Amazing Macroeconomic Transformation of Bangladesh | daily-sun.com

Amazing Macroeconomic Transformation of Bangladesh

Atiur Rahman

    23 October, 2016 12:00 AM printer

Amazing Macroeconomic Transformation of Bangladesh

Atiur Rahman

The story of macroeconomic transformation of Bangladesh over the last four and a half decades is simply mind-boggling. This seems to be a well-kept secret and investors from all around the world are amazed by this fantastic transformation.

The story is unfolding gradually. What is more striking is that this is an inclusive broad-based growth story where all the three sectors e.g. manufacturing, service and agriculture are growing simultaneously. However, the pace of the low-cost manufacturing growth is fortunately better and augmenting a pleasant potential of Bangladesh emerging as the largest take-off of the same in a democracy. While Indian take-off is largely high-tech service oriented, the Chinese and Vietnamese take-offs are through manufacturing based but not in democracy. Also the Bangladesh take-off is unprecedented as it has been taking place at a time when the global growth projection is one of the weakest and simultaneously creating more and better jobs quickly to absorb 2 million new workers annually. Just for contextualisation, India provides 2.5 million new jobs in its world class service sector (i.e. IT) out of 500 million workers and hence India’s ‘Make in India’ Campaign is bound to be much more challenging. We are also making progress in the IT sector and value-added agriculture alongside fast growing manufacturing, mostly led by the textiles and apparels. The Bangladesh growth story was facilitated by timely policy reforms promoting desired liberalisations, fiscal responsibility and innovative developmental central banking supporting financial inclusion. In addition, well-articulated public-private partnership in all the sectors helped spawn entrepreneurship and thus engaged innovative youths for creating both self-employment and wage-employment at a pace commensurate with young demographics. Indeed, the success story of the Readymade Garments manufacturing is essentially based on the young entrepreneurs who are tech-savvy and have global outlook. The entrepreneurial activism is also becoming visible in software, mobile financial services (e.g. bkash) and e-commerce sub-sectors.

 

 

This fascinating story must again be juxtaposed against the historic background of a young fighting nation which was born out of a Liberation War in 197 with almost total economic ruins. The newly born country created a central bank with no foreign exchange reserve. Almost all its physical infrastructures like roads, rails, ports and industries were destroyed. The country opted for a planned economy with a very limited export base, virtually no remittance amidst huge unmet domestic demand. Persistent natural disasters and famine were looming in the horizon. The per-capita income in 1973 was meagre 110 US dollars with savings/GDP and investment/GDP ratios of 3% and 9 % respectively. The scarcity of food created constant headache for the policy-makers of the time. This was the time when some of the development economists branded Bangladesh as a ‘test case of development’ while political pundits like Henry Kissinger wrote it off as a perpetual ‘basket case’ of foreign aid and relief. This was, indeed, a trying time and the political leadership under Bangabandhu worked day and night to restore the economy from the ruins and nearly succeeded in putting it back to the rails despite myriads of domestic and international challenges. The impatient youths were mostly misled by the opportunist politicians and crisis-mongers. The government under the Father of the Nation and his co-leaders worked hard. However, this initial strive for bringing back order in the economy and politics got the biggest jolt in August 1975, when the Father of the Nation and most members of his family were killed by the conspirators. The conspiracy was very deep and continued further and led to killing most of his co-leaders in November ‘75 who could steer the country forward even in absence of the supreme leader despite heavy challenges. The country was thus left rudderless during its very formative stage.


 

Although post-independence economic regime remained restrictive and broadly state-led for fast-tracking restoration and reconstruction of the war-ravaged infrastructures and simultaneously meeting the consumer demand of a huge population, the then government started relaxing some of the trade and investment restrictions as the economy started to recover. However, the pace of deregulation, particularly in the industrial sector, could have further picked up if there was no sudden brutal interruption in August ‘75. The subsequent years saw gradual trade liberalisation, though slowly. And the pace got accelerated in the 1990s when the country started a new journey of democratic transition. In between the dual exchange rate was abolished and later a floating exchange rate system was introduced. Sheikh Hasina, eldest daughter of Bangabandhu, was elected as the prime Minister in the later half of the 1990s and started leading a more liberal economic regime with greater scope for the private sector and yet providing enough public sector support for social protection and inclusive growth. The economic path of faster growth with emphasis on better equity helped Bangladesh move into a new trajectory of growth process. The stability in the growth process faced challenges once her government was replaced in late 2001. However, the process of private-sector led economic growth continued with some modifications. Once she came back to power in 2009 through a landslide victory of general election, the economy gathered steam despite on-going global financial crisis. In addition, the new government started promoting digital economy and inclusive finance in line with the aspirations of the masses, particularly the younger generation. The economy has made significant progress since then and by now it has been transformed into a globally integrated manufacturing economy. Far away from the initial position of a primary goods producing small agrarian economy, Bangladesh is now a leading apparels and textiles exporter and gradually breaking grounds into new areas. Moreover, Bangladesh’s prudent policy of light touch regulations for grassroots level social development by non-government initiatives including those engaged in micro-finance operations helped spawn active socially responsible businesses. Add to this the pro-SME and pro-agriculture central banking supporting phenomenal growth of small economic units in rural Bangladesh. The eye-catching growth of small women-led enterprises during the recent years is yet another hallmark of inclusive economy pursued by the present government and complemented by an innovative developmental central bank.
It may be noted here that Bangladesh has been achieving a stable average annual growth rate of 6.14 per cent over the last 12 years, and the rate has been even higher during the last seven years. The standard deviation of the growth rates for the same period was the lowest (0.25%) among its peers in South Asia and other emerging regions. Bangladesh has also been able to demonstrate to the world as the economy of proven resilience and vibrancy. Bangladesh is currently undergoing four critical transitions namely, industrialisation, urbanisation, young demographics, and fast technological adoption (e.g. mobile, media). These changes are bound to synergise if well-managed. Yet, these transitions can be delicate too. And here comes the balancing role of democracy with liberal and inclusive institutions. It is this well-functioning democracy which can glue divergent forces prevailing in the society and make the journey towards sustainable development less bumpy. Crowded and connected democracy can, indeed, navigate this journey in a low-growth world. The importance of domestic demand becomes particularly significant in this context. Fortunately all the drivers of our growth—garments, remittances, agriculture, SMEs etc. are inclusive, domestic demand generating and hence balancing the social harmony. The country’s achievement in gender-parity has also been exemplary, for which the Honourable Prime Minister Sheikh Hasina has been awarded by the global bodies. The average life-expectancy of the populations has already crossed 70 years, adding unprecedented 30 years just in four decades.

