Previous Quarterly Editions
Expropriation Risk: 62 62 62 62 ► Political Violence Risk: 51 51 51 51 ► Terrorism Risk: 44 40 40 38 ▼ Exchange Transfer and Trade Sanction Risk: 55 55 55 55 ► Sovereign Default Risk: 57 57 57 47 ▼
TREND ▼
Government's commitment on climate policy Weakest 1 2 3 4 5 Strongest
Bangladesh counts among the most vulnerable countries in the world in the case of climate. The International Monetary Fund (IMF) estimated annual losses linked to adverse climate events to average 1.8% of gross domestic product (GDP) between 1990 and 2008. Furthermore, things will only get worse as sea levels rise, given Bangladesh’s low and flat terrain, with 70% of its area at an elevation of one metre or less above mean sea level.
With the progress of climate change, the coastal zone of Bangladesh, which is highly susceptible to natural disasters such as cyclones and storms, has become even more vulnerable to saline water intrusion, drainage congestion and the like. A World Bank study projected the sea level around Bangladesh to rise by 10 centimetres (cm), 25cm, and 1 metre by the years 2020, 2050, and 2100 respectively, affecting 2%, 4%, and 7.5% of total land mass.
This will affect Bangladesh’s agricultural capacity; according to projections, a one-metre rise in sea level can lead to loss of around 1,000 kilometres of cultivated land and sea-product culturing area that could turn into salt marsh. In addition, being a riverine country with a large delta, flooding is likely to make large parts of Bangladesh uninhabitable. Floodplains make up nearly 80% of the country. Changing rainfall patterns have also resulted in droughts in certain parts of the country. All these possibilities require the government to focus not so much on reducing emissions, as investing in adaptation and compensating for loss and damage.
The government has responded with climate-related adaptation and action plans, including fiscal strategies, and plays an active and key role in the 48-nation Climate Vulnerable Forum, the presidency of which was assumed by Bangladesh for a second time in June 2020.
The real problem is the absence of adequate financial resources to meet the challenges, with Bangladesh receiving a miniscule amount from the meagre USD100 billion a year that developed nations responsible for a dominant proportion of cumulative carbon emissions have promised to transfer to poor nations.
Climate change is expected to affect the livelihoods of the poor particularly severely. With temperatures and precipitation rising, instances of flooding and droughts, and the loss of arable land in coastal areas because of saltwater intrusion, agricultural production is expected to decline by as much as a cumulative total of 80 million tonnes over 2005-50.
The creeping crisis is triggering unusual security threats. Given the large Hindu populations in the coastal regions, displacement would bring them into Muslim dominated areas, where they compete for land, jobs and resources. They face being exposed to anti-minority communal violence, which is a recurring problem in Bangladesh.
TREND ►
With its garment industry contributing 20% of its GDP and 80% of its exports, Bangladesh was hit badly by the COVID-pandemic. However, exports are rebounding, with rising demand from major trading partners. Despite the slow pace of vaccine coverage, production has responded and prospects for foreign investors and global chains have improved. This, together with robust remittance receipts, also makes external debt placed at around 22% of GDP sustainable, especially since around 60% of that debt has been provided on concessional terms. Overall, therefore, expropriation risk is low, and the government through a large number of bilateral investment agreements has assuaged any fears foreign investors may have.
Bangladesh has been prone to violence between supporters of the two major political parties, recurring incidents of communal violence between the majority Muslim and minority Hindu populations, and now, violence by state agencies. While the Sheikh Hasina-led Awami League government has managed to tame the opposition Bangladesh Nationalist Party (BNP) with help from the army and police – which has been cleansed of BNP influence – it has in the process encouraged the use of violent methods among its loyalists and ignored instances of corruption.
The consequent impunity has resulted in violence inflicted by government forces, reflected in a large number of killings allegedly by members of the police and the military. Influenced by reports from human rights organisations of such abuses, the Biden administration in the U.S. imposed sanctions in December 2021 on members of the anti-terrorist Rapid Action Battalion and sundry security officers. Given this threatens the international links and presence of these elites and their families, the action has reportedly sharply reduced ‘extra-judicial’ killings as of now.
Political violence too often returns. According to reports, in elections to village councils held in November 2021 at least seven people were killed. The elections only consolidated the ruling party's power, since the largest opposition party boycotted the elections, alleging the political environment had rendered the process unfair. Meanwhile, communal violence remains an issue, with periodic violent demonstrations by radical Islamist groups such as the Hefazat-e-Islam.
With the government ruling with a heavy hand and adopting a zero-tolerance policy towards terrorism, Bangladesh has experienced a sharp decrease in such activities. There were no fatalities linked to Islamist extremism in 2021. Such fatalities had declined from 376 in 2013 to 115 in 2016, then to 15 in 2018 and finally just two in 2019. However, with multiple radical Islamist groups active, the problem may return to haunt the government.
Bangladesh’s trade deficit stood at around 6% of GDP in financial year 2021 (July-June). That may widen in financial year 2022 given the country’s dependence on energy imports and the sharp spike in global energy prices, not least given the effect of the February 2022 Russia/Ukraine crisis. But the signs of a robust recovery in garment exports, resilient remittance inflows and comfortable capital receipts referred to above have shored up reserves. The current account deficit was a comfortable 0.1% of GDP in 2021. In the circumstances, there is little risk of exchange rate volatility, capital controls or trade restrictions.
Despite rising sovereign debt levels there is low probability of default. Due to reduced revenue mobilisation during the pandemic and enhanced expenditures, the government’s fiscal deficit rose from 5.5% of GDP in 2019-20 to 6.1% of GDP the next year. Given the exceptional circumstances during the pandemic, this is not alarming. The challenge is to exit from these exceptional fiscal circumstances without undue damage. Improved growth will help, with the IMF projecting GDP growth at 6.6% in the year ending June 2022 and 7.1% the year after. Though gross outstanding government debt has risen from around 36% of GDP in 2019 to around 40 %, public debt is not overwhelmingly large and is manageable.
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