How Has Bangladesh Left Pakistan Behind in Per Capita Income?

A headline in the Economist magazine's recent issue screams: "Bangladesh's GDP per person is now higher than Pakistan's". Let's examine this development to understand its causes.

Per Capita GDP:

The Economist article explains its headline as follows: "Last month revealed a remarkable turnaround. Bangladesh’s GDP per person is now higher than Pakistan’s. Converted into dollars at market exchange rates, it was $1,538 in the past fiscal year (which ended on June 30th). Pakistan’s was about $1,470....Strange as it may sound, Bangladesh jumped ahead because of an advance in Pakistan. On August 25th Pakistan released the results of its census, updating earlier population estimates. They showed that the country has 207.8m people, more than 9m more than previously thought. It may now have the fifth biggest population in the world, surpassing Brazil’s. But the new count also lopped 4-5% off Pakistan’s GDP per person, the arithmetic consequence of revealing so many more people."

Savings Rate in Pakistan Source: State Bank of Pakistan

Pakistan Growth By Decades. Source: National Trade and Transport Facility

Economic Growth Trends:

One can quibble with the Economist on details of its report but the fact remains that Bangladesh's economy has been growing significantly faster than Pakistan's for about a decade. To understand why, it's important to look into savings and investments, population growth trends and security situation in the two countries. Let's examine each in a little more detail.

Investment as Percentage of GDP Source: State Bank of Pakistan

Savings and Investment:


There's a strong relationship between investment levels and gross domestic product. The more a country saves and invests, the higher its economic growth.  A State Bank of Pakistan report explains it as below:

"National savings (in Pakistan) as percent of GDP were around 10 percent during 1960s, which increased to above 15percent in 2000s, but declined afterward. Pakistan’s saving rate also compares unfavorably with that in neighboring countries: last five years average saving rate in India was 31.9 percent, Bangladesh 29.7 percent, and Sri Lanka 24.5 percent..... Similarly, domestic savings (measured as national savings less net factor income from abroad) also declined from about 15 percent of GDP in 2000s, to less than 9 percent in recent years. Domestic savings are imperative for sustainable growth, because inflow of income from abroad (remittances and other factor income) is uncertain due to cyclical movements in world economies, exchange rates, and external shocks".

Net Foreign Direct Investment Source: State Bank of Pakistan

Population Trends:

The total fertility rate (TFR) in Bangladesh has declined faster in Bangladesh than in Pakistan in the last few decades. Currently, Bangladesh is at 2.17 children per woman while Pakistan is at 2.62 children per woman.

As a result of reduced birth rates and more female labor participation rates, a larger percentage of Bangladeshi population is in the work force than Pakistan's. There are now more wage earners and fewer dependents in each Bangladeshi household. This demographic trend has helped boost Bangladesh's per capita income faster than Pakistan's.

Rising working age population and growing workforce participation of both men and women in Pakistan will significantly boost domestic savings and investment. Increased foreign direct investment such as Chinese investment in China-Pakistan Economic Corridor over the next several decades will help fill the gap between the national savings rate and investments required to reach 7% annual GDP growth to create over 2 million jobs a year.

Security Issues:

Pakistan has paid a heavy price for its proximity to and involvement in "war on terror" in Afghanistan. It has cost Pakistan dearly in terms of loss of thousands of precious lives and lower investments due to investors' security concerns. Recent operations by Pakistan Army have helped turn the tide against terrorists, bringing more hope and greater confidence in Pakistan's future. Rising FDI in CPEC-related projects in the last couple of years are an indication of this confidence.

Future:

Pakistan is now experiencing the demographic dividend that Bangladesh has seen in the last few decades in terms of more of its population earning and fewer dependents. Pakistan's labor force is growing at 3.6% a year, much faster than its population growth rate of 2.34%. This should help boost Pakistan's per capita and its domestic savings rate.

At the same time, China-Pakistan Economic Corridor (CPEC) related projects are bringing more foreign direct investment, thereby speeding up the economic growth in the country. Pakistan's GDP growth is accelerating from less than 5% two years ago to 6% forecast for fiscal 2017-18.  In its latest economic growth projections, Kennedy School's Center for International Development (CID) at Harvard University expects Pakistan's annual GDP growth to average 5.97% over the next 8 years, ranking it as the world's 6th fastest growing economy. It is within the realm of possibility that economic growth in Pakistan could exceed 7% in the next couple of years.

Summary:

Pakistan has fallen behind Bangladesh and India in per capita income as its growth rates have slipped in recent years mainly due to declining savings and investment rates and security issues.  Demographic trends and improved security situation now favor Pakistan's future growth as its workforce grows and household sizes shrink.

