Bangladesh Economic Growth: Is it a bright spot in Asia?

Bangladesh has already become an emergent economy, surpassing Vietnam, Indonesia, India, and Thailand, with an average growth rate of 6.4% during the last six years. Now, even if growth slows to 5%, the country is on track to become a trillion-dollar economy by 2040; if growth remains at 10%, the country may reach this milestone by 2030. This was said by the global management consulting company Boston Consulting Group (BCG) in a study titled "Trillion-Dollar Prize Local Champions Leading the Way." On November 25, the US-based corporation issued a survey of the status of the Bangladesh economy at an event in Dhaka.

Bangladesh is reaping economic gains one after the other due to its vast consumer class, young population, high-level economic stability, people's resilience, digital technology advancements, and the private sector's rapid development. The private sector will be the primary driving factor in the country's future development. This industry is producing emerging champions who are spreading around the globe and having an influence on society.

Bangladesh negotiated the loan to relieve balance-of-payments concerns early last month, becoming the third South Asian country to approach the IMF this year, following Sri Lanka and Pakistan. Since Russia invaded Ukraine in late February, economic pressure on Bangladesh has been strong. Rising worldwide prices for fuel oil and other critical commodities resulted in nearly double-digit inflation and depleted the country's foreign reserves. However, the most recent figures tend to enhance Bangladesh's chances of not following its neighbours into greater difficulties, albeit it still faces an uphill struggle.

Economic Slowdown After the Pandemic

Bangladesh, a young country of around 170 million people, cannot protect itself from the present global economic recession since it is so intertwined with the rest of the world: It is the world's second-largest apparel exporter, after only China. It also has a large diaspora that sends money home. Furthermore, the government relies on imported petroleum to power its energy infrastructure. The ready-made clothing sector powers Bangladesh's economy. It accounts for more than 80% of all exports in the country. It is also making an increasing contribution to the global economy. According to the government, Bangladeshi industries are expected to create 10% of the world's clothes by 2025. Bangladesh's clothing industry was decimated when COVID-19 struck. Factories closed, and at least a quarter of their workforce, 1 million people, were laid off. Many of them went without food.

Women make up the vast majority of Bangladeshi textile workers. While higher-paid manufacturing supervisors are primarily men, most women receive the minimum pay of 8,000 takas ($80) each month. Bangladesh's electricity system is fragile, and it relies heavily on imported fuel. This is becoming more expensive due to Russia's invasion of Ukraine.

The price of gasoline in the United States is determined not only by worldwide fuel costs but also by how much tax the federal and state governments collect. However, the government subsidises the fuel price in Bangladesh, as in many other underdeveloped nations. That changed in August when the government determined it could no longer afford to maintain artificially low fuel prices. It increased the price of gasoline, diesel, and kerosene by more than 50% in a single week. According to local media, it was the steepest price increase since Bangladesh's founding in 1971.

Economists believe Bangladesh's request for IMF aid was a wise and early action that might help it weather the global slump better than its neighbours. Even though Bangladesh requested $4.5 billion from the IMF, which is 50% more than Sri Lanka, experts do not consider Bangladesh's plan a bailout. For starters, it is substantially smaller in proportion. Second, Bangladesh's economy was in better health than Sri Lanka's and better than Greece's when it received its first $146 billion IMF bailout in 2010.

Economic Growth in Bangladesh-

The extraordinary development narrative of a "model of poverty reduction" is typically connected with Bangladesh's tale as one of the world's fastest-rising economies. Bangladesh has come a long way since being one of the poorest countries in the world before its independence and creation as an independent republic in 1971. Its road to prosperity and development began in the early 1990s with large-scale trade liberalisation. It continued through years of strong economic growth in the 2000s and culminated in large-scale poverty alleviation by the middle of the 2010s. Poverty fell from 43.5% to 14.3% between 1991 and 2016.

Over the previous 30 years, Bangladesh's consumer class has grown significantly. Following the restoration of democratic governance at the beginning of the 1990s, Bangladesh entered the free market economy and became deeply involved in globalisation. Export-oriented sectors such as ready-made garments and medicines expanded, and poverty began to reduce, creating a consumer class. Currently, home consumption accounts for 69% of gross domestic output. Bangladesh is anticipated to surpass the United Kingdom and Germany to become the ninth-largest consumer market in the world by 2030, with the expansion of its middle-class and affluent-class people exceeding Vietnam, Thailand, the Philippines, Indonesia, and India by 2025.

