Bangladesh already in middle-income trap

The white paper on Bangladesh's economy says the country has already fallen into the middle-income trap as employment and productivity data conflict with the past years' higher-growth narratives.
Bangladesh started falling into the trap in the fiscal year 2013-14 and is now already trapped, according to Dr Zahid Hussain, a member of the white paper committee.
Referring to World Bank (WB) surveys, the white paper said other countries fell into the trap upon reaching the per capita income threshold of $8,000, but Bangladesh is still below that.
"An inverse relationship between the shares of industry in employment and production in quarterly data, stagnating or declining productivity in industry, the gross domestic product (GDP) intensity of exports, stagnating private investment, public expenditures on health and education, and governance indicators together signal entrapment, if not entropy," the white paper said.
The white paper, submitted to Chief Adviser Professor Muhammad Yunus on Sunday, also said the inflated growth data crowded out attention to the low-frequency data on "structural stagnation".
The country sleepwalked into a downward sloping growth path emblematic of the family of middle-income traps, it noted.
Drawing lessons from the experience of 100 countries in the past 50 years, the WB has found that countries usually hit a trap upon reaching about 10 per cent of the annual US GDP per capita or the equivalent of $8,000 in 2024, according to the white paper.
Bangladesh is not even close to these levels of per capita income of $8,000, it added.
Meanwhile, the country graduated to the low middle-income status in 2015.
The middle-income trap is a situation where a country experiences rapid economic growth and moves from low-income to middle-income status, but then struggles to become a high-income economy.
Zahid told The Financial Express countries translating their low productivity into a high one could overcome the middle-income trap, but that has not been happening in Bangladesh over the years.
"Many economic indicators like productivity, employment, investment, tax-GDP ratio, export-GDP ratio, and broad money-GDP ratio have almost been stagnant over the years. If such indicators of a country become stagnant, it falls into the trap," he added.
Zahid, also the former lead economist of the WB's Dhaka office, said there had been some reforms since the 1990s, which continued until 2004.
"But after that, very nominal or tiny and indiscriminate reforms happened. Interestingly, some reforms of the past were reversed after 2010."
"For example, tariff protections have been enlarged, and the government has given more benefits to loan defaulters, allowing the financial sector to be in a vulnerable trajectory. The government also gave immunity to the power sector investments. All these have made Bangladesh's growth stagnant," the economist explained.
He said if an economy booms and then falls in trouble, it can rebound.
"But if an economy faces structural stagnancy, how will it expand at a high rate to overcome the trap? Bangladesh now has fallen into structural stagnancy, resulting in a middle-income trap," Zahid added.
The unreal growth narratives especially since 2010, the failure to transform the dividend population into human capital, and institutional fragility are the key reasons behind Bangladesh's fall into the trap, he also said.
Another member of the white paper committee Professor Mustafizur Rahman also said Bangladesh has already fallen into the middle-income trap.
"We have already assessed Bangladesh's growth narratives over the years, its stagnant productivity, employment situation, and other indicators. All these indicate the country has already fallen into the trap," he said.
Mustafizur, also a distinguished fellow of the Centre for Policy Dialogue, said, "Now we are assuming the country may fall into the debt trap shortly if the government does not become cautious."
The loan agreements with development partners should be reviewed properly, and Bangladesh in some cases could seek deferred repayments because of the current economic situation, he added.
According to the WB, 108 countries are currently in the middle-income trap, including major economies like China, Brazil, Turkey, and India.
Some factors that make it difficult for countries to escape the trap include high debt, ageing populations, and growing protectionism in advanced economies.

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