As Bangladesh faces regime change, an expert warned that one of the tasks before the new government will be “to stop the free fall of the economy.” It is now feared that the damage from mass violence, unemployment, persisting inflation, and “slowed real GDP [Gross Domestic Product] growth” may impact Bangladesh’s economy.
Saad Hammadi, a fellow at the Balsillie School of International Affairs, told Al Jazeera on Monday, “The job of the interim and subsequent government will be extremely challenging to stop the free fall of the economy and recover the state at a time when even the global economic and political orders are extremely chaotic.”Thousands of protesters stormed and looted prime minister’s residence. Several police stations, buildings and public assets were vandalised and set on fire. Harrowing visuals showed a ransacked Awami League’s central office, arson attacks, a mural of Hasina vandalised, damaged vehicles and protesters trying to demolish a large statue of Hasina’s father Sheikh Mujibur Rahman.
Bangladesh economic impact: ‘With violence comes a hefty price tag’
The Foreign Investors’ Chamber of Commerce and Industry (Ficci) said on July 29 that the recent shutdown “significantly impacted Bangladesh’s economy with over $10 billion” and expected estimated losses to increase. It added that the FMCG industry would have a setback of over $100 million, local media reported.
Violence in any nation, or even in a small area, costs hefty amounts as it hampers several economic activities. These include the day-to-day operations of local markets, hospitals, transport and offices, food delivery systems, e-commerce and “MSMEs that rely on social commerce”. Violence also impacts human productivity.
In Bangladesh, at least 300 people have died in the violence so far, AFP data suggested. Besides, curfews were imposed, and the internet was shut down, further impacting the operations in the fragile economy. According to a Daily Star report, people were unable to get access to their bank accounts or pre-pay their gas and electricity bills due to the internet outage.
Pierre Prakash, programme director for Asia at the International Crisis Group, said in a report on July 25 that the impact of the internet outage on “Bangladesh’s booming garment sector – which produces about 85 per cent of the country’s exports” – is yet to be seen.
Prakash said, “…some insiders worry that instability will see the country lose orders to competitors elsewhere in the region. Either way, the impact of the protests will place further stress on an economy that was already ailing.”
Garment factories, which supplied apparel to one of the world’s top brands, remained closed on Wednesday, August 7, due to attacks by miscreants. Kaiyum, a garment worker, told Dhaka Tribune the factory owners have already suffered significant losses due to prolonged closure.
“It is the start of the month, and this is when we receive our pay. Now that the factories are closed, I am extremely worried about how to pay my house rent and outstanding bills. I want the factories to remain open at any cost. We want to work. Our owners have already suffered significant losses due to prolonged closures. We thought we could make up for the loss by working extra hours, but now I am disappointed with the closure again,” Kaiyum said.
Bangladesh’s economy
Bangladesh, which had been reeling under an economic crisis, seemed to be recovering when the mass protests over job quotas started. A World Bank report from April 2024 said Bangladesh has a strong track record of growth and development, even in times of elevated global uncertainty. However, it was flagged that South Asian country’ post-pandemic recovery faces continued headwinds.”
On July 30, 2024, S&P Global Ratings lowered its long-term foreign and local currency sovereign credit ratings on Bangladesh to ‘B+’ from ‘BB-‘. “The outlook on the long-term ratings is stable. At the same time, we affirmed our ‘B’ short-term ratings,” the company said in a press release.
It said, “Modest per capita income, which we estimate at about US$2,600 in the fiscal year ended June 2024, remains one of Bangladesh’s main rating constraints. But the country’s strong underlying growth helps to mitigate this weakness.”
From inflation of GDP to forex – A detailed look at Bangladesh’s economy
In June 2024, the International Monetary Fund (IMF) said that “stubbornly high international commodity prices and continued global financial tightening have amplified macroeconomic vulnerabilities” in Bangladesh.
Foreign exchange reserves: The IMF mentioned that the country’s foreign exchange (FX) reserves and the Taka remains under pressure. “Foreign exchange reserves have declined sharply due to interventions to prop up the taka through May 2024…The latest data show that gross reserves, measured on a BPM6 basis, stood at US$21.8 billion as of end June 2024. This is 35% lower than the figure in June 2022, and enough to cover only about 3.3 months of current account payments,” S&P Global in its report.
GDP: As per the IMF, Bangladesh’s real Gross Domestic Product (GDP) growth slowed to 4.8 percent in the first half of the financial year (FY) 2024, even as it expected the real GDP growth to “pick up to 6.6 percent in FY25”.
Meanwhile, World Bank said in its April 2024 report, “Real GDP growth is projected to remain relatively subdued at 5.6 percent in FY24, compared to the average annual growth rate of 6.6 percent over the decade preceding the COVID-19 pandemic.”
Inflation: The IMF said the headline inflation reached a decade high of 9.7 percent year-on-year in April 2024. “Inflation is projected to remain elevated at approximately 9.4 percent in FY24 but is anticipated to decline to around 7.2 percent in FY25,” the IMF’s report added.
Current Account Balance: The country’s Current Account Balance stood at –0.8 percent of the GDP in 2024 and is expected to be around –2.7 percent in 2025, according to the IMF’s World Economic Outlook report released in April 2024. Besides, Bangladesh’s total lending in 2024 was the highest at $2,854 million since 2020, according to the World Bank.
High unemployment: Several reports suggest that Bangladesh is dealing with high unemployment – which might also be the core reason behind the massive protest led by students in Bangladesh in June this year. The protests were triggered by the job quota system that reserved 30 per cent of government jobs for families of 1971 war veterans. Protesters demanded to abolish the quota and replace it with a merit-based system.
The data released by the Bangladesh Bureau of Statistics (BBS) this year showed that during the first quarter of 2024, the unemployment rate in Bangladesh surged by 3.51 percent compared to the last quarter of 2023. There are now around 2,40,000 new unemployed individuals, with the current tally standing at 2.59 million, up from 2.35 million in the preceding quarter, the Dhaka Tribune reported in May 2024.
All these factors make it all-the-more important for authorities to form a new government in Bangladesh as soon as possible, restore law and order and take in the country and take policy decisions to empower its economy amid the ongoing crisis.