DHAKA: In the five decades since independence in 1971, Bangladesh has transformed itself from arguably the poorest country to one of the fastest growing economies in the world. Bangladesh has made spectacular economic progress over the time. Bangladesh’s economic transformation was driven in large part by the ambitious economic policy adopted by its government since 2009. Peoples’ aspirations to progress and their resilience coupled with a political will were equally important.
Real GDP Growth 2020-2021
Bangladesh’s GDP growth rate has reached an impressive record level in the last decade, among the best in the world. Per capita income has risen steadily. Its poverty slashing performance is among the best in the world. The growth has been inclusive, accompanying major socio-economic and human indices. It has become an exemplary export powerhouse. Fifty years into the journey, Bangladesh now is considered as a role-model for other developing countries.
The average GDP growth in the last decade was over 6%. The GDP growth for 2018-2019 was 8.1%, setting a new record. The COVID-19 induced pushback has lowered the GDP growth rate to 6.94% in 2020-2021. The growth highlights the fact that Bangladesh is one of the top performing economies in the world, recording the highest growth in Asia in 2020.
According to the International Monetary Fund (IMF), Bangladesh is now the 43rd largest economy in terms of nominal GDP while its position is 32nd in terms of purchasing power parity. Bangladesh was included in IMF’s list of top-ten fastest-growing economies in 2017. The Price Waterhouse Coopers (PWC) projects that Bangladesh will be the 28th largest economy by 2030, and the 23rd largest by 2050.
Bangladesh’s per capita income was $134 when it became independent and in 2020 it reached $2591. Bangladesh achieved lower middle-income country status in 2015. In February 2021, Bangladesh fulfilled all three criteria to graduate from an LDC to a developing country, for the second time since 2018.
Graduating from LDC status is a sign that a country’s per capita gross national income, human assets, and resilience to economic and environmental shocks are stronger than ever. Inclusive growth policies, firm fiscal management, domestic and overseas employment generation, and broad-arching social security programs, have resulted in reduction in both moderate and extreme poverty.
The Government of Bangladesh recognizes that financial inclusion is one of the most important drivers of inclusive growth. Subsequently, the government stepped in with financial policies steering initiatives towards improving financial access to all.
A praiseworthy policy to support grassroots initiatives, particularly of rural females, has been taken. The positive effects of which are reflected in reports of global agencies. The drive for massive financial inclusion received thrust from the vision of achieving “Digital Bangladesh” initiated in 2009. It paved the way for the introduction of digital financial services which allowed banks and financial institutions to reach the last-mile clients. The number of deposit accounts in the banking sector stood at an astonishing 130 million as of June 2020.
For Bangladesh, both public and private investments have been instrumental to stimulate economic growth. Investment to GDP ratio was 31.6% in 2018-1019, out of which 23% came from the private sector and only 8% from the public sector. From the 1980s, the government of Bangladesh shifted its policy-strategy and opened up different sectors for private as well as foreign investment.
In recent years, the private sector investment contributed almost 75% of the total investment. In order to increase domestic and foreign investment, Bangladesh has formulated investment friendly policies, acts and laws. It is also focusing on enhancing Public Private Partnership (PPP) programs and building 100 large industrial parks which are being popularized as “Economic Zones.”
Bangladesh has become a destination for global investors due to its growth momentum, its favorable demographics and hard-working labor force, and its track record of export dynamism. According to the United Nations Conference on Trade and Development (UNCTAD), in 2018, Bangladesh was the second largest FDI recipient in South Asia.
Bangladesh became notable in South Asia for its successful export-led development model. Export earnings have heavily contributed to Bangladesh’s economy since the 1980s. Bangladesh’s exports have risen by around 80% in the past decade, driven by the booming garments industry. The garments industry emerged as one of the success stories; it is the second-largest globally, only next to China. The sector employs over 4 million people, the majority of whom are women.
Growth of manufacturing sectors such as textiles, food processing, pharmaceuticals, and leather are also visible. There are emerging signs of diversification in exports as Bangladesh is now exporting over 1600 distinct tradable products.
The economy has witnessed a structural transformation over time, a significant decline in agriculture sector share and rapid increase in industry and service sectors employment growth. Over the years, the share of the service sector increased to 56%. Between 1980 and 2010, the service sector recorded steady growth of 3.6% to 6.7%. The share of the manufacturing sector in GDP increased from 4% in 1972 to 18% in 2019, and the share of the non-manufacturing industry increased from 2% to 11% during the same period of time. Remittances play a major role in the economy, with Bangladeshi workers employed abroad transferring nearly $22 billion in 2020. Remittance inflow plays a vital role in boosting the foreign exchange reserves. Bangladesh’s foreign exchange reserves reached a new record of over $43 billion at the end of the year 2020. Surplus in the overall balance also helped to maintain the foreign exchange reserve up.
