Bangladesh economy- Swinging between ‘hope’ and ‘despair’
By--Enayet Rasul Bhuiyan
The independent, 19 November 2013
Only about a year ago, the economy of Bangladesh was a curious subject of
international attention. When the greater number of the advanced economies of the
world remained under a deep seated recession with the world’s biggest economy in the
USA also gripped by a similar state of little or no growth, plus the varied debilitating
problems faced by many developing countries, in contrast the Bangladesh economy
seemed to be smoothly sailing ahead. There were many proofs of this growing economic
capabilities of Bangladesh; reputed international bodies were commenting in glowing
terms on the high prospects of the Bangladesh economy.
The economic rise of Bangladesh was specially noted at that time to be outstanding.
Goldman Sachs, a globally renowned US-based investment banking and securities firm,
in a report two years ago on the world's potential economies placed Bangladesh on its
"Next Eleven" list as a key member. Its report said, "Bangladesh in the near future will
power the global economy in something of the magnitude of the BRICS economies."
The "Next Eleven" is the second term Goldman Sachs coined to describe economies
with high growth potential, such as the "BRICS" economies encompassing Brazil, Russia,
India, China and South Africa. Comparing the 22 economies of the erstwhile G7, BRICS
and Next Eleven, the report said Bangladesh will grow faster than predicted earlier.
It is also noteworthy that two globally renowned US based international rating
agencies-- Standard and Poor and Moody’s Investor Service -- declared satisfactory
scores in 2010 while assessing the Bangladesh economy. The positive ratings improved
the country’s international credit worthiness and strengthened its bargaining position
notably. Indeed, the Bangladesh economy was considered as doing relatively well
compared to many other developing economies.
The US ambassador in Bangladesh, Dan Mozena, was noted for frequently describing
Bangladesh as the next Asian economic tiger. The diplomat’s observations were in
synch with the actual impressive performance of the prime export-oriented sector of
the Bangladesh economy, readymade garments (RMG). Bangladesh attracted attention
as the fifth RMG exporting country in the world a couple of years ago. But last year it
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surpassed others to climb to the position of number two among garments exporting
countries after China.
And only some months ago prophecies were being made that Bangladesh seemed to be
getting ready for an even bigger role to replace China as the number one RMG
exporting country. Not only in RMG, as the US ambassador and other institutional
watchers of the international business conditions realized, Bangladesh could be getting
into a favourable position to replace China and other southeast nations in relatively
less capital intensive enterprises such as footwear, toys, etc. as the competitor
countries were turning non competitive vis-a-vis Bangladesh due to rising wages. Thus
billions of dollars of local and foreign investments in RMG and these other prospective
industries appeared to be only a matter of time for Bangladesh before the same would
actually happen. The RMG industries that employ directly some 4 million people, mainly
females, were expected to quickly add a couple of millions new workers sooner than
later from the expected new investments in this sector. Similar large scale employment
in the potentially emerging sectors were anticipated. A big boost to the country’s
export earnings were considered to be only a matter of time.
But the latest shattering political developments could possibly completely mar and
create a reverse trend in these splendid economic opportunities which were showing up
in the horizon. Already the country’s growingly too volatile politics coupled with
workers’ unrest in it-- egged on by various internal and external groups-- have added to
the woes of this pivotal economic sector.
Reportedly, the occupancy rate in Dhaka’s top class hotels has plummeted alarmingly.
These hotels are usually booked by a large number of apparel buyers from overseas
who come to Bangladesh at this time of the year to place orders for the next season. But
their arrival this year is noted to be thinning and business sources say that RMG export
orders are declining worryingly.
According to them, export orders in October this year were 30 per cent less compared
to similar orders placed in October of last year. They say that foreign buyers are losing
confidence in the longer term ability of the local RMG sector to maintain its viability
amid the worsening political turmoil and workers’ unmitigated unreasonable demands
for higher wages. Thus, they fear the RMG sector in Bangladesh is losing its
competitiveness and dependability. Considering Bangladesh no more so lucrative a
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destination for their businesses they are reportedly switching over to other apparel
exporting countries.
Only some months ago, local think tank bodies and international organizations such as
the World Bank (WB) and Asian Development Bank (ADB) were making forecasts about
the Bangladesh economy sustaining its over 6 per cent annual economic growth rate.
But recently they have scaled down their projection of the growth rate to about 5.2 per
cent. The way destructive political developments and their fallouts are impacting on the
economy, if this trend is not checked very soon, then the economic growth rate could
be squeezed much further.
Realistically looking at the political crystal ball and seeing no hope there, the hard boiled
observers are saying that it would be no wonder if the growth rate comes down to even
4 per cent or less in the coming new year. Others are making still worse projections.
New private sector investments have been significantly on the low side during the
current year. The investments could come near to zero level if the on going political
cauldron keeps on boiling like the way it is now. In that case the problems of income
and employment of people would much go up and the poverty situation would turn
seriously worse in no time.
