virtues were also one of the main reasons why Bangladesh’s economy thrived in a volatile world.
The current outbreak of the Coronavirus, however, is taking a toll on the economic growth in developing Asia, prompting to the Asian Development Bank to cut its forecasts for the region. The global supply chain has been massively disrupted.
As of March, 264 Bangladeshi garment factories have faced cancellations, which roughly amounts to USD 1.5 billion. This is not very astonishing because the slowdown in the US and EU economies have impacted the economy of Bangladesh, as we can see in the graph below.
Furthermore, travel restrictions and curfews in host countries like Saudi Arabia, UAE, Malaysia, the US implies that the migrant workers are losing out on wages and there will be an imminent impact on small businesses and start-ups.
I believe Bangladesh needs to address challenges such as enhancing human capital, improving urban management, developing infrastructure, and diversifying exports (as currently it solely relies on earnings from the RMG sector) to overcome the threats it faces due to the pandemic.
In hindsight though, the transition of Bangladesh from a poverty-stricken, desolated country into an established one has not been an easy ride. Even though fiscal pressures might pose a challenge to its growth, we can see how it has made its way quietly to the top through rapid modernization to secure a place in the global markets.