EFIC Country profile - map of Bangladesh

Bangladesh’s economy has been remarkably resilient, with GDP growth averaging 5¾% a year for the past 15 years. But the growth has been off a low base, so the country remains one of the poorest in Asia.

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Contact: Roger Donnelly, Chief Economist Efic

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November 2012

Bangladesh’s economy has been remarkably resilient, with GDP growth averaging 5¾% a year for the past 15 years. But the growth has been off a low base, so the country remains one of the poorest in Asia. Its economic base is narrow (based around garments and agriculture) and vulnerable to natural disasters. Moreover, despite a recent period of relative calm, political stability is far from assured.

Bangladesh country profile - Chart 1

Bangladesh is below the regional average for per capita income, growth and creditworthiness. The business climate can be difficult – but according to the World Bank’s Doing Business Survey no worse than the regional average.

Bangladesh country profile - Chart 2

Like most developing economies, Bangladesh can be a risky place to do business. But it does have attractions: a large and growing population; steady GDP growth; and strong demand for foreign capital to meet the country’s large infrastructure and energy needs.

Interpreting Chart 2

Business cycle risk. A volatile business cycle can be a special headache for exporters and investors, because it means that downturns will be steep – and corporate casualties will be high.

Currency risk. In today's world of widely floating exchange rates and sophisticated currency hedging techniques, some degree of currency volatility is quite acceptable, and presents little risk. But where a country has a weak balance of payments or is prone to wide swings in capital flows, it can suffer sudden and dramatic currency moves that can bankrupt large swathes of its corporate and banking sectors.

Currency inconvertibility risk. If the country suffers from a weak balance of payments, not only is it prone to steep currency depreciation, but there is a temptation for the government to impose exchange controls that prevent importers from converting local currency into foreign currency in order to make trade payments.

Systemic banking risk. Weak balance sheets and poor lending practices can sometimes trigger sector-wide banking crises.

Sovereign default risk. Fiscal mismanagement can put governments under financial strain to which they respond by running up arrears with, or defaulting on, overseas suppliers and creditors. With the sovereign cut off from credit, a sovereign default also increases the likelihood of sharp downswing in the economy, currency inconvertibility and a systemic banking crisis.

Difficulty/cost of enforcing contracts. If you get into a contractual dispute, will the country's legal and judicial system help or hinder you in pursuing a claim? Drawing upon World Bank data on the cost and time involved in enforcing contracts (at we seek to measure the degree of help or hindrance.

The measure scale runs from negligible to extreme.


November 2012

Bangladesh has some way to go before joining the ranks of emerging markets. The garment industry (70% of exports) is one success story. But the economy is still dependent on foreign aid and remittances (equivalent to 12% of GDP) from its vast pool of offshore workers forced to leave Bangladesh to find jobs.

Several structural drawbacks keep growth below potential.

  • Poor infrastructure. In particular, energy demand continues to outstrip supply. Per-capita energy use is one-third that of India. The government is trying to tackle the infrastructure deficit, but progress has been slow.
  • Politically motivated unrest and corruption. Elections in 2014 are a watchpoint.
  • Natural disasters. Flooding and cyclones occur during the monsoon season, often with catastrophic consequences. Over the longer term, Bangladesh is vulnerable to climate change and rising sea levels.

Bangladesh has an unblemished debt repayment record, but this reflects its reliance upon grants and soft loans to balance its books and a lack of access to world capital markets. Ratings agencies rate Bangladesh’s foreign debt below investment grade ― Standard & Poor's BB- and Moody's Ba3.

Bangladesh country profile - Chart 3

Over the past 15 years, growth has been rapid and has slowly accelerated. Over 2012-14 the IMF expects growth to be over 6% pa, an impressive performance in the current economic climate. However, this partly reflects strong population growth, with per-capita income growth continuing to lag the regional average. Moreover, inflation remains a problem, with prices recently being boosted by reductions to fuel subsidies and a weakening in the currency. Inflation is also very exposed to swings in food prices, which account for 60% of consumption.

Bangladesh country profile - Chart 4

In 2011, Bangladesh’s balance of payments came under pressure amid rising oil imports and slowing garment and textile exports.  However, conditions have since stabilised, with the government clinching a 3-year US$1b credit line from the IMF in April.  As part of the loan agreement the authorities have tightened policy settings, committed to greater currency flexibility and lower fuel subsidies.  Against the US$, the currency – the Taka – is down by 14% since January 2011, but with regional currencies weakening also, further falls may be necessary to ensure external stability over the long-term.


