Last updated: December 2023
Bangladesh has seen some of the highest and longest-sustained rates of growth of an emerging economy in the 21st century, supported by fast expansion in its textiles and services sector. Creditworthiness remains on par with emerging and developing Asia, but indicators on the business climate and per capita incomes lag most other regional peers.
The above chart is a cobweb diagram showing how a country measures up on four important dimensions of economic performance—per capita income, annual GDP growth, business climate rank and creditworthiness. Per capita income is in current US dollars. Annual GDP growth is the five-year average forecast between 2024 and 2028. Business climate is measured by the World Bank’s 2019 Ease of Doing Business ranking of 190 countries. Creditworthiness attempts to measure a country's ability to honour its external debt obligations and is measured by its OECD country credit risk rating. The chart shows not only how a country performs on the four dimensions, but how it measures up against other countries in the region.
Despite strong recovery from the COVID-19 pandemic, Bangladesh’s economy felt the pinch from high inflation, power and energy shortages, global economic uncertainty and continued monetary policy tightening in 2023. Further, a surge in import demand—reflecting in large part rising global commodity prices—accompanied by declining FDI and remittance inflows, has exerted significant downward pressure on the taka and foreign exchange (FX) reserves over the past couple of years. Growth slowed to 6% in 2023 from 7.1% in 2022 on the back of subdued private demand. On the positive side, exports remained resilient; exports grew by 6.7% in fiscal 2023 (year ending June 2023) thanks to continued global demand for ready-made garments. The implementation of a US$4.7 billion, 42-month IMF program approved in January 2023 is helping Bangladesh preserve macroeconomic stability, bolster FX reserves, catalyse finance for climate investment and reduce the effect of a surge in imports on economic growth.
The IMF estimates growth to remain at 6% in 2024. Despite an economic slowdown in major export markets, moderate export growth is likely to continue, receiving support from the weaker taka boosting export competitiveness. The government’s general election win in early 2024 supports broad policy continuity, including efforts to develop infrastructure, reduce poverty, increase delivery of social services and enhance resilience to climate risks. To that end, ongoing development of physical infrastructure will likely support investment and attract foreign direct investment while implementation of energy projects should also help alleviate power supply shortages over time. Private demand is likely to remain subdued, reflecting tight monetary policy, neutral fiscal policy and elevated inflation.
Risks to the outlook are significant, including vulnerability to weather events that can hurt the agricultural sector and the potential for even higher global food and energy prices that could further squeeze household budgets. Financial sector vulnerabilities could worsen given asset quality risks at many banks, which could create further pressure on liquidity in the banking system. Greater competition in garments production from other low-cost countries such as Vietnam and Sri Lanka and/or declining remittances could dent incomes and consumption. Should political unrest flare up, that could hinder implementation of economic reforms. And, notwithstanding some diversification within garments exports, the Bangladesh economy remains vulnerable to a downturn in global demand for clothing and textiles.
Over the longer term, a youthful population and rising incomes should support greater private consumption. Remittance inflows are expected to rise, supported by strong demand for workers in the Gulf region. Ongoing investment in human capital, wider access to the internet in rural areas, growing foreign investment and increased participation of women in the labour force should support continued economic and social development. As Bangladesh faces significant climate risks, the country aims to shift towards greener sources of growth; long-term financing from the IMF can help catalyse investment for Bangladesh climate initiatives—for example, low carbon investments and adoption of climate technologies for livestock and irrigation. If successfully implemented, green energy investments can help support sustainable development over the longer term. Long term implications of policy reform and social development initiatives under IMF guidance, if continued to be implemented, should also help reduce poverty and improve development of human capital.
Bangladesh’s strong past economic performance has lifted incomes materially over the past 20 years. That said, GDP per capita stabilised at around US$2,600 in 2023 due to softer global and domestic economic conditions. The World Bank indicates that climate-smart growth, upskilling the labour force and a competitive business environment is important for Bangladeshi incomes to continue rising and achieve upper-middle income status by 2031.
Country risk in Bangladesh is moderate to high. The OECD country credit grade is 5, indicating that there may be a moderate to high chance the country will be unable or unwilling to meet its external debt obligations. This risk rating balances robust growth prospects, a modest government debt burden and a manageable external debt schedule against low per capita incomes, a weak banking sector, foreign exchange pressures and governance challenges.
The risk of expropriation in Bangladesh is high. The Foreign Investment Act of 1980 safeguards against government expropriation in Bangladesh without adequate compensation. But a weak judicial system and corruption can make it difficult for foreign investors to seek impartial arbitration.
Political risk is moderate to high in Bangladesh. Rivalries within and between political parties often results in local violence. Related to this, Worldwide Governance indicators show Bangladesh is well below the regional average for political stability and absence of violence, and lower on all other indicators of governance. Political unrest remains a notable risk to the implementation of economic reforms.
Bangladesh was Australia’s 31st largest trading partner in 2022. Total goods and services trade amounted to $4 billion in 2022, up 35% from 2021. Reflecting a strengthening bilateral trade relationship, two-way trade between Bangladesh and Australia grew 24% per year, on average, over the ten years to 2022. Major goods exports to Bangladesh in 2022 included vegetables, education-related travel, cotton, ferrous waste and scrap. Major goods imported from Bangladesh included textiles and clothing. Australia’s trade surplus with Bangladesh rose sharply in 2022 on the back of a sharp increase in cotton exports; this reflected a few factors, including favourable growing conditions and higher supply from Australia that contributed to a globally competitive price, reduced production in key markets in the US and Pakistan on the back of adverse weather events and ongoing demand from Bangladesh’s clothing industry.
Services exports contributed $447 million of total exports to Bangladesh in 2022, making up about 18% of total exports; this is driven by increasing Bangladeshi demand for Australian education. As more Bangladeshi students travel overseas to further their studies, Australia is benefiting from increasing student enrolments.
Tourist arrivals, which had been rising before the pandemic, fell during 2020-21 due to international border restrictions. As border restrictions eased, Bangladesh tourism arrivals have recovered strongly, approaching pre-pandemic levels in 2023. A competitive Australian dollar and another year of recovery in international travel should support further demand for Australian tourism, and broader services exports, in 2024.
Australian investment in Bangladesh continued to decline, to $120 million in 2022, as broad global and domestic uncertainty curbed investors’ sentiment. However, there are many opportunities, particularly in the textiles, manufacturing, energy and education sector. Bangladeshi investment in Australia is very small.
Department of Foreign Affairs and Trade
Austrade
