Previous Quarterly Editions
Expropriation Risk: 57 57 55 54 Political Violence Risk: 78 73 74 75 Terrorism Risk: 46 46 46 45 Exchange Transfer and Trade Sanction Risk: 57 57 57 58 Sovereign Default Risk: 62 62 60 58
TREND ▼ OUTLOOK ►
The economy remains strong, with growth during the 2018-19 fiscal year that ended in June reaching 7.9% and the Asian Development Bank now forecasting 8.1% for 2019-20. Exports remained buoyant and the crucial garment sector, which provides 80% of total exports, is up by 11.5%. However, a rise in imports has pushed the current account deficit above 3.7% of GDP while squeezing foreign reserves to less than five months’ import cover. The heavy flooding this summer is likely to result in a drain on government resources, as is the need to rehouse residents of the poor neighbourhood of Dhaka where 15,000 homes were destroyed by fire in August. The recent expansion in private banking has done little to constrain non-performing asset ratios, which rose from 10.3% in December 2018 to 11.9% in March 2019. More positively, remittance income from overseas workers recovered to reach 16.5 billion dollars in 2018-19 and is expected to rise by another 15% during the current fiscal year. Meanwhile, domestic consumption grew by 8.1% last year, the fastest rate in South Asia, as the trebling of power availability over the last decade and greater investment in food production take effect. The country is close to achieving food self-sufficiency as vegetable production has surged in recent years to match the gains made in rice output. Indeed, Bangladesh is fast transitioning from an aid-dependent to a market-dependent economy and foreign direct investment rose in 2018 by 68% to a record US 3.6 billion. In politics, the overwhelming victory of Prime Minister Sheikh Hasina Wajed’s Awami League in the December 2018 general election has seen a further consolidation of the AL’s long-standing tendencies towards authoritarian government. The state’s heavy-handed approach to security has undoubtedly weakened the threat from Islamist terrorism, which appeared on the rise as recently as 2015. However, the AL government now faces an investigation by the UN Committee Against Torture into the behaviour of the security services, which act with little accountability. Other parties remain in disarray, with the leader of the principal opposition Bangladesh National Party (BNP), Khaleda Zia, still in jail and the Islamist Jamaat-e-Islami facing proscription. In the absence of any other avenue for political protest, political stability remains punctuated by outbreaks of crippling street violence. Earlier this year, garment workers and students took part in large-scale strikes and damaging riots, although employers say that the impact on output from the garment sector was minimal. More recently, the government’s approval of a sharp rise in gas prices, intended to tackle the chronic losses of state-owned energy company Petrobangla and encourage greater investment, provoked a similar level of public outrage. Meanwhile, the Rohingya crisis remains at stalemate. The Myanmar government has accepted in principle the safe return of some 700,000 refugees who crossed into Bangladesh. However, it is insisting on the separate documentary accreditation of each and every one, leading to paralysing delays, while its guarantees of security are treated by many Rohingya with deep scepticism. Elsewhere, while Hasina favours close relations with India, tensions continue over the potential denial of citizenship to as many as four million inhabitants of India’s Assam state, many of whom are deemed to be Bangladeshi migrants and are now at risk of deportation.
Bangladesh’s external economy remains heavily dependent on its garment sector, which has recently experienced significant industrial unrest. It also suffers from exclusion from the US government’s Generalised System of Preferences and rising competition from other low-cost countries, such as Vietnam. However, it is beginning to benefit from the continuing US-China trade conflict through the extension of higher US tariffs to Chinese garment imports, although it is no longer the cheapest option for companies looking to relocate operations from China. Reputational risks remain for consumer brands sourcing from Bangladesh due to unsafe working conditions.
TREND ▲ OUTLOOK ►
The AL now holds all but 12 of the 300 seats in parliament following last December’s general election and shows no interest in acknowledging the little political opposition that remains. This has transferred political protest from parliament to the streets, where demonstrations against a 33% increase in gas prices in July were met with tear gas and water cannon, much as protesting garment workers and students were earlier in the year. This visible aspect of the government’s increasingly authoritarian practices risks further international censure. Meanwhile, Islamist action against secular ‘bloggers’ and journalists continues, apparently unchecked by a government which is eager to appease Islamist sentiments for political reasons.
Although Hasina’s government has targeted members of the Jamaat-e-Islami movement, which has associations with militant Islam, the AL has also tried to attract more moderate Muslim support into its own ranks from its traditional home in the BNP. However, this brings the risk that more radical Islamist elements will covertly penetrate the AL itself. The Hefazat-e-Islam, now an AL ally, has persuaded the government to honour sensitive Islamic symbols, even as attacks on secular publicists and on minority religions remain unprosecuted.
There is concern at home and abroad at the government’s inability to shore up the banking sector. Its response to high levels of non-performing assets (NPA) and constricted liquidity has been to liberalise banking laws and issue more licences for new private banks. Ten were licensed in fiscal 2018-19, pushing the number of operational banks above 60. Under the new policy, banks may also ‘write-off’ NPAs after just three years rather than five years, yet the proportion of NPA to overall loans continued to rise in the first half of 2019. More encouragingly, the risks associated with the trade deficit and currency depreciation appear manageable as exports set a new record of 40.5 billion dollars in 2018-19.
The 2018-19 fiscal deficit exceeded 5% of GDP as a result of the government’s decision to give a further boost to public spending in the run-up to last year’s election. However, both public debt, which now stands at 35% of GDP, and external debt, at 12%, are low by international standards. Although not yet significant, the downward trend in foreign reserves, which are now below 32 billion dollars, is worth watching.
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