Deteriorating economic conditions may have been one of the driving factors for the protests and the August 5 coup in Bangladesh. While Bangladesh is often hailed as the most vibrant economy in South Asia, it lags behind India, and even other sub-operational subcontinental countries like Pakistan on several important metrics. The coup and the resulting political instability will likely reduce growth and investment in Bangladesh, further increasing economic hardship.
Just five years ago, Bangladesh was the envy of Asia, with a GDP growth of 8.4% twice that of India [1]. In 2015, Bangladesh’s per-capita income crossed Pakistan’s, and in 2020, it overtook India as well on this metric. A deeper assessment reveals that these and other numbers may have been overstated since they do not match up with other economic indicators. According to the IMF, Bangladesh’s per capita income in 2024 at $2,650 is close to India’s per capita income of $2,730. Logically then, Bangladesh’s consumption metrics should be somewhat comparable to India’s. This is not the case.
For instance, automobile sales in India are 350,000 per month[2]. Bangladesh’s population is 1/8th of India’s; ideally, automobile sales should be in the range of 40,000 a month. The actual figure is just 1,000 per month[3]. Likewise, Bangladesh’s per-capita energy consumption – which measures total energy consumption across all fuel types – is less than half that of India. In fact, the per-capita energy consumption of Pakistan is higher than Bangladesh’s, even though the latter’s per-capita income is nearly twice of Pakistan.
Some other indications show that not all is well with the Bangladeshi economy. The country’s textile sector of Bangladesh, its top industry, saw a major strike in Oct-Nov 2023 with workers agitating for higher wages. After weeks of protests, the government agreed to revise the minimum wage in the industry upwards by 56% to 12,500 taka per month ($115 a month at the time)[4]. This figure is marginally higher than the minimum wage for unskilled labour in West Bengal and is lower than the official minimum wage in Bihar[5].
The wage hike was to partly offset the higher cost of living. In the past three years, the Bangladeshi Taka has fallen by almost 30% against the U.S. dollar. The commodity price hike in 2022, caused by the Ukraine conflict, hit Bangladesh particularly hard. As a resource-poor country, Bangladesh depends upon imports of food, fuel, fertilizer and other resources. Devaluation of the currency indicates higher prices of imported goods, resulting in higher inflation.
Dhaka is also facing a problem on the balance of payments front – the foreign exchange reserves have consistently declined over the past two years. This in turn has pushed the government to clamp down on ‘non-essential’ imports[6] – another indication of economic trouble. Sri Lanka and Pakistan followed similar policies when their foreign exchange reserves started to run dangerously low, to less than two months of import cover. The official portals of the Bangladeshi government have been inaccessible since the coup, so official data is currently unavailable. Trouble on the external front has been evident for at least two years, as Bangladesh went for a $3.2 billion support program from the IMF in November 2022 to help stabilize its balance of payments[7].
The large-scale protests at short notice indicate that there was an existing element of dissatisfaction and anger in the populace. However, it is unlikely that a new, military-backed regime will be able to do much better, let alone bring about a dramatic positive change in the economy. Given the political uncertainty, investors and lenders are likely to hold back for some time. If anything, the political change in Bangladesh may have worsened its economic outlook and will create further economic hardship.
Amit Bhandari is the Senior Fellow for Energy, Investment and Connectivity at Gateway House.
This article was first published in The Economic Times.
[1] https://www.gatewayhouse.in/learning-from-bangladesh/
[2] https://www.siam.in/pressrelease-details.aspx?mpgid=48&pgidtrail=50&pid=565#:~:text=Domestic%20Sales%3A,59%2C544%20units%20in%20June%202024
[3] https://thefinancialexpress.com.bd/economy/bangladesh/auto-sales-plunge-44pc-in-h1
[4] https://www.reuters.com/world/asia-pacific/bangladesh-hikes-minimum-wage-garment-workers-after-protests-minister-2023-11-07/
[5] https://www.simpliance.in/minimum-wages
[6] https://www.newagebd.net/article/229637/import-restrictions-bring-no-major-let-up
[7] https://www.imf.org/en/News/Articles/2022/11/08/pr22375-bangladesh