Macroeconomic performances of Bangladesh over the past 50yrs


This is a proud moment for a nation, which was once termed as a development “basket case” has now emerged as a “development surprise” at its 50 with particular progress in per capita income as well as social and development sectors.

The per capita income in 2020 has surpassed India with impressive economic growth of over 7 per cent in the decade. Poverty has halved now from around 50 per cent in 2000.

It has achieved lower middle-income country status in 2015 and the UN has confirmed Bangladesh’s graduation from LDC status in 2021 to be effective from 2026.

The impressive economic performance of Bangladesh, however, has been achieved despite various struggles, such as devastating floods, famines, cyclones, coups, political unrests that have also influenced the diffusion of economic policies and reforms.

A major paradigm shift has taken place with the transformation from a nationalised economic policy stance perceived in the 1970s to a private sector-led economy with liberalisation, deregulation and denationalisation in the subsequent decades of 1980s and 1990s.

In 1990s, Bangladesh recorded the lowest GDP growth in South Asia and these were also the years when Bangladesh experienced a series of adjustment and stabilisation reforms.

Towards the end of the 1990s there were signs of improvement in macroeconomic indicators that has been carried out over time.

Bangladesh has overcome many challenges since its birth in 1971. Per capita income rose to $2,060 (nominal) in 2020 from around $100 in the early 1970s, and the country has achieved food self-sufficiency by now, thanks mainly to agricultural mechanisation.

From a slow start in the 1970s, GDP growth rate has accelerated to above 7 per cent over the decades despite natural calamities, global financial crisis and political unrest at home. Bangladesh made commendable progresses on several Millennium Development Goal targets especially in social indicators in which the country has done markedly better than neighbouring comparators.

Since the early 1990s, major trade and financial liberalisation programmes were implemented as part of the structural adjustment reforms supported by the World Bank and the IMF.

Making current account convertible in March 1994 and adoption of floating exchange rate system in June 2003 were the key exchange and trade system liberalisation policies agreed with the IMF under its structural adjustment programmes.

Bangladesh also adopted reform policies in project management, procurement and implementation.

A major policy shift of the late 1980s was the adoption of market-oriented liberalisation against the backdrop of serious macroeconomic imbalances.

The imbalances were caused in part by a decline in foreign aid and in part by preceding severe deterioration in the country’s terms of trade.

However, the beginning of the 1990s saw a more comprehensive programme of macroeconomic reforms, which coincided with a transition to parliamentary democracy.

The reforms of the 1980s and 1990s helped to reduce fiscal and external deficits to a sustainable level, consistent with the level of aid availability.

So, even with a declining share of aid as percentage of gross national income, savings and investments increased.

The key policy reforms in the 1980s included mainly the withdrawal of food and agricultural subsidies, privatisation of state-owned enterprises, financial liberalisation, and withdrawal of quantitative import restrictions.

The reforms of the early 1990s were particularly aimed at moving towards an open economy, such as making the current account convertible, reducing import duties generally to much lower levels, and removing virtually all controls on the movements of foreign private capital.

In addition, on the fiscal front, value-added tax was introduced. As indicated earlier, despite various criticisms about donor-prescribed reforms of the 1980s and 1990s, such reforms undoubtedly led to an improvement in macroeconomic indicators and paved the way for sustained growth.

The growth of GDP, which averaged 3.7 per cent annually during the 1980s, increased to 4.4 per cent in the first half of the 1990s, and further to 5.2 per cent in the second half of the 1990s.

During the 2000s, the country achieved impressive economic growth, about 6 per cent on average, and in the 2010s the growth rate was even higher.

However, income inequality situation has also worsened with higher growth outcomes that to some extent has slowed poverty reduction pace.

The recent higher growth episodes after 2010 point to a structural break given the fact that the share of remittance and RMG export has been on a declining trend.

A higher degree of public investments in this decade in various mega infrastructure projects, as well as a widespread digital transformation under the Digital Bangladesh programme can be thought to be the drivers that have uplifted the economy from the low-growth trap of 2000s.

One of our recent studies shows that with over 90 per cent adoption rate, mobile phone not only facilitates communication, but also increases household welfare, businesses and women empowerment.

Against the backdrop, some of the key policy reforms are highlighted below that need to be pondered for embarking on high growth trajectories.

First, the quality of growth should be enhanced by supporting policies, such as land tenure reform, changes in marginal and average tax rates, increases in pro-poor social spending, etc.

For that, necessary structural and governance reforms would be required to empower the poor.

Second, trade policy in Bangladesh, though legally binding, is based on unpredictable set of tariff and para-tariff structure that needs to be streamlined by making more reforms in tariff structure with a predictable approach.

The industrial policies pursued by Bangladesh have long been discredited. Such policy reforms should aim to create an enabling environment and level-playing field conducive to private sector investment and broad-based economic growth.

Third, having the lowest tax-GDP ratio among the South Asian neighbours calls for a big reform in tax administration and tax structure for fiscal sustainability.

Improving tax governance, increasing tax net and coverage, analysis of tax incidence, enhancing capabilities of NBR are some of the pertinent reforms that might improve the tax collection efforts.

Fourth, a vibrant manufacturing sector with particular focus on micro, small and medium enterprises might ensure a sustainable improvement in living standards in the long-run.

Higher income countries’ export must account for more than 50 per cent of its GDP. Then, the question is, what next after RMG? The growth paths of East Asian countries suggest that the next dominant exporting sector could be the ICTs/electronics.

Apparel sector is likely to be in a tough competition after country’s graduation from LDC.

Following the success of Walton, further incentives and supports can be given to numerous assemblers of Chinese products to turn them into manufacturers. At the same time, conducive policies must be in place to reduce digital divide and digital economy.

Fifth, to support higher economic growth there is no alternative other than attracting FDI in the manufacturing sectors.

Conducive regulatory and business environment, improvement of skilled human capital, ensuring serviced land through SEZs, competitive and efficient financial sector etc. are some of the important measures that can attract FDIs.

Finally, in an enduring journey towards creating Sonar Bangla, continuity in policies with focus on technology driven economic development should be the utmost priority.

Monzur Hossain is research director at Bangladesh Institute of Development Studies.

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