Insights on the economic white paper: Advancing economic national interests

Bangladesh is often regarded as one of the remarkable success stories in economic development, transitioning from a financial basket case in the 1970s to one of the fastest-growing economies by the mid-2010s. 

However, the interim government led by Professor Dr Yunus took charge during a precarious economic period marked by dwindling foreign reserves, a troubled banking sector, rising inflation, and significant capital flight. To evaluate the country's economic situation, the interim government tasked a 12-member committee to present a white paper. 

The 'White Paper on State of the Bangladesh Economy,' prepared by the nation's leading public policy experts and economists, not only offers a thorough analysis of Bangladesh's current economic conditions, but also presents essential recommendations for advancing national interests. 

For Bangladesh, advancing its economic national interests is closely linked with foreign direct investment (FDI), export diversification, and financial stability. Over the years, FDI inflows have grown significantly, increasing from $779.04 million in 2010-11 to $3.25 billion in 2022-23. This growth is undoubtedly impressive. 

However, it is important to note that FDI is primarily driven by reinvested earnings rather than new equity capital. For instance, in FY2021-22, out of the total FDI inflow of $2.51 billion, only $816.17 million (approximately 32.55%) came from new equity capital. This highlights that the country faces tremendous challenges in attracting new investments.

Several factors undermine investors' confidence in Bangladesh. 

First, the country has experienced chronic democratic backslides during the past regime's rule. The 2024 Freedom in the World report by Freedom House classified Bangladesh as a 'partially free' country, while the 2023 Economist Democracy Index categorised it as a 'hybrid regime.'. 

Second, Bangladesh performs poorly in several indicators of attracting fresh investment. Bangladesh stands in 29th position out of 50 in the 2024 Business Ready Report. It placed 106th out of 133 in the 2024 Global Innovation Index and ranked 168th out of 190 in the 2019 Ease of Doing Business Index. Additionally, it held 105th position out of 140 in the 2019 Global Competitiveness Index. 

Third, wide-ranging corruption, perpetuated by a nexus of politicians, businesses, and government officials, resulted in Bangladesh ranking 149th out of 180 in the 2023 Corruption Perception Index. Corruption, political instability, and a challenging business environment ultimately deter potential investors from considering investment in Bangladesh.

Unfortunately, Bangladesh's export portfolio exhibits a high degree of homogeneity, with around 85% of export earnings stemming from the RMG sector. Although the RMG sector undeniably plays a crucial role in the country's economy, it experiences tremendous challenges both domestically and internationally. 

Furthermore, Bangladesh's overreliance on this industry makes it vulnerable to economic shocks caused by geopolitical conflicts (like the Russia-Ukraine war), disruption of the global supply chain due to a pandemic, and trade wars.

Lastly, ensuring domestic financial stability is crucial for economic autonomy. The illicit outflow of assets poses a significant threat to financial stability. According to the Global Financial Integrity Report (GFIR), approximately $234 billion was illegally syphoned off the country from 2009 to 2023. Bangladesh has the institutional capacity, through the Bangladesh Financial Intelligence Unit (BFIU) and legal framework, such as the Anti-Money Laundering Act, 2012, to fight illicit capital outflow. 

However, effectively countering money laundering and illegal capital movement will require genuine commitment from the government, strengthened institutions, revision of existing regulations and frameworks, and international cooperation. 

Implementing financial reforms is a lengthy process that requires careful examination of the consequences of various policies. The next government must prioritise strengthening institutional capacity to effectively fight corruption, dismantle elite syndicates, and maintain accountability to the public. 

By strengthening institutions, the government can establish a robust regulatory authority that fosters sound policymaking. Effective economic policy must address challenges related to exchange rates, shortage of skilled labourers and technology, tariff barriers, complex custom barriers, and bureaucratic bottlenecks. In addition, strengthening government institutions is crucial to eliminate the practice of pursuing politically motivated infrastructure and economic projects.

Bangladesh must seek to attract more new equity capital as FDI. To achieve this, the country must ensure fairness and transparency in taxation for the private sector, improve the efficiency of government bureaucracy, and eliminate crony capitalism to create a more favourable environment for private investment. 

Bangladesh must proactively pursue economic diplomacy to establish more free trade agreements (FTAs). Currently, it is involved in only four FTAs, which have not yielded significant results, with very underwhelming output. FTAs are essential for Bangladesh, as these can help to overcome tariff barriers, provide a competitive advantage, and diversify the export basket.

The people of Bangladesh have long aspired to graduate from the Least Developed Country (LDC) status. It is projected that the country will achieve this milestone by November 2026. Undoubtedly, this will be a remarkable accomplishment for both the nation and its citizens. 

However, it is important to remember that Bangladesh's journey to meet the LDC graduation criteria has been quite challenging, and transitioning to the next stage will undoubtedly be more difficult.

Therefore, the future economic framework of Bangladesh's economy should not only involve policymakers, political leaders, and bureaucrats but also reflect the aspirations of citizens from all segments of society. It is imperative for Bangladesh to actively cultivate strong diplomatic relations with its economic and development partners to sustain growth in the post-pandemic world.

Masrur Mahmud Khan is a lecturer in the Department of International Relations at the Bangladesh University of Professionals (BUP). He can be reached at [email protected].

Disclaimer: The views and opinions expressed in this article are those of the authors and do not necessarily reflect the opinions and views of The Business Standard.