By Ali Riaz
As recently as 2021, Bangladesh was portrayed as a triumph. As Bangladeshis celebrated fifty years of independence, the international media celebrated the country as an economic success that had raised millions of people out of poverty. In the past few years, however, it has become more evident that the country’s economic health is in trouble.
Recent economic data and projections by international institutions, including the World Bank, reveal that the country faces considerable headwinds. Several notable social indicators, too, raise concerns that the country’s success story may be unraveling. Not coincidently, these shifts are taking place under a government that is less and less accountable to its citizens.
Published on April 2, the World Bank’s Bangladesh Development Update forecasted that the country’s gross domestic product (GDP) growth in fiscal year 2024 would be 5.6 percent. Within days of the World Bank’s forecast came a report from the Bangladesh Bureau of Statistics (BBS) that GDP growth in the second quarter of the current fiscal year, between October and December 2023, was 3.78 percent. This is a dramatic decline compared to the previous quarter’s growth, which stood at 6.01 percent. The numbers were far higher in previous years’ second quarters; in fiscal year 2022 it was 9.3 percent and in fiscal year 2023 it was 7.08 percent. The overall GDP growth projection of the World Bank sharply contrasts with the government’s initial projection for fiscal year 2024, which the Bangladeshi government revised down in January from 7.5 percent to 6.5 percent.
Analysts have described the government’s growth target as unachievable. Those who have been following Bangladesh’s economy were not surprised that the World Bank projected a rate below last fiscal year’s growth of 5.8 percent and well below fiscal year 2022’s growth of 7.1 percent. The country’s average GDP growth over the past decade, according to government statistics, was around 6.6 percent. The World Bank forecast suggests that Bangladesh’s economic growth has been on a downward trend for two consecutive years and that the projection for next year is not much different from this year.
The economic crisis in Bangladesh, which has been evident since the middle of 2022, didn’t appear suddenly due to external shocks. It was in the making for quite some time. Two years ago, Bangladesh reached out to the International Monetary Fund (IMF) and other international lenders to avert a meltdown. The government did secure new loans, but these have added to existing external loans. For the first time, external debt surpassed one hundred billion dollars in late 2023. As a result, the cost of servicing the debt is increasing at an unprecedented rate. In the first eight months of the current fiscal year, the country spent $2.03 billion making payments on this debt. The debt servicing, not only the foreign but domestic sources, is forcing the government to borrow to “repay a large part of its PPG [public and publicly guaranteed] debt obligations,” according to economist Mustafizur Rahman.
This is putting a serious dent in Bangladesh’s foreign exchange reserves, which have continued to slip. As of early April 2024, they stood below the IMF’s suggested $19.26 billion. Concurrently, nonperforming bank loans, which are about 10 percent of total outstanding loans, according to the central bank’s statement, are increasing. In the past fifteen years, the amount has increased six and a half fold. In a single year, it increased by more than 20 percent. Faced with pressure from the IMF to reduce the defaulting loans, the Bangladesh Bank has devised a stealthy way to do so—essentially, by cooking the books. The Bangladesh Bank has decided to relax the write-off policy that will wipe out a large amount of loans from the books but will hold nobody accountable—neither those banks which have allowed this to happen nor the businesses which have defaulted.
Instead, a recent amendment to the Bank Company Act will allow the sister companies of the defaulters to continue to borrow. In another controversial move, the Bangladesh Bank has decided to merge “weak banks” with “strong banks” as part of its banking sector reform program. In April, the World Bank described this move as “counterproductive,” and experts have questioned its prudence. It will force the liabilities of weak banks onto the depositors of stronger banks. Many of the banks identified by the central bank as weak were approved in the past fifteen years for political considerations. The benefits enjoyed by those who established these banks and borrowed from various banks are now being paid by the public at large.
The broad economic crisis is having serious consequences for Bangladeshis, especially those in the middle class and poorer segments of society. While official statistics from February claim that inflation is below 10 percent, the prices of food and essentials in the market indicate a far greater number. Although food and fuel prices have fallen in the global market, Bangladeshis have not enjoyed the benefits of this. Instead, the government in March once again raised the price of electricity. In 2023 alone, the government raised the price of electricity and gas three times.