Bangladesh’s economy was adversely affected by the Covid-19 pandemic. To keep the country’s economy afloat in the face of the pandemic, extra spending on healthcare, emergency humanitarian assistance has been materialized. The government has been implementing a series of multi-sectoral fiscal measures to tackle the health and the economic challenges. The government has approved a stimulus of 28 sectoral packages, amounting to $22.1 billion, which is 6.2% of the GDP. It continues to support vulnerable groups through its social safety net. As a result of these actions taken by the government, the economy is expected to turn around.
Inclusive growth
Macroeconomic stability is an essential prerequisite for growth. Despite COVID-19 setback, Bangladesh has been experiencing a growth surge spurred by strong policies of inclusive growth. This growth path is underpinned by prudent macroeconomic management reflected in low inflation, low fiscal deficits, a comfortable balance of payments and low internal and external public debt. This sound macroeconomic management needs to be maintained for the next 2 decades. A key factor in Bangladesh’s prudent macroeconomic management has been the maintenance of sustainable fiscal deficits and public debt for nearly three decades. The strategy has been to keep public expenditures within the bounds of available revenue envelope plus external resources and low domestic borrowings.
Fiscal deficits have been contained to within 5% of GDP resulting in an optimum level of public debt. Notwithstanding the COVID-19 induced hiccup, this prudent fiscal policy stance needs to continue, as mentioned in the country’s development plans.
The other thrust is to make public expenditure more pro-poor, gender-sensitive, and environment-friendly; to improve the quality and effectiveness of public spending; and to establish accountability and transparency of public expenditure.
Bangladesh has generally succeeded in maintaining reasonable price stability. Bangladesh’s target for the future will be to reduce the rate of inflation to around 4-5% per year and maintain it at that level. Savings-investment is a nexus for Bangladesh’s growth. A key driver of higher GDP growth will be investment, which is projected to be, on an average, 40% of GDP by 2041.
Agriculture and food security
Bangladesh was left with a fragile economy following its independence in 1971. During independence Bangladesh’s economy was based on agriculture, which comprised 60% of the GDP. The post-independence agriculture industry suffered greatly as a result of internal displacement during the War of Liberation, leaving food production and supply chains in a complete state of disruption. In this backdrop, the policymakers decided to rebuild the agriculture sector and rural economy in order to ensure food security for its citizens.
Bangladesh has made commendable strides in agriculture over the last five decades. Though the number of people employed in the agriculture sector has increased from 16.4 million in 1984 to 25.7 million in 2010, agriculture’s share in employment declined to 41% in 2018 from 52% in 2003. The value of the agriculture sector has increased over time but its share in the GDP declined to 13% in 2020 from 58% in 1974 with the emergence of the other two macro sectors, manufacturing and services.
Being a deltaic swath, Bangladesh is blessed with fertile arable land and abundant surface and subsurface water resources. Thanks to a stable policy framework, the country has nearly quadrupled its farm output, particularly food grain production, since independence. The breakthrough in food production helped change the economy from a chronic food deficit to one of food sufficiency.
Food grain, fish, poultry, egg and meat production, all saw massive increases in the past five decades. Total food grain production was 9.9 million metric tons in 1972, and by 2020, it had risen to 45.4 million metric tons. This is a significant accomplishment for a country facing challenges such as increasing population, shrinking cultivable land and adverse natural environment. This transformation widely contributed to poverty reduction and improved nutritional standard, along with food security and sufficiency.
The agricultural sector in Bangladesh has enjoyed prudent and steady policy frameworks, supported by substantial public investments in farm-mechanization, rural infrastructure and human capital. However, Bangladesh is among the most vulnerable nations to climate change, the adverse effects of which are seen in the agricultural sector and food security system.
Digital transformation
Bangladesh has achieved phenomenal growth in the ICT sector in the last decade. Since 2009, Bangladesh government’s ‘Digital Bangladesh’ initiative has played a key role in attaining inclusive growth. The underlying philosophy of the ‘Digital Bangladesh’ initiative is to protect people’s rights, ensure accountability, and deliver citizen-centric services through technology.
The ‘Digital Bangladesh’ scheme has identified specific enablers to translate the vision into reality. The enablers are, policy and legal frameworks, infrastructure development, institution building, and public private partnership and innovations in the service delivery mechanisms.
Driven by widespread digitization across sectors, Bangladesh has seen tremendous growth in its internet connectivity, mobile phone usage, IT export earnings and incorporation of ICT components in education and skilling system. Several projects for digitalization have been completed and more are underway. The ultimate objective is to digitize most services for seamless delivery.
The number of internet users in Bangladesh has grown at an exponential rate in comparison to other developing countries. The entire country is being brought under optical fiber connectivity. Under the ‘Connected Bangladesh’ project, 772 remotely located unions will come under internet connectivity soon.
There are over 100 million internet subscribers in the country. Over 95% geographic area of Bangladesh has been brought under mobile telecommunications coverage. The number of mobile phone users has also risen exponentially in the last ten years. There are now more than 166 million mobile users which was only 20 million in 2006. Bangladesh is moving into expanding 5G mobile technology, after the first transition in 2018.
