Bangladesh’s Macroeconomic Development Challenges

The pandemic has reversed much of Bangladesh’s earlier gains in increased income opportunities and reduced poverty. Photo: SK Enamul Huq

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The pandemic has reversed much of Bangladesh’s earlier gains in increased income opportunities and reduced poverty. Photo: SK Enamul Huq

Bangladesh’s success in recent years has come as a surprise to many, especially since the country was born out of war and genocide just over five decades ago. Its transition from an LDC to a developing country by 2026 marks an important step in the country’s journey to become a prosperous economic power. The government’s ambitious goal of becoming a developed country states that it will achieve upper-middle-income country status by 2041. This calls on politicians, business owners, bureaucrats, educators, investors and other architects of Bangladesh’s development to recognize these growth goals to continue to develop. on several fronts. In pursuing this goal, they will inevitably face challenges.

Despite significant progress, the country ranks 168th in the ease of doing business index out of 190 countries. Although the World Bank has canceled the use of this index, it is imperative to understand how Bangladesh can develop in the future. One of the main causes of the country’s poor ranking is the lack of foreign direct investment (FDI). FDI is important for technology transfer, job creation and strengthening a country’s financial and technology sectors. In Bangladesh, FDI represents approximately 1% of the country’s GDP. This figure can be improved by clarifying existing policies and increasing the reliability of government officials by adhering to national and international laws. Bureaucratic problems, lack of infrastructure, high tax rates and difficulty in accessing finance all hamper the ease of doing business in Bangladesh.

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With the recent arrival of the fourth wave of Covid in Bangladesh, the country faces many recurring challenges to maintain its growth. The priority should be to develop a strong recovery plan, which ensures that protective health care services are provided to protect the economy. The public health system must be supported to provide more accurate medical assessment and treatment to build resilience against the coronavirus. Over the past two years, the production and distribution of goods have been repeatedly disrupted. The pandemic has also exacerbated income inequality by widening the gap between rich and poor. As a result, earlier gains in increased income opportunities and reduced poverty were reversed. While our government revels in Bangladesh’s GDP growth, it is essential to understand that GDP is not an accurate metric for measuring well-being, as it does not take into account investments made in education. and health, nor does it address income inequality. Other measures, such as the Gini coefficient, are more precise. Bangladesh’s Gini coefficient is at an all-time high, indicating that inequality is also at its highest.

The current global economic climate has also been affected by the Russian-Ukrainian war, which has caused the prices of industrial and essential consumer goods, especially raw materials, to skyrocket around the world. Bangladesh is no exception, with the consumer price index (CPI) rising from 6.17% in February to 6.22% in March, the highest since October 2020.

Things also got worse when Bangladesh lost the Generalized System of Preferences (GSP) for Bangladeshi goods exported to the United States, which worried many in the RMG industry. This contradicts existing World Trade Organization (WTO) agreements, which allow developed countries to provide duty-free access to LDCs. If the United States had granted Bangladesh duty-free status in accordance with WTO guidelines, as all other developing countries have done, Bangladesh’s exports to the United States would have reached about 15 billion USD instead of the current USD 7.3 billion, and would have potentially employed an additional two million dollars. people. Despite this, the country has made significant economic progress. Bangladesh has benefited from the GSP for its products in the markets of the EU, Australia and Japan. The negotiation of preferential trade agreements such as these with countries in Latin America and Western Europe is essential to facilitate the transition from LDC status to that of developing countries.

Migration, internal displacement and climate change are also hampering Bangladesh’s economic prosperity. Climate adaptation must become a national priority going forward as the World Bank reports that the South Asia region will see 40 million internal climate migrants by 2050, with Bangladesh accounting for a third of them . The displacement of the Rohingya, in particular, has placed an enormous socio-economic burden on Bangladesh that requires urgent attention from the international community.

There are reasons to be optimistic about the future of Bangladesh. However, pursuing a long-term vision and monitoring implementation must become top priorities for our current government. If we are to strive to be a better and more prosperous country, it must be done on all fronts – by improving human rights, our democratic institutions, eliminating corruption and upholding the rule of law.

Ahnaf Shahriar is a recent graduate of the University of Toronto and founder of Flagship Ventures, a venture capital firm in Bangladesh.

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