Bangladesh is currently going through one of the most crucial periods in its history. After the fall of the government that had been in power for the last 15 years due to an anti-discrimination student movement, Nobel Laureate Dr. Muhammad Yunus has taken charge as the head of the interim government. In addition to re-establishing democracy in Bangladesh, the interim government and the future governments will have the significant responsibility of recovering the country’s economy, which has been under economic pressure since 2022. In today’s article, we will discuss the current state of Bangladesh’s economy and what needs to be done to overcome this situation in the future.
Overview
Over the past decade and a half, Bangladesh’s GDP has grown at an average rate of more than 6% per year. Along with GDP growth, Bangladesh’s position in various development indicators has also strengthened. According to the World Bank, Bangladesh’s GDP grew from $91 billion in 2008 to over $437 billion in 2023. According to the IMF, in 2023, Bangladesh’s per capita GDP surpassed India’s, reaching $2,621, compared to just $630 in 2008, as per World Bank data. During the same period, i.e., from the fiscal year 2007-08 to 2023-24, Bangladesh’s per capita income increased from $660 to $2,784. In addition to various economic indicators, the country also saw infrastructure development projects such as the Padma Bridge, Metro Rail, Expressways, Rooppur Nuclear Power Plant, and South Asia’s first underwater tunnel. During this period, the country’s export earnings exceeded $50 billion, with Bangladesh becoming the world’s second-largest garment manufacturer after China. However, these indicators do not fully reflect the real state of Bangladesh’s economy. According to the Bangladesh Bureau of Statistics, the average household income in the country is over 32,400 BDT per month, while the per capita debt of the population exceeds 95,000 BDT.
The reason for these achievements is largely due to foreign loans. The amount of foreign debt has increased fivefold to build mega projects and various infrastructure development projects with loans from ADB, JICA, the World Bank, and China, as well as to meet the government’s (uncontrolled) growing expenses with loans from the IMF and the World Bank. In the fiscal year 2008-09, Bangladesh’s foreign debt was about $22 billion (21.803 billion). By March 2024, it had surpassed $99 billion (99.303 billion), of which $79 billion is government debt, equivalent to approximately 9.29 trillion BDT, enough to build 30 Padma Bridges or 51 Metro Rails. This is just the size of the foreign debt. Over the past decade and a half, the government has also borrowed from domestic sources, such as commercial banks, savings bonds, treasury bills, and bonds, to meet various expenses. According to the Ministry of Finance’s debt bulletin, by December 31, 2023, the government’s domestic debt amounted to nearly 9.54 trillion BDT. In total, the government’s debt from both domestic and foreign sources is approximately 19 trillion BDT (18.83 trillion).
During the 15-year rule of the previous government, the banking sector of Bangladesh saw repeated major scams. The banking sector has long been plagued by non-performing loans and high levels of bad loans. According to a report by the Center for Policy Dialogue, over the past 15 years, 92,000 crore BDT has been embezzled in 24 major bank scandals in the country. The true extent of the damage to the banking sector is yet to be determined. However, according to a report by The Daily Star, as of March 2024, the amount of non-performing loans in the banking sector is over 1.82 trillion BDT. Meanwhile, toxic assets or non-performing loans have reached nearly 506.75 billion BDT.
During the previous government’s tenure, Bangladesh’s forex reserves reached a record high of $48 billion in August 2021. However, since May 2022, the reserves have been continuously declining, and according to the IMF’s BPM6 calculation, the reserves stood at $20.48 billion at the end of July 2024. In other words, within three years, $28 billion has been lost from the country’s forex reserves. Consequently, from January 2022 to May 2024, the BDT lost 36% of its value against the US dollar. This led to an increase in import costs, resulting in price hikes for all kinds of essential commodities, food products, fuel, construction materials, and more. Since January 2023, inflation in Bangladesh has consistently remained above 9%, which has caused the prices of essential goods to remain on the rise for several years. Additionally, in mid-June, a 10-billion-dollar mismatch was revealed between the export data of the National Board of Revenue (NBR) and the Export Promotion Bureau (EPB). Such mismatches in crucial indicators like forex reserves and exports have raised questions about Bangladesh’s business environment, image, and economy in the global market.
