Upon achieving independence in 1971, Bangladesh’s global image was characterised by its vulnerable and unstable economy, prone to frequent disasters. The then US Secretary of State Henry Kissinger called Bangladesh a ‘bottomless basket.’ The country, currently experiencing a significant economic expansion, serves as an exemplary model for several emerging nations thanks to its demographic dividend and other variables. The primary catalyst for this expansion is the diligent effort of the nation’s agriculturalists, labourers, migrant workers, and millions of individuals employed in the textile sector. Countless entrepreneurs have devoted tireless efforts. The country’s GDP, or Gross Domestic Product, is experiencing growth, resulting in an expansion of the economy.
Based on The Economist’s 2020 report, Bangladesh secured the ninth position out of 66 prosperous emerging economies. By 2030, the World Economic Forum predicted that Bangladesh will be the 24th largest economy globally. In fact, as per the WEF, Bangladesh has been the fastest-growing country in South Asia and one of the fastest-growing countries in the world.
Bangladesh is often considered a wonder of development and sometimes called the ‘Tiger Economy’ of Asia, just like Malaysia, Singapore, and China, which once became the Asian Tigers in the late 90s and early 2000s, overcoming poverty and other obstacles. The country’s GDP is experiencing growth, leading to an expansion in the size of the economy that is much better than that of other South Asian peers. Once a small economy has often been known as the ‘Tiger Economy’ of Asia and has had a solid emerging economy in the past several years. Over this period, Bangladesh’s GDP has had a growth rate of 188 percent, surpassing that of China and India, two of the world’s largest economies. China’s economic growth has experienced a significant increase of 177 percent, while India’s growth has risen by 117 percent. Indonesia has a 90% rate, Malaysia has a 78% rate, Australia has a 41% rate, Mexico has a 37% rate, Italy has an 8% rate, Germany has a 15% rate, Egypt has a 51% rate, and Brazil has a 17% rate.
Bangladesh’s remarkable success and development are globally acknowledged. The economy, which was valued at 8 billion US dollars in 1973, has already surpassed 460 billion USD in 2023. This nation was previously afflicted by inundations and cyclones, abject destitution, and assorted predicaments. However, from the 1990s to the 2000s, the Gross Domestic Product (GDP) has consistently grown at an average annual rate of 4.5 percent. The rise in production in the agricultural and industrial sectors of the country can be attributed to the dynamic efforts of our citizens, the establishment of new industries and factories by enterprising entrepreneurs, job creation, the adoption of advanced farming technologies by farmers, the utilisation of high-quality seeds and fertilisers, and the effective planning and policy support provided by the government across all sectors. The mean GDP growth rate throughout the period from 2009-10 to 2018-19 exceeded 6 percent, reaching its highest point at 8.15 percent in 2018-19. In 2017, Bangladesh was upgraded from the classification of the least developed country to a developing middle-income country. Even during the COVID-19 pandemic, Bangladesh had a positive and higher growth rate compared to many other countries in the world, where many of the countries had negative GDPs. Many around the globe, such as economists, academics, scholars, experts, and think tanks, call Bangladesh’s progress a development miracle.
Did Anything Change? What Did the Reports of the Government and the World Bank say?
The government has set a GDP growth target of 7.5 percent in FY 2023-24; the GDP growth target remained the same in the previous fiscal year as well. The preliminary figure for the country’s GDP growth in the fiscal year 2022-23 stood at 6.03 percent.
The World Bank has reported that Bangladesh’s anticipated increase in export items to the European Union, as previously projected, is not materialising. This situation poses a potential risk to the country’s economic growth. Furthermore, the analysis highlighted the presence of ambiguity prior to the recently ended national elections, potentially influencing private-sector investment. Bangladesh’s economic growth in the fiscal year 2021-22 was reported to be 7.1 percent by the World Bank. Their projected expansion for the fiscal year 2022-23 stands at 6 percent. According to reports, the growth rate has declined as a result of import limitations, elevated costs of resources and energy, and mounting external and financial constraints.
