BANGLADESH’S DEVELOPMENT SURPRISE: A MODEL FOR DEVELOPING COUNTRIES
Syed A. Al-Muti
By many metrics, Bangladesh’s development trajectory is a unique success story, especially since the 1990s when democratic rule was reinstated and extensive economic reforms were made. Poverty incidence has fallen from 60 percent to around 30 percent. Gender parity has been achieved in primary and secondary school enrollment.
Alongside the progress in education, health, and gender equity, Bangladesh is also in the midst of a growth takeoff that has reduced poverty and doubled per capita income since 2002. Photo/Conor Ashleigh
The total fertility rate has fallen from 3.4 to 2.3 (slightly above the “replacement level”), infant and maternal mortality rates have fallen by at least half since 1990, and life expectancy has risen by 10 years to 69 (four years more than in India in 2012). Bangladesh is one of the few developing countries that is on target for achieving most of the Millennium Development Goals, and is considerably ahead of target on some indicators.
These are among the fastest improvements in basic living condition ever seen in history, and they took many observers by surprise because Bangladesh’s achievements so far do not exactly fit into the typical pathways of human and social development. The Indian economist Amartya Sen, for example, distinguishes between “income-mediated” and “support-led pathways” to human development. The first is characterized by improvements in social indicators that can be traced back to rapid- and broad-based economic growth (exemplified by Korea), while the second is based on high public spending on welfare programs (as in Sri Lanka’s case). Neither is clearly applicable to Bangladesh. The economic growth rate rose significantly after 1990, but it only reached 6 percent in 2004, and has never exceeded 7 percent. Furthermore, spending on education and healthcare (2.2% and 3.5%, respectively, of GDP in 2012) is below the average for low-income countries.
Thus, although the improvement in Bangladesh’s growth rate since 1990 is impressive, it does not fully explain the country’s extraordinary results with regard to social development. Several other countries in South and Southeast Asia have grown at similar or higher rates than Bangladesh in the last 10 to 15 years, including India, Bhutan, Vietnam, Cambodia, and Laos. Yet, in comparison to these countries, Bangladesh’s social development still stands out.
Development experts have explained this discrepancy by attributing Bangladesh’s social development to the success of innovative, low-cost solutions such as microfinance programs that target women, massive social mobilization campaigns spearheaded by NGOs like BRAC, the success of the labor-intensive, export-based garments industry, and the boost to earnings and human capital provided by labor migration and inward remittances.
Reductions in Poverty and Inequality
Alongside the progress in education, health, and gender equity, Bangladesh is also in the midst of a growth takeoff that has reduced poverty and doubled per capita income (measured at purchasing power parity) since 2002. The Bangladesh government deserves praise for putting in place the essential preconditions that have allowed private sector dynamism to fuel economic growth over the last two decades. Structural reforms in the 1980s and 1990s led to broad macroeconomic stability and low fiscal deficits. This allowed the banking system to cater primarily to private investment needs and caused a significant rise in the investment-to-GDP ratio (currently at 27% of GDP). Successive governments have also had considerable success at keeping inflation at a moderate level. Bangladesh has not managed to attract high levels of foreign direct investment (FDI), but the strong performance of remittance inflows has taken on the role of FDI in bolstering the foreign exchange account and smoothing out fluctuations in GDP due to varying domestic economic conditions.
Persistent poverty is without a doubt an important issue for Bangladesh, but perhaps less so than for many other developing countries.
Persistent poverty is without a doubt an important issue for Bangladesh, but perhaps less so than for many other developing countries. There are fewer class- and ethnicity-based barriers to social mobility than in many other developing countries, and the benefits of economic growth have tended to reach most levels of society, including the very poor. The main stimulus to economic growth in the country has come from labor-intensive garment exports, a vibrant and dynamic private sector, micro-and small-scale enterprises in manufacturing and services, remittances from migrant workers, and rise in the size of middle class. Moreover, estimates for the period from 2000 to 2005 suggest that the process of increasing income inequality that many other developing countries have experienced has actually slowed down or even reversed in Bangladesh.
Road to Middle-Income Status
Bangladesh has earned a reputation in the global market for low-cost, high-quality manufacturing through its garments sector. The impact of this reputation was demonstrated by the fact that the exports of readymade garments from Bangladesh rose by a sharp 19.95 percent year-on-year during the first half of financial year 2013-14, defying various odds like image crisis and political instability prevailing during the period. Due to recent increases in wages in China and India, it is likely that manufacturing in other industries may also shift to Bangladesh in the next few years, including in pharmaceuticals, plastic and ceramic goods, leather goods, shipbuilding, and light machinery (such as bicycles and batteries). An emerging export-based IT sector will also contribute to growth.
Diversification in the country’s export profile may be complemented by increased access to major markets in the region, including India and China. India has already offered duty-free market access to nearly all Bangladeshi products, and China has indicated that it may expand zero-tariff facilities to 95 percent of Bangladeshi goods. The manufacturing and service industries will also be supported by robust growth in domestic demand, which will come about as Bangladesh reaps a “demographic dividend” of increased labor supply, lower dependency ratio, and increased savings. The major challenges seem to be the political stability, predictability of policy environment, competent bureaucracy, and quality of education.
The government and the people of Bangladesh have their eyes fixed on the horizon, working hard to realize the twin dreams of eradicating extreme poverty and achieving middle-income status by 2021. The country’s success in achieving the Millennium Development Goals has shown that this is not only possible, but highly likely.
Syed A. Al-Muti is The Asia Foundation’s associate director for Economic Development Programs based in Bangladesh
JUNE 25, 2014