The departure of Bangladesh's ruling elite has left a vacuum that is far more than political — it is economic.
Since the dramatic ousting of prime ninister Sheikh Hasina in August, followed by the exodus of influential business and political figures who are alleged to have siphoned off billions, the country's economy has been in free fall.
Factories have shuttered, banks are on the brink of collapse, and workers sit idle with no work orders in sight.
With banks failing to provide funds for trade and business, much less paying back money to depositors, private sector investment has slowed to a trickle causing mass unemployment and a severe dearth of cash on hand throughout the nation.
Data from the Bangladesh Bank shows that the overall opening of letters of credit in July and August this year fell by 12.96 % and settlement of LCs in the same period also fell by 13.08% indicating that production in domestic industry as well as import of consumer goods are falling.
The World Bank and the International Monetary Fund now predict GDP growth will fall to its lowest level in nearly two decades, underscoring the fragile state of a nation left scrambling to fill the void left by its former power brokers.
World Bank: difficulties ahead
The World Bank has reinforced the narrative of economic difficulty, projecting that Bangladesh's economy would remain under pressure for at least another year, with GDP growth potentially falling to as low as 4 % for the fiscal year 2024-25.
This compares with a GDP growth that touched 7.1% in 2022.
The World Bank's Bangladesh Development Update released in October cites various challenges, including high inflation, external sector pressures, financial instability, and political uncertainty as key obstacles to growth.
The multilateral lender highlighted that Bangladesh's post-Covid recovery has been hindered by high inflation, a balance of payments deficit, vulnerabilities in the financial sector, and reduced job opportunities, particularly for youth and women.
The country’s GDP growth had already decelerated to 5.2% in FY 2023-4, driven by weaker consumption and exports. A further slowdown to 4.0% is projected for FY 2024-5, with a potential recovery to 5.5% by FY 2025-6.
Urban income inequality remains a pressing concern, with the Gini index – a measure of wealth distribution - rising from 0.50 to 0.53 between 2010 and 2022.
The World Bank emphasised the need for comprehensive reforms to help the nation return to a path of sustainable growth.
“Bangladesh's growth in recent years has not effectively translated into job creation for the large youth population entering the labour market. This is especially true for educated youth and women,” said Abdoulaye Seck, World Bank country director for Bangladesh and Bhutan.
“However, with targeted economic and financial reforms, I'm confident Bangladesh can regain a strong and inclusive growth trajectory.”
Persistent inflation
Inflation, driven by rising food and energy prices, averaged 9.7% in FY 2024. Although there was a slight moderation in August after a spike in July, inflation is expected to remain high in the short term.
It may subside over the medium term, provided supply issues are resolved and sound fiscal and monetary policies are maintained, the report said.
The fiscal deficit is estimated to have decreased slightly to 4.5% of GDP in FY 2024, aligning with the government's target of 4.3% for FY 2025.
However, implementation of the Annual Development Projects fell to 80.9% in FY2024 from 85.2% the previous year.
IMF's revised growth
The IMF, in its latest World Economic Outlook, downgraded its growth projection for Bangladesh to 4.5% for the current fiscal year, a significant drop from the 6.6% forecast made in April.
This marks the lowest growth rate in nearly two decades, excluding the pandemic-affected FY2019-20.
Explaining the rationale behind the revision, IMF's Asia Pacific Department Director Krishna Srinivasan noted that recent economic events had prompted the adjustment.
"Developments over the past few months have slowed growth compared to previous forecasts," he said.
Poverty plight
On October 17, the United Nations Development Programme (UNDP) reported that 41.7 million people in Bangladesh were living in extreme poverty as of 2022, with 6.5% facing severe multidimensional poverty.
According to the 2024 Global Multidimensional Poverty Index, 18.2% of the population is vulnerable to such poverty.
However, the Bangladesh Bureau of Statistics contested these figures, stating that 18.7% of the population was below the poverty line in 2022, with 5.6% classified as extremely poor.
Bangladesh's stock market has also suffered significant setbacks, with the main index of the Dhaka Stock Exchange falling to 4,898 points on October 28 from 5,924 points on August 8.
This decline has triggered protests from small investors, who have incurred heavy losses. Experts attribute this to political instability and the exit of institutional investors and business leaders associated with the former government.
Remittance bright spot
Amidst these challenges, however, foreign remittance inflows have shown a positive trend. In September, remittances reached $2.4 billion, up from $1.33 billion in the same month last year.
This increase, along with a decline in imports, has bolstered Bangladesh's foreign currency reserves, which stood at nearly $20 billion as of October 17, according to IMF calculations.
The central bank's policy of purchasing foreign currency has also supported the forex market.
