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.
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.
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.