November 2012

Bangladesh’s politics have been characterised by friction between two dominant parties: the Awami League (AL), led by Sheikh Hasina Wajed, and the Islamic-leaning Bangladesh National Party (BNP), headed by Khaleda Zia. After a two-year period of (indirect) military rule, Sheikh Hasina was re-elected as Prime Minister in 2008, with a two-thirds majority, helping usher in a period of relative stability. But with elections approaching in early 2014 tensions are rising again. After a three year hiatus, the BNP has resorted to general strikes (or ‘hartals’) over, among other things, energy shortages, treaties with India, and legal investigations into its members. The BNP is also threatening to boycott the 2014 election in response to the AL abolishing the amendment for a non-partisan caretaker government during elections. A caretaker government is seen by many as vital to ensure a relatively fair election.

Bangladesh country profile - Chart 5

According to the World Bank, Bangladesh ranks in the bottom quartile of countries for political stability and government effectiveness.


November 2012

Bangladesh has relatively liberal investment rules on paper.  But inadequate infrastructure, corruption, arbitrary regulation and poor contract enforceability are deterrents.  Partly as a consequence, foreign investment is limited, equivalent to just 0.9% of GDP a year.  Highlighting the problems, the World Bank recently cancelled a US$1.2 billion loan for a bridge across the Ganges river ― one of the largest single credit lines Bangladesh has ever received ― over corruption concerns.

Bangladesh country profile - Chart 6

On the World Bank’s governance indicators, Bangladesh is a bottom quartile performer for corruption and regulatory quality. On the World Bank’s ‘ease of doing business’ gauge Bangladesh is ranked 122 out of 183 countries.


November 2012

Bangladesh is one of the world’s most densely populated countries, with a population of 148 million squeezed into a land area two-thirds the size of Victoria. It is also one of the poorest, with per capita income of US$766 in 2011.

Bangladesh country profile - Chart 7

Per capita income growth has not kept pace with the Asian average. The World Bank estimates that economic growth of 8-9% a year is required to absorb the large amount of surplus labour and rapidly drive down poverty.


November 2012

Bangladesh suffers from several security issues.

  • Politically driven nation-wide general strikes (or ‘hartals’) occur in times of heightened political tensions. They result in widespread economic disruption (particularly in urban areas) and often lead to violent clashes between anti-government groups and security forces.  Risks are greatest leading up to, and during, elections.
  • Foreign embassies warn that Islamic militant groups operate in Bangladesh, although violence has dropped following a government crack-down, in response to a 2005 bombing campaign by one of the larger militant groups, Jamaat-ul-Mujaheddin Bangladesh. 
  • The Chittagong Hill Tracts region is highly unstable.  Although the separatist conflict with indigenous tribes in the region officially ended with a 1997 peace accord, many of the terms of the accord are yet to be implemented.

Bangladesh - Selected indicators*

November 2012

Population (mn) 148
Official language Bangla
UN Human Development Index** Low

GDP ($US bn) 114
GDP per capita ($US) 767
Real GDP growth (15 year average, %) 5.8
Fiscal balance -3.9
Public debt 40.0
Foreign direct investment 0.9
Current account 0.0
External debt 19.7
Foreign reserves 11.2
S&P foreign currency debt rating BB-/Stable
OECD country risk rating 6

World Bank - Ease of doing business 122/183
Freedom House - Political rights and civil liberties Partly free
Transparency International - Corruption Perception Index 134/178

*All 2011 figures unless specified

**The HDI is composite measure of human development: long & healthy life (life expectancy), education (literacy & education enrolment) and income (GDP per capita)

***Expressed as % of GDP unless specified

This report is published for general information and does not comprise advice or a recommendation of any kind. Readers should consider their own circumstances and rely on their own enquiries in relation to matters contained in this report. While Efic endeavours to ensure it is accurate and current at the time of publication, Efic makes no representation or warranty as to the reliability, accuracy or completeness of this report. To the maximum extent permitted by law, Efic will not be liable to you or any other person for any direct or indirect loss or damage suffered or incurred by you or any other person arising from any act or failure to act on the basis of information and/or the opinions contained in this report.

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