Economic Analysis
Bangladesh

Bangladesh

Population 166.7 million
GDP per capita 2,498 US$
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Synthesis

major macro economic indicators

  2020 2021 2022 (e) 2023 (p)
GDP growth (%) 3.4 6.9 7.2 6.0
Inflation (yearly average, %) 5.6 5.6 6.1 8.0
Budget balance (% GDP)* -4.8 -3.6 -5.1 -5.5
Current account balance (% GDP) -1.5 -1.1 -4.1 -3.8
Public debt (% GDP)* 34.2 35.5 37.5 37.2

(e): Estimate (f): Forecast *Fiscal year 2023 from July 2022 to June 2023

STRENGTHS

  • Competitive clothing sector
  • Substantial remittances from expatriate workers, mainly in the Gulf States (GCC)
  • International aid covers financing needs
  • Moderate level of public debt
  • Favourable demographics
  • Improved financial inclusion through microfinance and mobile services

WEAKNESSES

  • Vulnerability to global textile and GCC developments
  • Very low per capita income and low participation by women
  • Recurrent and increasing political, religious and social tensions
  • Inadequate business climate; lack of infrastructure
  • Climatic vulnerability: recurrent natural disasters cause significant damage and crop losses
  • Fragility of the banking sector (increased non-performing loans, low profitability)

RISK ASSESSMENT

Economic recovery undermined by the state of the global economy

Despite its resilience in the face of the Covid-19 crisis and its subsequent strong rebound, the prospects for the local economy are being dampened by the international context. In 2023, exports, which account for 12% of GDP, are likely to be affected by economic conditions in partner countries (particularly those of the European Union, which is its main export market) that have been dented by the war in Ukraine. In particular, clothing exports, which constitute 80% of total exports, will dip in line with softer external demand. Due to the country's high energy dependence and durably high energy prices, significant electricity shortages, coupled with rising input costs, will curb industrial production. In addition, the government's 50% fuel price increase in August 2022, high food prices and projected increases on electricity tariffs will continue to fuel rising inflation, which will weigh on domestic consumption. However, remittances (6.2% of GDP in 2021) will continue to support it, driven by an increase in demand for workers in Middle Eastern countries.

 

Twin deficits still large

The fiscal deficit will continue to widen as the government has included in its budget for fiscal year 2023 significant subsidies for fuel, electricity, gas and fertiliser, as well as export and expatriate incentives for skilled workers to increase diaspora funds. These subsidies and incentives are estimated at 1.9% of GDP, but could increase if global prices rise. In addition, revenue growth will remain low.

After reaching an all-time high in 2022, the current account deficit is expected to remain high but should decline gradually, notably thanks to the increase in remittances, thereby easing the pressure on the balance of payments. Foreign exchange reserves that were crimped in 2022 by large external financing needs should stabilise at around five months of imports. In addition, the country benefits from a USD 3.2 billion, 42-month Extended Credit Facility and a USD 1.3 billion Resilience and Sustainability Facility granted by the IMF in November 2022, which will ease the pressure on the external position.

The banking system will continue to be undermined by non-performing loans, the volume of which has increased since the Covid-19 crisis, particularly in respect of state-owned commercial banks.

 

Extreme political polarisation

Although classified as a parliamentary democracy, Bangladesh has experienced several military coups since the War of Independence in 1971. Tensions run high between the centre-left Awami League (AL), in power since 2008, and the main centre-right opposition Bangladesh Nationalist Party (BNP), and also between their respective leaders, Sheikh Hasina and Begum Khaleda Zia. Following the 2018 elections which were described as rigged, the BNP had only seven parliamentarians out of 350, compared to 298 for the AL, before five resigned at the end of 2022. Despite its overwhelming parliamentary majority and popularity earned from its economic success, the AL still faces the risk of social unrest as a result of accusations of fraud, corruption and infringements of civil liberties. However, the LA has expressed its willingness to hold elections in early 2024 in a more transparent manner, with a new Electoral Commission tasked with organising fair elections. However, tensions between the AL and the BNP are not expected to cease. The latter has called for a caretaker government and refuses to allow elections to be held under an AL government, and has organised massive protest rallies in response. While the AL is associated with independence and espouses a rather secular ideology (albeit conveniently endorsing pledges to Islamist parties), the BNP is associated with a nationalist ideology, a traditional and strict conception of Islam, and is known for its past electoral violence. Consequently, their opposition continues to threaten frictions between Muslim majority and minority religious groups. Workers' strikes and terrorist attacks also remain a possibility.

The government will also continue to address the challenges of poverty and development. The Vision 2041 plan aims to eradicate extreme poverty to achieve an upper-middle income country by 2031, targeting GDP per capita of between USD 4,000 and USD 12,500 (according to the World Bank). Its goal is to become a high-income country by 2041.

 

Last updated: April 2023

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