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Economy

 

Although one of the world's poorest and most densely populated countries, Bangladesh has made major strides to meet the food needs of its increasing population, through increased domestic production augmented by imports.. The land is devoted mainly to rice and jute cultivation, although wheat production has increased in recent years; the country is largely self-sufficient in rice production. Nonetheless, an estimated 10% to 15% of the population faces serious nutritional risk. Bangladesh's predominantly agricultural economy depends heavily on an erratic monsoonal cycle, with periodic flooding and drought. Although improving, infrastructure to support transportation, communications, and power supply is poorly developed. The country has large reserves of natural gas and limited reserves of coal and oil. While Bangladesh's industrial base is weak, unskilled labor is inexpensive and plentiful.

Since independence in 1971, Bangladesh has received more than $30 billion in grant aid and loan commitments from foreign donors, about $15 billion of which has been disbursed. Major donors include the World Bank, the Asian Development Bank, the UN Development Program, the United States, Japan, Saudi Arabia, and West European countries. Bangladesh has historically run a large trade deficit, financed largely through aid receipts and remittances from workers overseas. Foreign reserves dropped markedly in 1995 and 1996 but have now stabilized in the $1.5-$1.8 billion range (or about 2.2-2.5 monthly import cover).

Land, Climate, and Demographics

Bangladesh is a low-lying, riverine country located in South Asia with a largely marshy jungle coastline of 710 kilometers (440 mi.) on the northern littoral of the Bay of Bengal. Formed by a deltaic plain at the confluence of the Ganges (Padma), Brahmaputra (Jamuna), and Meghna Rivers and their tributaries, Bangladesh's alluvial soil is highly fertile, but vulnerable to flood and drought. Hills rise above the plain only in the Chittagong Hill Tracts in the far southeast and the Sylhet division in the northeast. Straddling the Tropic of Cancer, Bangladesh has a subtropical monsoonal climate characterized by heavy seasonal rainfall, moderately warm temperatures, and high humidity. Natural calamities, such as floods, tropical cyclones, tornadoes, and tidal bores affect the country almost every year. Bangladesh also is affected by major cyclones--on average 16 times a decade.

Urbanization is proceeding rapidly, and it is estimated that only 30% of the population entering the labor force in the future will be absorbed into agriculture, although many will likely find other kinds of work in rural areas. The areas around Dhaka and Comilla are the most densely settled. The Sundarbans, an area of coastal tropical jungle in the southwest and last wild home of the Bengal Tiger, and the Chittagong Hill Tracts on the southeastern border with Burma and India, are the least densely populated.

Moves Toward a Market Economy

Following the violent events of 1971 during the fight for independence, Bangladesh--with the help of large infusions of donor relief and development aid--slowly began to turn its attention to developing new industrial capacity and rehabilitating its economy. The statist economic model adopted by its early leadership, however--including the nationalization of much of the industrial sector--resulted in inefficiency and economic stagnation. Beginning in 1975, the government gradually gave greater scope to private sector participation in the economy, a pattern that has continued. A few state-owned enterprises have been privatized, but many, including major portions of the banking and jute sectors, remain under government control. Population growth, inefficiency in the public sector, and limited natural resources and capital have continued to restrict economic growth. In the mid-1980s, there were encouraging, if halting, signs of progress. Economic policies aimed at encouraging private enterprise and investment, denationalizing public industries, reinstating budgetary discipline, and liberalizing the import regime were accelerated. From 1990-1993. In 1985 1989-1993, the government successfully followed an enhanced structural adjustment facility (ESAF) with the International Monetary Fund.

Although the Khaleda Zia Government (1991-96) initially took significant strides toward pro-market reform, including tax reform and allowing increased foreign direct investment in the gas and power sectors, preoccupation with its domestic political troubles stalled progress on this critical front in the last year of its tenure. The government of Prime Minister Sheikh Hasina, elected in June 1996, indicated that it would continue along the path toward privatization and open-market reform, but progress has been slow, especially in privatization. While the Awami League government has managed to maintain economic growth levels around 4%-5%, and single-digit inflation--except for a period of months after the 1998 floods--per capita income levels still remain distressingly low, at less than $1 per day.

