Hasina falls, lands in India & leaves behind a sputtering economy

I acknowledge that I have borrowed the first half of the title of this article from the Daily Telegraph (online) of India.
It is not surprising that that Sheikh Hasina landed in India. During her 15-year rule, India has enjoyed very close ties with her authoritarian regime. In fact, she was greatly emboldened by India to consolidate her repressive regime to achieve its objectives in Bangladesh.
Former Indian Minister of State for External Affairs Shashi Tharoor told the Indian TV channel, NDTV, “Hasina ji has had (good) relationships with all Indian leaders. She is a friend of India, and India is a friend of hers”. It now appears that Hasina has no other taker around the world other that the “biggest democracy of the world” because of her repressive authoritarian political past. In fact, it is the people’s uncertain economic future that primarily drove them to push back against state violence unleashed by Hasina.
In fact, India’s unqualified support for Hasina clearly demonstrates complicity. According to the Washington Post, India even pressed the US to go easy on Sheikh Hasina before her ouster. After Indian lobbying, Washington toned down its criticism of Hasina. Yet, with all the Indian machinations to keep her in power, she fled the country much in the same style of other deposed dictators before her.
Bangladesh is entering a period of political uncertainty, with a high risk of both violence and economic instability. Hasina has left behind a terrible economic mess for the interim government to deal with.
Bangladesh has achieved an annual average growth rate of about 6 per cent over last two decades or so. The quality of statistical information provided by the Bangladesh Bureau of Statistics (BBS) has always been of questionable quality, especially relating to GDP and human development indices. But the World Bank (WB) and the International Monetary Fund (IMF) have given their seal of approval to the growth figures.
According to a World Bank (WB) report (October 4, 2023) “Bangladesh has an inspiring story of growth and development, aspiring to be an upper -middle income country by 2031.” No wonder Hasina even drummed up her aspiration of Bangladesh to become a developed, prosperous and higher-income country by 2041. The IMF assured its continuing support to achieve this aspiration of Hasina.
The positive nod from the two multilateral organisations also largely reflects that the Hasina regime was supposedly adhering to the path outlined in the “Wahington consensus” in pursuing the “trickle down” approach to economic growth. However, such an approach along with mega corruptions (mostly through graft, overblown project costs and other corrupt means) only succeeded in shifting income upward creating a new social class of billionaires where Hasina and her immediate and extended family members also belong. In fact, Hasina’s regime was a pure kleptocracy under the veneer of a neo-liberal economic system.
This relatively high growth was largely achieved through mostly infrastructure investments comprising a very selected set of mega projects. While such investments helped propel economic growth, these mega projects also opened opportunities for mega corruptions benefitting her cronies and family members.
Rising income inequality coupled with stagnant- to- declining household income along with high levels of youth and graduate unemployment and very widespread underemployment clearly point out that economic growth achieved under the Hasina regime cannot be considered as inclusive growth.
During Hasina’s 15 years of repressive and corrupt rule, she over-exercised her power and patronage and saw the flourishing of high levels of white-collar crimes including an unprecedented scale of financial corruption. These financial corruptions resulted in an annual illicit outflow to the tune of US$6 billion, notwithstanding massive siphoning off billions of dollars annually through trade mis-invoicing. Her rule also saw an endemic corruption at all levels of government, particularly in law enforcement agencies.
Hasina’s own immediate family has also been alleged to be deeply involved in financial corruptions, not to mention the extended family. It has been alleged that her niece (a Labour member of the British Parliament) and her sister (a British citizen) were involved in various financial corruptions involving real estates, graft, and influence peddling. Similar allegations have also been levelled against her son in the US.
More recently it has been alleged that Hasina received US$6 billion from the Russian company involved in building the Rooppur nuclear power plant in Bangladesh as a kickback arranged by her same niece who is a junior minister in the current UK government. Hasina’s niece and her mother (Hasina’s sister) received 30 per cent of this Russian bribe money and Hasina pocketed the remaining 70 per cent.
