Bangladesh

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Bangladesh – February 2022

Bangladesh has seen some of the highest and longest-sustained rates of growth of an emerging economy in the 21st century, supported by fast expansion in its textiles and services sector. Following the pandemic-induced downturn, economic growth in Bangladesh is projected to continue to outperform the emerging and developing Asia average in the coming years. Creditworthiness remains on par with the regional average, but indicators on the business climate and per capita incomes lag most other regional peers.

The above chart is a cobweb diagram showing how a country measures up on four important dimensions of economic performance—per capita income, annual GDP growth, business climate rank and creditworthiness. Per capita income is in current US dollars. Annual GDP growth is the five-year average forecast between 2022 and 2026. Business climate is measured by the World Bank’s latest Ease of Doing Business ranking of 190 countries. Creditworthiness attempts to measure a country's ability to honour its external debt obligations and is measured by its OECD country credit risk rating. The chart shows not only how a country performs on the four dimensions, but how it measures up against other countries in the region.

Economic Outlook


Bangladesh is one of the few economies in the world that continued to grow during the pandemic, expanding 3.5% in the fiscal year ending June 2020 and 5.5% in FY2021. Remittances, which comprise of over 5% of the total GDP of Bangladesh, grew over 18% during the pandemic, according to the World Bank, helping to support household consumption. A young population, rising incomes and strong government expenditure towards infrastructure are all expected to keep the country firmly on the path of robust growth. Continued accommodative fiscal and monetary policies will further support a pick-up in economic activity. The IMF expects real GDP to grow 6.6% in FY2022.

Before the pandemic, Bangladesh experienced faster economic growth than many other emerging and developing Asian economies, and projections point to a continuation of this trend in the coming years. But downside risks related to the ongoing pandemic, mobility restrictions and a low vaccination rate cast a shadow over the near-term outlook.

Longer term, a youthful population and rising incomes should support greater private consumption. Ongoing investment in energy and infrastructure, supported by financing from multilateral banks and development partners, should enhance logistics and business competitiveness, and support continued economic and social development. Key challenges to sustaining growth include labour law reforms, domestic political tensions and security threats. Institutional weaknesses, infrastructure deficiencies, perceptions of corruption and a relatively high incidence of violence could all undermine potential foreign direct investment. Vulnerability to extreme weather events and the high rate of non-performing loans in the banking sector pose further downside risks. 

Bangladesh’s strong past economic performance has lifted incomes. Extreme poverty rates—people earning less than US$1.90 per day—declined from as high as 44% in 1991 to less than 14% in 2017. Social indicators also improved, pointing to stronger health outcomes, lower mortality and greater education than some other regional neighbours. But the pandemic took a significant economic and financial toll on households and businesses. The pace of poverty reduction slowed, inequality increased across several dimensions and the poverty rate increased to 18.1% in 2020. The pandemic may also have long term economic implications as a result of reduced female labour force participation, learning losses, and heightened financial sector vulnerabilities.

Country Risk

 

Country risk in Bangladesh is moderate to high. The OECD country credit grade is 5, indicating that there may be a moderate to high chance the country will be unable or unwilling to meet its external debt obligations.

Bangladesh is ranked 168 out of 190 countries in the World Bank’s latest ease of doing business survey, well below the regional average of 91. Bangladesh falls behind on all categories except protecting minority investors. Bangladesh is particularly weak in registering property and enforcing contracts.

The risk of expropriation in Bangladesh is high. The Foreign Investment Act of 1980 safeguards against government expropriation in Bangladesh without adequate compensation. But a weak judicial system and corruption can make it difficult for foreign investors to seek impartial arbitration.

Political risk is moderate to high in Bangladesh. Rivalries within and between political parties often results in local violence. Related to this, Worldwide Governance indicators show Bangladesh is well below the regional average for political stability and absence of violence, and lower on all other indicators of governance.

Bilateral Relations

Bangladesh was Australia’s 32nd largest trading partner in 2020, accounting for 0.3% of Australia’s total trade. Total goods and services trade amounted to $2.4 billion in 2020, down from $2.7 billion in 2019. The COVID-19 pandemic disrupted bilateral trade over the past couple of years. Major goods exports to Bangladesh in 2020 included vegetables, ferrous waste and scrap, fertilizers, copper and zinc. Major goods imports from Bangladesh included textiles, men’s and women’s clothing and knitted clothing.

Services contributed $450 million to total export receipts in 2020, in large part supported by ongoing Bangladesh demand for Australian education and facilitated by remote learning. Still, the COVID-19 pandemic and associated international travel restrictions have hurt services trade over the past couple of years.

Tourist arrivals, which had been rising before the pandemic, have fallen significantly over the past couple of years due to COVID-19 related restrictions in 2020. Tourism is expected to rise again once international travel restrictions ease. Nevertheless, the ongoing pandemic points to another year of uncertainty for tourism, and broader services exports, in 2022.

Australian investment in Bangladesh is small, at $435 million in 2020. But Bangladesh’s longer-term infrastructure and economic development plans means there are opportunities for investment in the energy, telecommunications and infrastructure sectors. Bangladeshi investment in Australia is very small.