Comments

Riaz Haq said…
Belt and Road: Xi’s initiative finds momentum and meaning in south Asia By: Elliot Wilson Published on: Tuesday, September 26, 2017 BRI may be hard to define, but it is already working wonders in parts of a region crying out for good infrastructure. Global and regional lenders are happy to go along for the ride.

https://www.euromoney.com/article/b14r677vlmysyt/belt-and-road-xis-initiative-finds-momentum-and-meaning-in-south-asia


The genius of China’s sprawling attempts to rework globalization in its own image is that, for now at least, it defies any attempt at clarity. Ask any two people to define the Belt and Road Initiative and you receive utterly different answers. Nawaz Sharif, former premier of Pakistan, a country that stands to benefit handsomely from the initiative, has described the BRI as a “game-changer” for his homeland. Matthew Oxenford, a research associate at Chatham House’s global economy and finance team in London, sees it as Beijing’s “flagship branding exercise”. He draws comparisons between the BRI’s nation-building efforts and the Works Progress Administration, a Depression-era US agency that put jobless men to work building much-needed roads and public buildings. This lack of clarity is often more help than hindrance. “Even if no one understands what BRI is, which they don’t, everyone does understand infrastructure,” notes Fraser Howie, author of ‘Privatizing China’. “Belt and Road allows you to justify pretty much any infrastructure development in any country along its route. BRI is a magic word that explains any project to investors, bankers, or multilaterals.”

Nayana Mawilmada, head of investments at Megapolis, a scheme to rebuild Sri Lanka’s western provinces, says: “Even when a project isn’t tacitly part of the Belt and Road Initiative, it is part of the pitch process. Just saying that something is Belt and Road-related opens up new conduits of financial resources.”

Take the example of south Asia, which is the only part of the world in which the ‘belt’ and the ‘road’ interconnect, and which has benefited more from the initiative than any other region. China’s push into the subcontinent began back in 1962, when a border dispute drove a wedge between it and India. Beijing turned to Pakistan, which became a willing buyer of Chinese-made military equipment, and more recently a direct-aid recipient: in April, the Chinese government gave Islamabad $1 billion in loans to stave off a currency crisis. China’s presence in Pakistan accelerated from 2009. First, it built and secured control over a new industrial port and naval facility in Gwadar on the Arabian Sea. This granted Beijing unfettered access to the Indian Ocean, with its busy shipping lanes, but also its lack, as the historian Robert Kaplan noted in his book ‘Monsoon’, of entrenched superpowers. From there, China pushed north, building infrastructure as it went. A 2,280-acre free-trade area sprang up in Gwadar, controlled by China Overseas Port Holding. Beijing is building new power plants, coalmines, hydroelectric dams, nuclear reactors and a highway linking Karachi on the Indian Ocean with western China via the Karakoram Pass. New pipelines built, funded and, importantly, controlled by mainland institutions, will convey Middle Eastern crude oil overland to China and send liquefied natural gas in the other direction, easing Pakistan’s constant energy and power shortages.
Riaz Haq said…
Pakistan targets import curbs to ward off currency crisis

Abbasi to impose fresh curbs on luxuries in effort to avoid devaluing rupee

https://www.ft.com/content/a495b148-a1d2-11e7-9e4f-7f5e6a7c98a2


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https://www.ft.com/content/a495b148-a1d2-11e7-9e4f-7f5e6a7c98a2

Pakistan plans to tighten curbs on luxury imports to ward off a foreign currency crisis without devaluing the rupee, Shahid Khaqan Abbasi, the prime minister, has said.

Mr Abbasi said he would rather place further controls on imports in an effort to preserve fast-dwindling foreign reserves than allow the rupee to fall against other currencies.

Some experts believe Pakistan will have to request another bailout from the International Monetary Fund within a year.

In March, the Pakistani government made it harder to import non-essential items such as vehicles, mobile phones, cigarettes and jewellery by insisting buyers put down 100 per cent of the cash upfront.

The measure drew criticism that it would encourage people to trade instead on the black market. The IMF said it had been told by Pakistani officials that the restrictions would be removed within a year but Mr Abbasi told the FT his government was planning to impose more.

“We can put regulatory duties on certain items, especially luxury finished goods, that’s possible,” he said. “We probably will do more of that, yes definitely, to discourage imports.

“Currency devaluation is not on the table, it’s not. A lot of people thought it was . . . [but] it is important to have stability for the rupee,” said Mr Abbasi.

Pakistan is running out of foreign currency as exports and payments from Pakistanis abroad fall while imports rise.

