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NO.2258 - Bangladesh economy
Author: Song Ziyang Shi Lan Tea
Proofreader: Chao Qian / Editor: Tuna & Fruit Fruit
This article is co-produced by the Earth Knowledge Bureau and the South Asia Research Newsletter (ID: NYYJTX), welcome to pay attention to the South Asia Research Newsletter public account
At the end of 2020, a piece of news exploded in India – Bangladesh, once the "global least developed country", actually surpassed India's per capita GDP.
Indians, who once had a sense of superiority over Bangladesh, could not stop their faces and vented their dissatisfaction with the Modi government on social media. At the same time, opposition parties see an opportunity to attack Modi-led BJP for its incompetence in governance.
Indian people: "Next time we want to compete with Nigeria, Somalia"
(Photo: One Map Network)▼
Why did Bangladesh, which has been at the head of India for a long time, suddenly succeed in counterattacking?
GDP per capita hit India
This pot, first of all, Had To be carried by Modi.
At the beginning of the epidemic in 2020, India launched the "strictest lockdown order in the world". However, the results were very sad.
The fire ignited at night, but the epidemic poured cold water on people's hearts
(Photo: One Map Network)▼
Although India contained the epidemic at the expense of a comprehensive economic shutdown, the epidemic was not prevented, and the economy collapsed first – the Indian recession in 2020 was close to 7%.
At the same time, Bangladesh knows that there is no chance of winning against the epidemic, and chooses to lie down first, regardless of the epidemic, just the economy, the economy has grown by 3.5% against the trend.
The Bengalis have already seen through everything, so it is better to take a shallow rest
(Photo: One Map Network)▼
India's sharp recession and Bangladesh's steady rise have created a 10% difference in the back and forth, reversing the already small gap between the two countries. According to the International Monetary Fund, India and Bangladesh's per capita GDP in 2020, 1940 and 1960 US dollars, respectively, Bangladesh is a small win.
Victory Day in Bangladesh: A small win
(Photo: One Map Network)▼
However, the anxiety in India did not last long. In 2021, India reversed to achieve a "deep V recovery" of 8.9%, and the economy even exceeded the pre-epidemic level in one fell swoop.
At the same time, bangladesh's flat-lying policy was also quickly broken in front of the Delta mutant strain, and was forced to implement a local epidemic lockdown, with a growth rate of only 5%.
The latest data show that India's per capita GDP will reach $2280 in 2021, slightly exceeding Bangladesh's $2150, temporarily maintaining its leading position, and it seems that the Indian media can temporarily stop the meeting.
Although it is only nominal GDP, it has an overestimation effect on real economic growth
But surpassing India seems to be a good thing in the eyes of Bengalis
However, Bangladesh's brief overtaking has become a hit, and many investors have begun to pay attention to this low-key South Asian country with "East Asian style". In the past two years, Bangladesh's economy has flourished in South Asia and even the world, with a combined growth of nearly 9% in both years, far exceeding india and Vietnam, which investors have long been optimistic about.
The capital Dhaka is home to the largest shopping mall in South Asia
The country's economic prosperity also brings confidence to the people
(Photo: One Map Network)▼
According to common sense, Bangladesh's economy is growing strongly, and people's satisfaction is certainly not low.
However, after entering 2022, the recent domestic turmoil in Bangladesh has risen again, and the original relatively stable growth rhythm has been broken, and the "common script" after the outbreak of the epidemic in other South Asian countries has begun to be staged: higher inflation, expanding trade deficit, currency depreciation, shrinking foreign exchange reserves...
You have to use a handful of banknotes to buy things
I also have to buy it, otherwise I will have to buy it tomorrow with more money
(Photo: One Map Network)▼
This is because most South Asian countries have a weak economic foundation, rely heavily on tourism, remittances, and migrant workers to obtain valuable foreign exchange, and need to import a large amount of energy, food, and manufactured goods. Under the superposition of the new strains of the new crown pneumonia epidemic and the crisis in Ukraine, they have fallen into a major crisis.
Now Sri Lanka has been the first to fall, and the government is largely paralyzed; Pakistan's Imran Khan government has also stepped down in turmoil; Nepal's politics and economy are deteriorating day by day.
Is it possible that Bangladesh will follow in the footsteps of its South Asian brothers and suddenly collapse?
The Sri Lankan presidential palace has completely fallen
(Photo: Al Jazeera)▼
Will it be the next South Asian country to collapse?
Our Article of 29 June dissected the causes of the Sri Lanka crisis: foreign exchange earnings were less, but foreign exchange costs increased, resulting in the depletion of foreign exchange reserves, and the inability to exchange hard currency for necessities on the international market, let alone to repay foreign debt. The government can only declare sovereign debt default.
Bangladesh is well aware that poor countries should be self-reliant
(Photo: One Map Network)▼
Sadly Sri Lanka is the first country in South Asia to fall, but other South Asian countries, and even developing countries around the world, may also see their own shadow in Sri Lanka.
