Bangladesh’s economy has made remarkable progress and development despite the challenges of the Covid pandemic. Factors such as a strong demographic dividend, thriving ready-made garment exports, and resilient remittance inflows have all contributed to the country’s rapid economic growth over the past two decades. However, recent reports of an economic crisis have dominated discussions in the national media, raising concerns about underlying weaknesses in the economy.
As the country faces upcoming economic challenges, it requires a strategic approach to ensure continued progress in poverty reduction and development. With Bangladesh facing new economic challenges despite its impressive growth and development over the past two decades, the question now arises whether the country can sustain its progress?
Bangladesh is on track to make an improvement from the United Nations’ Least Developed Countries (LDC) list by 2026, which will be a significant milestone in its development journey. According to World Bank data, the country’s poverty rate has also shown a substantial decline in recent decades, from 43.5 percent in 1991 to 14.3 percent in 2016, using the international poverty line of $1.90 a day (based on the 2011 Purchasing Power Parity exchange rate). In addition, Bangladesh has made significant strides in improving human development outcomes across several dimensions too.
You can also read: What to know about ongoing Bangladesh Business Summit 2023?
The country’s success can be attributed to its sound policies and a concerted effort to promote economic growth and development. The government’s efforts to promote exports, particularly in the RMG sector, have been instrumental in driving economic growth and creating jobs. The robust inflow of remittances from abroad has also provided a significant boost to the economy.
Recent key economic developments
In the first half of FY15, Bangladesh exhibited a job-friendly growth momentum, with an improvement in capacity utilisation and signs of recovery in investments. The Labour Force Survey 2013 showed a significant increase in domestic employment, from 54.1 million in 2010 to 58.1 million in 2013, averaging about 1.3 million jobs per year. Maintaining macroeconomic stability is crucial for the long-term growth and development of any economy, and fiscal policy plays a crucial role in achieving this goal. In this regard, it is encouraging to note that the fiscal deficit in FY22 has narrowed significantly to 5.04 billion dollar, indicating a commitment to fiscal prudence.
Moreover, the tax revenue growth has also been increasing significantly, which is 28% higher than the previous year’s rate. But maintaining this growth is a challenge to fiscal stability in the future. The government may need to explore ways to enhance tax revenue collection through measures such as better tax administration and widening the tax base. The recent increase in international oil prices presents a noteworthy threat for the government to undertake energy pricing reforms. To deregulate fuel prices and align with actual costs, the government may face inefficiencies in oil refining and imports, this have the possibility to effect the energy sector negatively giving hardships to both consumers and producers.
Looming challenges in the growth progress
Though recorded many progresses across the areas of economics, Bangladesh, like many other countries, is facing significant economic challenges in the current global environment. Among its challenges, one of the main issues is the rising commodity prices and an increase in imports in the second half of FY22, which has been continuing into the FY23. This trend has resulted in the widening of the country’s Balance of Payments (BoP) deficit and accelerating inflation. As a consequence, foreign exchange reserves have declined, reaching nearly US$28.6 billion by the end of February 2023. To achieve its vision of attaining upper middle-income status by 2031, Bangladesh needs to create jobs and employment opportunities through a competitive business environment.
This can be achieved by attracting private investment, building efficient infrastructure, and increasing human capital by building a skilled labour force. Creating a competitive business environment, addressing corruption, political instability, and investing in human capital are vital for sustaining Bangladesh’s impressive economic growth. However, looming challenges such as climate change, rising inequality, Covid pandemic, and the ongoing Ukraine-Russia conflict may threaten the country’s progress. The government must work to reduce bureaucratic barriers to entry, streamline business registration processes, and improve the overall ease of doing business in Bangladesh. Furthermore, investing in education, healthcare, and other social services can help build a skilled labour force capable of meeting the demands of the modern economy.
How to overcome the challenges?
The government must also focus on building efficient infrastructure to support economic growth. This includes investing in transportation, energy, and communication infrastructure, among others. These investments will help facilitate trade and commerce, reduce transaction costs, and boost productivity. Another key priority of Bangladesh’s development is diversifying exports beyond the Ready-Made Garment (RMG) sector, which is currently the country’s largest export industry. Diversifying exports will help reduce the country’s reliance on a single industry and promote greater economic resilience.
The deepening of the financial sector to support economic growth is another important priority of Bangladesh. A well-functioning financial system can help mobilise savings, allocate capital efficiently, and provide financing to support business expansion and investment. Making urbanisation more sustainable is another important priority. The rapid pace of urbanisation has put significant pressure on the country’s infrastructure and natural resources. By promoting sustainable urbanisation, the government can reduce the negative environmental and social impacts of urbanisation while promoting economic growth and development. Strengthening public institutions is also critical for supporting economic development.
This includes implementing fiscal reforms to generate more domestic revenue for development and promoting greater transparency and accountability in government operations. Addressing infrastructure gaps is another fact to be counted for accelerating growth. Improving infrastructure will help reduce transaction costs, promote trade and investment, and improve productivity. In addition, addressing vulnerability to climate change and natural disasters is also essential to continue building resilience to future shocks. Climate change poses a significant threat to Bangladesh’s development, and the government must take proactive steps to mitigate the impact of climate change on the country’s economy and population.
In conclusion, Bangladesh has made significant progress in its economic development, but there are still several development priorities that need to be addressed. Diversifying exports, deepening the financial sector, promoting sustainable urbanization, strengthening public institutions, addressing infrastructure gaps, addressing vulnerability to climate change, and pivoting towards green growth are all critical for promoting sustainable and inclusive economic growth in Bangladesh. Additionally, higher female labour force participation is necessary to mitigate the impact of a shrinking workforce growth rate.