The central bank had $14.3bn of foreign reserves as of September 15, according to the most recent data — enough to cover exports for about three months. That is down from a high of $18.9bn last October.

Pakistan has been importing more than it exports for some time, but the problem has been exacerbated by having to buy Chinese supplies for projects as part of the $55bn China-Pakistan Economic Corridor.

While the scheme is aimed at improving Pakistan’s energy supply and transport networks, many economists believe that in the short term it will push Islamabad back towards the IMF.

“We will have to go back to the IMF any time now,” said Muhammad Zubair Khan, a former commerce minister who worked at the IMF for more than a decade. “The current situation is not sustainable.”

Sakib Sherani, a former economic adviser to the government, warned: “From a balance of payments crisis, we will have a full-blown macroeconomic crisis, where private sector sentiment is hit, growth stalls, inflation is high, and the central bank has to act.”

As well as restricting imports, the country has also borrowed money at short notice from various international lenders to pay off its debts. In 2016 and early 2017, Pakistan borrowed $1.2bn from state-backed Chinese banks.

Many economists believe the only long-term way out of the crunch is to allow the rupee to fall, encouraging exports and discouraging imports.

But doing so has become politically sensitive, with ministers insisting on a strong currency while central bankers warning of the likely consequences.

In July, the rupee suddenly fell 3 per cent, having traded in a narrow band since 2015. Central bank officials said they had backed away from shoring up the currency, but the move drew an angry response from the government, which stepped in to boost its value again before replacing the acting governor.
Riaz Haq said…
#Pakistan boasts the world's fastest growing retail market. Growing middle class & youth bulge are big reasons why.

https://www.bloomberg.com/news/articles/2017-09-28/135-million-millennials-drive-world-s-fastest-retail-market

Middle class expected to surpass U.K., Italy over 2016-21
By Faseeh Mangi
September 28, 2017, 1:00 PM PDT
From
Nearly two-thirds of Pakistan population under 30 years old
Pakistan’s retail stores forecast to grow by 50% in 5 years
Pakistan’s burgeoning youth and their freewheeling attitude toward rising incomes have turned the nation into the world's fastest growing retail market.

The market is predicted to expand 8.2 percent per annum through 2016-2021 as disposable income has doubled since 2010, according to research group Euromonitor International. The size of the middle class is estimated to surpass that of the U.K. and Italy in the forecast period, it said.

Pakistan's improving security environment, economic expansion at near 5 percent and cheap consumer prices are driving shoppers to spend up big. Almost two-thirds of the nation's 207.8 million people are aged under 30, according to the Jinnah Institute, an Islamabad-based think tank.

“We have a new millennial shopper at hand. They don’t mind spending to have the kind of lifestyle they would like,” said Shabori Das, senior research analyst at Euromonitor. “It’s not like the Baby Boomer generation where savings for the future generation was important.”

Pakistan is bucking the trend in the U.S. -- where stores are closing at a record pace as e-commerce undermines bricks-and-mortar. It's also attracting foreign operators: Turkish home appliance maker Arcelik AS and Dutch dairy giant Royal FrieslandCampina NV entered the market last year via acquisitions. Meanwhile, Hyundai Motor Co., Kia Motors Corp. and Renault SA are all building plants in the South Asian nation.

Pakistan’s retail stores are expected to increase by 50 percent to 1 million outlets in the five years through 2021, Euromonitor said. Its three biggest malls, Lucky One in Karachi and Packages Mall and Emporium Mall in Lahore, opened in the past two years.

Pakistan is mirroring what India went through about four years ago. Both countries have young populations with more income and less inclination toward saving which is a distinct difference to what retailers elsewhere are dealing with, said Das.

Riaz Haq said…
#India’s Growth Slowdown. #Modi #Achhedin #BJP https://www.wsj.com/articles/indias-growth-slowdown-1507233968 … via @WSJOpinion


Narendra Modi promised Indians acche din, Hindi for good times, when he became Prime Minister in 2014. So an economic slowdown that has seen real GDP growth tumble to 5.7% in the second quarter threatens his popularity. The ruling Bharatiya Janata Party is now debating how the government went wrong and how to boost growth ahead of the 2019 general election.
Riaz Haq said…
From Express Tribune:


https://tribune.com.pk/story/1696282/2-pakistan-posts-5-8-growth-rate/

“Every statistic has improved and we have managed to increase gross domestic product growth rate and at the same time contained the budget deficit and inflation,” said Ismail. Pakistan’s economy expanded to $313 billion, the highest in history.


