A report by Standard Chartered Bank predicts Bangladesh to become a US$500 billion economy with the per-capita income rising to $3,000 by 2025-26
After months of isolation, economies around the world are cautiously opening their borders led on by the mass vaccination efforts by governments and upswing in consumer demands globally. This is music to the ears of businesses and companies who have all faced major setbacks in terms of financial losses, supply chain disruptions and operational challenges. Spurred on by the uptick in trade activities globally, the economic forecast, which only last year had been dire, has started to make optimistic projections for the coming years.
For Bangladesh things have started to look rosy and many economists have been feeling cautiously optimistic. In the annual Bangladesh Development update report, the World Bank predicted Bangladesh’s gross domestic product (GDP) to grow by 5.1% in the current fiscal year (FY). The number was later revised in October to rise by 1.3% from the previous forecast to 6.4% in the 2021-22 FY.
The optimism might have been infectious because for the 2021 Bangladesh session of the Global Research Briefing series, Standard Chartered predicted that Bangladesh’s gross GDP will grow at over 7% in fiscal year 2022 and it will continue growing at the rate, making the country a $500-billion economy by fiscal year 2026. SCB’s economists further predicted that the per capita income of the country is all set to hit $3,000 by fiscal year 2026 despite the global pandemic.
In fact, Bangladesh might be one of only two ASEAN and South Asian economies to register positive growth in 2020, said Edward Lee, Chief Economist, for ASEAN and South Asia, Standard Chartered, despite a global recession which is shaping up to be historic in scale.
Recovery process will be three pronged for Bangladesh, according to the same report- driven by the global export-demand recovery, uptick in remittance inflow and strong public investment.
EXPORT LED RECOVERY
According to the World Bank report, ‘Bangladesh Development Update-Moving Forward: Connectivity and Logistics to strengthen Competitiveness’, the economy of Bangladesh is showing promising signs of recovery backed by a rebound in exports, strong remittance inflows, and the ongoing vaccination program. Over the first half of FY21, factories reopened and exports rebounded. In Dhaka and Chittagong, World Bank surveys pointed to a recovery in the labor market in the first half of FY21 with gradual restoration of livelihoods, food security in poor and slum areas improved. In Chittagong, the percentage of adults working had returned to pre-COVID-19 levels by February 2021.
But that is not to say that risks are trivial. Risks to the economic outlook remain elevated with much of the predicted growth depending on the global recovery of the trading partners in EU, USA and others. A fragile global economic recovery will dampen the demand for RMG products while limiting the job opportunities for migrant workers. The problems further worsen as global recovery has been uneven.
Over reliance on the RMG sector hurt the GDP growth during the starting of the pandemic in 2020. The pandemic stalled the sector’s progress at a crucial moment, just as global shifts in fashion sourcing threatened Bangladesh’s position in industry supply chains.
The global lockdowns of 2020 triggered order reductions, cancellations, payment delays, and renegotiation of terms. The pandemic threatened lives and livelihoods of Bangladeshi workers, and smaller, less well-funded factories closed their doors, and the competition for securing smaller orders swelled. The value of Bangladesh’s RMG exports fell by 17% in the first year of the pandemic, representing revenue losses of up to $5.6 billion according to BGMEA compiled data. And internally, the COVID-19 pandemic has worsened risks as the number of nonperforming loans rise and weaknesses in bank governance continue to plague a weakened financial sector.
Moving forward, the RMG industry needs to invest heavily in diversification and upgrading of products. Secondly there should be greater focus on building workers’ skill set and bridging the gender gap.
STRUGGLING REMITTANCE INFLOWS
The inflow of remittance from expatriate Bangladeshis, maintained an upward trend through last fiscal year even amid the COVID-19 pandemic, but dropped by 19% year-on-year in the first two months of the current fiscal year. The country received $3.68 billion in remittance in the July-August period of this year, down from $4.56 billion in the same period of last year, according to the Bangladesh Bank.
To make matters worse, slumps in oil prices have impacted the demand for Bangladeshi laborers as the oil-dependent countries are a major hub for the country’s migrant laborers as reported in the financial stability report for the year 2020 by the Bangladesh Bank. It is hoped that the recovering world economy and increment in oil prices will again drive up the demand for home grown laborers.
The country received $3.68 billion in remittance in the July-August period of this year, down from $4.56 billion in the same period of last year, according to the Bangladesh Bank.
VACCINATION EFFORTS MUST CONTINUE STRONG
Furthermore, to recover fully Bangladesh needs to contain COVID-19. Vaccinating large parts of the population will reduce the incidence of the disease and mortality and enable the full resumption of economic activities. Moreover vaccination is the only answer to containing the emergence of new COVID-19 variants.
The Government of Bangladesh has surpassed all expectations in their vaccination efforts and have launched massively successful campaigns around the country. This included walk-in vaccination centers in the rural areas and push towards vaccinating its migrant workers. This hard work has been paying off and Our World in Data predicts that 12.5% of the population is fully vaccinated. At the current pace the vaccination rates will reach 70% by next June and thus contribute further to the recovery of the economy.
PUBLIC INVESTMENT IN IMPROVING INFRASTRUCTURE
Massive infrastructure projects have also been touted as growth generators. Infrastructure bottlenecks are among the largest inhibitors of economic growth in Bangladesh. In 2020 the World Bank had estimated that Bangladesh must spend $7.4 billion to $10 billion a year to bring its power grids, roads and water supplies up to the standard needed to serve its increasing population.
In the World Bank’s Logistics Performance Index, Bangladesh dropped from 79 in 2010 to 100 in 2018 in the overall ranking. For its industries to prosper in the future, Bangladesh will need to strengthen transport, energy, and digitization infrastructure. Several major infrastructure projects that are under development could improve Bangladesh’s position. These include the Padma bridge, and Bangladesh’s first deep-sea port, the Matabari development, which is expected to be functional by 2025, complete with a new container terminal.
Improving logistics performance could further help accelerate the recovery and improve competitiveness. A World Bank report outlines opportunities to modernize the logistics system to ensure business continuity and build resilience. For Bangladesh this can be achieved through a system-wide strategy to increase logistics efficiency; improve the quality, capacity, and management of infrastructure; improve the quality and integration of logistics services; and achieve a seamless integration of regional logistics services.
A World Bank report outlines opportunities to modernize the logistics system to ensure business continuity and build resilience.
The battle against COVID-19 continues to rage worldwide as countries deal with third waves of the pandemic. In the meantime, Bangladesh has just started to get back on its feet and build back the development opportunities it had lost. While it is inevitable that the consequent global waves will have an impact on the country’s development, we can find solace in the resilience the people and businesses have shown during tough times. Because as the saying goes – tough times don’t last, tough people do.
