Economy 2019: Finishing Analysis

Ongoing trade disputes between US and China hampered global markets and shaken the established order. Projected economic growth in South Asia has fallen 1.1 percentage in last six months. Bangladesh, on the other hand, has adapted to the rapidly changing landscape and managed to maintain its impressive record of economic growth.

The Asian Development Bank- ADB says Bangladesh has the fastest-growing economy in the Asia-Pacific region. Lately, it’s been closing in on double-digit annual growth in its Gross Domestic Product-GDP.

The reason is that Bangladesh has made enormous strides by finding new markets for its exports and attracting large numbers of foreign investors. It’s also been investing in a variety of modernization projects.

At a time when many countries are looking inwards and closing their doors, Bangladesh is open for business.

Bangladesh’s economy has grown 188 percent. This year, Bangladesh is on track to post record high annual GDP growth of 8.1 percent, up from 7.9 percent in 2018. By comparison, other South Asian countries, including India, Pakistan, and Sri Lanka, suffered significant dips in GDP growth in recent years.

HSBC Bank recently  predicted that Bangladesh would be the 26th-largest economy in the world by 2030.

The garment industry remains Bangladesh’s economic backbone, and it too is booming. Thanks to rising demand for Bangladeshi garments in the US and newer markets in Australia, Canada, India, and China.

Bangladeshi garment exports rose 11.5 percent in 2019. According to World Bank Chief Economist for the South Asia Region, Hans Timmer, the high frequency data shows that Bangladesh is doing better than the rest of the region, especially than India, Sri Lanka and Pakistan. We see that in industrial production; we see that in exports.'

Bangladesh is also harnessing the power and productivity of its youthful workforce. Bangladesh’s educational system produces more than 500,000 university graduates every year, and more than 65,000 of the graduates receive training in Information Technology Enabled Services. These graduates are not, however, entering the same job market their parents did. Bangladesh was long a largely rural and agricultural country. Today, young professionals are increasingly urban and digitally savvy. To facilitate this transition, Bangladesh has developed more than 8,000 digital centers across the country to help provide various digital services to its citizens. It has also expanded internet and mobile coverage. More than 110 million Bangladeshis, or two-thirds of the population, have access to the internet.

Foreign Investment

International investors have taken notice. Since 2018, net foreign direct investment has increased by 42.9 percent. Most of that has gone to the production of electricity, food, and textiles. Top investors come from China, the United Kingdom, the Netherlands, and South Korea. Recently, Saudi Arabia’s energy behemoth, ACWA power, agreed to set up an gas-powered, 3,600 megawatt plant in Bangladesh – compelling evidence of Bangladesh’s growing allure. ACWA will invest a total of $3 billion in Bangladesh’s energy development sector.

Revenue 

The revenue collection in first quarter was the lowest in a decade and forecasted higher revenue shortfall in the current fiscal year. 

As per Bangladesh Bank data, the overall deficit recorded a 73% growth, additional about Tk14,194 crore, in July-August of FY20 which was 23.8% of the annual target. 

The government borrowing from banks witnessed 311% growth in Q1, additional about Tk18,555 crore, which was 53.8% of the total annual bank borrowing target.

Net government credit registered a 34.9% growth in July-August period which was the highest since FY12. At the same time private sector credit registered the slowest growth, around 10%, since FY14.

The government should stop black money whitening and bring the tax evaders to book.

‘The existing black money whitening facility through voluntary disclosure failed to register expected response. Apparently only Tk196 crore was legalized from 220 people during FY17-FY19,’.

Bank 

Mounting liquidity crisis in the banking sector posed the risk of economic downturn.

Nearly zero to below zero real interest rate on deposit, cap on deposit rate at 6%, falling confidence of depositors due to high non-performing loans and illicit financial outflows were the main reasons for weak deposit growth.

The total volume of non-performing loans increased to Tk1,12,430 crore in June 2019 from Tk1,10,970 crore in March.

Stock market 

Irregularities and malpractices by influential quarter created scope for siphoning off large amounts of money. As a result, the small investors have been betrayed time and again, who lost their hard earn money.

Export

Exports have also increased and diversified. Bangladesh’s exports grewy by 4.5% in 2018 and is on track to increase by 10.1% this year. In addition, Bangladesh is now the fourth largest rice producer, the second largest jute producer, the fourth largest mango producer, the fifth largest vegetable producer, and fourth largest inland fish producer in the world. On top of that – and surprisingly — Bangladesh also exported 12 industrial robots to South Korea and four ships to India.

Economic Freedom

Bangladesh’s economic freedom score is 55.6, making its economy the 121st freest in the 2019 Index. Its overall score has increased by 0.5, with higher scores on factors including property rights and government integrity countering declines in investment freedom and fiscal health.

Bangladesh is ranked 27th among 43 countries in the Asia–Pacific region, and its overall score is below the regional and world averages. Robust economic growth of approximately 6% annually for two decades has been driven by a rapid increase in private consumption and fixed investment. Nevertheless, Bangladesh still grapples with poor infrastructure, endemic corruption, insufficient power supplies, and slow implementation of economic reforms. The fragile rule of law continues to undermine economic development. Corruption and weak enforcement of property rights force workers and small businesses into the informal economy. Entrepreneurial activity is also hampered by an uncertain regulatory environment.

Rule of Law

Property laws are antiquated, and land disputes are common. The judiciary is slow and lacks independence. Contract enforcement and dispute settlement procedures are inefficient. Endemic corruption and criminality, weak rule of law, limited bureaucratic transparency, and political polarization have undermined government accountability. High-profile corruption cases are common. Two recent cases involved a chief justice and a former prime minister.

Government Size

The top income tax rate is 25%, and the top corporate tax rate is 45 percent. Other taxes include a value-added tax. The overall tax burden equals 8.8 percent of total domestic income. Over the past three years, government spending has amounted to 13.6 percent of the country’s output, and budget deficits have averaged 3.6% of GDP. Public debt is equivalent to 32.4%t of GDP.

Regulatory Efficiency

Despite some progress in streamlining business regulations, entrepreneurial activity is hampered by an uncertain regulatory environment and the absence of effective long-term institutional support for private-sector development. A well-functioning labor market has not been fully developed, but labor productivity growth has been slightly higher than wage hikes. The state continues its extensive subsidizing of food, electricity, fuel and agriculture.

Open Markets

The combined value of exports and imports is equal to 35.3% of GDP. The average applied tariff rate is 10.7 percent. The government has taken steps to reduce bureaucratic barriers to investment, but overall progress has been slow. State ownership and interference in the financial sector remain considerable. About 54 percent of adult Bangladeshis have access to an account with a formal banking institution.

Sources: ADB, CPD, Global Business Freedom Index, South Asian Monitor