Previous Quarterly Editions
Expropriation Risk: 56 56 57 57 Political Violence Risk: 73 74 74 78 Terrorism Risk: 48 50 48 46 Exchange Transfer and Trade Sanction Risk: 56 56 57 57 Sovereign Default Risk: 65 64 62 62
TREND ▲ OUTLOOK ▲
GDP growth remained strong across the second half of fiscal 2017-18, which ended in June, reaching 7%. Exports grew 5.8% in total, but the crucial garments industry was up almost 9%, indicating its return to sustained prosperity. Remittances also bounced back after two years in the doldrums, rising 18% to 13.6 billion dollars. However, the current account deficit plunged to a record 10 billion dollars, equivalent to 4% of GDP, as a result of rapidly rising imports of oil and food coupled with capital equipment imports related to major Indian- and Chinese-sponsored infrastructure projects.
As a result, forex reserves dropped to 31.5 billion dollars by the end of the fiscal year after a period of slow growth, and the taka lost 2% of its value against the dollar. Ongoing macro-economic problems include the fiscal deficit, which reached 4.8% of GDP in 2017-18 and is unlikely to be reduced in the short-term with the approach of elections in December, and the disappointing level of FDI which is now running at less than two billion dollars a year. Nonetheless, inflation has moderated to 5.5% and interest rates remain tied to an official bank rate of 6.75%. In politics, the Awami League (AL) government of Prime Minister Sheikh Hasina Wajed has continued to concentrate its attacks on the main opposition Bangladesh National Party (BNP) led by Khaleda Zia. Already jailed for embezzlement, Zia faces a battery of new charges and has had her bail revoked, making it difficult for her to lead any campaign into December’s general election. Hundreds of other BNP politicians have also been arrested. Concern is widespread, both inside the country and beyond, that Hasina’s regime is turning authoritarian. This includes using the army and police as key instruments of governance, not least to wipe out drug crime associated with the sale of low-grade methamphetamines imported from Myanmar through a strategy of targeted assassinations.
Having been denied legitimate forms of expression, opponents of the government have been forced to operate in the streets and recent student protests over a range of issues have turned violent. Having been at the heart of the Rohingya refugee crisis with Myanmar for more than a year, Bangladesh now finds itself facing an even more serious border crisis with India. In neighbouring Assam, a new National Register of Indian Citizens threatens the status of up to four million residents likely to be ‘illegal’ immigrants from Bangladesh. Hasina has moved closer to Delhi over recent years, but any attempt to expel Assam’s ‘non-citizens’ would sharpen tensions with Dhaka and rebound to the benefit of Bangladesh’s other Asian suitor, Beijing.
TREND ► OUTLOOK ▲
The crucial garment industry saw strong growth in the fiscal year that ended in June, but its recovery only reinforces the economy’s dependence on a single sector that now provides 83% of exports. The government is aware that competition is fierce with rivals in south-east Asia, especially Vietnam, and sales to the US have been stagnant for some years. Little progress has been made in recovering the status under the US government’s Generalised System of Preferences (GSP) that Bangladesh lost in 2013 over safety conditions in its garment factories after more than a thousand people were killed in the Rana Plaza building collapse. The threat to garment workers from fire and other physical dangers remains a significant reputational risk for foreign retailers who have been buying from Bangladesh but now have cheaper options increasingly available. The need to reduce dependence on garment sales is strong, but the government has done little to improve the country’s attractiveness to investors. A new plan to reduce the importance of unreliable gas supplies in the country’s energy mix will take a long time to bear fruit.
TREND ▲ OUTLOOK ▼
With the general election expected in December, the AL government is working to neutralise the BNP, its main rival. The latter has vowed to boycott the polls to protest the government’s treatment of its leader, Khaleda Zia, who is in jail along with hundreds of her party supporters. Yet Hasina’s turn to authoritarianism is producing widespread street-level mobilisations by student organisations that are becoming the main opposition movement.
A heavy-handed response to the students, who are protesting over a range of issues that affect ordinary people such as the poor safety record of public transport and the limited access to civil service jobs, risks losing Hasina popularity among voters, as does her strongly pro-Indian foreign policy. If India proceeds with the expulsion of ‘illegal’ Bangladeshi migrants from Assam, Hasina may feel a significant anti-Indian backlash at the election.
TREND ▼ OUTLOOK ▲
Small-scale and individualised attacks on ‘secularists’ and members of religious minorities by Islamist militants continue on a regular basis. They appear tolerated by Hasina’s government, for whom taking a soft line on Islamic radicalism is part of its battle with the BNP. However, there have been no major ‘terrorist’ incidents for over two years and the BNP is now seeking to dissociate itself from radical religious causes.
At least temporarily, militant Islam appears on the decline. Nonetheless, a new mood of anti-government militancy among student radicals is starting to threaten public order.
TREND ► OUTLOOK ▼
The trade deficit apart, the economic outlook appears promising with inflation moderating and growth remaining strong. However, weak governance of the banking sector has seen the ratio of non-performing loans rising to 17% when restructured debts are included. In 2017, the government set aside 250 million dollars to help re-capitalise public sector banks and, subsequently, it has tweaked tax laws and deposit ratios to increase liquidity. Nonetheless, improvement has been marginal, and credit remains tight. There are also concerns that, in issuing new private banking licenses, the government may be increasing the sector’s vulnerability.
With the general election coming up, the government has further boosted public spending in the 2018-19 budget, with the result that next year’s fiscal deficit is expected to exceed 5% of GDP. However, both public debt (35%) and external debt (12%) are very low by international standards as ratios of GDP and, while foreign reserves have fallen lately, they still provide cover for eight month’s imports.
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