--------

Ismail admitted problems on the external front and expressed the hope that the recent two devaluations of the rupee against the US dollar would help narrow down the widening current account deficit. He said that the government did not want to curtail imports but was trying to bridge this gap by increasing exports and remittances.


--------------

Investment and savings

The investment-to-GDP ratio stood at 16.4% against the five-year target of 22.8%. This ratio was slightly better than last year’s revised rate of 16.1%. Savings slipped below last year’s level of 12% and stood at 11.4% of GDP, far below the five-year target of 21.3% of GDP.

Fixed investment remained at 14.8%. Public investment increased to 5% of GDP, which was better than the previous year. The target of private investment was also missed by a wide margin, which stood at 9.8% of GDP against the five-year target of 16.7%. Results for private investment are worse than last year when they had been estimated at 10%.

GDP growth

The PML-N government claimed to achieve an economic growth rate of 5.8% in its last year in power that is the highest over the past 13 years. But it is significantly lower than the 7% target the incumbent government wanted to achieve when it came to power in 2013.

However, the current growth rate is decent enough to give a political advantage to the ruling party in the upcoming general elections.

In 2012-13, which was the last year of the PPP tenure, the economic growth rate was 3.7%.

Just under than two-thirds of growth — 66.4% to be precise — came from the services sector, which performed slightly better than the expectations. The government achieved growth targets for services and agriculture sectors but missed the industrial sector growth target again.

Despite a better economic performance, the growth rate was still insufficient to absorb the youth bulge — Any pace of growth below 7% rate would increase unemployment.
Riaz Haq said…
Bangladesh is indeed doing well but its economy is a one-trick pony. Bangladesh is heavily dependent on ready-made garment manufacturing (RMG) exports for economic growth. "Many low-income countries, including Bangladesh, Venezuela, and Angola have failed to diversify their knowhow and face low growth prospects. Others like India, Turkey, and the Philippines have successfully added productive capabilities to enter new sectors and will drive growth over the coming decade,” said Sebastian Bustos, a lead CID researcher in trade and economic complexity methods." http://atlas.cid.harvard.edu/rankings/growth-projections/
Riaz Haq said…
Bangladesh achieved an economic landmark last week, when the United Nations’ Committee for Development Policy recommended that the country graduate from the least-developed-country categorization that it has held for most of the 50 years since it became independent.

https://www.wsj.com/articles/bangladesh-is-becoming-south-asias-economic-bull-case-11614763213

Bangladesh is notable in South Asia for being the closest proxy for the successful development models seen at various stages in South Korea, China and Vietnam. Export-led development has the best modern track record of moving countries from very low income levels into middle-income status.

Bangladesh’s exports have risen by around 80% in dollar terms in the past decade, driven by the booming garment industry, while India and Pakistan’s exports have actually declined marginally.


There are other factors in the country’s favor as far as its development model goes: a very young demographic structure, a continued competitive edge in terms of wage levels, strong and rising female labor-force participation especially relative to the rest of South Asia.

There are some meaningful potential hindrances, however. For one, Bangladeshi export growth is well below that of Vietnamor Cambodia, where exports have more than tripled and more than doubled respectively over the past 10 years. India’s exports boomed in the early 2000s and then stagnated, so a continued upward trend isn’t guaranteed.



The next step for Bangladesh would be to transition toward higher-value forms of manufacturing and exporting, as Vietnam has done. Its export industry is still overwhelmingly focused on garment manufacturing. The country’s economic complexity, ranked by Harvard University’s Growth Lab, is 108 out of the 133 countries measured. That is actually lower than it was in 1995.

Bangladesh also finds itself, like India, outside of major Asian trade blocs. It isn’t a member of the Association of Southeast Asian Nations, or the Regional Comprehensive Economic Partnership or the Comprehensive and Progressive Trans-Pacific Partnership. Diversifying its manufacturing exports would require greater participation in intra-Asian supply chains—and probably a closer economic relationship with its neighbors to the east.

Caveats aside, Bangladesh’s exit from LDC status is probably a sign of further progress ahead—and a shot across the bow of other South Asian neighbors taking a very different approach to development.
Riaz Haq said…
Bangladesh now a $409b economy: GDP size up, growth down as new base year takes effect

Rejaul Karim Byron
Tue Nov 2, 2021 12:00 AM Last update on: Tue Nov 2, 2021 11:36 AM


https://www.thedailystar.net/business/economy/news/gdp-size-growth-down-new-base-year-takes-effect-2211826

In constant prices, it stood at Tk 27,939 billion in FY21 as per the new base year, up from Tk 12,072 billion as per the old base year, according to a document of the BBS.

