Bangladesh's Crisis: A Threat to Economic Growth
Introduction
Bangladesh is facing severe political and economic turmoil following nationwide protests over a job quota bill, leading to mass violence and significant disruptions. The new government's primary task will be to halt the economy's free fall.
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Immediate Impact of Violent Protests
The crisis erupted with violent protests resulting in the resignation of Prime Minister Sheikh Hasina and widespread destruction. The Foreign Investors' Chamber of Commerce and Industry (Ficci) estimated the shutdown's economic impact at over $10 billion, with the FMCG industry alone facing losses exceeding $100 million
GDP Growth
The IMF reported that Bangladesh's real GDP growth slowed to 4.8% in the first half of FY 2024. The World Bank projects subdued GDP growth of 5.6% in FY 2024, down from the pre-pandemic average of 6.6%.
Inflation and Foreign Exchange Reserves
Inflation reached a decade high of 9.7% in April 2024 and is projected to remain elevated at 9.4% in FY 2024. Foreign exchange reserves plummeted to $21.8 billion in June 2024, a 35% decline from June 2022, putting pressure on the Taka and limiting the country's ability to cover current account payments.
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Unemployment
High unemployment rates have fueled recent protests. The Bangladesh Bureau of Statistics reported a 3.51% increase in unemployment in the first quarter of 2024, with the total number of unemployed risingto 2.59 million. The job quota system, which reserves 30% of government jobs for families of 1971 war veterans, has sparked demands for merit-based employment.
Garment Sector: An Economic Lifeline Under Threat
The garment industry, a cornerstone of Bangladesh's economy, has been severely impacted by the crisis. Factory closures due to violence have led to significant financial losses for garment workers and factory owners.
Addressing Inflation and Foreign Exchange Pressures
Policymakers need to implement measures to control inflation and stabilize foreign exchange reserves. Prudent fiscal policies and interventions to support the Taka are necessary, along with enhancing export competitiveness.
Conclusion
The crisis in Bangladesh poses a significant threat to its economic growth. The new government must act swiftly to stabilize the economy, restore investor confidence, and ensure sustainable growth. Immediate policy interventions are essential to address economic vulnerabilities and build a resilient, inclusive economy.
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