Now, let us look at the other side. Before the politically induced bad times started telling
hard on the economy, it was an economy clearly on the move up.
First of all, let us look at the economic growth rate. The growth rate is pivotal in
determining so many aspects about any economy. Economic growth rate crossed the 6
percent mark in recent years from 4 percent or below in the 1980s and 5 percent plus
in the second half of the 1990s. The recorded growth in fiscal 2011-12 was 6.7 per cent.
Under a business as usual scenario, reaching the target of 7 percent growth rate did not
seem difficult. By and large, the per-capita income grew roughly at 4 percent per year in
a situation of falling population growth rate. Despite the unstable and often violent
political conditions, the economic growth rate was measured at 6.2 per cent in fiscal
year 2012-13. The foreign currency reserve of a country is a major indicator of the state
of its macro economy. This reserve has never been formidable for Bangladesh as it
always had to struggle to allocate resources among too many competing priorities. But
even in this situation, the reserve has been steadily rising in the last couple of years. It
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hit the highest ever recorded level of over $ 17.35 billion recently-- enough to
comfortably meet over five months of import operations.
Other indicators of the macro economy also reflected no deterioration in conditions but
notable gains. For examples, in the last ended fiscal year Bangladesh exports increased
to 2466.16 million US$ in December 2012 from 1765.10 million US$ in November 2011.
Higher export earnings suggested also new investments or expansion of export-oriented
enterprises that created additional employment and income. Indeed, this has been
happening as the country’s premier labour intensive export-based garments sector
added to capacities to be able to export more. Remittance from our overseas workers is
considered as another major source of strength for the macro economy. The inflow of
such remittance was recorded at $ 14.176 billion in 2012, which was up by 16.8 per
cent from the previous year. And this actual attainment followed the earlier deluge of
forecasts in the media that tended to create the impression as if remittance earning
was certain to hit an all time low from badly squeezed manpower export.
The management of the macro economy also improved significantly from the operation
of two monetary policy stances (MPS) by Bangladesh Bank. The rate of inflation crossed
the double digit in 2011. But the inflation rate on point to point basis declined to a
single digit and fell to 7.93 per cent in August 2012 from 8.03 per cent in July 2012. The
inflation rate has remained in the single digit since that time. It is now about 7.3 per
cent.
The size of the national budget more than doubled in the last five years reflecting
unprecedented higher government spending. A great deal of such stepped up spending
was on new developmental projects. Tax or revenue earnings of the government also
reached an unprecedented high level that made possible the higher governmental
spending in different areas creating all kinds of benefits, services and economic
opportunities for people.
It is not a hollow claim that the actual purchasing power of different sections of people
went up notably in this period. The present per capita income is over 1,000 US$ which
signals that Bangladesh is headed well towards the status of a middle income country.
The same have been adequate to cope with the earlier inflationary spurts plus leaving
some extra purchasing power in many cases. The increased purchasing power impacted
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favourably by helping new demand creation for plenty of goods and services which in
turn contributed to expansion of economic activities locally.
As for infrastructure building or more particularly achieving progress in the all too
important energy sectors, the scenario has been quite encouraging. Power production
almost doubled from four years ago. Significant improvement was also achieved in
producing more gas and its effective supply to consumers.
After meeting in a much better way the needs of existing consumers of power and gas,
it was possible to give power and gas connections to a huge number. There are
understandable different perspectives particularly about the manner of power
production—from quick rental plants burning growingly costly fuel oils or permanent
such plants to produce power inexpensively. But there can be no denying it that the
level of the gross domestic product (GDP) could not maintain its uptrend without the
stepped up power production. The improved supply of power helped specially the
export-oriented garments sector to use optimum capacities to take export earnings to
highest recorded levels.
Work on big infrastructures have either taken off or are about to start in different
places. Construction of three flyovers have been completed in Dhaka that would likely
play a big role in easing the capital city’s chronic traffic jams.
After several rebuffs and delaying actions in releasing funds by the World Bank (WB),
Bangladesh is now set on building the Padma Bridge with its own resources. Significant
progress to this end has been achieved in the present year.
The above mainly contrasts the optimism creating state of the national economy and
outlook for it only some months ago with the present bleak conditions towards which it
now seems inexorably headed from the failings of our political players to get their act
together in the highest national interests. Just when the Bangladesh economy was seen
as getting ready for a real ‘take-off ’ in all respects, very regretfully the possibility of the
same is getting destroyed by its politicians who otherwise claim that the country’s wellbeing is their priority. There could not be a worse instance of hypocrisy than this. Bad or
ruinous politics is proving decisively to be the Achilles heels of our economy that was
otherwise shaping up for taking a big leap forward.
The writer is Associate Editor of the Independent. E-mail: enayetrasul7114@gmail.com
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