In terms of dollars, the GDP size stood at $409 billion in the last fiscal year if Tk 85 per USD exchange rate is taken into account. Per capita income rose to $2,554 in FY21 as per the new calculation, which was $2,227 as per the old one.

Speaking to The Daily Star, Prof Shamsul Alam, state minister for planning, said the adoption of the new base year should have been done earlier.


Although economic growth has fallen as per the new base year, it has painted the real picture of the economy.

"The size of our economy is huge, and the new base year will reflect it," he said, adding that a real scenario would allow the government to make more informed policy decisions.

Zahid Hussain, a former chief economist of the World Bank's Dhaka office, also welcomed the new base year.

He said timely revisions to data on GDP and its components determine the accuracy of national account estimates and their comparability across countries.

With the finalisation of the new series, Bangladesh will be ahead of all other Saarc countries in terms of the recency of the national account's base year.

Only the Maldives (2014) and India (2011-12) come close, while Pakistan (2005-06) and Sri Lanka (2010) are well behind.

"Improved data sources increase the coverage of economic activities as new weights for growing industries reflect their contributions to the economy more accurately," said Hussain.

The last revision was done in 2013.

The size of the agriculture, industry and services sectors has expanded as per the new base year.

The new base year uses data on about 144 crops while computing the contribution of the agriculture sector to the GDP, which was 124 crops in the previous base year.

The gross value addition by the agriculture sector rose to Tk 4,061 billion in current prices in the last fiscal year, up from Tk 3,846 billion in the old estimate, the BBS document showed.

The industrial sector saw the addition of the data on the outputs of Ashuganj Power Station Company, North-West Power Generation Company, Rural Power Company, cold storage for food preservation, Rajshahi Wasa, and the ship-breaking industry.

In the new base year, the gross value addition of the sector stood at Tk 11,362 billion in FY21 while it was Tk 8,944 billion as per the old base year.

The BBS also carried out surveys to cover the contribution of various new services.

The data about growing ride-sharing services, privately run motor vehicles, national flag carrier Biman, private carriers US-Bangla and Novoair, private helicopter services, Bangladesh Submarine Cable Company, motion pictures, cinema halls, new banks, mobile financial services, agent banking, and private healthcare services were included.

The sector's value addition increased to Tk 18,098 billion in FY21 compared to Tk 16,144 billion from the old base year.

In a positive development, the investment-GDP ratio rose to 30.76 per cent in the last fiscal year compared to 29.92 per cent in the old base year of 2005-06.

A BBS official said the new base year would be used while calculating the GDP and other figures from now on.
Riaz Haq said…
Bangladesh rebased GDP now official in national accounting


https://unb.com.bd/category/Bangladesh/rebased-gdp-now-official-in-national-accounting/82864

The planning minister said the net of various products as GDP has expanded under the new base year. As a result, per capita income has increased. At the same time, GDP growth has increased.

The average per capita income has risen to $2,554 from $2,226 previously.


Agriculture sector: About 20 new crops have been added to the crop sub-sector with all the data included in this sector for GDP calculation. New crops include dragon fruit, strawberry, capsicum, latkan, kachushak, sharufa, malta etc. Cattle and poultry production data, new survey data in the forest sector and other up-to-date information have been included. As a result value addition from the agriculture sector increased in the GDP by 14.80 per cent.


Industrial Sector: Earlier, all the data included in this sector for calculating GDP included updated data from New Manufacturing Industry Survey (SMI) and construction sector survey, data from household waste collection. Overall current prices of value addition in the industrial sector have increased by 36.1 per cent.

Services sector: New survey of transport sector, Uber, Pathao, data of new private helicopter companies, new survey of real estate sector, data of mobile banks, agent banks, information of non-profit organizations of government and education and health sector have all been included. Overall, the size of value addition in the services sector showed growth by 14.3 percent in the sector.



Riaz Haq said…
Bangladesh rebased GDP now official in national accounting


https://unb.com.bd/category/Bangladesh/rebased-gdp-now-official-in-national-accounting/82864

The planning minister said the net of various products as GDP has expanded under the new base year. As a result, per capita income has increased. At the same time, GDP growth has increased.

The average per capita income has risen to $2,554 from $2,226 previously.


Agriculture sector: About 20 new crops have been added to the crop sub-sector with all the data included in this sector for GDP calculation. New crops include dragon fruit, strawberry, capsicum, latkan, kachushak, sharufa, malta etc. Cattle and poultry production data, new survey data in the forest sector and other up-to-date information have been included. As a result value addition from the agriculture sector increased in the GDP by 14.80 per cent.


