global economic crisis and bangladesh essay

Bangladesh’s ongoing political crisis is ‘high risk’ for fragile economy

Experts attribute the current economic downfall to an oligarchy of political elites entrenched in the Sheikh Hasina regime.

Vegetable trader Afsar Uddin was distraught. He needed to pay nearly 50 percent more to bring a truck of vegetables to his shop in Karwan Bazar, the largest wholesale market for fresh produce in Bangladesh’s capital Dhaka.

The ongoing countrywide road-rail-waterway blockade imposed by the main opposition Bangladesh Nationalist Party (BNP) and its allies has disrupted the supply chains and significantly pushed up the cost of transport because only a fraction of the trucks and buses have been on the road during the shutdown.

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“Just days ago, I needed to pay 15,000 Bangladeshi takas ($136) for a truck to bring vegetables from the countryside to my shop in Dhaka. Now it has become 22,000 takas ($200) as very few truck owners are allowing their vehicles to ferry goods,” said Uddin. This is on the heels of already high inflation in the country, he pointed out.

“If we don’t increase the prices again, we will bear losses. But if we do, then we will end up with unsold, rotten vegetables,” Uddin lamented.

Tailor Samrat Mia, who lives on a daily paycheque by sewing and altering ready-made garments at Dhaka’s New Market, is also frustrated with the lack of business. “We are sitting here for the whole day but no customers. Who would come out to buy and alter pants amidst this political crisis?” he asked. “But we have a family to [take care of] and mouths to feed. Will [politicians] bother?”

Political unrest in Bangladesh is crippling the country’s already shaky economy and hurting small traders like Uddin and Mia, as the opposition parties attempt to push Prime Minister Sheikh Hasina to quit ahead of a general election scheduled for January.

BNP and its allies have been demanding the restoration of a caretaker government system to oversee national elections as they believe no free and fair election can take place under Hasina’s regime.

Hasina’s party — the Awami League — has been in power since 2009, and the last two general elections of 2014 and 2018, respectively, were marred with opposition boycotts and allegations of massive vote rigging.

Hasina, the world’s longest-serving female head of a government, is also accused of brutally suppressing the opposition and dissenting voices during this nearly 15-year period.

In 2011, the country’s parliament dissolved the caretaker government, a neutral election-time administration that had successfully conducted at least four elections since the South Asian nation’s democratic transition from military dictatorship in the early 90s. Both the Awami League and BNP came to power twice, alternatively, in those elections.

The BNP’s efforts in the last few years to restore the caretaker government have invited police brutality and thousands of court cases. Now the party and its allies have vowed to step up disruptive events ahead of the national elections and declared a series of nationwide blockades since early November.

But the brunt of this political impasse is ultimately being borne by ordinary Bangladeshis.

Rahul Amin, a travel agency executive, is paying at least 10 times his normal fare to work as there are very few buses, autorickshaws and taxis plying, pushing up prices.

“We have already been struggling hard with rising food prices and inflations for the last year or so. Now this political turmoil is wreaking havoc in the market,” Amin told Al Jazeera. “I understand the opposition’s demand for a free and fair election, but the whole economy will tank if these [blockades] continue.”

Economy in tatters

The escalating political standoff is causing serious concerns for the South Asian economy, which has already been squeezed by the global effects of the COVID-19 pandemic and the war in Ukraine. Shrinking foreign currency reserves and strong inflationary pressures pushed Hasina’s administration to seek a $4.7bn loan from the International Monetary Fund (IMF) earlier this year.

At a recent public forum, Abdur Rouf Talukder, the governor of Bangladesh’s central bank, admitted that the country’s economy has hit “rock bottom” and they are navigating “a very strenuous period”.

During the July-September quarter, Bangladesh’s balance-of-payments deficit – its import of commodities, capital and services higher than its exports – increased to $2.8bn. At the same time, its current-account deficit – which occurs when a nation sends more money abroad than it receives – increased to $3.93bn. According to central bank data, foreign currency reserves have fallen to a new low of $20.66bn.

Last month, earnings through exports, the lion’s share of which comes from the ready-made garments (RMG) industry, fell by 13.64 percent to $3.76bn, the lowest in the last 26 months, according to the Export Promotion Bureau.

Inflow of remittances, another important economic lifeline after exports, also fell by 4.4 percent during the last quarter.

Now, the blockades are causing Bangladesh’s economy to lose 65 billion takas ($588m) a day, as per the Federation of Bangladesh Chambers of Commerce and Industry (FBCCI), the country’s apex trade body.

“All businesses, small and large, are affected by these blockades,” Mahbubul Alam, president of FBCCI, told Al Jazeera. “We have seen how political violences disrupted the economy for a long period back in 2014 before elections [then]…. The crisis this time will be even bigger.”

