BANGLADESH’S POLITICAL CRISIS: A THREAT TO ECONOMIC GROWTH?
Category: ARTICLE
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Marico, an Indian consumer goods maker, saw its shares fall 6% on the National Stock Exchange of India, despite the overall market performing well. Bangladesh is a significant market for Marico, accounting for 51% of its international business in fiscal 2022 and yielding 11-12% of total sales. Concerns about a potential hit to sales in Bangladesh led to the stock price drop, sparking worries about Marico’s earnings.
KEY WORDS
Bangladesh, Economy Crisis, GDP, Inflation.
INTRODUCTION
Bangladesh is currently facing significant economic challenges, including mass violence, high unemployment, persistent inflation, and slowed real GDP growth, which may have a lasting impact on the country’s economy. According to Saad Hammadi, a fellow at the Balsillie School of International Affairs, the new government will have a difficult task in stabilizing the economy and preventing further decline, especially considering the current global economic and political uncertainty. The situation requires immediate attention and effective measures to address these issues and prevent long-term damage to Bangladesh’s economy.
ECONOMIC GROWTH OF BANGLADESH
Bangladesh has achieved remarkable economic growth and development over the past two decades, driven by a robust demographic dividend, strong RMG exports, resilient remittance inflows, and stable macroeconomic conditions. The country has made significant progress in reducing poverty, with the percentage of people living below the international poverty line declining from 11.8% in 2010 to 5.0% in 2022. Human development outcomes have also improved, with reductions in infant mortality and stunting, and increases in literacy rates and access to electricity. However, inequality has slightly narrowed in rural areas and widened in urban areas.
BANGLADESH VIOLENCE
Bangladesh has descended into chaos following nationwide protests against a job quota bill, which led to widespread violence and property damage. The situation escalated, resulting in the resignation and flight of Prime Minister Sheikh Hasina. Protesters targeted government buildings, police stations, and public assets, causing destruction and looting. The Awami League’s central office was ransacked, and a mural of Hasina was vandalized. Vehicles were damaged, and protesters attempted to demolish a statue of Hasina’s father, Sheikh Mujibur Rahman. The country is grappling with a severe crisis, marked by unrest, vandalism, and a breakdown in law and order.
CURRENT POLITICAL CRISIS
The collapse of Bangladesh's government, led by Prime Minister Sheikh Hasina, has significant implications for India, including strained diplomacy, potential trade disruptions, and uncertainty over ongoing projects. Hasina's ouster may also allow rival nations like China to gain influence in the region, challenging India's strategic interests. Additionally, India may face a surge in illegal immigration from Bangladesh, posing a diplomatic and humanitarian challenge. Overall, the situation demands careful handling by India to mitigate its impact on trade, strategy, and regional dynamics.
BANGLADESH ECONOMIC IMPACT:WITH VIOLENCE COMES A HEFTY PRICE TAG
Economic impact of violence in Bangladesh: The recent violence in Bangladesh has resulted in significant economic losses, with estimates suggesting over $10 billion in damages.
Estimated losses and affected industries: The FMCG industry is expected to face a setback of over $100 million, while other sectors like local markets, hospitals, transport, and offices have also been impacted.
Impact on daily operations and human productivity: Violence has disrupted daily operations, affecting hospitals, transport, and offices, and impacting human productivity due to curfews, internet shutdowns, and fear.
Internet outage and its effects: The internet shutdown has prevented people from accessing bank accounts, paying bills, and conducting online transactions, further stressing the fragile economy.
Garment sector and export concerns: The garment sector, which accounts for 85% of Bangladesh’s exports, is likely to face significant losses due to instability, potentially leading to lost orders and competitors gaining an advantage.
Factory closures and worker concerns: Garment factories have been forced to close due to attacks, leaving workers worried about their livelihoods, rent, and outstanding bills, highlighting the need for stability to prevent further economic stress.
BANGLADESH’S ECONOMY
Bangladesh was showing signs of economic recovery after a period of crisis, but the recent mass protests over job quotas have created new challenges.
Despite a strong track record of growth and development, the country’s post-pandemic recovery faces ongoing obstacles.
A World Bank report in April 2024 noted this, and a subsequent downgrade by S&P Global Ratings on July 30, 2024, further highlights the economic concerns.
The ratings agency lowered Bangladesh’s long-term foreign and local currency sovereign credit ratings to ‘B+’ from ‘BB-‘, citing modest per capita income, estimated at around $2,600, as a main constraint.
However, the country’s strong underlying growth helps to offset this weakness. The outlook on the long-term ratings is stable, but the downgrade indicates that Bangladesh’s economic progress is still vulnerable to disruptions.
FROM INFLATION OF GDP TO FOREX – A DETAILED LOOK AT BANGLADESH’S ECONOMY
The International Monetary Fund (IMF) has warned that Bangladesh’s economy is facing significant challenges due to high international commodity prices and global financial tightening, which have amplified macroeconomic vulnerabilities.
Bangladesh’s foreign exchange reserves have declined sharply, putting pressure on the Taka, the country’s currency. The reserves stood at $21.8 billion in June 2024, a 35% drop from the previous year, and can only cover 3.3 months of current account payments.
The country's real Gross Domestic Product (GDP)growth slowed down to 4.8% in the first half of 2024, but is expected to pick up to 6.6% in 2025. However, the World Bank projects a relatively subdued growth rate of 5.6% in 2024.
Inflation has reached a decade high of 9.7% in April 2024, making it difficult for people to afford essential goods and services. Inflation is expected to remain high at 9.4% in 2024 but decline to 7.2% in 2025.
The Current Account Balance, which measures transactions with the rest of the world, stood at -0.8% of GDP in 2024 and is expected to worsen to -2.7% in 2025, indicating a growing deficit. Bangladesh’s total lending reached $2,854 million in 2024, the highest since 2020, indicating a reliance on borrowing to finance activities.
High unemploymentis a significant issue in Bangladesh, contributing to social unrest, including massive student-led protests in June 2024 demanding changes to the job quota system and implementation of a merit-based system.
CONCLUSION
Bangladesh faces a pressing issue with its unemployment rate escalating by 3.51% in the first quarter of 2024, resulting in an additional 240,000 individuals joining the ranks of the unemployed, bringing the total to 2.59 million. This alarming trend underscores the urgent requirement for a stable government to take charge, restore law and order, and implement effective policies to stimulate economic growth and address the rising unemployment crisis.
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WRITTEN BY: KOUSTAV GHOSH
GUIDED BY: ADVOCATE ANIK