Industrial Sector: Earlier, all the data included in this sector for calculating GDP included updated data from New Manufacturing Industry Survey (SMI) and construction sector survey, data from household waste collection. Overall current prices of value addition in the industrial sector have increased by 36.1 per cent.

Services sector: New survey of transport sector, Uber, Pathao, data of new private helicopter companies, new survey of real estate sector, data of mobile banks, agent banks, information of non-profit organizations of government and education and health sector have all been included. Overall, the size of value addition in the services sector showed growth by 14.3 percent in the sector.
Riaz Haq said…
Is #Bangladesh heading toward a #SriLanka-like #economic crisis? #Imports surging to reach $85 billion this year, #exports $50 billion. $35 billion trade deficit, leaving $10 billion current account deficit after #remittances. #energy #food #inflation https://www.dw.com/en/is-bangladesh-heading-toward-a-sri-lanka-like-crisis/a-61838597

Like Colombo, Dhaka has also taken on massive foreign loans to embark on what critics call "white elephant" projects. The economic turmoil in Sri Lanka should serve as a cautionary tale, say experts.

Sri Lanka has been mired in economic turmoil over the past few months, with the country battling severe shortages of essential items and running out of petrol, medicines and foreign reserves amid an acute balance of payments crisis.

The resulting public fury targeting the government triggered mass street protests and political upheaval, forcing the resignation of Prime Minister Mahinda Rajapaksa and his Cabinet, and the appointment of a new prime minister.

Many in Bangladesh fear that their country could face a similar situation, given the rising trade deficit and foreign debt burden.

Bangladesh imported goods worth $61.52 billion (€58.48 billion) in the first nine months of the 2021-2022 fiscal year, a rise of 43.9% compared to the same period last year.

Exports, however, rose at a slower pace of 32.9% while remittances from Bangladeshis living abroad — a key source of foreign exchange — dropped about 20% in the first four months of 2022 from the year before, to $7 billion.

'Foreign reserves will go down to a dangerous level'
Muinul Islam, a Bangladeshi economist and former professor at Chittagong University, fears that the trade deficit could grow in the coming years as imports are increasing at a faster pace than exports.

"Our imports are set to reach $85 billion by this year, while exports won't be more than $50 billion. And, the trade deficit of $35 billion can't be bridged by remittances alone," Islam told DW, adding: "We will have to live with around a $10 billion shortfall this year."

The expert also pointed out that Bangladesh's foreign exchange reserves have fallen from $48 billion to $42 billion over the past eight months. He is worried that they may drop further in the coming months, likely down another $4 billion.

"If the trend of more imports against exports continues and we fail to minimize the gap with the remittances, our foreign reserves will go down to a dangerous level in the next three to four years," he stressed, underlining that this would lead to a significant devaluation of the nation's currency against the US dollar.

Massive loans for 'white elephant' projects?
Bangladesh, like Sri Lanka, has also taken on foreign loans in recent years to fund what critics call "white elephant" projects, which are expensive but totally unprofitable.

These "unnecessary projects" could cause trouble when the time comes to repay the debts, Islam said.

"We have taken a loan of $12 billion from Russia for a nuclear power plant which has a production capacity of just 2,400 megawatts. We can repay the debt in 20 years but the installments will be $565 million per year from 2025," he pointed out. "It's the worst kind of a white elephant project."

In total, the country will likely have to repay $4 billion per year from 2024, as installments for foreign loans, Islam estimated.

"I fear Bangladesh won't be able to repay those loans at that time because of the shortage of income from the mega projects," he stressed.
Riaz Haq said…
Shoaib Daniyal
@ShoaibDaniyal
"Hasina’s internal problems are linked to external dependencies. Politically reliant on New Delhi, she is finding it increasingly difficult to manage the ramifications of India’s turn towards Hindu nationalism..." -
@PaliwalAvi

https://twitter.com/ShoaibDaniyal/status/1547304109115469824?s=20&t=0MnwGRI9dEba8r3tmp7i8Q

The ground under Sheikh Hasina’s feet is shifting

With elections in 2023 and debt repayment schedules kicking off in 2024, it seems only a matter of time for the veneer of stability to lose its sheen. The risk of dislocation of this so-called house of cards has only been rising in recent years.


