From economic miracle to IMF bailout in two months, what happened to Bangladesh?

In November, Bangladesh sought International Monetary Fund’s assistance in the form of loan assistance. According to a statement released by IMF, the country will receive a loan worth $4.5 billion.

The IMF assistance comes as a surprise to many as the country was hailed as a ‘South Asian economic miracle’ for showing remarkable growth in per capita Gross Domestic Product starting in 2020.

Bangladesh is now the third South Asian country to receive an IMF bailout package after Sri Lanka and Pakistan. The total amount will be disbursed in seven instalments and the first one will be cleared in February 2023.

Bangladesh’s Finance Minister AHM Mustafa Kamal said in a press briefing that the loan’s interest rate will depend on the country’s market conditions at the time of maturity.

In 2021, IMF predicted that Bangladesh’s GDP would exceed that of Denmark and Singapore. Last year, its GDP even surpassed India’s, a phenomenon that was described as a “bottomless basket” by US Secretary of State Henry Kissinger who said at the time that the country is steadily emerging as a bull economy.

Its GDP grew by 3.4 per cent in 2020, by 6.9 per cent in 2021 and was expected to grow by 7.2 per cent in 2022.

A short-lived success

A global economic slowdown hit Bangladesh’s steady growth too.

The IMF said, “Bangladesh’s robust economic recovery from the pandemic has been interrupted by Russia’s war in Ukraine, leading to a sharp widening of the current account deficit, rapid decline of foreign exchange reserves, rising inflation and slowing growth.”

According to a report by NPR, Bangladesh’s economic growth rests mainly on exports, remittances and fuel prices – all of which have recently taken a severe blow. Farria Naeem, an economist from the International Growth Centre and London School of Economics said, “Things have gone from bad to worse, given the current volatility in the global economy.”

In August this year, the country’s inflation rate hit a whopping 9.52 per cent, the highest in more than a decade.

Bangladesh’s largest economic driver is its ready-made garment industry which accounts for more than 80 per cent of the country’s exports. The COVID-19 pandemic had a devastating effect on the industry with at least a quarter of its workforce losing jobs as factories pulled down their shutters.

However, as consumer spending increased in the subsequent years, export orders also started to increase. But this year, orders plummeted by almost 30 per cent owing to worldwide inflation.

Lastly, the Russia-Ukraine war has shaken the country’s power grid and for a country that mainly relies on imported fuel, the blow caused by the conflict was rather severe.

Ahmed Mushfiq Mobarak, professor of economics at Yale University said, “While Bangladesh’s amazing growth was going on, what it was hiding is that infrastructure was always a problem. Power is always in deficit. So, when any kind of shock that happens — Russia invades Ukraine, thousands of miles away from us — we’re already on edge and suddenly our bills go up.”

Protests across the country

All of this accounted for an increase in bus and taxi fares overnight and food items got expensive.

Thousands took to the streets to protest against the administration’s response to the economic crisis.

Protestors now demand the resignation of Prime Minister Sheikh Hasina and called for new elections.

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