Zahid Hussain, former chief economist of the World Bank’s Dhaka office, warned of the same. “The current political impasse is looking similar to 2014 in which the economy suffered damages worth several billion dollars. This time it may hurt more not just because the economy is bigger, but also because the buffers are thin to begin with,” he said.

Hussain, however, said the current economic crisis cannot be attributed to the political impasse only. “[It] has been there for more than 15 months and counting,” he said. While the global shocks have played a role in creating some of these pressures, the country’s monetary, exchange rate, financial and fiscal policy response did not help either, he added.

Since the start of the pandemic, Bangladesh had capped the lending rate at 9 percent for more than three years until this past July. This gave businesses the scope of grabbing funds at real interest rates of nearly zero (borrowing rate minus inflation, which was hovering at around 10 percent).

The central bank’s policy to keep the value of the country’s currency – the taka – artificially inflated also exacerbated inflation.

“Now, a deeper political impasse and violence will add loads of salt to pre-existing injuries,” Hussain said.

Financial analyst Zia Hassan told Al Jazeera that while the political impasse obviously exacerbated economic instability, the roots of the struggle around the balance of payments and dollar reserves can be traced back to deeper structural weaknesses in Bangladesh’s import-dependent, and undiversified economy.

In the fiscal year ending June 2023, Bangladesh imported goods worth $90bn against its export of $55bn – over 80 percent of which came from RMG products.

Bangladesh’s narrow export base, which is solely reliant on RMG products, and over-reliance on remittance inflows, have left it vulnerable to external shocks for many years now, Hassan says.

Need for ‘restoring democracy’

Hassan also attributes the current economic downfall to an oligarchy of political elites entrenched in the Sheikh Hasina regime who have control over banking, bureaucracy and business.

Corruption in the country’s banking sector caused a loss of 100 billion takas ($900m) in the 2016-17 fiscal year, found a study by the South Asian Network on Economic Modelling (SANEM), a Bangladeshi think-tank.

Global Financial Integrity (GFI) data indicates that between 2008 and 2017, Bangladesh lost a staggering $7.53bn – or 17.95 percent of its international trade – per year on average to trade misinvoicing where companies declared a lower value for their imports and exports to pay lower taxes.

This oligarchy, which has been accused of corruption and money laundering, has stymied reforms that threaten their economic interests, Hassan said. “Without a political settlement that restores genuine democracy by dislodging entrenched oligarchic networks, meaningful economic reforms are unlikely to be undertaken or implemented effectively,” he added.

Opposition leaders and activists meanwhile say their ongoing blockades are a part of their quest to break up this oligarchy and “restore democracy” in Bangladesh. “In the last 15 years, the Hasina governments and their beneficiaries have conducted unprecedented corruption. The whole economy is in shambles because of that,” said Ruhul Kabir Rizvi, joint secretary general of BNP.

“Blockades are obviously detrimental to the economy, but if we don’t fight to restore democracy now and allow another sham election, the economy as well as the whole country will be in bigger trouble,” he told Al Jazeera.

Ali Riaz, distinguished professor of politics and government at Illinois State University in the United States, told Al Jazeera that the absence of an inclusive democratic system and pursuing cronyism have led to the economic crisis of Bangladesh.

“The ruling party needs to understand that stubbornness, use of brute force, silencing opposition and machination may provide an aura of invincibility, but they do not deliver a solution to the economic crisis,” he said. Blaming the opposition or the global economy will not put an end to it, he added.

Riaz said the Awami League needs to address the sources of problems – break the hold of a small group of beneficiaries in various sectors. “It is not an easy task,” he said, “and only a new political settlement with popular mandate can deliver this.”

YaleGlobal Online

Bangladesh faces the challenge of globalization.

DHAKA: Bangladesh faces the challenge of achieving accelerated economic growth and alleviating the massive poverty that afflicts nearly two-fifths of its 135 million people. To meet this challenge, market-oriented liberalizing policy reforms were initiated in the mid-1980s and were pursued much more vigorously in the 1990s. These reforms were particularly aimed at moving towards an open economic regime and integrating with the global economy.

During the 1990s, notable progress was made in economic performance. Along with maintaining economic stabilization with a significantly reduced and declining dependence on foreign aid, the economy appeared to begin a transition from stabilization to growth. The average annual growth in per capita income had steadily accelerated from about 1.6 per cent per annum in the first half of the 1980s to 3.6 percent by the latter half of the 1990s. This improved performance owed itself both to a slowdown in population growth and a sustained increase in the rate of GDP growth, which averaged 5.2 percent annually during the second half of the 1990s. During this time, progress in the human development indicators was even more impressive. Bangladesh was in fact among the top performing countries in the 1990s, when measured by its improvement in the Human Development Index (HDI) as estimated by the United Nations Development Project (UNDP). In terms of the increase in the value of HDI between 1990 and 2001, Bangladesh is surpassed only by China and Cape Verde.