Bangladesh’s foreign minister AK Abdul Momen arrived in India last month to fight political fires. But he found himself dealing with massive floods that hit Sylhet and Assam. Nature has its ways to convey that not all is well in India’s near-east. Far from the glitz about Bangladesh’s economic success, on display during the recent inauguration of the Padma Bridge, clampdown on Islamists, and shrewd management of big power rivalries, is a parallel potent reality of Prime Minister Sheikh Hasina’s authoritarianism, heightened polarisation, and economic distress. As an Indian official mentioned to me, and a Bangladeshi official echoed, Hasina “has built a house of cards”.

https://www.hindustantimes.com/opinion/the-ground-under-sheikh-hasina-s-feet-is-shifting-101657725078715.html
Riaz Haq said…
The ground under Sheikh Hasina’s feet is shifting

By Avinash Paliwal

https://www.hindustantimes.com/opinion/the-ground-under-sheikh-hasina-s-feet-is-shifting-101657725078715.html

Bangladesh's foreign minister
AK Abdul Momen arrived in
India last month to fight polit-
ical fires. But he found himself
dealing with massive floods
that hit Sylhet and Assam.
Nature has its ways to convey
that not all is well in India's
near-east. Far from the glitz
about Bangladesh's economic
success, on display during the
recent inauguration of the
Padma Bridge, clampdown on
Islamists, and shrewd man-
agement of big power rivalries,
is a parallel potent reality of
Prime Minister Sheikh Has-
ina's authoritarianism,
heightened polarisation, and
economic distress. As an
Indian official mentioned to
me, and a Bangladeshi official
echoed. Hasina "has built a
house of cards"
The economic, social, and
political ground under Has-
ina's feet is shifting in real
time. It is slow enough to be
dismissed as non-urgent, but
sure enough to become press-
ing, if not dealt with urgently.
With general elections due in
2023, and external debt repay-
ment schedules kicking in
from 2024, it is a matter of
time for the veneer of (forced)
stability to lose its sheen. The
risk of dislocation, if not col-
lapse, of this so-called house
of cards has increased in
recent years, and it could
undermine whatever is left of
India's connectivity aspira-
tions in its near east.
Domestically, the Hasina gov-
ernment has exacerbated two
contradictions in a tradition-
ally polarised polity. One, she
is in power, but with little to
no electoral legitimacy. The
Awami League's (AL) manipu-
lation of the 2014 and 20118
elections (a practice not just
reserved for national elections
and against opponents),
unceasing harassment of its
key opponent, the Bangladesh
Nationalist Party (BNP), gag-
ging of media, social media
monitoring using advanced
digital surveillance, and a
forced tilt towards the conser-
vative Islamic Right as a bal-
ancing move after targeting
these formations using force,
has created wide pockets of
intense frustration.
Unlike her father, Sheikh
Mujibur Rahman, who created
a one-party State, but failed to
contain a famine in 1974, Has-
ina has placed her bets on eco-
nomic development. The argu-
ment runs that good economic
performance coupled with lib
eral use of force will make a
one-party State under Has-
ina's leadership sustainable.
But this is where the second
contradiction kicks in.
Bangladesh's external debt to
Gross Domestic Product ratio
has increased to 21.8%, import
spending has shot up by nearly
44%, forex reserves of $42
billion are falling and can
cover about five months'
worth of imports, and the rev-
enue from readymade gar-
ments export and remittances
is not keeping pace with the
fast rising costs to the
exchequer.


Couple this with the global
inflation created by the Rus-
sia-ukraine war and United
Statesled sanctions, and it
becomes clear why Momen is
asking India to remove anti-
dumping duties on Banglade-
shi jute exports. Further com-
plicating this situation is
Dhaka's propensity to accept
external loans for infrastruc-
tural projects at highly inflated
costs, making repayment dif-
ficult. One of the cases in point
is the 2015 Rooppur Nuclear
Power Plant deal with Russia
for which Dhaka is to repay
$13.5 billion. India paid $3 bil-
lion for a similar plant in
Kudankulam.
Why does Dhaka accept such
deals? Because external fin-
ance fuels (limited) infra-
structural growth, chronic
corruption, and keeps the
political illusion of economic
development alive. To be clear
and fair, Bangladesh's eco-
nomic journey has been more
than commendable. But to
expect an economic miracle,
which is bound to dwindle due
to internal or external shocks,
to sustain a corrupt system
pretending to be a democracy
is a tall ask. Herein, Hasina has
ensured that neither the
Islamists nor the BNP
which enjovs public sympathy,
even if it may not get a fair
election - pose a serious
challenge to her.
Riaz Haq said…
The ground under Sheikh Hasina’s feet is shifting

By Avinash Paliwal

https://www.hindustantimes.com/opinion/the-ground-under-sheikh-hasina-s-feet-is-shifting-101657725078715.html

