Bangladesh – when it was a part of Pakistan – did not have economic independence, as policies were largely dictated by the central government in West Pakistan. As a result, the then East Pakistan suffered resource exploitation, infrastructure neglect, and economic disparities.
Since securing independence from Pakistan in 1971, Bangladesh witnessed remarkable strides in its economic development, despite facing numerous difficulties, mostly caused by political instability, corruption, and high population growth.
Bangladesh, when it observes the 54th year of independence today, is no longer a so-called “Bottomless Basket.” No one dies of hunger here anymore.
Navigating through crippling poverty, child and maternal mortality, and other socio-economic adversity since its independence, Bangladesh is now an emerging economy, and a case study of economic uplift in the world.
Bangladesh is already set to graduate to a developing country in 2026, and become an upper-middle-income country by 2030. The country is also on the path to becoming a trillion-USD economy by 2040, and a high-income country by 2041.
The economy has mostly boomed during the last one and half decade when the government expanded its expenditure in infrastructure projects – including road and transportation, energy, and telecommunications – aiming to support economic growth, accelerate private sector and improve connectivity within the country and with international markets.
Such development projects helped encourage private sector participation and attract foreign direct investments (FDIs), which in turn led to a smoother growth in the country’s GDP, robust exports, and employment generation.
The growth remained smoother until the Covid-19 pandemic appeared in the globe.
Manpower exports are also having a positive impact on the country’s economy, which in turn helped Bangladesh reduce poverty, boost investments, and increase per capita income. However, the country witnessed widening income equality as well.
Currently, the country’s income from remittance inflow is around $1.5 billion on average per month.
Remittance inflow was only $10 million back in FY76, and it increased to $21.61 billion in FY23. Remittance income has made a major contribution to poverty alleviation by raising rural wages, according to a 2010 World Bank report.
Garment industry growth has single handedly contributed the most to the country’s economic and social indicators.
During the 1980s and 1990s, Bangladesh saw a significant expansion of the readymade garment (RMG) sector, and the country became one of the world's largest exporters of textiles and garments, benefiting from its low labour costs.
Bangladesh earned $55.56 billion in exports in the just concluded FY23, where the country's RMG sector earned $46.99 billion, which is 10.27 per cent higher than the previous fiscal year, shows Export Promotion Bureau (EPB) data.
Export earnings stood at only $348.42 million in FY1972-73.
Despite the growth of other sectors, agriculture continues to play a pivotal role in Bangladesh's economy, employing a large portion of the population and contributing to food security.
Previously, Bangladesh had to seek help after failing to provide sufficient food for 7.5 crore people. But the country is now able to meet the rice and vegetable demands of about 17 crore people.
According to the Finance Ministry’s Economic Review, Bangladesh received 10.87 lakh tonnes of food aid in 1985-86. In FY2014-15, it came down to zero. In the following years, some aid was received, but it came down to zero again in FY21, FY22 and FY23.
Trillion $ economy an uphill journey
Bangladesh is now moving towards becoming one of the world’s largest economies, aspiring to become a trillion-USD economy in 2040, and a high income country by 2041. However, the country is in a fragile economic state, due to economic headwinds, including forex crunch.
The government’s infrastructure initiatives helped ease the crisis, but created extra debt burden too. Bangladesh’s external debt crossed the $100 billion mark for the first time at the end of 2023.
Bangladesh took bilateral foreign loans – including from China and Russia – for infrastructure projects to accelerate private sector growth, production, and to ensure a smoother supply chain.
But, such initiatives do not create foreign currency at the same rate as the country’s debts. This issue has pushed up the country’s external debt in recent years.
Bangladesh, even as it witnesses economic progress, sees a slowdown in the country’s domestic mobilisation, poised to put a big dent in foreign exchange reserves.
This in turn places public finances under more strain due to mounting loan repayments, forex crisis, and growing fiscal burden. Bangladesh’s tax-to-GDP ratio remains close to 9 per cent for many years.
‘Concerns arise mostly due to forex crunch’
Speaking to The Business Post, former lead economist of World Bank Dhaka Office Zahid Hussain said, “Our foreign debt to GDP ratio is not that high. But concerns arise mostly due to forex crunch triggered by repayments.
“Moreover, our production has not increased as much as debt. If revenue collection increases, it will help reduce the budget deficit, which in turn would lessen debt pressure.”
He added, “If the country cannot increase marketing productivity, and goods and services production against external debt – especially those which can boost forex reserves through exports – fiscal pressure will deepen, and macroeconomic stability could be jeopardised.”
“We must ensure that loans are utilised properly, and we generate income from them. Otherwise, we will not be able to repay loans on time. If we fail to implement projects on time and complete their work within the initial budget, we may face difficulties.”
Therefore, the country needs to increase USD income. Otherwise, it will be distressing in the future, Zahid Hussain pointed out.
Former governor of Bangladesh Bank Atiur Rahman said, “Bangladesh is growing, and it has made remarkable progress. But, our economy would have expanded more if we could develop such mega infrastructures earlier.”
“Towards a trillion USD economy of Bangladesh, one of the biggest challenges is resource mobilisation. The government cannot raise its expenditure more than 12-13 per cent of GDP as tax-to-GDP ratio is still below 9 per cent.”
Adding that Bangladesh is having difficulties in attracting FDIs, but India and Vietnam are having a relatively easier time, he said, “If we mobilised resources, we could invest more in infrastructure. We could already have economic zones which increase our FDIs.”
Bangladesh's average FDI inflows stood at 0.9 per cent of GDP in 2022, while it was 1.7 per cent and 4.6 per cent for India and Vietnam, respectively.
Atiur added, “Another challenge is foreign exchange rate vulnerability, but the situation will stabilise soon. Previously, investors were worried whether they could bring their capital or not due to forex volatility.
“But the market is already showing signs of stability. Forex stability will attract more FDIs too. The other challenge is lack of coordination between regulatory bodies and lack of regulatory oversight. If we tackle these issues, we will witness a steady economic growth.”