India is around, compared to Pakistan and Sri Lanka
Bangladesh's economic momentum is much better ▼
Judging from the recent data, the economic situation in Bangladesh is also very bad. Bangladesh's foreign trade deficit has also widened rapidly due to the impact of high energy prices.
While Bangladesh's foreign trade is quite strong, its trade deficit in the 2019-20 fiscal year is still as high as $20.1 billion and $21.5 billion, while bangladesh's trade deficit has soared to $9+billion in the most recent quarter – a deficit created in one quarter that is half of what it used to be.
The single export category makes Bangladesh's foreign trade revenue unstable
(Source: Bank of Bangladesh)▼
With that in mind, economists predict Bangladesh's trade deficit will break through $35 billion this fiscal year, which is roughly 10 percent of its annual economic output.
Bangladesh's foreign exchange reserves have now fallen to $41 billion after hitting a high of $48 billion in 2021. This means that if the current situation is not reversed, Bangladesh will accumulate only enough foreign exchange to cover a one-year trade deficit.
Bangladesh, where capital is scarce, needs foreign exchange
But it's hard to accumulate, but it's easy to spend
(Photo: One Map Network)▼
Although Bangladesh, located in the Ganges Delta, is an exporter of rice, it still needs to import food products such as wheat, soybeans and raw sugar. With the Russian-Ukrainian conflict disrupting international food supply chains and the Modi government restricting food exports, food security issues can pose a really deadly threat to densely populated Bangladesh.
Output could not keep up with demand, and could only tighten the waistband of the pants
(Photo: One Map Network)▼
In addition, as a major exporter of textile garments, Bangladesh also imports a large number of textile raw materials such as cotton, wool and chemical fiber every year, and these raw materials have risen the most sharply this year, which has put additional pressure on the Bangladeshi economy.
Bangladesh's textile exports depend on imports of raw materials
The price of upstream raw materials rises, and it is easy to eat up the profits
(Source: OEC)▼
Similar to Sri Lanka, Bangladesh's external debt problems should not be underestimated in addition to the trade deficit. According to the Bangladesh Central Bank, as of the end of March 2022, Bangladesh's external debt was as high as 90.8 billion US dollars, much higher than foreign exchange reserves, and the trade deficit was superimposed on external debt repayment, and the risk only increased.
Although the situation in Bangladesh is far less serious than that of Sri Lanka in terms of the proportion of foreign debt to the total economic output, the main problem is that the amount of borrowing is large and the time is concentrated, which is colloquially speaking, that is, borrowing money has not cost money fast.
GDP has risen very fast in recent years, and debt has risen even faster
(Source: Bangladesh Ministry of Finance)▼
In recent years, Bangladesh has become the "most promising country in South Asia" with a strong processing and manufacturing industry, and has launched an ambitious "Top Ten Infrastructure Projects":
Including outside the Padma Bridge, The Lupul Nuclear Power Plant, the Dhaka Metro Project, the Elevated Expressway, the Dhaka Airport Expansion Project, the Matabali Deep Seaport, etc., involving highways, urban rails, railway trunk lines, coal-fired power stations, deep-water port construction and other fields, the investment scale of a single project is at least several billion US dollars.
Cross the Padma Bridge lying on the Ganges
Sail towards the Bay of Bengal
(Photo: One Map Network)▼
It is in this optimistic atmosphere that Bangladesh has accelerated its borrowing: bangladesh's total external debt was only $38.5 billion in 2016, compared with about $221 billion in GDP at that time. More than five years later, Bangladesh's external debt grew by more than 130 percent to more than $90.8 billion, but GDP rose by only 60 percent to almost $360 billion — more than double the growth rate of debt than the economy.
It is reasonable to say that if a country is optimistic about its future economic expectations, it is not wrong to borrow more money for development, which is actually the expectation of the Bangladesh government. However, the covid-19 pandemic and the Crisis in Ukraine have arrived unexpectedly, completely disrupting the original rhythm of development.
The cost of epidemic prevention is very high, and Bangladesh alone cannot carry it for too long
(Photo: One Map Network)▼
According to the original leapfrog development plan, Bangladesh has borrowed $21 billion in 2021 alone, if the external environment cannot be improved in the future, Bangladesh will tear down the eastern wall to make up for the western wall, the pace of borrowing is bound to become faster and faster, and the risk of following sri Lanka's footsteps is becoming more and more prominent.
Old money comes to exchange for new money, and the money becomes more and less
(Photo: One Map Network)▼
In 2023, Bangladesh will hold a national election. Judging from the current situation, the payment crisis caused by the shortage of foreign exchange, as well as food security and energy security, will most likely become the hot topic of the opposition party.
It is precisely because of Sri Lanka's experience that the Hasina government of Bangladesh does not dare to be careless, and on May 11, Bangladesh's finance minister, AHM Mustafa Kamal, said that he would "tighten his belt" to save foreign exchange reserves.
Kalmar said to save valuable foreign exchange
Camar (sunglasses wearer)
(Photo: Facebook)▼
Can we still develop the export economy steadily?
