The strengths of Bangladesh's economy

US Secretary of State under President Richard Nixon, Henry Alfred Kissinger, made a disgraceful comment about Bangladesh. The comment came when the country became free from Pakistani occupation. Bangladesh was termed by him a "bottomless basket". In March 1972, P.C Verma wrote in the Economic and Political weekly that during the last 24 years, while Bangladesh was a part of Pakistan, its economy stagnated. According to Pakistan Statistical Survey, in 1968 the per capita income of West Pakistan (now Pakistan) was US$ 99.80 against only US$ 40 in East Pakistan (now Bangladesh). Currently, Bangladesh's economy is ahead of Pakistan. In Fiscal Year (FY) 2018-19 Bangladesh's export income was US$ 40.3 billion whereas Pakistan saw US$ 23 billion only. Up to October 08, 2020, foreign exchange reserve of Pakistan stood at US$ 13 billion whereas the forex reserve in Bangladesh rose to US$ 40.4 billion.

There is no denying the fact that Bangladesh experienced phenomenal growth in GDP-over 7.0 per cent over the last few years. It was negative 5.48 per cent in 1971. The total net export of goods and services was negative 27.62 per cent in 1971. It rose to 2.20 per cent in 2016. As of late, the global market share doubled during the period from 1995 to 2016. It is now the world's second largest apparel exporter after China and fifth largest recipient of cash remittance from all over the world. Bangladesh has achieved a landmark in poverty alleviation by reducing the level by 24.6 per cent between 2000 to 2016, which accounted for more than 20.5 million people. The total adult literacy rate increased from 29.23 per cent to 72.76 per cent during the period from 1981 to 2016 and simultaneously life expectancy increased from 53.92 years to 72.22 years between 1981 and 2016.

The International Monetary Fund (IMF), in the meantime, announced economic indicators of some economies. As one of emerging economies, Bangladesh was brought under projection made by the IMF. In the study, many advanced economies in the world lagged behind in terms of economic growth compared to Bangladesh. Proudly saying, Bangladesh, in recent years, has become a role model to the developed countries. The economic growth in Bangladesh is likely to surpass the challengers shortly, no doubt. The IMF in its October 2020 report titled "World Economic Outlook: A Long and Difficult Ascent" notes that Bangladesh has overtaken India in terms of per capita GDP. In 2015, just five years ago, India's per capita GDP was around 40 per cent higher than Bangladesh's.

India's GDP will be contracted by 10.3 per cent and per capita income by 11.2 per cent in 2020-21 while Bangladesh GDP will increase by 3.8 per cent and per capita income will reduce by 2.9 per cent, according to the IMF projection. In nominal US dollars, India's per capita GDP is projected to be US $ 1,877 in 2020-21, compared to US$ 1,888 for Bangladesh. The impressive economic success of Bangladesh has become a matter of discussion in the Indian media and beyond. A report by Oxford Economics released earlier in November, 2020 said that India would be the worst-affected economy even after the pandemic eases, stating that annual output would be 12 per cent below the pre-virus levels through 2025. India, a country of 1.3 billion people, is in trouble with a high unemployment rate amid the pandemic. Bangladesh since the beginning of the pandemic performed better than India in respect of saving lives and economy.

The IMF Outlook also indicates that in 2021 India will see a rise of its per capita GDP by 8.8 per cent while Bangladesh will see a rise of 4.4 per cent. As a result, in 2021 India's per capita GDP will reach US$ 2,030 and Bangladesh US$ 1,990. The IMF report made the projection until 2025 saying that India in 2024 would surpass Bangladesh and in 2025 Bangladesh would be ahead of India in terms of per capita GDP. In terms of Purchasing Power Parity (PPP)-based per capita GDP, India is ahead of Bangladesh. India's per capita GDP at PPP is US$ 6,284 and Bangladesh's US$ 5,139. Since 2009, Bangladesh has been achieving more than 6.0 per cent growth. The country graduated to a lower middle-middle-income nation in 2015 while in 2018 the country met the UN criteria for graduating from the least developed country status by 2024.

