Can you guess who is under the risk of becoming the next victim, after the economic crash of Sri Lanka and Pakistan? It’s Bangladesh Economy!
In the post-pandemic and Russia-Ukraine war era, one thing that haunts us the most is the depleting economy of the globe. Have a look at our neighbors-
- Sri Lanka suffered an economic crash
- Political instability in Pakistan became a disorder for its economy
- Nepal is facing a liquidity crisis in the banking sector
- Myanmar depicts massive unemployment due to a military coup.
A new neighbor to join the above list is “Bangladesh.” But according to the international poverty rate, the estimated poverty in Bangladesh declined effectively. That is from 12.5% in FY21 to 11.9% in FY22. Not just that, it evolved into a lower middle-income country from a low-income country in 2015. It was perfect on the track and enrooted its vision to become a fully developed country by 2041! Then how come its economy came under risk? You may ask. Well, there is not one but numerous reasons, which will be discussed in further sections. So, the question arises- Is the Bangladesh Economy at risk? To get a clear answer, we need to deep dive into its potential economic crisis.
So, let’s begin!
The story so far: Bangladesh’s Economy is facing strong Headwinds
Do you know how economists analyze the economic status of a country? Well, there are many factors but a crucial one is “headwinds and tailwinds.” The former refers to the conditions that deteriorate economic growth whereas the latter boosts economic growth. These headwinds can either lead to a soft-landing economic downturn or a disruptive landing where the economy crashed. Sri Lanka was a live example of the economic crash.
1. Current Scenario of Bangladesh’s Economy
Is Bangladesh Economy going to meet the same fate as Sri Lanka? Before delving into it, let’s look at the current scenario of Bangladesh’s Economy-
- The high prices of Oil: Petroleum oil, LPG, LNF, and Cooking oil.
- Overvalued foreign exchange rate: $1= Tk.1.6.75 (Bangladeshi Taka)
- Sky-rocketing import bill: $84 billion
- Trade deficit: $32 billion
- Current account deficit: $17 billion
2. Emergency Measures Taken by Bangladesh Government
These record-breaking numbers are like a silence prior to a storm! The Bangladeshi government is not going to just sit and watch this disruption. Right? So it managed it somehow in the following ways-
- Prop up the Bangladeshi Taka by selling dollars that reduced its Forex reserve by $7 billion.
- Depreciation of Taka by 10%
- Reduce the imports to protect the reserves
- Reduce the power supply by 1000-1500 MW.
- Increase the fuel prices by a whopping 35%-45%.
- Loans from IMF and other countries.
Imagine sitting on a dark and sweaty humid night to save the economy. No less than a nightmare. Isn’t it? Unfortunately, Bangladeshis are facing this severity now! Are those emergency measures enough to tackle the situation? Of course not! A saddening perspective of an Economy is-
“It takes years to build a golden economy but a single disaster of a few minutes is enough to destroy it completely.”
To tackle the economic crisis, the most effective shortcut is a loan. Recently, it asked the IMF to bailout $4.5 billion in seven installments. Other than the IMF, it took loans from Japan, Russia, China, India, South Korea, and France.
What led to this horrific economic condition in Bangladesh? You may wonder. Let’s find it out in the next section.
Risks Faced by Bangladesh Economy
You may say that every economy is under some kind of risk. Recently, high inflation in the US was a sickening factor in the US economy. If Americans and Europeans can tackle the economic crisis then why are Asians finding it difficult to tackle their economies? You know what! The 247-year-old US has tackled far more crises than 53-year-old Bangladesh. Also, both of them are facing different challenges. So, you can’t compare them directly. Look at the points given below to understand the risks faced by Bangladesh Economy-
1. Vulnerable to Natural Calamities
Unlike any other country, Bangladesh is highly susceptible to natural calamities and climate change. Why? Due to its geography. The major disasters include cyclones, hurricanes, rising sea levels, tides, and most importantly flooding. Bangladesh is highly prone to floods. You won’t find a single year when Bangladesh didn’t face a flood. Even during the health crisis of May 2020, when the Covid-19 pandemic was at its initial peak, Bangladesh experienced the worst cyclone in its history. “Cyclone Amphan.” It devastated a major part of the country along with the Indian states of West Bengal and Odisha.
