Tickled by a gift of mangoes from Prime Minister Sheikh Hasina to heads of state in neighboring countries, Indian media described the move as “Mango diplomacy‘. But Dhaka said she was simply sharing her “happiness” with friends in a historic year.
The year of the golden jubilee of its independence, Bangladesh has indeed several reasons to celebrate. The country’s economic performance during the pandemic years was recently recognized in Bloomberg COVID-19 Resilience Ranking, where it ranked 24th out of 53 economies in the world worth more than $ 200 billion.
According to a World Bank report ‘Bangladesh Development Update – Moving Forward: Connectivity and Logistics to Strengthen Competitiveness‘, published in April 2021, “Despite the uncertainty created by COVID-19, the outlook for Bangladesh’s economy is positive.” He assessed that Bangladesh was doing extremely well when the pandemic hit and he had also launched a number of stimulus packages to keep people working despite the shocks.
From “basket” to “Asian Tiger”
In recent years, the overall image of Bangladesh has changed dramatically. Once seen as the epitome of poverty and hunger, its consistent success in growing gross domestic product (GDP) is seen as a symbol of hardworking enterprise. It is gratifying to once see a South Asian nation labeled “basket” by Henry Kissinger to be projected as a future “Asian tiger” – that too, during his lifetime.
Indians were stunned by IMF projections that Bangladesh’s GDP per capita in dollars is expected to increase 4% in 2020 to $ 1,888, and India’s GDP per capita is expected to decline 10.5% in $ 1,877. It shouldn’t have been a surprise at all. Even before the COVID-19 pandemic, India’s GDP steadily declined by 6.8% in 2017, 6.53% in 2018 and 4.04% in 2019, collapsing to -7% in 2020. On the flip side, in 2019, Bangladesh was the world’s seventh fastest growing economy, with GDP growth steadily increasing, surpassing the 8% mark. This is despite fiscal pressures caused by factors such as donor fatigue in the face of the Rohingya crisis and the shortfall from an outdated tax administration.
The real wonder is that even in fiscal year 2020, when economies around the world contracted due to pandemic lockdowns, Bangladesh managed to grow 5.24%. In fiscal year 2021, its average income per capita was $ 2,227, higher than India’s $ 1,947.
Prudent economic governance
With macroeconomic stability as a cornerstone, Bangladesh’s economy has grown 271-fold in 50 years. Focused on its traditional labor-intensive light manufacturing industry, Bangladesh is now the world’s second-largest garment exporter behind China. It embarked on a traditional development strategy of simple export-oriented industrialization (EOI), the economic policy that was implemented with great success by the Asian tigers. The bulk of Bangladesh’s exports are in the textiles, clothing and footwear industry – which is labor intensive and employs unskilled and semi-skilled labor.
Bangladesh’s economic performance is also a reflection of its prudent fiscal management. The budget deficit was limited to 5.0% of GDP or less. Limiting public spending has left the private sector able to borrow from the financial system and invest. Fiscal prudence and export performance have been key to reducing poverty in Bangladesh.
Chalet-sized creative businesses have been included in the MSME category, making them Handicrafts, Micro, Small and Medium Enterprises (CMSME). They create 7.8 million direct jobs and contribute 25% of Bangladesh’s GDP. Each category is treated differently because they each have unique characteristics. Bangladesh’s confidence in CMSME management is reflected in its recent decision to fund the UNESCO-approved program “Bangabandhu Sheikh Mujibur Rahman International Prize for the Creative Economy” for exceptional initiatives that promote the engagement of young people in the creative economy.
Besides MSME management, Bangladesh offers lessons for India to specialize in competitive exports. India’s top five export products together account for around 40% of total exports and are capital and technology intensive. Micro and small industries are penalized due to insufficient access to bank credit. There has been a massive deceleration in India’s labor-intensive industries, affecting export-oriented industries such as textiles, clothing, leather and gemstone cutting. For the majority of micro and small enterprises, access to formal debt channels such as the Emergency Credit Line Guarantee Program (ECLGS) remains elusive because they depend on informal sources. For new businesses, loans and project approvals take a long time.
Beyond the pandemic, for India, the economic slowdown “is almost homemade” with disruptive initiatives such as demonetization, the goods and services tax (GST), tighter e-commerce rules, to help Indian businesses compete with companies like Amazon and Walmart. The Confederation of All Indian Traders (CAIT) estimates a trade loss of around Rs 15 lakh crore over the past two months due to localized lockdowns imposed by various states during the second wave of COVID-19. The trade body called on Prime Minister Narendra Modi to come to the aid of small businesses by announcing a “substantial financial package to restore commercial activities” hit by recurring monthly expenses, with no income to bear such a cost.
“We do not ask for any loan waivers but the support policies central and state governments, temporary relaxations in statutory compliance and ease of re-establishing business, ”CAIT said in a statement.
Relatively, Bangladesh’s stimulus package, as a proportion of its GDP, has been much higher than that of India. Even with a preference for fiscal prudence, through the pandemic, Sheikh Hasina’s government has handed out generous stimulus packages and all-important social protection schemes for the agricultural sector. For SMEs, heavy industries, ready-to-wear (RMG) and other industries, incentives have been granted gradually.
“Digital Bangladesh”, which aims to create a digital ecosystem through its platforms like Shujog.xyz, supports new entrepreneurs and includes them in the management of digital finance. With nearly two dozen COVID-19 stimulus packages, the country has an overall expenditure of 1.24 trillion taka, or 4.44% of GDP. This included measures such as 50 billion taka for export-oriented industries to pay the wage bill for three months, two-year loans to factory owners at 2% interest, 200 billion taka for banks provide working capital loan facilities to CMSMEs at an interest rate of 9%; 4% payable by the borrower, and 5% by the government as a subsidy. The success of the recovery plan was also due to its effective management, simultaneously helping affected industries and addressing the problem of food security for the poor and vulnerable.
The coronavirus pandemic has affected all national economies and caused per capita incomes to plummet, but Bangladesh’s credit lies in applying its experience from disasters of floods, cyclones, etc., to deal with the COVID crisis. -19. Our eastern neighbor, a nation of 168 million people, has been able to fare better thanks to timely economic stimulus packages, sound financial incentives, an upturn in exports and strong inflows of funds. Despite its large population, the Bangladesh model is a positive example that has helped it become a better performing country in the Asian region.
Vaishali Basu Sharma is a strategic and economic business consultant. She worked with the Secretariat of the National Security Council (NSCS) for almost a decade. She is currently associated with the New Delhi-based Policy Perspectives Foundation think tank.