As per the World Bank, both Bangladesh and the global economy would experience a decline in growth. The organisation stated that global growth in 2024 will be the most sluggish since 2020. The projected global growth rate for 2024 is estimated to be 2.4 percent. The World Bank anticipates that this scenario will arise as a result of the impact of elevated policy interest rates. The World Bank has expressed concern over the slow development of Bangladesh’s exports to the European Union, stating that it could potentially jeopardise the country’s economic progress. Furthermore, the analysis highlighted that there was a degree of ambiguity prior to the recently ended national elections, which potentially influenced private-sector investment. The GDP growth of Bangladesh in 2023 was reported to be 6 percent, as stated in a recent United Nations report. The rate of GDP growth is projected to have a marginal decrease to 5.6 percent in the upcoming year, with a potentially modest increase to 5.8 percent by 2025.
The data indicates that the inflation index experienced an upward trend in 2023. The monetary policy rush is mostly hindered by elevated food prices and currency devaluation. Simultaneously, the transaction balance is impacted, leading to strain on the foreign exchange reserves. The financial sector had a decline in strength and defaulted, leading to a rise in possibly defaulted debts.
What are the Problems within, and How can the Challenges be Addressed?
The World Bank has identified four factors contributing to the rise in inflation in Bangladesh. The agency stated that imports are declining as a result of increasing local fuel prices, ineffective monetary policy, devaluation of the currency, and depreciation of foreign exchange. The organisation states that inflation in Bangladesh is on the rise due to four specific factors.
However, due to the global coronavirus epidemic in 2020 and the Russia-Ukraine war that began in February 2022, Bangladesh’s economy is currently encountering several issues, including economic slowdown, reduced production, supply chain disruptions, and inflation. However, not all the problems are due to global causes; due to internal disorganisation, irregularities, corruption, and arbitrariness, several indicators of the macroeconomy have come under downward and adverse pressure. The media, economists, think tanks and other entities within the country constantly express criticism and issue warnings regarding our current economic predicament.
While an imminent catastrophe is improbable, nearly all indicators necessitate the implementation of corrective measures and prudence. The problem can be resolved with the active involvement of the related public and private institutions, government policymakers, and the genuine conduct and accountability of citizens, including businessmen.
Money inflation, characterised by escalating commodity prices, has become a prominent and widely discussed concern in the nation due to its direct correlation with the well-being of the general populace. Regardless of the government’s several endeavours, the uncontrollable surge in commodities prices persists. The inflation rate at the beginning of this fiscal year reached 9.92 percent, marking the highest level in the past 11 years. In August of 2023, the rate of food inflation stood at 12.54 percent once again. In September 2023, the rate of inflation experienced a slight decline to 9.63 percent, a figure that fails to provide any reassurance. Despite the gradual fall in the price of items in the international market, this reduction has not had an impact on our country. The lack of falling commodity prices can be attributed to various factors such as the excessive profiteering tendencies of particular investors, the formation of syndicates by a few traders to control the purchase of everyday products, limited competition in the market, the exploitative practices of middlemen, currency devaluation, extortion from various sources, and rising transportation costs. To guarantee an adequate supply of daily necessities, The National Board of Revenue (NBR) needs to consider reducing duties and facilitating more importation by allowing more traders to participate. TCB shall persist in the importation and distribution of goods at an equitable price. To lower prices, one can implement actions such as boosting supply, regulating pricing, imposing penalties on dishonest traders, and enhancing the operations of government bodies, including TCB, Consumer Rights Protection Authority, Tariff Commission, and Competition Commission, in order to ensure accountability. To mitigate inflationary pressures, it is imperative to implement stringent punitive actions against all instances of stockpiling, smuggling, and cartels. In addition, Bangladesh Bank has the ability to control inflation through the implementation of suitable monetary policies and the adjustment of interest rates.
The country’s tax revenue is significantly disproportionate to its Gross Domestic Product (GDP). The direct tax to indirect tax ratio is 35:65. It is reported to have a ratio of 70:30 in a rapid manner. To do this, it is necessary to expand the coverage of income tax and Musak. All persons and organisations involved in different taxable occupations should be subjected to both Income Tax and Musak. We should create a strategic plan to augment revenue by decreasing tax rates. Overall, it is necessary to implement structural reform of the NBR. It is necessary to identify and alter any rules and procedures concerning income tax, customs, and duties that do not conform to worldwide best practices. It has been suggested that Bangladesh must now focus its attention. To achieve this, it is necessary to implement business-friendly and taxpayer-friendly reforms in the revenue administration. The process of product redemption and customs clearance could be streamlined.
