The Bangladeshi economy has been undergoing real GDP growth of more than six percent on average for more than 12 years now (see Fig. 1), despite ups-and-downs in the global economy: notably, the global financial crisis and the subsequent growth slowdown, and inflation being contained within single digit levels (see Fig. 2). This stable growth trend has been maintained because of the Bangladesh government’s inclusive development strategy, supported by Bangladesh Bank’s (BB) initiative of emphasising socially responsible financing in its everyday activities and pushing these objectives into the country’s financial sphere.
BB’s inclusive financing promotion exists within its monetary growth programme, designed to maintain price and macro-financial stability. All banks and financial institutions, whether state-owned, private, local or foreign, have enthusiastically engaged themselves in nationwide financial inclusion and green banking initiatives. Financial support from these initiatives has boosted agriculture, with SMEs and environmentally-friendly projects generating both domestic output and demand to compensate for external demand weakness from the slowdown in advanced Western economies.
Gains from inclusive financing
Exports have also continued to grow, and together with healthy inflows of remittances from workers abroad, have underpinned strong gains in external sector viability, reflected in a healthy current account balance – there has been more than a ten-fold increase in foreign exchange reserves to over $17bn, from only $1.6bn in FY2000 (see Fig. 3). Furthermore, prudent fiscal policy has helped accumulate higher revenues with moderate deficits, leading to declining public debt ratio. The inclusive financing initiatives which allow credit to flow to SMEs has helped enhance macro-financial stability, with incremental output on the supply side and employment and income generation on the demand side.
Inclusive initiatives which channel financing to under-served and excluded micro and small-scale productive undertakings, as well as ‘green’ projects which adopt energy efficient and environmentally benign output processes, are adding incremental output in the real economy on the supply side, while also bringing up demand from newly-created employment and income, preserving real sector stability.
In the financial sector, the diverse small-sized financing in the inclusive initiatives constitute a new asset base, entailing lower aggregate credit risk than from large loan exposures to a few large borrowers. At the same time, the new client base of numerous small borrowers constitute a substantial base of new deposits that are more stable than large deposits from a small number of big depositors – enhancing financial sector stability. Ongoing inclusive financing initiatives in the underserved rural segment are also helpfully acting as a cushion against instability ripples in the urban segment.
Investment incentives
Bangladesh is maintaining a most welcoming regime for FDI and FPI inflows. Up to 100 percent foreign ownership is freely permissible for FDIs in the industrial sector and FPI inflows are freely permitted in the local equity and bond markets. Post-tax profit or dividends earned by non-residents on those FDIs and FPIs are freely repatriable abroad; disinvestment proceeds along with capital gains are likewise also freely repatriable. Besides manufacturing, major opportunities for foreign investors in Bangladesh exist in the infrastructure sector, including gas and electricity generation, toll bridges, hotels and other tourism facilities, tertiary healthcare hospitals, developing land port, seaport, airport facilities and so forth. Software and IT-enabled services are yet another new promising area for foreign investors in Bangladesh. Tax holidays, import tariff waivers/concessions on capital goods and serviced industrial zones are available for foreign and local investors.
Bangladesh has already attained a number of Millennium Development Goals (MDGs), including the halving of poverty well ahead of its 2015 timeline
Bangladesh has already attained a number of Millennium Development Goals (MDGs), including the halving of poverty well ahead of its 2015 timeline. Rapid poverty decline in the large population of 150 million is providing domestic and foreign investors with a large demand base: coupled with very competitive low wages in the largely young working population, which is attracting relocation of foreign investors from costlier locations elsewhere. Many large globally-active businesses, including Samsung, Unilever, Telenor, have setup manufacturing units and other facilities in Bangladesh.
Healthy economy
In the financial sector, globally active banks like HSBC and Citi N.A. have branches in Bangladesh. Recently, the World Bank ranked Bangladesh ahead of India, China and Vietnam in protecting investors’ interests. Bangladesh’s clothing exports continue to grow despite weakened demand from advanced Western economies. Working conditions in clothing factories are undergoing rapid upgrading following some recent episodes of factory fires/ building collapse. Besides clothing – which constitutes more than 75 percent of total exports – the export portfolio is diversifying into several new sectors including light engineering products, IT enabled services, horticultural produce, consumer durables, bi-cycles and marine vessels.
Healthy macroeconomic trends have upheld BB- and Ba3 sovereign credit ratings with a stable outlook for four successive years now by S&P and Moody’s respectively. This positive view is also echoed by some of the leading international investment banks: Goldman Sachs names Bangladesh in its ‘Next 11’ countries list (those most likely to become the world’s largest economies after the BRIC nations) and is one of JPMorgan’s ‘Frontier Five’ economies. Citigroup has identified Bangladesh as one of 11 countries in terms of its ‘Global Growth Generators’ (or 3G countries).
Given the advantages of its current demographic of a large youthful workforce and its broad social consensus of including socially responsible-driven development strategies to harness the ingenuity and creative energy of its population to overcome poverty, Bangladesh is now charting the next phase of its progress, aiming to reach the upper middle income country group GNI threshold by 2030, and attaining developed advanced economy status by 2050.