The plight of the common people can be gleaned from the data provided by a BBS survey conducted in the middle of 2023, “Food Security Statistics 2023.” The survey revealed that around 37.7 million people experienced moderate to severe food insecurity in the country. The report also noted that more than a quarter of families were taking out loans to cover the cost of daily necessities, including food. A survey by the South Asia Network on Economic Modeling, a think tank, shows that 28 percent of households resorted to borrowing money between April and November of 2023. The share of households borrowing money, largely from informal sources, has been on the rise for the past decade. According to a 2022 BBS survey, the average amount of loans per household in the country nearly doubled between 2016 to 2022, whereas the amount increased just 34 percent in the six-year period between 2010 and 2016. These numbers point to a difficult, perhaps even deteriorating, economic situation for many Bangladeshis.
While the economic indicators alone are concerning, there are also disturbing developments in several social development indicators.
Bangladesh had been registering increases in life expectancy for decades. In 2020, it reached 72.8 years, the highest to date. But since then, the pattern of growth has been broken. In 2021, there was a decline, to 72.3 years. In 2022, a modest increase to 72.4 was reported by the BBS. But the Bangladesh Sample Vital Statistics-2023 (BSVS-2023), published by the BBS in March 2024, shows a reversal, to 72.3 years. Combined with the information that food insecurity has increased in the past year, it is worth asking what might be causing this decline.
The decline in life expectancy is in part a result of the increase of the death rate in children. The BSVS-2023 shows that the mortality rate for children under five years of age, newborns, and children under one year has increased. Nor was the increase a one-off incident. Take, for example, the mortality rate for children under one year of age. The number was 21 per 1,000 five years ago, while in 2022 it increased to 25 and in 2023 it reached 27. The death of children below one month has reached 20 per 1,000 live births, up from 16 in 2022. Five years ago, the death rate of this age group was 15. The death rate of children under five years was 33 per 1,000 in the past year, an increase from 31 in 2022 and 28 five years ago. The BVS-2023 identified other troubling trends in social indicators as well. For instance, child marriage has increased significantly in recent years—from 31.3 percent in 2020 to 41.6 percent in 2023.
Two aspects of education and employment are noticeable in the statistics provided in the BSVS-2023 and a survey conducted by the Bangladesh Bureau of Educational Information and Statistics (BANBEIS). First, there has been a drop in students at the secondary-school level and an increase of NETT (not in employment, education, or training) among the youth population. Over the past four years, the number of students at the secondary school level in Bangladesh has decreased by one million, according to the BANBEIS.
According to the BSVS-2023, the share of children between five and twenty-four years not in educational institutions has risen since the COVID-19 pandemic. In 2020, at the onset of the pandemic, 28.46 percent were out of educational institutions, while in 2023, the share reached 40.72 percent. On the other hand, BSVS reveals that 39.88 percent of youth between the age of fifteen and twenty-nine are neither in school nor in employment. The percentage was a little better than 2022, when it was 40.67 percent, but according to the labor force survey of 2016-2017, the NETT was around 30 percent. As such, this increase by almost ten percent in eight years reflects a pattern.
These economic and societal shifts are happening neither abruptly nor in a vacuum of policy decisions. Instead, they are taking place incrementally and under a system of governance that has repeatedly claimed its legitimacy based on “development,” even at the expense of democracy and an inclusive political system.
The absence of accountable governance is allowing a crony system to flourish, even as it is holding back the economy. The government has created a clientelist network upon which it relies for survival and stability. Recent elections have been neither free nor fair, and they have resulted in an economy that is increasingly beholden to a small group of people who facilitate the victory of the incumbent.
This is not unexpected. The dire warnings that authoritarianism can burst the bubble of growth appear to be coming to pass. As the country’s system of governance has transformed from a hybrid regime to an autocratic system, especially after the 2018 election, social development has received less attention from the government, which relies less and less on a mandate from citizens. Regime survival is not contingent on public support, which tends to judge the incumbent based on performance. If these trends continue, then the optimism that accompanied the fiftieth anniversary of Bangladesh’s independence may soon seem like a distant memory.
Ali Riaz is a nonresident senior fellow at the Atlantic Council South Asia Center and a distinguished professor at Illinois State University.
