Changing trends in Bangladesh economy

For the last two decades or more the traditional economy of Bangladesh has been undergoing a rapid change tracking the model of a rapidly growing capitalist economy. Its per capita income in 2012 was estimated at US$ 2,800 {adjusted by purchasing power parity (PPP)}. According to the International Monetary Fund (IMF), Bangladesh was ranked as the 37th largest economy in the world in 2013 in PPP terms and 36th largest in nominal terms with a gross domestic product (GDP) of US$ 419 billion in PPP terms and US$ 173.8 billion in nominal terms. The economy has grown at the rate of 6 per cent per annum over the past few years. The growth potential of the economy has led to Bangladesh's inclusion in the Next Eleven (N-11) of Goldman Sachs and the Global Growth Generators countries. More than 50 per cent of the GDP is generated by the service sector; nearly 50 per cent of Bangladeshis are employed in the agriculture sector.
Exports of textiles and garments are the country's largest source of foreign exchange earnings. Shipbuilding, pharmaceuticals and consumer goods manufacturing are important emerging sectors, while the traditional jute sector is re-emerging with increasing global demand for green fibres. Remittances from Bangladeshis working overseas, mainly in the Middle East and Malaysia, are another major source of foreign exchange earning. Other important export sectors include fish and seafood, ceramics, cement, fertiliser, leather and leather goods, food products, software and IT services. Bangladesh has also made major strides in its human development index.
The land is devoted mainly to rice and jute cultivation as well as fruits and other produce, although wheat production has increased in recent years. The country is largely self-sufficient in rice production. The country's tea-growing regions, located in the divisions of Sylhet and Chittagong, are among the major tea producing areas of the world. Bangladesh's growth of its agricultural industries is due to its fertile deltaic land that depends on its six seasons and multiple harvests.
Transportation, communication, water distribution and energy infrastructure are rapidly developing. Bangladesh is limited in capacity in its reserves of oil, but recently there has been huge development in gas and coal mining. The service sector has expanded rapidly during the last two decades and the country's industrial base remains very positive. Its main endowments include the vast human resource base, rich agricultural land, relatively abundant water, substantial reserves of natural gas and coal, major seaports at Chittagong and Mongla, and its central strategic location at the crossroads of the two large economically burgeoning groups: SAARC and ASEAN.
Bangladesh has an excellent record of investing in health, education and social safety nets for the poor, and there are reasons to be optimistic that more progress can be made to end poverty and ensure shared prosperity. Bangladesh has made good strides in the field of healthcare and now has the longest life expectancy, the lowest infant and under-5 mortality rates in South Asia. Today, more Bangladeshis are living longer, healthier lives, and more children are stepping into classrooms. But to achieve the middle-income status, the country needs to do more to improve the power and transportation sectors, manage urbanisation, reduce climate change impacts and improve business environment and public service delivery together with political understanding between the country's rival political parties.
About a year back, the Economist had an editorial piece titled 'Out of the basket' in which the development outcomes of Bangladesh in the past decades were highlighted.  Some of the drivers of the gains in health care sector  were highly appreciated by Amartya Sen in his 'What's happening in Bangladesh?' and Mushtaque Chowdhury et al's 'The Bangladesh paradox: Exceptional health achievement despite economic poverty'. They both argue that the manner in which women have been at the centre of development gains is unprecedented.
There is general agreement that a pluralistic approach to the design and delivery of services is particularly unique in Bangladesh and has contributed to these outcomes. The pluralism also includes the local private sector pharmaceutical companies which, protected from foreign competition during their infancy, have also provided access to low-cost generic drugs and are now a significant part of Bangladesh's export basket. Self-sufficiency in food through sharp increases in rice yields along with significant improvements in disaster management and the role of made-in-Bangladesh innovations in health delivery are other factors which are recognised to have contributed to the advancement.
However, there is an element which is either missing or understated in both these review pieces and it relates to the role of increasing incomes. Bangladesh has averaged above 6 per cent economic growth over the past decade; its GDP of around US$ 150 billion has more than tripled since 2000 and the volatility of its growth is one of the lowest. One reason behind the steady growth and limited volatility is that macro-management has been sensible, with fiscal deficits typically averaging around 4 per cent of GDP, steadily declining public debt-GDP ratios along with the build-up of macro-buffers with a current account surplus and foreign currency reserves - US$ 22 billion as of 2014 - close to six months' import cover.
Counter-cyclical policies have also shielded the economy from exogenous shocks such as in the immediate aftermath of the global food and financial crisis in 2008-2009 using a mix of short-term export subsidies and expanded safety nets for the poor along with an easing of policy interest rates. The ability to react to natural disasters extends to the ability to react to macro shocks which is less well known. Not only is the aggregate volatility low, but growth has been equitably distributed with inequality - measured by the consumption Gini - unchanged since 1995. Poverty fell from 58 per cent in 1990-1991 to 31 per cent in 2011 with almost 17 million people moving out of poverty in 2000-2010. This pattern of growth has also led to greater convergence across regional divides since 2005. One key difference with other countries is that Bangladesh household income fluctuations are smoothed by the wide availability of reasonably priced credit, in the form of micro-finance, as shown by recent researches. As such, these equitably distributed economic gains have meant that a larger share of the population can afford better-quality food, sanitation, shelter and access to education and health - all of which are confirmed empirically in the latest World Bank Poverty Assessment report.
Bangladesh has made significant strides in its economic performance since its independence in 1971. Although the economy has improved vastly in the last two decades, the country suffers in the area of foreign trade in South Asian region. Despite major impediments to growth like the inefficiency of state-owned enterprises, a rapidly growing labour force that cannot be absorbed by agriculture, inadequate power supplies, and slow implementation of economic reforms, Bangladesh has made some headway in improving the climate for foreign investors and liberalising the capital market. For example, it has negotiated with foreign firms for oil and gas exploration, better countrywide distribution of cooking gas, and the construction of natural gas pipelines and power stations. Progress in other economic reforms has been faltering because of opposition from the bureaucracy, corruption, public sector unions, and other vested interest groups.
The severe floods of 1998 increased the flow of international aid. So far, the global financial crisis has not had a major impact on the economy. Foreign aid has seen a gradual decline over the last few decades and economists see this as a good sign for self-reliance. There has been a dramatic growth in exports and remittances inflow which has helped the economy to expand at a steady rate. The New York Times reported two years back on 23 April, 2012, that Bangladesh has a huge prospect of becoming one of the emerging economies. It is running with a strong promise of growth despite various challenges the nation of 160 million people is facing. Bangladesh aspires to attain middle-income status by 2021, the 50th anniversary of its independence. To do so, Bangladesh will need to accelerate growth and undergo a structural transformation that will change the geography of its economic production.  
The writer is a retired professor
of Economics.
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