According to a 2015 BCG report, the population of the middle and upper classes is predicted to expand from 14 million in 2020 to 34 million by 2025. Many young people are eager to contribute to Bangladesh's high-growth landscape. With a median age of 28 years, the nation has a younger population than other comparable economies, including Indonesia (31), India (29), Thailand (39), Vietnam (32) and the world average of 30 years. More than two-thirds of the total population, or 68.4%, is working age, implying 114 million people are eager to provide value through employment. Because of substantial savings and low national debts, Bangladeshi families are financially robust. The country has a high savings rate, with average savings equal to more than a third (34%) of GNP, compared to a global savings rate of 27%. Household spending accounts for two-thirds of GDP (69%), shielding the economy from external shocks. Bangladesh's digital economy is gaining traction, with customer connections expanding through digital channels. Mobile subscriptions have more than quadrupled in the past ten years, reaching 177 million in 2021, while internet users have increased by 70%. Because of the better digital economy environment, digital financial transactions quadrupled from 1.7 billion in 2019 to a projected 3.5 billion in 2022. The government is actively contributing to the nation's economic development, with public expenditure more than tripling in the recent decade, from Tk 532 billion in 2012 to Tk 2,254 billion by 2022. Bangladesh is the world's second-largest supply of internet labour behind India, with 650,000 freelancers. As the gig economy continues to fuel economic prospects, the country is home to 15% of the world's freelancers, trailing only India (24.8%). The on-demand industry continues to be a significant development driver, with digital platforms such as Uber, Pathao, Truck Lagbe, and Foodpanda set to create 500,000 employees this year. With over 50,000 Facebook businesses in Bangladesh, the advent of a burgeoning social commerce segment is also boosting digital economic growth.

Between January and August of this year, the rise of garment shipments from Bangladesh to the European Union (EU) outpaced that of China and all other significant suppliers worldwide. Bangladesh's garment exports to the EU increased 45.26% yearly to roughly $15.37 billion during the January-August period when the trading bloc imported $67.18 billion in clothes from around the world. As a result, Bangladesh is the EU's second-largest garment import source, accounting for around 23% of total imports. China, the EU's main garment import source with a 28% share, delivered $18.85 billion in clothes to the trading bloc over the same time, representing a year-on-year increase of 26.59%. Bangladesh began receiving trade benefits under the EU's Everything But Arms policy shortly after obtaining independence in 1971, gradually lifting the nation to its current position. So, even after the country graduates from the UN's grouping of least developed nations (LDC) in 2026, local vendors remain optimistic about their prospective exports. The sector's image has improved due to its competitive pricing, high quality, and recent advancements in safety and compliance. Furthermore, Bangladesh is now the world champion in the green garment category.

Challenges-

Bangladesh, like many other countries, is facing worldwide economic difficulties. Rising commodity prices and increased imports in the second part of FY22 resulted in a widening BoP deficit and accelerated inflation. Bangladesh must create jobs and employment opportunities through a competitive business environment, increase human capital and a skilled labour force, build efficient infrastructure, and create a policy environment that attracts private investment to achieve its vision of becoming an upper-middle-income country by 2031. Diversifying exports beyond the RMG sector; developing the financial sector; making urbanisation more sustainable; and improving governmental institutions, including fiscal changes to produce domestic money for development, are among the development goals. Closing infrastructural gaps would hasten growth. Addressing climate change and natural catastrophe risks will assist Bangladesh in building resilience to future shocks. A shift toward green growth would help to ensure the long-term viability of development results for future generations.

Conclusion

Bangladesh is increasingly seen as an example for other developing countries. The country has accomplished a great deal, thanks in large part to the efforts of local champions. This development has been driven by corporate change and significant contributions from the country's private sector. Emerging champion enterprises will need to be better able to attract funds from overseas investors. The corporate sector has expanded predominantly via private capital and individual funding. Some companies raise funds through capital markets, but several emerging champions, such as Summit, ShopUp, and bKash, are pioneering equity capital from overseas investors and venture capitalists. Bangladeshi Planning Minister M. A. Mannan expressed optimism, stating that the country's economy will be back on track by March or April next year. "In the previous month, remittances and export profits have grown; they will gradually revert to the prior level." He told reporters.

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Pic Courtsey-Salman Preeom at unsplash.com

(The views expressed are those of the author and do not represent views of CESCUBE.)