Every global crisis, South Asian countries with fragile economic foundations always suffer, which is closely related to the economic structure of the backward development of manufacturing. Historically, Bangladesh, with its hot and rainy climate, was the world's leading producer of jute, and even before the arrival of European colonists, the world's most advanced textile industry was produced here.
Bangladesh has not only rice, but also jute
Perfect for a refreshing summer day
(Photo: Flickr)▼
After Bangladesh's independence from Pakistan, the textile tradition was revived. Especially in the early 21st century, Bangladesh first introduced the labor law reforms that successive Indian governments had in mind but were powerless to do, and then introduced industrial policies favorable to export-oriented processing industries, promoting the explosive growth of labor-intensive garment exports.
Ready-to-wear at discount stores around the world
More and more "Made in Bangladesh"
(Photo: One Map Network)▼
At the same time, Bangladesh has also caught up with the latest wave of industrial transfers, taking in a large number of labor-intensive enterprises that have relocated from China and abroad, including a number of international garment giants.
Bangladesh's garment exports soared from $14.6 billion in 2011 to $38.9 billion in 2021, far exceeding India's population nearly 10 times that of India.
For every 100 yuan of foreign exchange earned by Bengalis
80 of them come from sewing machines and seamstresses
(Photo: One Map Network)▼
The problem for Bangladesh, however, is that the source of impetus for its development is, after all, labour-intensive processing industries, which have the lowest added value of all manufacturing industries. For example, the low-value-added garment industry accounts for nearly 85 per cent of Bangladesh's exports, while the remaining exports are dominated by other textiles and agricultural products, which are even less valuable than the processing industry.
According to the World Bank, Bangladesh's exports are only 0.3 per cent of high-tech manufactured goods, the proportion of medium-tech manufactured goods is only 1.7 per cent, and the low level of industrial technology is only 0.3 per cent of R&D expenditure. Many in Bangladesh are worried about this and call on the government to expand investment in research and expand the research institutions and researchers, and strive to increase R&D spending to 1.5%.
It is difficult to cultivate talents, and it is even more difficult to cultivate industries
Without industry, programmers can only move bricks
(Photo: One Map Network)▼
Compared with the industrial structure of Bangladesh, India is a high-quality student. The proportion of high- and medium-skilled manufactured goods in India's exports was 11 per cent and 26 per cent, respectively. At the same time, India's annual R&D expenditure also reached 0.7%, which is higher than that of Bangladesh and Vietnam.
Although the development of basic labor-intensive manufacturing industry in India is extremely lagging behind, due to its super-large economic volume, it has formed a strong "Matthew effect", which has also spawned a number of capital-intensive and technology-intensive consortiums.
India has really created a world in the field of high technology
Bangladesh can't live up to it yet
(Photo: shutterstock)▼
Among the consumption-oriented industrial products, India also has some industries with high technical level. In addition to this, There are some knowledge-intensive industries in India. For example, the pharmaceutical industry, which features generic drugs.
Low-price strategy for generic drugs in India
It is indeed very suitable for their own national conditions
(Photo: One Map Network)▼
Bangladesh is currently on par with India. In the 2019-20 fiscal year, Bangladesh's trade deficit with India was as high as US$7.6 billion, including many highly technical products.
Therefore, if Bangladesh wants to get rid of the current foreign exchange crisis, the most fundamental response is still to carry out industrial upgrading and make export products more diversified.
Bibliography:
[1] Bangladesh's GDP per capita exceeds India's https://www.business-standard.com/article/economy-policy/india-set-to-slip-below-bangladesh-in-2020-per-capita-gdp-says-imf-120101400025_1.html
[2] IMF, India page https://www.imf.org/en/Countries/IND
[3] IMF, Bangladesh page https://www.imf.org/en/Countries/BGD
[4] What are the root causes of sri Lanka's economic crisis? https://news.cctv.com/2022/04/12/ARTICknHI7UGEkb6ih9SAEFF220412.shtml
[5] Bangladesh Central Bank https://www.bb.org.bd/en/index.php/econdata/index on External Debt and Trade Statistics
[6] Bangladesh's external debt scenario https://thefinancialexpress.com.bd/views/external-debt-scenario-of-bangladesh-1649428165
[7] Should Bangladesh worry about debt servicing? https://www.thedailystar.net/views/opinion/news/should-bangladesh-worry-about-debt-servicing-3019341
[8] Bangladesh's textile industry has been developing rapidly for a decade https://www.mckinsey.com/industries/retail/our-insights/whats-next-for-bangladeshs-garment-industry-after-a-decade-of-growth
[9] Bangladesh's trade system reform promotes textile exports https://link.springer.com/article/10.1007/s42943-022-00049-9
[10] Bangladesh import and export structure https://oec.world/en/profile/country/bgd
[11] Bangladeshi experts called for increased R&D investment https://www.thedailystar.net/opinion/perspective/news/low-rd-expenditure-hinders-innovation-and-development-1636630
[12] Vietnam's foreign trade data https://oec.world/en/profile/country/vnm?depthSelector1=HS2Depth
*The content of this article is provided by the author and does not represent the position of the Earth Knowledge Bureau
Cover: shutterstock
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