Opinion: Growth potential amid reserve crisis
Bangladesh is the most densely populated non-city-state country in the world, with the eighth largest population (170 million) within a territory the size of Iowa.
Bangladesh is situated in the northeastern corner of the Indian subcontinent, sharing a 2,500-mile border with India and a 150-mile border with Burma.
In 2023, Bangladesh obtained an International Monetary Fund (IMF) loan to bolster its foreign currency reserves.
The IMF Executive Board approved $ 3.3 billion under the Extended Credit Facility/Extended Fund Facility and $ 1.4 billion under the Resilience and Sustainability Facility.
According to the IMF, “Bangladesh’s robust economic recovery from the pandemic has been interrupted by Russia’s war in Ukraine, leading to a sharp widening of Bangladesh’s current account deficit, depreciation of the Taka and a decline in foreign exchange reserves.”
The 42-month program “will help preserve macroeconomic stability, protect the vulnerable, and foster inclusive and green growth.”
Bangladesh had average annual GDP growth of 6.5 per cent between 2013 and 2022. For FY2023-2024, GDP growth is expected to be 5.78 per cent, according to the Bangladesh Bureau of Statistics.
Its strategic location between the emergent South and Southeast Asian markets and its large workforce were reasons for US companies to invest.
Bangladesh received $ 3.48 billion in foreign direct investment in 2022, according to Bangladesh Bank (the central bank).
Bangladesh’s rising commodity prices and high imports in 2023 resulted in a wide balance of payments deficit.
Published gross foreign currency reserves declined from $ 48 billion in August 2021 to under $ 21.8 billion in December 2023, while the unpublished net foreign currency reserves are estimated to be far lower.
The foreign currency shortage also coincided with a banking scandal in which several major Bangladeshi banks made large, questionable loans to companies that then defaulted on the loans.
In September 2022, nonperforming loans (NPL) in the banking system reportedly surged to a record $12.8 billion, much of which the Government has been unable to trace.
By June 2023, NPLs exceeded $14.4 billion, which accounted for over 10 per cent of loans issued.
Capital markets in Bangladesh are still developing and the financial sector is highly dependent on banks, which suffered a major scandal in 2022 in which 11 banks faced a collective shortfall of $3.1 billion.
A sluggish and reportedly corrupt judicial process and limits on alternative dispute resolution mechanisms impede the enforcement of contracts and the fair resolution of business disputes.
In the areas of labor, intellectual property rights (IPR), and environment, the Government has passed various laws but does not effectively enforce many of them. It devotes limited resources to IPR protection.
Although Bangladesh has made progress over the past decade to improve fire and building safety standards in the export ready-made garment industry, workers face significant barriers in law and in practice in exercising their rights to organise and collective bargaining.
(The writer is a columnist).
