Economic reform is not only about economics, but also national interest

On August 8, 2024, the Interim Government of Bangladesh, led by Nobel laureate Dr. Mohammad Yunus, took office. The new government faced a fragile economy characterized by dwindling foreign reserves, high inflation, excessive capital flight, and a distressed banking system. In late August 2024, to assess the true state of the country's economy, the government assigned a twelve-member committee to prepare a White Paper on the status of the Bangladeshi economy within the next three months.

The White Paper, drafted by the nation's leading economists and public policy experts, presents an impartial and comprehensive analysis of Bangladesh's economy. This 385-page document comprises 23 chapters organized into five broad themes: macroeconomy, structural issues, social aspects, institutional factors, and reforms and policies.

 

It is quite remarkable that the White Paper Committee has successfully evaluated the entirety of Bangladesh's economic landscape within a concise timeframe of just three months. This achievement reflects the diligent and painstaking efforts of some of the country's leading economists, public policy experts, and their dedicated associates who have collaborated to produce this comprehensive document. However, despite its commendable efforts, the White Paper is not immune to criticism.

The document would benefit from a greater level of methodological clarity, particularly concerning its data collection process. Although it is asserted within the White Paper that the previous regime manipulated the data ecosystem to serve specific political objectives, it must be noted that a significant portion of the domestic economic data used is sourced from government records and accounts. This situation raises questions about the reliability and objectivity of the data presented. Therefore, a clearer explanation of the methodologies employed and the standards adhered to during the data collection process is essential to bolster the document's credibility.

Several crucial development indicators have been overlooked in the analysis, such as average calorie intake, life expectancy, food production levels, and agricultural wage growth. Ignoring these metrics can lead to an incomplete understanding of socio-economic conditions and affect the assessment of the country's development progress. Additionally, the White Paper lacks explanations on the impacts of the post-Covid global economic recession and the geopolitical tensions, including the US-China trade war and the Russia-Ukraine conflict.

These factors could significantly influence Bangladesh's economic performance and warrant inclusion for a more comprehensive evaluation of its prospects. While the White Paper reflects a commendable effort, addressing these gaps would enhance its robustness and provide a clearer view of the challenges and opportunities facing Bangladesh's economy.

The paper highlights how corruption, crony capitalism, and misgovernance have severely hindered GDP growth, contributed to inflation, created an external trade imbalance, increased public debt, hampered domestic revenue mobilization, affected public and private investment, distressed the banking system, and disrupted the power and energy sector.

It also discusses the implications for external trade, the labor market, remittances, megaprojects, illicit financial outflows, and weak institutions. These factors are not only economically significant but also pertain to national interest. Therefore, it is crucial to analyze the recommendations outlined in the White Paper from an International Relations perspective.

Factors Affecting Foreign Investors' Confidence: Bangladesh's remarkable success story of economic development has travelled from an 'economic basket case' in the 1970s to one of the fastest-growing countries in the world in the 2010s. The country experienced an average growth of 6% in FY 2009-14, 7.1% in FY 2015-19 and 5.8% in FY2020-23. However, several factors impact investors' confidence. 

First, the country's economy has been severely affected by wide-range corruption. Bangladesh ranks 149 (out of 180) in the 2023 Transparency International Corruption Perceptions Index.  A nexus of politicians, businesses, and government officials articulates wide-ranging corruption across every sphere of the country. The lack of institutional oversight, absence of accountability, and impunity of culprits help to sustain corruption. 

Second, the country has witnessed significant democratic backslide in recent years. Democratic aspirations set in the 2008 national election chronically declined through the past regime's actions and controversial elections of 2014, 2018,  and 2024. The 2023 Economist Democracy Index categorizes Bangladesh as a 'hybrid regime'. In addition, the parliament turned out to be ineffective. The Prime Minister's Office became the single most powerful institution.

Third, Bangladesh performs poorly in several indicators of attracting investment. Bangladesh stands in 29th position (out of 50) in the 2024 Business Ready Report placed at 106th position (out of 133) in the Global Innovation Index, ranks 168 (out of 190) in the 2019 Ease of Doing Business Index, , attains 105th place (out of 140) in the 2019 Global Competitiveness Index.

Bangladesh has faced considerable external pressure and a decline in confidence, particularly regarding the treatment of laborers, following the 2013 Rana Plaza incident. As a result, the country continues to struggle to attract Western investors, who typically demand higher regulatory standards. This situation underscores that while the government has pursued industrial growth through infrastructure development and power generation, there remain significant gaps in reforms needed to draw substantial foreign investments.