While most low-income countries depend largely on the export of primary commodities, Bangladesh has made the transition from being primarily a jute-exporting country to a garment-exporting one. This transition has been dictated by the country's resource endowment, characterized by extreme land scarcity and a very high population density, making economic growth dependent on the export of labor-intensive manufactures.

Although Bangladesh still does not rank among the most globally integrated developing economies, the pace of integration has been quite rapid. Until hit by the global recession in 2001, there had been robust and sustained growth of export earnings, averaging about 15 percent per year in the 1990s. As a result, the ratio of export earnings to GDP had nearly doubled to about 14 percent by the end of the decade. In 2001-02, however, export earnings declined in US dollar terms for the first time in nearly 15 years. Although there was a recovery in the following year, the medium term outlook indicates that it will be difficult to regain the export momentum of the 1990s.

A greater integration with the global economy seems to fit well with the kind of pro-poor growth envisaged by Bangladesh's development efforts. The export-oriented garment industry presently employs around 1.8 million workers - mostly women from low-income, rural backgrounds. The second dominant export-oriented activity, shrimp farming, is also very labor intensive, presently employing nearly half a million rural poor. More generally, import liberalization is likely to have contributed to the creation of productive employment for the poor through the strengthening of many small-scale and informal sector activities that have benefited from improved access to imported inputs.

The relatively strong growth of the Bangladeshi economy in the 1990s was underpinned by the even stronger export growth. Unfortunately, the removal of the Multi-Fiber Arrangements (MFA) quotas now threatens to increase competition in the global garment industry and thus limit Bangladesh's growth. The strength of the industry depends on the export quotas dictated by the MFA and preferential access in the major Western markets. Moreover, other export industries are unlikely to take its place if the garment industry shrinks; excluding the garment industry, the growth of the large-scale manufacturing industries was a meager 4 percent annually in the 1990s. That may partly reflect the overall poor investment climate, but also partly the effect of increased competition from imports on industries catering to the domestic market. In such a situation, the desirability of further import liberalization may be put to question. Since the country depends heavily on imported raw materials, machinery and components, cutting back on imports would hurt prospects for creating jobs by adversely affecting production and investment activities.

It is not easy for a Least Developed Country (LDC) like Bangladesh to specialize in manufactured exports. Having low wage costs can hardly compensate for its lack of marketing skills and infrastructure and poor overall investment climate. Moreover, the high degree of dependence of domestic industries on imported raw materials and industrial inputs makes it difficult for Bangladesh to satisfy the so-called "rules of origin" in getting preferential access for its exports in the markets of the developed countries. Thus, most of Bangladesh's garment exports are not eligible for the tariff concessions given under the Generalized System of Preferences (GSP) in the EU market. This problem has not received adequate attention, since the other major players in textile trade among developing countries are hardly affected by it.

Bangladesh can hopefully benefit from the European Union's decision to allow duty-free import of "everything but arms" from the LDCs, and it would like to see the replication of such trade concessions in other industrialized countries. Unfortunately, the same rules of origin as under GSP apply here as well. The GSP rules were devised decades ago to help developing countries promote export-oriented industrialization. But, in effect, the rules proved discriminatory against LDCs like Bangladesh that count on low value-addition processing activities. On top of these rules, Bangladesh also has to worry about non-tariff barriers such as those relating to environmental or labor standards. Anti-dumping actions are already under way against exports from Bangladesh, and they are an important latent threat when the MFA is dismantled. The tough sanitary and phytosanitary regulations of the developed countries are also an impediment for diversifying into agro-processed export items for Bangladesh and other countries that lack product standards and certification facilities.

Another issue of great importance to Bangladesh is that the free movement of temporary workers across borders be expanded, for workers' remittances play an important role in its economy. Indeed, a redeeming feature in the face of the export slowdown in Bangladesh is the continued increase in the inflow of migrant workers' remittances, which grew from about 2.5 percent of GDP in the beginning of the 1990s to above 5 percent in 2001-02 (amounting to about US$2.5 billion). Migrant workers are mostly unskilled or semi-skilled, and most of them come from poor rural families, making their remitted savings an important means for their families to escape poverty. There is, however, considerable uncertainty about the continuation of these remittance inflows, which depend on the economic fortunes of the host countries and their changing policies and attitudes towards guest workers. Most of Bangladesh's temporary migrant workers are in the Middle East, but increasingly they are going to more diverse destinations in East Asia and Europe, though often illegally.

In the wake of the 2001 global recession, Bangladesh's reliance on foreign countries as a market for exports and as a source of remittances has become obvious. If Bangladesh is to become less vulnerable to the economic fortunes of others, it will need to strengthen its domestic economy, creating jobs and markets at home. A strong domestic sector and an improved overall investment environment will provide a more stable source of income - like what the garment industry has provided so far - and will rekindle and sustain Bangladesh's economic growth.

Wahiduddin Mahmud is professor of economics, University of Dhaka and a former Minster of Finance and Planning of the Caretaker Government of Bangladesh.

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