But her real challenge doesn't
come from known opponents.
It comes from opaque factions
within a securitised State (and
the party) that has made so
much illicit profit that being
out of power is not an option
for them. This leaves Hasina
with an unenviable dilemma.
Either she allows free elections
and risks being ousted or
manipulates them and invites
international opprobrium that
could unleash mass protests
and violence. Bereft of a clear
succession plan, both these
scenarios could tempt oppor-
tunistic adversaries to force a
regime change, of which there
is an unfortunately rich his-
tory in Bangladesh.
Hasina's internal problems are
linked to external dependen-
cies. Politically reliant on New
Delhi, she is finding it increas-
ingly difficult to manage the
ramifications of India's turn
towards Hindu nationalism
that misuses migration from
Bangladesh and the Rohingya
crisis for domestic electoral
gain. Similarly, accepting of
Chinese finance that may not
translate into political sup-
port, Dhaka is struggling to
keep targeted US sanctions
against the Rapid Action Bat-
talion, an anticrime and anti-
terrorism unit of the
Bangladesh Police, for serious
human rights violations, at
bay. Dhaka's replacement of
its ambassador in Washington
DC after a visit by a team of AL
parliamentarians from the
standing committee on foreign
affairs will make little differ-
ence in how the US deals with
Bangladesh.
Add to this, an uptick in
demand for repatriating
Rohingya migrants - some of
whom have been silently
resettled in the Chittagong Hill
Tracts to the locals' displeas-
ure - to Myanmar, including
within Bangladesh's military
establishment, and the situ-
ation becomes even more
volatile. Hasina requires a
political off-ramp to prevent a
foreseeable crisis that can turn
violent. The last thing the sub-
continent needs is turmoil in
Bangladesh
Riaz Haq said…
Since mid-2021, global commodity prices, especially of oil, have begun to rise. This was intensified by the Russian invasion of Ukraine in March. As a consequence, Bangladesh, as a major energy importer, is facing a number of challenges. Its foreign currency reserves are declining and the value of its currency, the taka, is weakening. Electricity load shedding has worsened, adding to the woes of citizens.

https://scroll.in/article/1031735/how-global-economic-instability-is-hurting-bangladesh-until-recently-an-asian-tiger-in-the-making

As a result, the cost of imports in Bangladesh has increased significantly even as earnings from exports have increased only moderately.

In the financial year 2022, the expenditure on imports increased by 36%, compared to 20% the previous financial year. The high import cost is due in part to the increased demand for imported goods and in part to the higher import prices on the global market.

As a result, the terms of trade have gone against Bangladesh. During 2021-’22, the import-price index increased by 5.06%, while the export-price index increased by 3.23%. This has hurt the current account balance.

In the financial year 2022, the current account balance reported a deficit of $18.70 billion compared to the previous year’s deficit of $4.58 billion.

The current account deficit in Bangladesh is generally met by remittances from abroad, which have also decreased significantly in the financial year 2022. Remittances fell by 14% in the financial year 2022, following a 36% increase in the financial year 2021. This has affected the balance of payments, foreign currency reserves, and weakened the taka against the US dollar.

Despite adjusting the exchange rate to match the market demand, the Bangladesh Bank continued to sell dollars from reserves to keep the taka stable. As a result, reserves declined further.

Foreign currency reserves fell to $39.77 billion on July 14 from $46.39 billion the previous year. Though the country has received relatively large remittances from expatriates in July due to Eid, the taka’s value against the dollar is deteriorating.

Foreign exchange reserves are not only critical for maintaining the exchange rate of domestic currency but also contribute significantly to increased capital investment and long-term economic growth.

To keep the taka’s value stable, the Bangladesh government and Bangladesh Bank have taken measures to reduce imports and increase the flow of dollars. The government has discouraged the import of luxury items. The depreciation of the taka compelled the government to seek a loan from the International Monetary Fund. Only a year ago, Bangladesh had supported Sri Lanka with $250 million.

The weakening of the Taka against the dollar not only makes imports more expensive, but also raises the domestic prices of imported goods and other non-imported goods due to the substitution effect – which is when the sales of a product decline due to an increase in its price which prompts consumers to switch to cheaper alternatives. This worsens inflation.

Inflation at 9-year-high
For the past few years, inflation in Bangladesh had been under control but it began to increase in 2021 and has now risen to 7.56% according to official accounts, though the actual rate is thought to be much higher. The prices of rice, wheat, edible oil and other essential commodities are increasing and the inflation rate has climbed to a nine-year-high.

Several studies indicate that low-income citizens are struggling to cope with the high prices of essential commodities and compromising on their food and nutrition.

The government recently hiked urea fertiliser and fuel oil prices without implementing measures to improve the management of the energy sector and reduce inefficiency and system loss.

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