Efforts to achieve Bangladesh's macroeconomic goals have been problematic. The privatization of public sector industries has proceeded at a slow pace, due in part to worker unrest in affected industries. The government also has proven unable to resist demands for wage hikes in government-owned industries. Economic growth has been further slowed by a largely dysfunctional banking system which has impeded access to capital-state-owned banks, which control about three-fourths of deposits and loans, and carry classified loan burdens of about 50%.

Agriculture

Most Bangladeshis earn their living from agriculture. Although rice and jute are the primary crops, wheat is assuming greater importance. Tea is grown in the northeast. Because of Bangladesh's fertile soil and normally ample water supply, rice can be grown and harvested three times a year in many areas. Due to a number of factors, Bangladesh's labor-intensive agriculture has achieved steady increases in foodgrain production despite the often unfavorable weather conditions. These include better flood control and irrigation, a generally more efficient use of fertilizers, and the establishment of better distribution and rural credit networks. With 20.2 million metric tons produced in 1999, rice is Bangladesh's principal crop. By comparison, wheat output in 1999 was 1.9 million metric tons. Population pressure continues to place a severe burden on productive capacity, creating a food deficit, especially of wheat. Foreign assistance and commercial imports fill the gap. Underemployment remains a serious problem, and a growing concern for Bangladesh's agricultural sector will be its ability to absorb additional manpower. Finding alternative sources of employment will continue to be a daunting problem for future governments, particularly with the increasing numbers of landless peasants who already account for about half the rural labor force.

Industry and Investment

Fortunately for Bangladesh, many new jobs--1.5 million, mostly for women--have been created by the country's dynamic private ready-made garment industry, which grew at double-digit rates through most of the 1990s. Despite the country's politically motivated general strikes, poor Infrastructure, and weak financial system, Bangladeshi entrepreneurs have shown themselves adept at competing in the global garments marketplace. Bangladesh's exports to the U.S. surpassed $1.9 billion in 1999. Bangladesh also exports significant amounts of garments and knitwear to the EU market. The country has done less well, however, in expanding its export base--garments account for more than three-fourths of all exports, dwarfing the country's historic cash crop, jute, along with leather, shrimp, pharmaceuticals and ceramics. Bangladesh has been a world leader in its efforts to end the use of child labor in garment factories. On July 4, 1995, the Bangladesh Garment Manufacturers Export Association, International Labor Organization, and UNICEF signed a memorandum of understanding on the elimination of child labor in the garment sector. Implementation of this pioneering agreement began in fall 1995, and by the end of 1999, child labor in the garment trade virtually had been eliminated.

The labor-intensive process of shipbreaking for scrap has developed to the point where it now meets most of Bangladesh's domestic steel needs. Other industries include sugar, tea, leather goods, newsprint, pharmaceutical, and fertilizer production.

The Bangladesh Government continues to court foreign investment, something it has done fairly successfully in private power generation and gas exploration and production, as well as in other sectors such as cellular telephony, textiles, and pharmaceuticals. In 1989, the same year it signed a bilateral investment treaty with the United States, it established a Board of Investment to simplify approval and start-up procedures for foreign investors, although in practice the board has done little to increase investment. Bangladesh also has established successful export processing zones in Chittagong and Dhaka, and has given the private sector permission to build and operate competing EPZs-initial construction on a Korean EPZ started in 1999. In June 1999, the AFL-CIO petitioned the U.S. Government to deny Bangladesh access to U.S. markets under the Generalized System of Preferences (GSP), citing the country's failure to meet promises made in 1992 to allow freedom of association in EPZs.

Sources: U.S. Department of State, March 2000
Bureau of South Asian Affairs

 


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