From being called “A bottomless basket”, Bangladesh has come a long way to become one of the world’s greatest economic success stories. At the start of the new decade, we are faced with some unprecedented challenges, and how we deal with them will determine our growth momentum.
Over the last decade, Bangladesh has seen consistent and stable growth. Its growth rate has been much higher compared to its peers in South Asia. This has allowed Bangladesh to be categorised as a high performing economy. As a result, Bangladesh has been able to meet up all three criteria required to be considered for graduation from a least developed country (LDC) to a developing country. It is expected that Bangladesh will become a developing country by 2024. It has also graduated from a low-income country to a lower middle-income country. Bangladesh now aspires to become an upper middle-income country by 2031 and a developed country by 2041.
Several factors facilitated this achievement; policy support from the government and hard work of Bangladeshi people are the major factors. Continuity of supportive policies is pivotal to ensure good economic performance. It provides predictability to the investors. It also saves resources. If there are any interruptions or abrupt changes in government policy, it will have impacts on investor confidence, especially in the case of foreign investors. If policies change frequently, project implementation is hampered and sometimes stalled. This leads to wastage of resources.
Secondly, many sectors have significantly benefited from these policies, including agriculture, industry and the services sector. And the people of Bangladesh have been able to take advantage of that support. As a result, the agriculture sector has managed to see positive changes. Our food production has been awe-inspiring, and we have been able to achieve food sufficiency. Only about five per cent of our food requirement is imported. Even during the pandemic, the agricultural output has been excellent. Production of rice and other agricultural commodities has been very good which has helped the country to pull through during COVID-19. So, the people behind the three sectors (agriculture, industry, service) have been playing an instrumental role in facilitating the economic achievements. Speaking of the industrial sector, over 80 per cent of our export income comes from the readymade garment (RMG) sector. The entrepreneurs deserve a lot of credit for the success of the apparel sector. It is also the four million workers who extend their labour for the industry. They have been a major driver of industrial growth, exports and foreign exchange income. Similarly, the government has been supporting the sector since the emergence of the industry in the 80s. Global opportunities like Multi fibre arrangement (MFA), which provided duty-free export of Bangladeshi RMG also helped.
The contribution of the services sector has been increasing steadily. The sector accounts for over fifty of the Gross Domestic Product (GDP) of Bangladesh. Semi-skilled and low skilled human resources from Bangladesh have been working in the Middle-Eastern and South-East Asian countries. They have helped us earn a large volume of foreign exchange income.
Although the growth momentum has taken a hit because of the coronavirus pandemic, we have to remember that this is an unprecedented and unavoidable circumstance. The global economy is reeling from the pandemic so we should not be too hard on ourselves.
COVID-19 has disrupted the production system and supply chain within the country. Domestic demand has been hampered. The shock has also come from external sources; exports have declined, remittance initially declined. Fortunately, both the sectors have bounced back. Exports have increased recently. Remittance inflow has increased significantly during the last two months. But COVID-19 has been a challenge this fiscal year (FY 2021) and the immediate past fiscal year (FY2020). As a result, our projected growth rate which was to be 8.2 percent for FY2020 has declined to 5.24 per cent according to the Bangladesh Bureau of Statistics.
Our exports have bounced back thanks to increase in RMG exports in recent months, a diametric scenario from during the height of the pandemic which saw a lot of cancelled orders. It has been reported that almost 80 -90 percent of the cancelled orders have been reinstated.
Similarly, following the outbreak of the pandemic and worldwide lockdowns, thousands of migrant workers have returned to Bangladesh after losing their jobs. The migrants still continue to return as the economic conditions of their employers have declined. Workers who are still employed abroad have been sending more money to their distressed families during the pandemic. Moreover, the returnee migrant workers have brought back all their savings. So, the volume of remittance income has increased significantly.
Therefore, after lockdown for two, we have seen a gradual opening up of the economy. While the health alerts are still on, economic activities are increasingly coming to normalcy. If this trend continues and if there is no spike of COVID-19, Bangladesh’s economy will do well.
However, there are numerous challenges that we have to be aware of. The pandemic has affected all the countries in the world. So, the nature and speed of our recovery will significantly depend on how other countries recover from the crisis. Besides, we have to look into the perennial weaknesses of our economy. To ensure the continuity of high growth, we have to ensure that infrastructural development meets the demand of the investors. Investment is pivotal for continuation of growth momentum and higher income.