Bangladesh’s success stories of inclusive growth originated from our fighting spirit of facing famine, pressure of over-population, floods and many other natural disasters. The crises were great educators for us and we did not waste any of them. At the same time, the Tsunami of aspirations which was unleashed in 1971 gave us needed focus, discipline, resilience and consensus for faster inclusive development. We are witnessing a new paradigm shift in our journey of development, from scarcity to abundance. Amidst plenty a new phase is breathing for newer solutions, consensus, and capacity. We are, indeed, in new waters: Pursuing the robust promise of the largest-ever manufacturing and export-led take-off in a young, crowded and connected democracy.
The present government led by Sheikh Hasina rightly felt the pulse of the ordinary people and pronounced ‘Vision 2021’, aspiring for inclusive, equitable growth bolstered by:
•    Focus on private sector-led initiatives
•    Continued liberalisation and investment-friendly policy regime
•    Large infrastructure projects to support production base
•    Countrywide digitisation, spurring market access and integration
Given this prudent approach Bangladesh has been growing at a rate which is more than double the global growth rate and better than the average growth performance of the emerging economies. And, as already indicated, following liberalisations of relevant economic policies, all the sectors have been growing in sync implying inclusivity and qualitative growth process in motion. Stability of the growth has also been stunning compared to its regional peers. As things are moving ahead, Bangladesh is destined to catch the per-capita income of its neighbours. The per-capita income of Bangladesh was US dollars 1466 during 2015-16 fiscal year. Already graduated to lower middle income country, Bangladesh has also achieved MDGs at a faster speed. With a large domestic market and competitive young workforce, strategically located Bangladesh is aspiring to be an upper middle income country by 2030 and achieving most of the SDGs at the same time. The record of poverty reduction has been one of the fastest amongst its peers and projected to be in the single digit by 2030. Investment-GDP ratio has been growing steadily, responding to the policy liberalisations. The government tax revenue and expenditures are also rising steadily providing a scope for fiscal responsibility to the government. The external debt remains low and sustainable. Exports have been outperforming imports in a steady fashion. The trend in openness has been robust and Bangladesh is increasingly integrating itself with the global trade. Rising trend of workers’ remittance inflow has been a boon for the favourable balance of payments for Bangladesh. The exchange rate has been predominantly stable providing necessary support to taming of inflation which too has been steadily declining over time. In fact, inflation has been the lowest in the region during 1995-2014. And the price stability has also been the best with very little volatility during this period. The incentives provided to investors, both domestic and foreign, have been robust and the country has started getting increased foreign direct investment in the recent years. The foreign exchange reserve increased five folds crossing 31 billion US dollars during the last seven years.
Bangladesh is now aspiring to grow steadily at a rate of 7- 8 % in the coming years and hence it has started implementing a number of large infrastructure projects including Padma bridge, Nuclear power plant, Bangabandhu Satellite, Karnaphuli Tunnel, new flyovers and elevated express way in Dhaka, special economic zones, deep sea port, four-lane high ways, international airport in Cox’s Bazar etc.
With sustained development dynamism powering our desired growth pace we can reasonably aspire for joining the group of upper middle income countries by the next twelve to fifteen years. Our dream is to become a developed country by 2041. However, there are formidable challenges to overcome on the path forward, both in the near and longer terms. Appropriate coping responses will need to include seeking strengthened trade and investment ties with near neighbours and other fast growing emerging economies. The longer term challenges include addressing the issue of still prevalent extreme poverty of nearly 25 million people, climate change threats, and inadequacies in physical infrastructures. It is heartening to note that the perspective, five year and annual plans of Bangladesh outline comprehensive approaches in addressing these challenges, pursuing inclusive socio-economic growth and well-being for all. As against these challenges, there are a number of strengths of Bangladesh economy. The adoption of policy liberalisation at an appropriate moment contributed to the needed growth acceleration and drastic poverty reduction. The macroeconomic performance remains commendable; growth process is resilient, crossing seven per cent plus milestone in the last fiscal year.
Just to summarise, both growth and inflation remained most stable in the region. The debt sustainability allows some more space to increase debt for productive investment. Innovative central banking has been promoting financial inclusion and green financing providing long-term macroeconomic stability and expanding domestic demand.
Leveraging its strategic location, demographic dynamics, cost advantages, Bangladesh offers high risk-adjusted returns for foreign investors. Resilience and macroeconomic stability grounded on inclusive and broad-based growth process has been helping in reducing medium and long-term risks for investors. Yet, one should not be complacent but expect the road ahead as long, bumpy and often steep. Together, we can certainly reach our destination if we continue to move on with humility and curiosity. This is, indeed, the Asian century and Bangladesh will surely play its destined role to take the region to its new height as aspired by its citizens.

Dr. Atiur Rahman is a Professor at the Department of Development Studies, Dhaka University and former Governor, Bangladesh Bank. Email: dratiur@gmail.com

 


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