This isn’t a single one. It faces multiple cyclones in a year that causes heavy damage to physical infrastructure like roads and bridges. Do you know, the losses caused by Amphan were worth over $130 million? Imagine a country that loses almost $100 million every year due to natural calamities. It is no less than a curse… These environmental challenges heavily disrupt agriculture, infrastructure, and overall economic stability.
2. Poverty and Income Inequality
This is the chief reason for Bangladesh’s economic slowdown. Although the poverty situation of the country declined to a large extent i.e. from 43.5% in 1991 to 14.3% in 2016. Economic equality continued to rise. This means the rich get richer and the poor get poorer. As of the latest report, only 1% of the population holds 16.3% of Bangladesh’s national income. According to the Bangladesh Bureau of Statistics, the poverty rate of Bangladesh came down to 18.7%. Let’s look at the detailed data below-
|Particulars||Poverty Rate (%)|
Being a densely populated country, Bangladesh faces numerous challenges that include inequalities in various segments. Its income equality is growing at an alarming rate. Its income is distributed in huge gaps. Do you know the latest Human Development Index ranked Bangladesh in 133rd place out of 189 countries? Let’s look at the income share–
|Population Segment||Income Share (%)|
|Richest Population (Highest 10% Population)||27% of total income|
|Poorest Population (Bottom 10% Population)||3.99% of total income|
3. GDP Growth Rate
According to the World Bank, the growth rate of GDP in FY 23 is expected to decline to 5.2%. This led to inflation and impacted negatively on household incomes, input costs of Bangladeshi companies, energy shortages, etc. Let’s look at the forecasted growth rates of the country-
|Financial Year of Bangladesh (July to June)||GDP Rate (%)|
4. Segments affected by low GDP growth
A) Labor Market
The slowdown of the growth rate heavily hits the labor market too. The labor segment in Bangladesh faces numerous challenges. Such as low wages, limited job opportunities, and labor rights concerns. These factors can affect productivity, competitiveness, and social cohesion.
B) Infrastructure Development
Low GDP growth means low income for the nation. This ultimately leads to low investment in developing the infrastructure of the country. : Infrastructure gaps, including inadequate transportation networks, power shortages, and limited access to basic services, hinder economic growth and productivity.
5. Inflation Rate
In FY22, Bangladesh’s inflation rose to 6.2%. It was driven by both food and non-food prices. The public debt from World Bank-IMF funds will support the recovery to some extent. But it is grappling with rising food prices, supply-chain disruption, and vulnerabilities in the financial sectors. Let’s compare the inflation rate of Bangladesh with the world-
6. Unemployment Rate
|Year||Unemployment Rate (%)|
7. External Vulnerabilities
Look into the part of the current scenario of Bangladesh Economy. Have you ever wondered why the price of oil and food increased rapidly? Due to the Russia-Ukraine war… Yes. Absolutely! Bangladesh imported over 50% of its wheat from Ukraine. Its other imports from the war-hit country were cereals, iron & steel, Oil seed, etc. Also, it imported the majority of petroleum from Russia. Both are war-torn countries! Now, you must have realized why the Russia-Ukraine war had a devastating impact on Bangladesh. This is the root of inflation. Bangladesh also imported a heavy amount of fertilizers from the Eastern European region. But due to war, it doesn’t get a sufficient amount of fertilizers. Eventually, it affected its agricultural production.
So after a detailed analysis, let’s wrap up the topic. Coming back to the question- “Is the Bangladesh Economy at risk?” Yes! It is highly vulnerable and on the verge of collapse. It has numerous red flags. But the condition of Bangladesh is not as critical as that of Sri Lanka and Pakistan. Why? You may ask. Let me give you some positive insights that will protect the country from economic collapse. Bangladesh has a large reserve of natural gas. The government can utilize it to get a long-term sustainable income. The country has a labor-intensive industry of textiles and ready-made garments. A major boost in it will provide domestic employment and industrialization. The “Digital Bangladesh” campaign will boost its IT sector which will facilitate good income.
Let’s hope that Bangladesh will recover from its economic crisis soon!