MUMBAI — It was a rags to (relative) riches story.
In 50 years, Bangladesh went from what U.S. diplomats once called a "basket case" to what the World Bank now calls "an inspiring story of growth." Its garment factories helped pull millions out of poverty, especially first-time female workers.
Life expectancy rose by more than 50%. Infant mortality declined by almost 90%.
Last year, the International Monetary Fund predicted Bangladesh's gross domestic product would soon exceed that of Denmark or Singapore. Per capita, its GDP is already bigger than neighboring India's. Just months ago, Bangladesh was grabbing headlines as an "economic miracle."
But all of that is now threatened by a global economic slowdown that's wreaking particular havoc in developing countries like Bangladesh. On Wednesday, the IMF reached a preliminary deal with Bangladesh to provide a $4.5 billion rescue package of loans.
It's the third South Asian country, after Pakistan and Sri Lanka, to seek IMF support this year.
What happened to Bangladesh?
It's impossible for Bangladesh, a young country of about 170 million, to bullet-proof itself from the current global economic slowdown, because it's so entwined with the rest of the world: It's the second-largest clothing exporter, behind China. It has a big diaspora that sends remittances home. And the government relies on imported fuel to run its electricity grid.
So the country's economic health largely rests on those three things — exports, remittances and fuel prices — all of which have taken a hit in recent months.
"Things have gone from bad to worse, given the current volatility in the global economy," says Farria Naeem, an economist at the International Growth Centre and London School of Economics.
In August, Bangladesh's inflation rate hit 9.52% — the highest in more than a decade.
Ping-ponging garment factory orders mean Bangladeshi exports decline
The ready-made garment industry is the engine of Bangladesh's economy. It accounts for more than 80% of the country's exports. It's contributing an increasing amount to the global economy too. The government forecasts that by 2025, Bangladeshi factories will produce 10% of the world's apparel.
When COVID-19 hit, Bangladesh's garment industry was devastated. Factories shut, and at least a quarter of their workforce — 1 million people — lost their jobs. Many of them went hungry.
Last year, as consumer spending bounced back in the West, factory orders slowly started returning to Bangladesh. And early this year, they skyrocketed. In June, Bangladesh exported more than $4 billion in apparel — a single-month record.
But a month later, amid global inflation, orders plummeted again — by a whopping 30%.
"Export figures were really strong for 14 months in a row, but they took a big dip by September. This is at least partially tied to fresh economic pains in the West," Naeem explains. "If there is a recession in the West, our exports are hurt."
Bangladeshi workers are already feeling the pinch.
"They are not getting overtime now. Many of them live not only on their wages, but work extra hours. Without that, it's difficult to survive, especially with inflation," says Taslima Akhter, president of Bangladesh Garment Workers Solidarity, a labor group.
A majority of Bangladeshi garment workers are women. (Estimates range from 58% to 80%.) While higher-paid factory supervisors tend to be men, most of the women earn minimum wage — which is 8,000 taka, or about $80, per month.
With rising food prices, that's often not enough. Akhter wants the government to raise the minimum wage.
"All daily goods like rice, eggs, vegetables — everything is getting more expensive," Akhter says. "Also the price of gas for cooking [at home] and electricity [in factories]. So this is a big problem for workers and the industry."
As exports decline, Bangladesh has less money to import fuel — just as prices spike
Bangladesh's power grid is shaky and runs in part on imported fuel. That's getting more expensive after Russia's invasion of Ukraine.
"While Bangladesh's amazing growth was going on, what it was hiding is that infrastructure was always a problem. Power is always in deficit," says Ahmed Mushfiq Mobarak, professor of economics at Yale University. "So when any kind of shock that happens — Russia invades Ukraine, thousands of miles away from us — we're already on edge and suddenly our bills go up."
That's true across the world. But Bangladesh is less equipped to handle the shock.
Higher prices have led to rationing. In July, the capital Dhaka began suffering two-hour rolling blackouts. Officials say that could last through 2026. On Oct. 4, the lights went out across almost all of Bangladesh simultaneously, for up to 10 hours.
In the U.S., the price of gasoline depends on global fuel prices, but also on how much tax federal and state governments levy on top of that. But in Bangladesh, like many developing countries, the government subsidizes the price of fuel.
That changed in August, when the government decided it could no longer afford to keep fuel prices artificially low. In a single week, it raised the price of gasoline, diesel and kerosene by more than 50%. Local media called it the steepest price hike since Bangladesh's 1971 founding.
Buses and taxis raised fares overnight. Food got more expensive. And thousands took to the streets to protest.
The government is scrambling to diversify away from expensive imported gas: It's leaning more on cheaper, dirtier coal. It's also drilling for domestic fossil fuel supplies offshore in the Bay of Bengal. And it's building its first nuclear power plant, due to start operating next year.
Naeem says it will need all the energy sources it can get.
"Bangladesh is a developing country with an aspiration of becoming a middle-income country in the next two decades or so. So our energy demand is only going to rise," she says.
Remittances are down as Bangladeshis abroad suffer too
Another big source of income for Bangladesh is the diaspora. Some 13 million Bangladeshis live abroad. Many of them send money home. In 2021, they sent a record $22.07 billion.
"It's an example of the world being interconnected," says Mobarak. "We've been able to invest in basic health and education that provided migrants skills so they can earn a return in a foreign labor market."
But this summer, remittances fell by more than 15%. Bangladeshis living abroad are tightening their belts.
"It could also be in part because the U.S. dollar has become very strong. That means someone abroad needs to send less in order to have the same amount of Bangladeshi currency," Naeem explains. "But purchasing power within Bangladesh has also lowered. So they'll need to send more over time."
Bangladesh's IMF package is greater than Sri Lanka's, but economists aren't calling it a bailout
Economists say Bangladesh's request for IMF assistance was an early, prudent step that could actually help it weather this global slowdown better than its neighbors. Take Sri Lanka, for example.
Sri Lanka's economy has imploded, triggering a political crisis. The government defaulted on its foreign debts earlier this year, and is getting a $2.9 billion IMF bailout.
But even though Bangladesh asked the IMF for $4.5 billion — 50% more than Sri Lanka — economists aren't calling its package a bailout.
First, it's proportionately much smaller.
"Our population is about eight times larger [than Sri Lanka's]. Our economy is about five times larger, because we're a little bit poorer. So in terms of size, this package is actually like a quarter of the bailout of Sri Lanka," Mobarak explains.
Second, Bangladesh's economy is in better shape than Sri Lanka's — and certainly better than Greece's was at the time of its first IMF bailout of $146 billion in 2010.
"Other countries got bailouts when they were in danger or actually defaulting on their debt. Bangladesh is not," Mobarak notes. The government has enough foreign currency reserves to pay its bills for several months, he adds.
The IMF will likely tie its Bangladesh loans to some fiscal and monetary reforms. But painful austerity measures probably aren't on the cards, Naeem says.
"It doesn't really require austerity measures like what Greece had to go through a decade or so ago," she says.
Bangladesh is ultimately an example of how interconnected the global economy is, and how the global slowdown is hurting poorer countries most. Even "economic miracles" are not immune from the pain.
"There are things that are simply very difficult to have predicted: The [Ukraine] war that's going on, the fuel crisis that's happened as a result of that — and the pandemic that we've just come out of," Naeem says. "And it's unfortunately all resulted in Bangladesh going through some difficult times."
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