Unfortunately, the private sector investment has not been so promising. Had it been higher, it would have created more employment and enhanced economic growth further. If the domestic private sector investment does not pick up, foreign investors will not be encouraged to invest. Modern infrastructure, skilled human resource, efficient bureaucracy, corruption-free business environment, policy stability, and low political risks are essential to attract investment. Currently, we are ranked poorly in the global competitiveness index published by the World Economic Forum. We will have to work towards overcoming the limitations to tap the full potentials of the economy.
These factors will determine our growth trajectory over the next decade. As the country is in the path of double graduation mentioned at the outset of this article (from LDC to developing and from lower middle-income to upper-middle income country) maintaining high economic performance will be critical. Diversification of the economy and reduction on a narrow export basket are badly needed for the country. At the same time, performance on social indicators such as education and health outcomes will also be determining factors for Bangladesh’s transformation. It will also depend on how we address our vulnerability due to the impact of climate change. Of course, Bangladesh is a victim since climate change is the result of the actions by the developed countries. Therefore, we have to adapt to the effects of climate changes. Bangladesh has been successfully doing so. However, there has to be more investment on technology and livelihoods for better adaptation to climate change. We also have to urge the developed countries to enhance support towards adaptation. We need technology for innovations for climate tolerant agriculture, and we have to invest in embankments, shelters, and job creation for the affected people who will suffer due to sea level rise which is the result of global warming.
In addition to climate change, there may be other external shocks which could affect Bangladesh’s economy. COVID-19 is an ongoing challenge. The global economic meltdown of 2008 is another example. So, external factors can play a role in the pace of Bangladesh’s growth. While we are optimistic about having a higher growth, the domestic and unpredictable external factors on which we have no control can slow down the momentum.
Despite high growth, youth unemployment is high. Though the national unemployment rate is 4.2 per cent, youth unemployment rate is 10.6 per cent. We need more investment for job creation. Every year about 20 lakh job seekers enter the labour market. But our economy is not large enough to absorb everyone who enters the job market. Therefore, the employment strategy should be focused not only on creating more jobs in the public and private sector, but also create opportunities for self-employment. This will require enhanced access to finance. The government will need to allocate resources for the youth who want to start their own businesses. Besides, we need to redesign our education system according to contemporary market demands. We have to change the mind-set of having a university degree by everyone. We have to expand vocational training and job-specific training. Now that the fourth industrial revolution has dawned upon us, and the pandemic has forced mass adaptation of technology, there will be more demand for high skilled human resources. Technology can be an enhancer as well as a divider. Unless it is accessible by all, inequality will increase. And if growth is not equitable, it is not sustainable.
After independence, Bangladesh used to be identified as an aid-dependent country because we were highly dependent on foreign aid. We needed a large amount of foreign funds to deal with a war-affected economy. However, over the last five decades, we have graduated from an aid-dependent country to a trade-dependent one. Currently, the share of trade in Bangladesh GDP is around 37 per cent while the share of foreign aid is about 2 percent of GDP.
Also, due to the policies which were taken in the mid-’80s and early 90’s which made a shift towards market economy and trade liberalisation there has been a gradual increase of trade, mainly through RMG exports. As an LDC, Bangladesh has been provided the duty-free quota free access to the European and many other markets in the world. And Bangladesh could utilise the opportunities provided to LDCs, whereas numerous African LDCs could not capitalise on the same opportunities due to supply side constraints and lack of capacity. However, we have to do better. We need to address the infrastructural constraints, and administrative complications including delays in decision making.
Once Bangladesh graduates from the LDC category, it will lose its presidential treatment in terms of duty-free market access. If Bangladesh graduates in 2024, it will get another three years as a grace period to prepare for smooth graduation, so that when in 2027 trade preferences are finally withdrawn, the country is well prepared to cope with the new circumstances. Hence, the country has to prepare from now on to adjust to the new reality. It has to be strong enough and competitive enough to export by paying duties and still can sustain its export volumes and income.
The preparation will also be for taking advantage of new trade benefits even after LDC graduation. However, that requires fulfilment of stringent compliances in areas such as labour, environmental, and human rights issues.
There is an urgent need for export diversification. Our trade is concentrated on only a very few items, mostly on RMG. It is extremely risky to have such a narrow export basket. Any internal and external sock can create a serious crisis. The government has identified a few thrust sectors which have potential to expand. But the progress towards diversification is still not encouraging. These sectors will have to be supported with substantive policy measures.