On August 7, 2024, the national daily *Bonik Barta* headlined that approximately $150 billion had been smuggled out of the country during the 15 years of the previous government’s rule. According to Global Financial Integrity (GFI), a US-based think tank researching global financial crimes, $90 billion was smuggled out of Bangladesh between 2011 and 2018. Calculating the average annual amount, it is estimated that at least $149.20 billion, or nearly half of Bangladesh’s current GDP, was smuggled out of the country during the 15-year rule from 2009 to 2023. At the current exchange rate, this amounts to at least 17.60 trillion BDT. In other words, the amount of money smuggled out of the country could have funded the construction of 58 Padma Bridges or 15 nuclear power plants.
This amount of money was not only smuggled out of the country, but several times more wealth is held domestically by these corrupt businessmen and bureaucrats. This can be inferred from the significant increase in the sale of luxury cars, houses, and apartments in recent years. The majority of the country’s wealth has accumulated in the hands of a specific class due to rampant corruption. This class has been aided in accumulating this illegal wealth by those responsible for law and order and policy-making in the country. During the 15-year rule, a small group of businessmen and bureaucrats became owners of immense wealth by collapsing the regulatory authorities and the judiciary, i.e., the entire system. Can Bangladesh’s economy recover by reviving such a collapsed system?
Future of Bangladesh Economy
In the wake of the anti-discrimination student movement in Bangladesh and the sudden departure of former Prime Minister Sheikh Hasina after her resignation, reports of unrest were emerging from various parts of the country. Under the current circumstances, the primary priority for Bangladesh should be the restoration of law and order. When law and order break down, economic activities come to a halt, investments decrease, and public trust erodes. Therefore, to stabilize the economy and help it recover, the first step must be to restore order in the country.
Bangladesh’s garment industry began in the 1970s. Due to Bangladesh’s low production costs, global brands were interested in sourcing ready-made garments from the country. After former Prime Minister Sheikh Hasina came to power in 2009 and prioritized this sector, new companies were established, and existing ones expanded their businesses. As a result, Bangladesh’s garment industry was able to capture new markets. Consequently, over the past decade and a half, this industry has become one of the driving forces behind the country’s economy. Since the fiscal year 2013-14, this sector has generated over 80% of the country’s total exports. In the fiscal year 2022-23, Bangladesh exported nearly $47 billion worth of ready-made garments, accounting for about 85% of the country’s total exports. This indicates a lack of diversification in Bangladesh’s export trade, which has made it difficult for the country to maintain economic stability during various global crises. In other words, while dependence on the garment sector has been a key driver of economic growth, it has also posed risks to the country’s economy. Recently, the anti-discrimination student movement and the public uprising have caused significant disruptions in the import, transportation, production, and export of raw materials in this sector.
Moreover, the industry faced substantial losses due to the sudden nationwide internet blackout during the student movement, which hindered client communication. Although the internet was restored after a week, production in the sector continued to be affected due to the ongoing movement. However, in the current situation following the fall of the former prime minister, the RMG (ready-made garment) sector could play the most crucial role in restoring economic stability in the country, provided that law and order are maintained. While the garment industry may help alleviate the crisis temporarily, long-term economic stability in the country requires diversification in exports. First, the export items in the garment sector must be diversified. Bangladesh is mostly known for manufacturing low-end items in the RMG sector. In the coming days, efforts should be made to increase exports by focusing more on high-end item manufacturing. Then, attention must also be given to increasing export earnings from other production-oriented sectors besides the RMG sector. Diversifying products within the garment sector can help capture new markets, which can lead to increased export earnings. If the law and order situation is normalized, other production sectors in the country will also return to normalcy alongside the RMG sector. After RMG, Bangladesh’s major production-oriented sectors include textiles, leather, jute, steel, cement, pharmaceuticals, plastics, bicycles, electronics, paper, and FMCG (fast-moving consumer goods). International buyers of export-dependent sectors will be encouraged to continue doing business with Bangladesh only if they see a long-term solution to the country’s political and law-and-order situation. The focus should be on how to increase exports in these sectors so that Bangladesh’s reliance on the RMG sector decreases. On the other hand, if the country’s situation stabilizes, domestic companies will also be able to continue their normal operations based on local demand.
