Previous Quarterly Editions
Expropriation Risk: 60 60 61 62 Political Violence Risk: 51 51 51 51 Terrorism Risk: 46 46 44 40 Exchange Transfer and Trade Sanction Risk: 55 55 55 55 Sovereign Default Risk: 57 57 57 57
TREND ►
On April 5, 2021, Bangladesh imposed a week-long social lockdown, with shopping centres and transportation shut down, because of a resurgence of COVID-19 infections. However, factories were allowed to function, if employers arranged transportation for workers. With repeated waves of infections, Bangladesh must look to vaccines which it is receiving, or hopes to receive, from India, China and elsewhere. However, the impact that the pandemic has had on the economy and on livelihoods has been less severe than elsewhere in the region, not least because of a series of stimulus packages, numbering 23 by mid-January 2021, with value estimated at 4.44 per cent of gross domestic product (GDP).
The other factor favouring Bangladesh has been a spike in remittance flows, which account for around one-tenth of the country’s national income. Over the first eight months of financial year 2021 (July to June), or July 2020 to February 2021, remittance inflows rose 33% compared with the corresponding period of the previous year, touching USD16.69bn. One factor driving the rise was a 2% incentive (a transfer in the form of an added-on incentive payment) announced in 2020 for remittances by Bangladeshis abroad, to compensate for the increased cost of sending remittances and to encourage transfer through official rather than informal channels. Remittances may have also been higher because Bangladeshis working abroad who lost their jobs because of COVID-19 may be returning home and transferring back their money.
The situation was different with garment exports. Export earnings from readymade garments over the same period fell to USD21bn, 3.7% lower than a year earlier. But with remittances doing much better and imports hit by the pandemic-induced economic contraction, reserves held up, standing at around USD43bn in early February, equivalent to more than ten months of imports. GDP growth too is expected to revive: after falling from 8.2% in fiscal year 2018-19 to 5.2% in 2019-20, growth is projected to bounce back to 7.4% this fiscal year.
However, a dark cloud hovering over these achievements and creditable health and social indicators is inequality, exacerbated by a regressive tax structure. That inequality has been aggravated by the pandemic and its asymmetric effects on rich and poor, often triggering demonstrations on restrictions on economic activity that hurt incomes of the poor disproportionately.
On the domestic political front, COVID-19 lockdown measures have strengthened the authoritarian strand in Bangladeshi politics, where Prime Minister Sheikh Hasina Wazed’s Awami League already has a strong majority in the 300-seat parliament. Journalists and others, who are criticised by the government, risk harsh action. The Awami League’s dominance is being challenged by the growing attraction of radical Islamist movements that have been active and indulged occasionally in violence.
With an eye to their constituency, the Bangladesh government had to express concern at the Indian government’s citizenship laws and the accompanying rhetoric which suggested that illegal Muslim migrants would be identified and sent back while non-Muslim ones would be given Indian citizenship since they are fleeing from Muslim oppression in Bangladesh. The tensions on this count between the two countries have been papered over, with high-level visits from India including of Prime Minister Narendra Modi, and with India making Bangladesh a target of its vaccine diplomacy.
Meanwhile, amid the pandemic, Bangladesh continues to battle with the problems arising from the more than one million Rohingya refugees from Myanmar. The government decided to move groups of the refugees to a ‘town’ built on Bhasan Char, an island in the Bay of Bengal, susceptible to flooding with the tides. The government’s policy of dumping the refugees there is internationally controversial, but increasing resentment among its own population about the alleged crime and disease in the original border camps refugees were received in, and inadequate support from the international community, has pushed the government to adopt this alternative.
TREND ▲
Exercise of power by functionaries of the ruling Awami League is reportedly resulting in expropriation of resources owned or meant for ordinary citizens. Land is acquired at extremely low prices and subsidies or subsidised goods are diverted away from the intended beneficiaries. Fearing loss of legitimacy if this tendency spirals, the government has on occasion come down heavily on perpetrators.
Violence led by radical Islamic groups is rising. When India’s Prime Minister Modi visited Bangladesh to join celebrations marking the birth centenary of Sheikh Mujibur Rehman, the country’s founder, radical Islamic groups took to the streets protesting Modi’s visit because he and his party are seen as targeting Muslims in India and in Bangladesh. The protest soon spread across the country and on March 28 2021 a hard-line Islamist organisation, Hefazat-e-Islam, called for a nationwide blockade that turned violent. In the police action that followed, at least 12 people were reported killed.
Data on terrorist incidents and fatalities point to a decline in terrorist activity, possibly following multiple arrests of members of militant groups by the Sheikh Hasina government. The launch of a political party (Amar Bangladesh Party) by more reformist and less hard-line sections of the Jamaat-e-Islami (JeI) group may be indicative of a weakening of radical Islamism in Bangladesh. Unlike the JeI, the new party celebrates the independence of Bangladesh in 1971. But the activities of groups such as the Hefazat-e-Islam point to the continued presence of hard-line forces.
In February 2021, for the second time the UN Committee for Development Policy (CDP) concluded that Bangladesh had met the three criteria that make a country eligible for graduation out of the Least Developed Country category. While that points to progress on many counts, this transition would also lead to loss of special benefits such as preferential export schemes providing duty-free, quota-free access.
In Bangladesh’s case, the loss of preferences could adversely affect its garment exports, especially because it would now have to compete on equal terms with aggressive players such as Vietnam. However, given COVID-19, the CDP has recommended that Bangladesh be given five years (as opposed to the normal three) to make the transition. This gives the country the time required to improve its textile export prowess and seek to diversify its manufacturing export basket.
Before COVID-19, Bangladesh’s public debt stood at 35.8% of GDP in 2019. Reduced revenues induced by the pandemic are projected to take the figure to 42.3% in 2022. In 2019, 60% of government revenues were devoted to debt servicing. That is likely to rise to as much as 98%. This does raise the possibility of significant debt distress unless Bangladesh is able to win debt relief and/or revenues can be raised significantly. In May 2020, the International Monetary Fund approved USD732mn in emergency assistance for Bangladesh under the Rapid Credit Facility and the Rapid Financing Instrument. That included new loans that add to the debt burden.
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