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A basket case on its way to trillion dollar economy

Talukder Farhad
26 Mar 2023 00:00:00 | Update: 26 Mar 2023 00:01:41
A basket case on its way to trillion dollar economy

A baby born in the first dawn of the 53rd year of independence will be a citizen of Bangladesh — a country that is no longer a so-called bottomless basket where no one dies of hunger anymore as the poverty rate has come down to 20 per cent.

The country made significant development in the last five decades. They include social development where child and maternal mortality rates have decreased in large numbers and more than 60 per cent of people are now of working age, which ensures the demographic dividend.

According to various global organisations, Bangladesh is currently one of the fastest-growing economies in the world and has become a model case study for economic development for other countries.

Citing IMF statistics, the Canada-based Visual Capitalist last year reported that Bangladesh was the 35th largest economy in 2022 with a GDP size of $460.8 billion.

The country also has a few big dreams ahead of it and is working diligently to achieve them as soon as possible.

Bangladesh is already set to graduate to a developing country in 2026 and become an upper-middle-income country by 2030. Afterwards, the country is also on the path to becoming a trillion-dollar economy by 2040 and a high-income country by 2041.

Journey to trillion dollar economy

But the 52-year journey has not been smooth. After a nine-month-long war in 1971, the war-torn nation was even called a bottomless basket. The idea that Bangladesh would be able to develop as much as it has was unfounded back then. But now Bangladesh is moving towards becoming one of the world’s largest economies.

Although Bangladesh is an agricultural-based country, the industry and service sector got a massive boost when the economy was opened up to the private sector in the 1980s.

At present, the service sector’s contribution to the GDP is above 50 per cent, followed by the industry sector and the agri sector. In FY2021-22, the service sector’s contribution was 51.48 per cent, the industry sector was 36.92 per cent and agriculture was 11.61 per cent.

Among the industrial sectors, the export-oriented apparel industry is the largest source of foreign exchange earnings for Bangladesh.

The readymade garment industry as a single sector is also the largest source of maximum employment. Export earnings were only $348.42 million in FY1972-73 and it was up to $52.08 billion in FY22.

In addition, remittances sent by expatriates became another pillar of the country’s economy after the foreign labour market was opened to Bangladeshi workers.

Currently, the country’s income from remittance is $1.5 billion on average per month. Remittance inflow was only $10 million back in FY76 and it increased to $21.03 billion in FY22.

According to a World Bank (WB) report in 2010, remittance income has made a major contribution to poverty alleviation by raising rural wages.

Imports have also played a major role in increasing the contribution of the service and manufacturing sectors. In FY73, Bangladesh imported only $11.71 billion worth of goods. It increased to $77.23 billion in FY22.

Meanwhile, infrastructure development and electricity facilities played a major role in economic development. Along with that, in the last decade, the progress of digitalisation made the wheel of the economy go faster.

According to Bangladesh Bureau of Statistics (BBS) data, per capita power consumption reached 422 KWh in FY2020-21 and 98.6 per cent of the country’s population was under electricity coverage.

Meanwhile, mobile communication systems and internet services have brought revolutionary changes in the country’s socio-economic sector.

The number of mobile subscribers was 182.61 million and the number of internet subscribers was 125 million in February 2023, according to data from the Bangladesh Telecommunication Regulatory Commission.

All in all, the growth of Bangladesh’s economy in the last five decades has surprised the world.

According to WB, Bangladesh’s GDP at current prices was only $6.29 billion in 1972. It increased by 73 times to $460.22 billion in FY22.

The annual GDP growth rate averaged 5.88 per cent from 1994 until 2022, reaching an all-time high of 8.15 per cent in 2019 and a record low of 3.51 per cent, mostly due to the Covid-19 pandemic, in 2020.

And, in the next 17 years, Bangladesh aims to become a trillion-dollar economy.

Zahid Hussain, the former lead economist of WB’s Dhaka office, told The Business Post that the trillion-dollar goal cannot be achieved based on demographic dividends and investment.

Productivity should be increased for this and innovation is needed to boost that. And to boost innovation, related institutions should be strengthened, he added.

Poverty alleviation and food sufficiency

Bangladesh has begun to get benefit from the philosophy that poverty can be alleviated through increasing income and boosting GDP. While the per capita income was $88 in 1972, it rose by 30.53 times to $2,687 in FY22.

The poverty rate, which was around 80 per cent in 1972, came down to 20.5 per cent in FY22, according to BBS data.

Financial inclusion has played an important role in poverty alleviation.

Now, money can be transacted from home with the help of mobile banking services. The introduction of the agent banking system has also taken financial inclusion to the marginal level. Moreover, the introduction of digital systems like internet banking, ATMs, CDM, and credit and debit cards has made daily transactions much easier and faster.

Agriculture is one of the strengths of Bangladesh’s economy. During the pandemic, this sector was given importance not only in Bangladesh but all over the world.

Earlier, Bangladesh had to extend its hand in seeking help after failing to provide sufficient food for 7.5 crore people. But the country is now able to meet the rice and vegetable demand 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 and FY22.

Experts believe that the government subsidising fertilisers, electricity facilities and rural infrastructure development played a role in achieving self-sufficiency in food.

They also believe that the invention and use of modern machinery and hybrid species have revolutionised agriculture.

Agri economist Quazi Shahabuddin, also the former director general of Bangladesh Institute of Development Studies, told The Business Post that one of the major reasons behind the agricultural revolution is the increase in productivity.

Using technology, farmers can now use the same land for cultivation multiple times a year. Besides, farmers now produce not only for themselves but also for commercial production, he added.

Social development and mega infrastructure

Along with economic development, Bangladesh has also improved in social indicators and even surpassed neighbouring India in some.

According to WB, in 1972, for every 1,000 children born, 141 died before reaching one year of age. In 2020, it came down to only 21. The maternal mortality rate also dropped to 173 per lakh in 2021. It was 434 in 2000.

At present, the average life expectancy has increased to over 72 years. The literacy rate is 75.2 per cent with nearly 100 per cent of children getting primary education. The participation of girls in secondary and higher education has also increased significantly over the years.

However, although there are opportunities to spend more in the social sector, Bangladesh has focused more on mega infrastructure — including Padma Bridge and Dhaka Metro Rail — in the last decade as part of national development.

The other such ongoing projects include Rampal and Matarbari power plants, Matarbari Deep Sea Port, Payra river Port, Rooppur Nuclear Power Plant and Karnaphuli tunnel.

The Rooppur plant is the most expensive project in the country’s history and the tunnel, which is the first in South Asia, will be inaugurated soon.

However, economists have warned that if these projects do not play a role in increasing dollar income or export earnings, these may become a burden on Bangladesh’s shoulders in future.

“If Bangladesh is unable to earn enough foreign currency through mega projects, it could lead to a further decline in its foreign exchange reserves and that could lead to an economic crisis,” said eminent economist Wahiduddin Mahmud at the 6th SANEM Annual Economists’ Conference in Dhaka last month.