Despite risks of slowdown in global growth due to AI-related labour disruptions, and other issues, South Asia is still the world's fastest growing region. Growth in this region is projected to be robust at 6.6 per cent this year, but is expected to slow down to 5.8 per cent in 2026. This is, however, a short-term outlook, which is subject to downside risks. But over the longer term, artificial intelligence (AI) could promote growth by boosting productivity especially among those 15 per cent of South Asian workers who are in jobs where AI strongly complements human labour. However, reforms to promote trade liberalisation and technology adoption could help the region create jobs and catalyse growth. Especially, tariff cuts on intermediate inputs could benefit younger and more skilled workers in the region including Bangladesh.
These are the prospects of South Asian growth including that of Bangladesh, according to the World Bank (WB)'s South Asia Development Update released recently. The Update emphasises the need for reforms to improve economic flexibility, connectivity, workforce upskilling, and private sector job creation, especially for youth and women. In this connection, the WB document particularly stresses carefully sequenced tariff cuts along with broader free trade agreements in order to encourage private sector investment and job creation in trade-related activities. The reason is that younger and higher-skilled workers are disproportionately engaged in trade-related activities over the past decade and contributed to most of the region's employment growth.
Regarding the tariff regime of the region, the average tariff in South Asia is 16 per cent, which is still higher than global average. But in Bangladesh, it is 28 per cent. Obviously, it is a big barrier to openness in trade and such growth. The policymakers in the government would be required to give serious consideration in this regard. Adopting time-befitting policies is necessary as global development is at a juncture. This is especially so because of the adoption of AI on a massive scale in every sphere of the economy, manufacturing, agriculture, medicine, just to name but a few. Bangladesh cannot simply afford to lag behind when the rest of the world is moving at pace.
While talking of tariff cuts to liberalise trade and promote competitiveness of the local industry including manufacturing and the service sector, there are issues that are also required to be looked into. Going too fast about trade liberalisation with tariff cuts risks killing some traditional domestic sectors that employ a large segment of the population. While adoption of AI in different sectors of manufacturing and service cannot be stopped given the impact of all-embracing fourth industrial revolution, there are still options for going slower in certain vulnerable areas.
Consider the Readymade Garment (RMG) sector that earns 85 per cent of Bangladesh's earnings from exports. No doubt, introduction of AI will immensely contribute to enhancing productivity and growth of the RMG sector. But at the same time, it will kill the jobs of thousands of workers. This is not the case only with a developing economy like Bangladesh. In truth, even in the developed economies, AI is an issue of concern both in the manufacturing and service sectors. Especially, generative AI is an area of greater concern. So, one needs to be judicious and not going gung-ho about AI. Both policymakers in the government and experts in the sectors concerned need to devise a more balanced approach to the issues of trade liberalisation through tariff cuts as well as wholesale adoption of AI in the economy.