Remittances are essential for the recovery of Bangladesh’s economy. Therefore, expatriate Bangladeshis should be encouraged to send remittances through official channels as much as possible. If necessary, the incentives given to expatriates can be increased. Remittances are Bangladesh’s most cost-effective means of earning foreign currency. If remittance income increases, it will be very helpful for Bangladesh’s economy in the near future. To learn more about how vital remittances are to Bangladesh’s economy, you can watch our video titled “How Essential Are Remittances to Bangladesh’s Economy?” After remittances, let’s move on to Bangladesh’s banking sector. Beyond foreign currency-earning sectors, special attention must be given to the banking sector to restore the country’s economy.
During the 15-year rule of the previous government, Bangladesh’s banking sector witnessed frequent major scams. The banking sector has long been plagued by non-performing loans and high levels of bad loans. According to a report by the Center for Policy Dialogue, 92,000 crore BDT has been embezzled in 24 major bank scandals in the country over the past 15 years. The true extent of the damage to the banking sector is yet to be determined. However, according to a report by The Daily Star, as of March 2024, the amount of non-performing loans in the banking sector is over 1.82 trillion BDT, while toxic assets or non-performing loans have reached nearly 506.75 billion BDT. The condition of the banking sector indicates the fragility of the country’s financial sector and negatively impacts domestic investment. To help Bangladesh’s economy recover, the government, regardless of who comes to power, must take a firm stance on recovering non-performing loans in the banking sector. Additionally, strict enforcement of banking rules and regulations is necessary to prevent individuals or groups from exploiting the banking sector in the future.
After the production-oriented sectors, the focus should be on the country’s ICT sector. Over 4,500 IT, software, and ITES (Information Technology Enabled Services) companies are operating in Bangladesh, employing more than 300,000 people. The domestic market size of this sector is $1.4 billion, and according to government sources, local IT, software, and ITES companies generated $2 billion in export earnings. According to The Daily Star, there are over one million active freelancers in Bangladesh, with 650,000 of them providing services to the global IT sector. According to Payoneer’s 2023 ranking, Bangladesh was ranked 8th among the Top 10 Freelancing Countries. The freelancing sector in Bangladesh has now become a powerhouse. Through their active work across the country, millions of freelancers add nearly $1 billion to the country’s foreign reserves every year. The nationwide internet blackout also severely affected this sector. To help Bangladesh’s economy recover, there is no alternative to increasing foreign income. After RMG and remittances, if any sector can quickly grow Bangladesh’s export earnings, it is the ICT sector.
In addition to the IT sector, the country’s e-commerce, f-commerce, courier services, ride-sharing, food delivery, ed-tech, and health-tech sectors, which are built on internet and digital infrastructure, will also be affected. In Bangladesh, there are more than 2,500 e-commerce platforms like Daraz, Othoba, Pickaboo, Bikroy, Chaldal, and Evaly, with a combined market size of nearly 600 billion BDT. Additionally, there are about 300,000 Facebook-based businesses, with approximately 70% of the owners being women, and the market size of these Facebook-based businesses is nearly 10 billion BDT. According to a report by the Asian Development Bank in May 2023, the size of Bangladesh’s digital economy is 2.6% of the country’s GDP, or about $12 billion. Therefore, whoever comes to power after the interim government should work on a long-term plan to grow Bangladesh’s ICT sector in both domestic and international markets. In this regard, banks, garment factories, and other private and government institutions in the country should be encouraged to source necessary software from local companies instead of importing them from abroad. This can reduce the country’s import expenses and allow the local market to grow. Additionally, a favorable environment for exports should be created to increase the country’s foreign currency earnings.
In conclusion, the future of Bangladesh’s economy will depend on maintaining stability and law and order. In addition to addressing the above-mentioned issues to drive the country’s economy forward, the government, the Bangladesh Bank, the Anti-Corruption Commission, and all regulatory authorities must take proactive steps to prevent money laundering. To make Bangladesh attractive for foreign investment, stringent measures must be taken to combat red tape and corruption. This will attract foreign investment and create new job opportunities in the country. Furthermore, the focus should be on increasing government revenue by reducing government expenses and increasing VAT and tax collection. Market monitoring should be intensified to control the prices of essential commodities and make life easier for the people. Additionally, attention should be given to quickly completing ongoing mega projects across the country, including those in Dhaka. A feasibility test can be conducted to determine the necessity of other mega projects to avoid increasing the country’s debt burden by taking on unnecessary mega projects. Finally, it is crucial to ensure that politics and business remain separate in the country.
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