A retail shop in Dhaka —BSS Photo Bangladesh was in the grip of a series of serious economic challenges even before the recent student movement that forced Sheikh Hasina flee the country. The country now grapples with the legacy of the repressive and corrupt Hasina regime as reflected in slowing economic growth, rising inflation, unemployment, balance of payment deficits, currency devaluation and looming debt.
During Hasina's 15 years of repressive and corrupt rule, she had over-exercised her power and patronage and saw the flourishing of high levels of white-collar crimes including an unprecedented scale of financial corruptions. 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.
The extent of financial corruptions committed during her rule was revealed recently by Bangladesh Bank's new Governor Ahsan Mansur in an interview with the Financial Times. He said that business tycoons having ties to the ousted Prime Minister Hasina siphoned off US$17 billion with the help of the country's military intelligence agency, the DGFI, from the banking sector during her 15 year-rule. This systematic transfer of fund out of the country was done through using methods such as issuing loans to the new share holders and inflated import invoices. He further added that this was the biggest robbery of banks by any international standards, and it was also state sponsored facilitated by the military intelligence agency.
Widespread corruption during Hasina's 15 years rule resulted in nearly US$150 billion siphoned out the country. US based think tank Global Financial Integrity, found that most of the stolen funds came from loans taken from banks, largely by politically influential people and businesses.
Her rule also saw an endemic corruption at all levels of government, in particular law enforcement agencies. In practice, Hasina's corrupt government was run like a criminal syndicate led by Hasina herself in collaboration with her family members and cronies.
The latest Bangladesh Development Update published by the World Bank on October 15, 2024, highlights the challenges faced by the country in many fronts such as high inflation, balance of payments deficit, financial sector vulnerabilities and increasingly limited job opportunities for the youth, especially women and educated youth.
The Update also projects GDP growth to decelerate to 4 per cent in 2024-25 driven by subdued investment and manufacturing sector activities. The Update, however, depicts more optimistic growth outcomes from 2025-26 onward. It also points out the country's worsening income inequality, and warns that the rate of extreme poverty increased for the last three consecutive years. More importantly, rising income inequality and poverty can seriously destabilise Bangladeshi society.
The International Monetary Fund also considers that growth has slowed, and inflation remains high. It forecasts that Bangladesh's GDP will decline to 4.5 per cent in 2004-25 below its previous forecast of 6.6 per cent (FE, October 26).
The interim government in Dhaka must work hard now to ensure political stability conducive to undertaking economic repair work keeping in view the present macroeconomic crisis. As inflation continues to hover around 10 per cent (which many consider as an underestimate), real wages are falling to keep pace with inflation. This will push up the extreme poverty rate further.
While inflation has put a squeeze on private consumption, public consumption continues to expand, now accounting for 13.02 per cent of GDP. Rising inflation is also contributing to the higher cost of production which is further fuelling inflation. The inflationary surge was largely driven by rising food and fuel prices and the depreciation of the taka. Generally, when inflation is rising, it generates conditions appropriate for further price rises, thus increasing inflation risk.
Inflationary pressures are likely to continue in 2024 in Bangladesh. This is because of supply disruptions, high exchange rate of the US dollar, balance of payment deficits.
According to the IMF global food crisis may persist with prices still elevated. Despite a slight decrease in the general inflation rate in September, food inflation remains stubbornly high, exceeding 12 per cent. High inflationary pressure disproportionately affects low-income households.
While economic theory is unsatisfactory about the root causes of and cures of chronic inflation, it is also well understood that it is not a natural phenomenon. Also, inflation does not proceed evenly throughout the economy. However, we do know that real or monetary factors push up specific prices, wages, or interest rates.
The current spate of inflation in Bangladesh has largely been attributed to costs due to supply chain disruptions enabling large importers and domestic businesses to jack up prices far more than the increased costs.
The Hasina government had borrowed heavily from the central bank as it failed to mobilise adequate revenue to pay for its grandiose projects. This also stoked inflationary pressure as it put more money into circulation. These grandiose projects were also used by her and her family members and cronies to amass massive wealth through commissions and kickbacks.
Economic growth over the last three decades or so has not translated into job creation for the vast majority young Bangladeshis entering the job market every year, especially for large numbers of graduates. Not surprisingly during Hasina's rule, poverty and unemployment were rapidly rising.
Now 18 million young people, including university graduates, are without work. According to the BBS approximately 40 per cent of the youth 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 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 noteworthy, the report also points out that out of the total employed women in Bangladesh, 96.6 per cent are in informal employment. Informal sectors in all countries including Bangladesh are typically characterised by low wage and poor working environment.
Since the mid-1970s, because of the lack of job opportunities in the country, millions of Bangladeshis have been migrating to countries around the world in search finding jobs including countries with questionable human and labour rights. According to UN estimates more than 7.4 million Bangladesh born individuals lived abroad as of 2020. It is estimated that a record 1.3 million left Bangladesh in 2023 alone. Vast numbers of these Bangladeshis moving overseas for employment are semi-skilled or unskilled males.
Remittances sent home by the Bangladeshis working abroad via official remittance channels stood at US$21.9 billion in 2023. It is estimated that remittances account for about 10 per cent of the GDP which are 6 times the Overseas Development Assistance (ODA) and 12 times the Foreign Direct Investment (FDI) inflow into Bangladesh.
The relative weight of remittances has also increased against most of the macroeconomic variables alongside the contribution to GDP. Remittances are the second largest source of foreign exchange earnings after RMG. If the costs of imported inputs are adjusted with the export earnings of RMG, remittances will become the largest source of foreign exchange earnings for the country.
Remittances have largely helped improve the socio-economic conditions of recipient households and contributed to economic growth. As remittance inflow continues to grow, it can cause a side effect commonly referred to as the Dutch disease, but Bangladesh has so far remained unaffected by the Dutch disease effects of remittances. However, Bangladesh's dependence on remittances may pose future risks, as and when the economy becomes vulnerable to headwinds beyond its control.
The present macroeconomic crisis will be a painful process to resolve, including dealing with high inflation and unemployment. Additionally, there are other challenges facing the economy that are structural, and addressing those is the only way to ride out the prevailing crisis.
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