 

In light of the invigorating spirit driving the 2024 students' and people's mass uprising, the subsequent government must prioritize the formulation of sound economic policies. It should also take decisive action to dismantle crony capitalism, break up market syndication, and disrupt the entrenched networks of corruption. Achieving this requires a commitment to transparency and accountability, ensuring that all stakeholders operate in an environment where integrity and ethical practices are paramount

Therefore, it is essential for future governments to take essential steps to encourage export diversification. Professor Selim Raihan identifies that high tariffs, complex customs procedures, anti-export and anti-FDI biases, overvalued exchange rates, shortage of skilled laborers, lack of technology adoption, marketing and branding challenges, infrastructural issues, bureaucratic red tape, interests of political and business elites are among the major impediments towards trade diversification in Bangladesh.

One significant trend in foreign direct investment in Bangladesh is that it is mainly driven by reinvested earnings rather than new equity capital. This indicates the challenges the country faces in attracting new investments. To encourage fresh investment, it is crucial to critically assess the fairness and transparency of taxation in the private sector, improve the efficiency of government bureaucracy, and free the private sector from the constraints of crony capitalism.

Lastly, the illicit outflow of assets poses a tremendous danger to Bangladesh's financial stability. According to the Global Financial Integrity Report (GFIR), approximately 234 billion USD was illegally siphoned off the country from 2009 to 2023. Bangladesh has a legal framework (Anti-Money Laundering Act, 2012) and institutional capacity (like BFIU) to counter illicit financial outflow. However, countering money laundering requires the goodwill of the government, along with strengthening the institutions, deepening cross-country cooperation and revisioning existing regulations.

Essential Message for the Interim and Future Government: There is an expectation that the current government's time in power will be limited. This uncertainty makes it challenging to formulate a comprehensive five-year plan, as the political landscape may shift significantly in that time. Furthermore, implementing financial reforms is likely to be a lengthy and intricate process, requiring careful and thorough examination of existing policies and systems. Despite the anticipated delays, it is crucial for both political leaders and civil society to engage in tireless efforts to advocate for and implement these changes.

As we look to the future, it is imperative that the next government assumes power through a democratic process that reflects the will of the people. True democracy extends far beyond the mere act of conducting periodic elections that are free and fair. It encompasses a broad range of fundamental principles, including the protection of civil liberties, a steadfast commitment to the rule of law, the safeguarding of freedom of the press, the establishment of robust institutions, and a transparent government. An efficient and accountable bureaucracy is essential, as is the promotion of good governance and effective strategies to combat corruption.

In light of the invigorating spirit driving the 2024 students' and people's mass uprising, the subsequent government must prioritize the formulation of sound economic policies. It should also take decisive action to dismantle crony capitalism, break up market syndication, and disrupt the entrenched networks of corruption. Achieving this requires a commitment to transparency and accountability, ensuring that all stakeholders operate in an environment where integrity and ethical practices are paramount.

Concluding Remarks: The White Paper has faced its share of criticism, but the recommendations it offers are crucial for Bangladesh to reverse its declining economy. The next government must prioritize strengthening its institutional capacity to combat corruption and dismantle elite syndicates effectively. This effort will help to eliminate politically motivated infrastructure and economic projects. Building strong institutions will also create robust regulatory authority, paving the way for improved policymaking.

On the international front, Bangladesh should concentrate on two key areas. First, it must take significant steps to attract more foreign direct investment (FDI). Second, Bangladesh should proactively pursue the establishment of more free trade agreements (FTAs). FTAs will provide Bangladesh with a competitive advantage, diversify its export basket, and help overcome tariff barriers.

Additionally, like their aspirations for a strong democratic and corruption-free nation, the citizens of Bangladesh have long desired to graduate from the criteria of Least Developed Countries (LDCs). Bangladesh is projected to achieve this graduation in November 2026, which will be a remarkable milestone. The journey to meet the LDC graduation criteria has been challenging, and the future will undoubtedly present its own difficulties.

Therefore, the future trajectory of Bangladesh's economy requires a comprehensive approach involving political parties, leaders, civil society members, scholars, bureaucrats, and, most importantly, informed citizens from all walks of life. Finally, it is crucial for Bangladesh to cultivate strong international relations through proactive diplomatic engagement and strategic trade partnerships to ensure sustained growth.

The writer is a Lecturer in the Department of International Relations at the Bangladesh University of Professionals (BUP)