As recently as 2021, Bangladesh was portrayed as a triumph. As Bangladeshis celebrated fifty years of independence, the international media celebrated the country as an economic success that had raised millions of people out of poverty. In the past few years, however, it has become more evident that the country’s economic health is in trouble.
Recent economic data and projections by international institutions, including the World Bank, reveal that the country faces considerable headwinds. Several notable social indicators, too, raise concerns that the country’s success story may be unraveling. Not coincidently, these shifts are taking place under a government that is less and less accountable to its citizens.
The worsening economy: The big picture
Published on April 2, the World Bank’s Bangladesh Development Update forecasted that the country’s gross domestic product (GDP) growth in fiscal year 2024 would be 5.6 percent. Within days of the World Bank’s forecast came a report from the Bangladesh Bureau of Statistics (BBS) that GDP growth in the second quarter of the current fiscal year, between October and December 2023, was 3.78 percent. This is a dramatic decline compared to the previous quarter’s growth, which stood at 6.01 percent. The numbers were far higher in previous years’ second quarters; in fiscal year 2022 it was 9.3 percent and in fiscal year 2023 it was 7.08 percent. The overall GDP growth projection of the World Bank sharply contrasts with the government’s initial projection for fiscal year 2024, which the Bangladeshi government revised down in January from 7.5 percent to 6.5 percent.
Analysts have described the government’s growth target as unachievable. Those who have been following Bangladesh’s economy were not surprised that the World Bank projected a rate below last fiscal year’s growth of 5.8 percent and well below fiscal year 2022’s growth of 7.1 percent. The country’s average GDP growth over the past decade, according to government statistics, was around 6.6 percent. The World Bank forecast suggests that Bangladesh’s economic growth has been on a downward trend for two consecutive years and that the projection for next year is not much different from this year.
The economic crisis in Bangladesh, which has been evident since the middle of 2022, didn’t appear suddenly due to external shocks. It was in the making for quite some time. Two years ago, Bangladesh reached out to the International Monetary Fund (IMF) and other international lenders to avert a meltdown. The government did secure new loans, but these have added to existing external loans. For the first time, external debt surpassed one hundred billion dollars in late 2023. As a result, the cost of servicing the debt is increasing at an unprecedented rate. In the first eight months of the current fiscal year, the country spent $2.03 billion making payments on this debt. The debt servicing, not only the foreign but domestic sources, is forcing the government to borrow to “repay a large part of its PPG [public and publicly guaranteed] debt obligations,” according to economist Mustafizur Rahman.
This is putting a serious dent in Bangladesh’s foreign exchange reserves, which have continued to slip. As of early April 2024, they stood below the IMF’s suggested $19.26 billion. Concurrently, nonperforming bank loans, which are about 10 percent of total outstanding loans, according to the central bank’s statement, are increasing. In the past fifteen years, the amount has increased six and a half fold. In a single year, it increased by more than 20 percent. Faced with pressure from the IMF to reduce the defaulting loans, the Bangladesh Bank has devised a stealthy way to do so—essentially, by cooking the books. The Bangladesh Bank has decided to relax the write-off policy that will wipe out a large amount of loans from the books but will hold nobody accountable—neither those banks which have allowed this to happen nor the businesses which have defaulted.
Instead, a recent amendment to the Bank Company Act will allow the sister companies of the defaulters to continue to borrow. In another controversial move, the Bangladesh Bank has decided to merge “weak banks” with “strong banks” as part of its banking sector reform program. In April, the World Bank described this move as “counterproductive,” and experts have questioned its prudence. It will force the liabilities of weak banks onto the depositors of stronger banks. Many of the banks identified by the central bank as weak were approved in the past fifteen years for political considerations. The benefits enjoyed by those who established these banks and borrowed from various banks are now being paid by the public at large.
Economic woes of citizens
The broad economic crisis is having serious consequences for Bangladeshis, especially those in the middle class and poorer segments of society. While official statistics from February claim that inflation is below 10 percent, the prices of food and essentials in the market indicate a far greater number. Although food and fuel prices have fallen in the global market, Bangladeshis have not enjoyed the benefits of this. Instead, the government in March once again raised the price of electricity. In 2023 alone, the government raised the price of electricity and gas three times.
