Bangladesh has seen a sharp decline in projected economic growth after the recent upheavals stemming from the “Monsoon Revolution”, leading to the replacement of former Prime Minister Sheikh Hasina’s government with an interim administration led by Chief Adviser Muhammad Yunus. But the country has not plunged into an economic crisis, which may have surprised some people.
Yet, those who have followed Bangladesh’s development trajectory know better. Unlike Pakistan or Sri Lanka, which have struggled to maintain economic stability, Bangladesh has some solid sources of economic resilience — garments, remittances and decent social sector delivery mechanisms.
The political protests in July and August 2024 and their aftermath have certainly had an impact. The uprising led to repression and violence, internet shutdowns and transport disruptions, among other issues. Communications with buyers were cut off for a while.
All this affected the economic activity, with official estimates of the GDP showing a growth of only 1.8 per cent during the quarter July-September 2024. The World Bank, in its latest Bangladesh Economic Update, has reduced its base case GDP growth forecast for FY25 (Bangladesh’s fiscal year is July to June) to 4 per cent, down from an annual average of about 6 per cent during the previous three years. The IMF forecast, at 3.8 per cent, is in the same range.
While there is much uncertainty about the future, there are also positive sentiments around the firm action taken to repair the financial sector and expectations about other reforms related to governance and the investment climate.
Thus, the FY26 growth is expected to bounce back to 5.5 per cent while the IMF projects an even higher 6.7 per cent.
Notably, the recent White Paper on the State of the Bangladesh Economy has questioned, among other things, the reported growth rate of the economy in the last 15 years. However, the core arguments of this essay will remain largely unaffected by any resultant corrections that the current or future governments of Bangladesh may undertake.
Steady export growth over the last two decades — driven by the garment industry — has been one pillar of the Bangladesh economy.
This stands in contrast to Pakistan and Sri Lanka and has helped Bangladesh to preserve macroeconomic stability and lower its vulnerability to external shocks.
Within exports, the readymade garments sector stands out, accounting for about 85 per cent of goods exports. Bangladesh remains the world’s second largest exporter of garments, with exports valued at $38 billion in 2023.
While the factory closures and communication disruptions did impact exports, the industry seems to be recovering quickly.
In fact, over the period July to December 2024, garment exports rose by 13.3 per cent compared to July-December 2023, a number that does not suggest an industry in trouble!
Bangladesh has strong fundamentals that enable it to dominate the low-cost apparel segment, including cost competitiveness, the ability to service large orders and longstanding engagement with global apparel brands. None of these is going to change.
As an aside, India or, indeed, other South Asian countries, are not an alternative to Bangladesh in this sector. They simply do not have Bangladesh’s factory scale and cost competitiveness. For example, India’s apparel exports were a mere $15 billion in 2023.
The other pillar of Bangladesh’s economic resilience is its steady flow of remittances, which account for 4.7 per cent of the GDP.
Remittances not only help stabilise the balance of payments but also contribute significantly to consumption and poverty reduction. This is especially critical for poor households, given that inflation has hovered around 9-10 per cent over the last two years.
Despite the political upheaval or, perhaps, because of it (people send more money to their families when the need arises), remittances continued to grow at a rapid clip, rising 27.6 per cent during July-December 2024.
Bangladesh’s economic resilience has been accompanied by relatively strong social sector outcomes, where it outperforms India on several counts, including infant mortality, life expectancy, stunting, child immunisation and so on. Much of this performance can be credited to the country’s robust non-governmental organisations, starting with BRAC, the world’s largest NGO.
Of course, this story of economic resilience is one side of the narrative. Bangladesh has some glaring limitations as well. They are reflected in, among other things, insufficient job creation — the underlying reason for the student protests.
Policymakers, basking under the success of the twin pillars of garments and remittances, have delayed serious economic reforms for the last 15 years and more despite clarion calls by economists.
Now, for the good of Bangladesh and its people, these reforms should be urgently prioritised.
The policy package needs to promote export diversification, address banking sector vulnerabilities, increase tax collections, encourage foreign investment and improve the quality of education, all underpinned by a concerted effort to improve state capacity.
Bangladesh is a resilient economy. It should be able to ride over its current travails and possibly emerge economically stronger if the current dispensation is able to kickstart some of the much-needed economic reforms.
But Yunus has a delicate balancing act ahead: initiating some of the economic reforms; setting a timetable for elections, hopefully going back to a more neutral electoral arrangement (like a caretaker government); and doing this while retaining his administration’s legitimacy and restoring social harmony.
It is in the interests of India, South Asia and, indeed, the global community that Bangladesh navigates this tricky transition successfully.