Previous Quarterly Editions
Expropriation Risk: 57 55 54 54 Political Violence Risk: 73 74 75 75 Terrorism Risk: 46 46 45 44 Exchange Transfer and Trade Sanction Risk: 57 57 58 56 Sovereign Default Risk: 62 60 58 58
TREND ► OUTLOOK ▲
Bangladesh may find strong GDP growth difficult to sustain during the remainder of the current fiscal year, which ends in June 2020, as the slowdown in global trade begins to bite. Exports in the first quarter of fiscal 2019-20 from July to September fell by 7% as the crucial garments industry experienced a 3% decline. Following continuing problems in the banking sector, the growth of credit to the private sector also hit a nine-year low. Previous projections showing economic growth above 8% for fiscal 2019-20 are being revised down to around 7.2%. Nonetheless, this would still leave Bangladesh as the fastest growing major economy in South Asia as the global slowdown squeezes other countries even harder. The garments industry is likely to remain more of a winner than a loser from a prolonging of the US-China trade dispute, and the economy goes into 2020 with a rise of 16% in remittances that has been encouraged by a new government bonus scheme. However, the state of the banking sector remains a serious vulnerability for the economy. The non-performing asset ratio remains stubbornly at 12% and the government has yet to make a serious and concerted effort to tackle the problem. In a clutch of six public-sector commercial banks, that ratio is now above 30% and while the banks are small this is indicative of the government’s failure to act. In politics, the governing Awami League (AL) dominates the political landscape and operates essentially unchecked. The leadership of what were the two main opposition parties, the Bangladesh National Party and the Jamaat-e-Islami, are in prison and the AL now holds 288 of the 300 parliamentary seats. With ‘legitimate’ channels of opposition closed, dissent continues to find an outlet in violent street protests. The latest conflicts include riots in October over the police shooting of four Islamist activists and a national strike in November by truck drivers, who constitute a crucial component of the economy. Meanwhile, the AL hopes that the stalemate over the position of the hundreds of thousands of Rohingya refugees who have fled to Bangladesh across the border from Myanmar may be broken if the case brought against its government at the ICC leads to Myanmar agreeing to relax the impossibly strict terms on which it has offered to repatriate refugees. However, as Bangladesh struggles under the weight of the crisis, its own responses are becoming increasingly harsh. Residents of the camps, most of which are near Cox’s Bazaar in the far south of the country, are now being prevented from integrating into the local economy and many are now being moved to an inhospitable island away from the main concentrations of population. In effect, Dhaka is pressing the international community to take more responsibility for a situation with which it is becoming genuinely unable to cope.
Bangladesh’s economy remains heavily dependent on its garment sector. While this remains strong, it experienced significant industrial unrest over both pay and conditions during 2019. It is also being affected by exclusion from the US government’s Generalised System of Preferences, and less obviously but more worryingly, by rising competition from other low-cost countries, such as Vietnam, that will have a significant impact in the medium term. Although it will benefit from the continuing US-China trade conflict through higher US tariffs on Chinese-made garments, it is no longer the cheapest option for companies looking to relocate operations from China. Moreover, little has been done to reduce the unsafe working conditions that pose reputational risks for consumer brands sourcing from Bangladesh.
The near-complete dominance of the AL over opposition parties has continued as more BNP activists are arrested on corruption and related charges. A rally of BNP supporters to protest the latest arrests at the end of November was delayed at the last minute by the authorities, prompting the BNP to say that it will no longer apply for permission to hold rallies. The police response to protests tends to be heavy handed and the judiciary’s treatment of those arrested is also harsh. The government’s hardline strategy risks both stirring adverse international criticism and promoting chaos on its own streets. Street protests continued through 2019 over issues including a 33% increase in gas prices and low wages in the garment sector. However, the most significant were those in October protesting the killing on campus of a student who had posted critical comments about the AL on social media. Members of the AL youth wing were charged with his death.
TREND ▼ OUTLOOK ►
Although the AL has been trying to attract moderate Muslims to join it from their traditional home in the BNP, it is not clear that this has been successful. It also carries 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, which is having the effect of highlighting its failure to prosecute attacks on secular writers and members of minority religions.
The government’s response to high levels of non-performing assets (NPA) and constricted liquidity has been to liberalise banking laws and issue more licenses for new private banks. This has not reversed the trend, however, and the proportion of NPAs to overall loans continued to rise in 2019. More encouragingly, the risks associated with the trade deficit and currency depreciation now appear more manageable thanks to strong foreign exchange inflows from exports and the sharp rise in remittances. These helped to keep the taka stable during 2019 and that stability should continue into 2020.
TREND ► OUTLOOK ▼
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 the debt-to GDP ratio of 35% and the external debt, at 12%, remain low by international standards and foreign exchange reserves of 33 billion dollars continue to provide a comfortable cushion. The government is considering the issue of its first foreign currency bond during 2020 to capitalise on a decade of strong growth.
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