The plight of the common people can be gleaned from the data provided by a BBS survey conducted in the middle of 2023, “Food Security Statistics 2023.” The survey revealed that around 37.7 million people experienced moderate to severe food insecurity in the country. The report also noted that more than a quarter of families were taking out loans to cover the cost of daily necessities, including food. A survey by the South Asia Network on Economic Modeling, a think tank, shows that 28 percent of households resorted to borrowing money between April and November of 2023. The share of households borrowing money, largely from informal sources, has been on the rise for the past decade. According to a 2022 BBS survey, the average amount of loans per household in the country nearly doubled between 2016 to 2022, whereas the amount increased just 34 percent in the six-year period between 2010 and 2016. These numbers point to a difficult, perhaps even deteriorating, economic situation for many Bangladeshis.
Social indicators are showing strains
While the economic indicators alone are concerning, there are also disturbing developments in several social development indicators.
Bangladesh had been registering increases in life expectancy for decades. In 2020, it reached 72.8 years, the highest to date. But since then, the pattern of growth has been broken. In 2021, there was a decline, to 72.3 years. In 2022, a modest increase to 72.4 was reported by the BBS. But the Bangladesh Sample Vital Statistics-2023 (BSVS-2023), published by the BBS in March 2024, shows a reversal, to 72.3 years. Combined with the information that food insecurity has increased in the past year, it is worth asking what might be causing this decline.
The decline in life expectancy is in part a result of the increase of the death rate in children. The BSVS-2023 shows that the mortality rate for children under five years of age, newborns, and children under one year has increased. Nor was the increase a one-off incident. Take, for example, the mortality rate for children under one year of age. The number was 21 per 1,000 five years ago, while in 2022 it increased to 25 and in 2023 it reached 27. The death of children below one month has reached 20 per 1,000 live births, up from 16 in 2022. Five years ago, the death rate of this age group was 15. The death rate of children under five years was 33 per 1,000 in the past year, an increase from 31 in 2022 and 28 five years ago. The BVS-2023 identified other troubling trends in social indicators as well. For instance, child marriage has increased significantly in recent years—from 31.3 percent in 2020 to 41.6 percent in 2023.
Two aspects of education and employment are noticeable in the statistics provided in the BSVS-2023 and a survey conducted by the Bangladesh Bureau of Educational Information and Statistics (BANBEIS). First, there has been a drop in students at the secondary-school level and an increase of NETT (not in employment, education, or training) among the youth population. Over the past four years, the number of students at the secondary school level in Bangladesh has decreased by one million, according to the BANBEIS.
According to the BSVS-2023, the share of children between five and twenty-four years not in educational institutions has risen since the COVID-19 pandemic. In 2020, at the onset of the pandemic, 28.46 percent were out of educational institutions, while in 2023, the share reached 40.72 percent. On the other hand, BSVS reveals that 39.88 percent of youth between the age of fifteen and twenty-nine are neither in school nor in employment. The percentage was a little better than 2022, when it was 40.67 percent, but according to the labor force survey of 2016-2017, the NETT was around 30 percent. As such, this increase by almost ten percent in eight years reflects a pattern.
How did it happen?
These economic and societal shifts are happening neither abruptly nor in a vacuum of policy decisions. Instead, they are taking place incrementally and under a system of governance that has repeatedly claimed its legitimacy based on “development,” even at the expense of democracy and an inclusive political system.
The absence of accountable governance is allowing a crony system to flourish, even as it is holding back the economy. The government has created a clientelist network upon which it relies for survival and stability. Recent elections have been neither free nor fair, and they have resulted in an economy that is increasingly beholden to a small group of people who facilitate the victory of the incumbent.
This is not unexpected. The dire warnings that authoritarianism can burst the bubble of growth appear to be coming to pass. As the country’s system of governance has transformed from a hybrid regime to an autocratic system, especially after the 2018 election, social development has received less attention from the government, which relies less and less on a mandate from citizens. Regime survival is not contingent on public support, which tends to judge the incumbent based on performance. If these trends continue, then the optimism that accompanied the fiftieth anniversary of Bangladesh’s independence may soon seem like a distant memory.
Ali Riaz is a nonresident senior fellow at the Atlantic Council South Asia Center and a distinguished professor at Illinois State University.
