Newsnow Desk: The month of March 2021 marks 50 years of Bangladesh becoming a nation. It has been hailed as a “rocketing economy”, a “growth leader in South Asia”, etc. Much of this is based on Bangladesh’s estimated GDP growth rate of 8% in 2020, making it one of the fastest growing countries in Asia, and the IMF forecasts that its GDP per capita (or average level of income) is likely to exceed that of India in FY 2020. So, how did this happen?
This economic leap by the country can be traced back to various early initiatives such as economic liberalization starting in the late 1970s and carried out under donor initiatives during the 1980s and 1990s.
Some of the less talked about facts is the social development in the country. Substantial effort has been given to lift millions out of poverty, cutting the poverty head count rate from 51.7% in 1985 to 21.8% in 2018. Infant mortality was cut by 79%, and the mortality of children under five by 83%, gender parity was attained in primary and secondary education, reaching impressive rates of primary enrollment rates at 92% and completion rates of 72%. This social development forms an important foundation for economic growth.
Another aspect of social development, also a prerequisite for growth is the country’s transition to democracy in 1991. Studies find that measures such as law and order, the quality of bureaucracy, political rights, and civil liberties improved immediately after the end of military rule and advent of democracy and political freedom.
Beginning in the 1990s, the pace of public investment in infrastructure, particularly in rural areas, increased. This investment occurred through the provision of power, roads, bridges, hospitals, schools, and administrative offices around the nation. Building a bridge over the river Meghna in 1991 and the Bangabandhu Bridge over the Jamuna river in 1998, provided a key infrastructure connecting the different parts of the country that were divided by these vast rivers. The current construction of the Padma bridge, which is likely to be in place soon, will complete road and transport connectivity that has facilitated market development and labour mobility, both key for economic success.
Further, there was investment in new agricultural technology. For example, rice production was extended into the dry winter season and technology adoption was enhanced because of the advent of fixed tenancy in sharecropping, and piece rate contracts replacing daily wage contracts. These led to increased incomes by providing greater market access and lowering costs of transportation and distribution for farmers. One result was increased non-farm production in rural areas.
In the area of social development is also laudable. Non-governmental agencies provided loans that helped alleviate poverty and finance rural areas, ensuring education where the public sector failed. They offered basic health services in remote areas and supported advocacy for political freedom and basic legal rights. These laid the foundations that would change the country.
While the influx of micro-credit did not increase investment, it served to lower income vulnerability, and provided a safety net that was missing, also encouraging gender parity in education and employment. In addition, the early spread of cellular phones in Bangladesh with the inception of Grameenphone in 1997, and the Village Phone Program which provided telecommunications facilities in remote, rural areas all over Bangladesh, supplemented the social infrastructure. About 75 percent of the operators were women, and the system helped promote health care, develop of agri-business and also contributed to the social empowerment of women. Mobile banking has been extended since 2011, allowing urban remittances to be sent to rural areas with greater ease.
Finally, many workers, especially women, have migrated out of rural areas since the 1980s to join garment factories, and the ready-made garments sector. This employs over 4 million workers and accounts for 80 per cent of export earnings for the country. Working in factories has been an important source of freedom and change for young rural women, who have instilled the ideas of autonomy and wage work in their rural sisters. This is one of the most important sources of growth and foreign exchange, keeping the country stable in terms of reserves. The additional and equally key foreign exchange earners are overseas workers, primarily in the Middle East, but also in many Asian countries, Europe, and the US. The bulk of remittances come from the Middle East. They have been instrumental in flushing funds to the countryside all over the nation, as well as allowing Bangladesh to rely far less on donor funds, A as was the case prior to the new millennium.
In sum, Bangladesh has slowly built its economic growth on its social development, despite the setbacks of overpopulation, a huge and unregulated informal sector, unsustainable growth in the capital megacity of Dhaka, the depletion of groundwater leading to arsenic and other problems, drying of many rivers and deforestation, with the lowest rate of forest land in any country in Asia.
It is worth examining if this trajectory of prosperity will continue. The fiscal deficit of 3.5-4.5% of GDP, anchoring the economic performance with moderate inflation and exchange rate stability, hides the low tax base which is below 10%. Even during the pandemic, remittance inflows are 20% more compared with last year in the same period. However, this may be because there are funds coming in as people are forced to return from their overseas jobs due to coronavirus. There is also the fact that more remittances are being sent because of economic needs during COVID-19. Related to this is the decline in production of ready-made garments, which had already faced problems after the Rana Plaza collapse of 2013, as well as competition from China and Vietnam, both of whom devalued their currencies. Global demand for garments declined substantially during the pandemic and although Bangladesh was relatively less affected, production is at less than 80% on average for most factories.
Lastly, the increased authoritarianism in Bangladesh is evident in the Prime Minister’s fourth term in office, and her party, the Awami League’s control of all but 12 of the 300 seats in parliament, with the main political opposition effectively destroyed. These political setbacks combine with a weakening banking sector which is strapped with large amounts of non-performing loans. The sector is nonetheless propped up by the government and this goes against the kind of institutional strengthening that is needed to sustain economic growth. While the economy might return to high growth in the immediate post-pandemic situation, whether this can be maintained over time remains to be seen.