Beyond self-sufficiency, Bangladesh is now the fourth largest in rice production, second largest in jute production, fourth largest in mango production, fifth largest in vegetable production and fourth largest in fisheries in the world. The GDP of Bangladesh grew from US$ 102 billion in 2009 to US$ 302 billion in 2019. Foreign Direct Investment also increased from US$700 million in 2009 to US$ 3,613 million in 2018. In 2018, Bangladesh was also the second largest recipient of FDI in South Asia.

By achieving higher per capita gross national income and meeting the human assets index and the economic vulnerability index of the United Nations, Bangladesh has fulfilled all three criteria to graduate from an LDC to a developing country by 2024. Bangladesh is moving forward with specific targets in mind. The present government set some targets for Bangladesh to achieve the status of middle-income country by 2021, achieving the Sustainable Development Goals (SDGs) by 2030, becoming a developed country by 2041, becoming a miracle by 2071 and executing a delta plan by 2100. In 2018, Bangladesh achieved the status of a lower middle-income country graduating from a low-income country- according to World Bank's classification criteria. One of major strengths for Bangladesh is among 170 million people more than 60 per cent are energetic and dynamic youths who can contribute immensely to the overall development of the country. According to a study of UK -based firm PwC, Bangladesh will be 23rd largest world economy by 2050. Bangladesh was awarded "South-South Award" in 2013 to mark its remarkable progress in poverty alleviation

The IMF report focuses on some limitations of Bangladesh's economy. The report notes that Bangladesh's revenue-GDP ratio is only 8.17, the lowest among South Asian countries. The total government expenditure is also lowest in South Asia and stands at only 14.97 per cent of GDP. Investment-GDP ratio is 27.73 per cent much lower than Nepal and Bhutan. Investment-GDP ratio is close to neighbouring India's 27.77 per cent. Despite facing many challenges, the economy is moving forward by leaps and bounds. Right now, a few precautionary measures have to be taken to address ongoing economic challenges. One of key challenges is to reduce the amount of foreign loans. According to a newspaper report, in the FY 2019-20, the foreign loans were 13.34 per cent of GDP. At present, foreign loans stand at US$ 44.02 billion (4,402 crore) indicating 15.4 per cent of GDP. If it crosses 20 per cent of GDP, that will give a red signal for our economy. It is important to note that in 2009, foreign loans were only US$ 7.12 billion (712 crore). Bangladesh might face difficulties in the days to come in terms paying back the loan amount for lower revenue income. Now, unpaid foreign loans of Bangladesh stand at US$ 34.5 billion.

The tax-GDP ratio has to be increased any how to address the need of the economy. According to 2020 report prepared by the State of Tax Justice, Bangladesh is losing more than US$703 million every year because of tax abuses committed by multinational corporates and individuals. The total loss is equivalent to 3.5 per cent of tax revenue. Bangladesh's economy also faces a challenge to reduce high income inequality which is a major concern in the present context. According to Household Income and Expenditure Survey (HIES) of Bangladesh Bureau of Statistics (BBS), the country's Gini coefficient, which is the economic measurement of equality, stood at 0.482 in 2016 up from 0.458 in 2010. However, it is good to see that our economy now sees over US$40 billion in the foreign exchange reserve, a lion's share of which is foreign remittance. There is no alternative to export of skilled manpower to demand-driven countries in the world. In this regard, the need for boost relations with so many countries is a must.

In this situation we need to enhance export diversification. India's export income in 2018-19 was US$ 313 billion whereas Bangladesh fetched only US$ 40.3 billion. As of October 08, 2020 India's foreign exchange reserve was US$ 330 billion, much higher than Bangladesh's. Following the LDC graduation in 2024, Bangladesh is set to lose GSP facilities provided by European Union (EU). So, necessary economic measures must be undertaken right now to compete with India, Asia's third largest economy. Free trade agreements and enhancing regional connectivity might help Bangladesh's economy to sustain, no doubt. Inclusion in the Regional Comprehensive Economic Partnership (RCEP), the world's largest free trade area, is a must. If any free trade pact is immediately signed with the Association of Southeast Asian Nations (ASEAN), there is a possibility to cover economic losses caused by the Covid-19 with rising inflow of Foreign Direct Investment ( FDI) to a great extent.

The writer is a banker and economic analyst. Email: [email protected]