According to the International Labour Organisation (ILO), about 67 per cent of Bangladesh’s 170 million people are aged between 15 and 64 and more than a quarter are aged 15-29. The Bangladesh Labour Force (BLF) Survey 2022 finds that close to 60 million people, accounting for 84.9 per cent of the total working population in Bangladesh are employed in the informal sector. It is also noteworthy that the report also points out that out of the total employed women in Bangladesh, 96.6 per cent are in informal employment. According to the Asian Development Bank (ADB) 18.7 per cent of the population lived below the national poverty line in 2022.
Informal sectors in all countries are typically characterised by a high incidence of poverty and severe decent work deficits. It thrives mostly in a context of high unemployment, underemployment, poverty, gender inequality and precarious work.  Informal employment arrangements are in practice or by law not subject to national labour legislation or entitlement to social protection or other employment guarantees. Therefore, the informal sector is marked by very lowly paid and precarious jobs.
Not surprisingly during Hasina’s rule poverty and unemployment were rapidly rising. Now 18 million young people, including university graduates, are currently without work. According to the BBS, approximately 40 per cent of youths in Bangladesh do not have jobs and are not receiving education or job training. An estimated 400,000 university graduates are competing for the 3000 civil service jobs that become available each year.
The economy is facing challenges at multiple fronts such as rising inflation, balance of payment deficit along with a budget deficit, declining foreign exchange reserves, contraction in remittances, a depreciating currency, rising income inequality and the demand-supply imbalance in the energy sector.
With inflation hovering around 10 per cent with food price inflation at around 10.5 per cent annually, Bangladesh is now in the grip of a cost-of-living crisis. Official inflation figures published by the BBS show that Bangladesh’s inflation rate was to 11.66 per cent in July compared to 9.72 per cent in June with food price inflation at 14.10 in July.
Now added to these challenges is the banking sector crippled by loan defaults i.e., non-performing loans (NPL). The NPL ratio in Bangladesh was recorded at 8.8 per cent in March 2023, amounting to BDT 14,963.46 billion (USD 136.92 billion), exhibiting an upward trend from the previous quarter’s ratio of 8.2 per cent. In December 2022, the total amount of NPLs stood at around Tk 1.21 trillion, which means total NPLs jumped by 20.7 per cent year-on-year. The accumulation of NPL is heightening the threat to the stability of the financial system
Over the last three years both exports and imports decelerated. Bangladesh’s external debt reached US$ 99.3 billion in March 2024 accounting for 23.6 per cent of the country’s GDP in December 2023. While Bangladesh’s external debt level remains within the IMF’s debt sustainability limit, the burden of debt servicing is on the rise thus creating a financial stress which is further compounded by the country’s low foreign exchange reserves and the continuing negative balance in the financial account in the balance of payments..
A country’s long-term credit rating as assigned by major credit rating agencies offers a comparative insight into the country’s credit worthiness and financial stability over an extended period. Now with the rising interest payment liability, external debt burden is also rising coupled with an inadequate policy response to stem falling exchange reserves resulting in all the three major rating agencies downgrading Bangladesh’s credit rating. This will create further stress on external debt servicing.
The corrupt and crony capitalist system that flourished under the Hasina regime has caused significant structural damage to the economy creating a formidable challenge for the interim government. As the country celebrates the departure of Hasina, the immediate need is to stabilise the political situation in the country as the precondition for stabilising the economy and to contain inflation which is the single most formidable challenge now facing the interim government.
Further ahead, to address the economic mess left behind by the Hasina regime, the interim government will need to concentrate on how to build enhanced state capacity and reorient its economic policy approach by focusing on building a competitive Bangladesh not only based on price competitiveness but also through innovation by harnessing the new technological frontiers using skilled labour with an emphasis on fairer distribution of income. Such a reorientation of economic policy will enable the country to achieve sustainable economic growth and development in the long run.

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