The Significance of the Service Sector to Boost the Economy
While there may be some disparity in the GDP contribution between the public and private sectors, it is evident that the service sector has been the predominant force driving Bangladesh’s economy during the past five decades. Economics categorises output into two sectors: goods and services. The primary means of producing goods is through the sectors of agriculture and industry. Conversely, the service sector mostly offers services without engaging in production. The economy of a country encompasses the interconnected activities of its agricultural, industrial, and service sectors. The discourse on contemporary economic systems is consistently centred around agriculture and industry. In that location, the service sector lags behind.
By 2030, Bangladesh is projected to rank as the ninth-largest consumer market globally. The projected per capita income of residents in this location is estimated to reach $5,880 by the year 2040. Considering the rapidly evolving global economic landscape, it is feasible for Bangladesh to achieve developed country status by 2041 if it effectively develops its service sector. This is due to Bangladesh’s reliance on a large young population and its historical advantage of demographic dividend.
The reason for this is that the service sector economy is an intricate amalgamation of all types of economies. Following the manufacturing of commodities, the service sector commences its operations and experiences growth. Service, in essence, refers to an intangible economic activity that effectively fulfils the demands of individuals. That is the intangible yet perceptible aspect of providing people’s wants in trade, which characterises the service sector. What is absent from this service sector? The service sector encompasses a wide range of activities, ranging from informal tasks performed by street children (known as Tokai), such as collecting paper, to the more formal operations of huge corporations, where raw materials are processed by machinery to produce goods.
This sector plays a crucial role as a subsidiary to other industries, as it is directly and indirectly connected to both preceding and subsequent financial activity through backward and forward linkages. Hence, while the contribution to Gross Domestic Product (GDP) may vary, the service sector’s contribution has the utmost significance in the economies of the majority of countries worldwide. The services sector accounts for 60 percent of the global GDP. The service sector accounts for 77.6 per cent of the GDP in the United States, 71.6 per cent in Britain, 70.3 per cent in France, 69.9 per cent in Japan, and 53.5 per cent in China.
The sector’s contribution to India’s GDP is 47.9 percent. As the country’s industrial sector grows, the proportion of the service sector likewise increases steadily. Hence, it is evident that the majority of economic activity is encompassed within this sector, and the economic progress, mobility, and stability of a nation are dependent upon it.
In many developing countries, the service sector is not first favoured or prioritised in economic critique and state operations within a free market-based development economy. Initially, it undergoes autonomous development. Subsequently, individuals convene at this location due to the abundant availability of lucrative gains. Bangladesh is not exempt from this. Many domestic and foreign investors who are attracted to Bangladesh’s growing economy are mostly focused on the service industry. The majority of investment proposals submitted to the government, whether domestic, foreign, or joint, pertain to the service industry. Due to the underdevelopment of medium and heavy industries, Bangladesh, now ranked as the 16th largest consumer market globally in 2021, lacks progress in this sector.
The Silver Lining From The Various Indicators
Bangladesh’s sense of accomplishment in its growth may lead to reluctance to accept further assistance. None of the countries listed as Least Developed Countries have achieved a level of success comparable to this. The per capita income index for the transition from Least Developed Countries (LDCs) is 1,242 US dollars. The current per capita income of Bangladesh stands at $2,793, higher, surpassing the closest and biggest neighbour, India. Bangladesh is making significant progress in augmenting its per capita GDP. The minimum threshold for the human resource index is 66 points. Bangladesh obtained a score of 77.3 on this index. Bangladesh’s ranking in this indicator can be characterised as displaying ‘consistent expansion’. The climate and economic fragility index must not exceed 32 points. Bangladesh’s score in this index is 26.6 points. There has been some advancement in this index. The economic position of Bangladesh warrants serious monitoring. In the event of a new circumstance emerging that presents an opportunity to request foreign aid, it is imperative to promptly seek such assistance.
The underlying question remains: will Bangladesh do proper justice to its higher outcomes and potentialities? Will it be Faster or Steadier growth? Well, the time will show us. However, Bangladesh, a country with a population of 170 million, has the golden goose to take the nation forward with such potentialities, possibilities, demographic dividends, enormous consumer market, and so on.
The author is simultaneously an independent researcher, columnist, and ongoing postgraduate student majoring in Chinese Politics and Economy at the Silk Road School, Renmin University of China. He can be reached at [email protected]
