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India’s gross domestic product will contract by 10.3% and per capita income by 11.2% in 2020-21, while Bangladesh’s GDP will increase by 3.8% and per capita income will reduce by 2.9%, according to projections from the International Monetary Fund. In nominal US dollars, India’s per capita GDP is projected to be $1,877 in 2020-21, compared to $1,888 for Bangladesh.
In constant US dollars at purchasing power parity (the rate at which different currencies can be compared), India will still have a greater per capita income ($5,945) than Bangladesh ($4,861), and both economies have been impacted by Covid-19.
But the impact on India has been far greater than on Bangladesh. We spoke to Ahsan H Mansur, chairperson of BRAC bank, which funds small and medium enterprises in Bangladesh, to understand what helped Bangladesh maintain a positive economic growth rate when compared to other economies, not just India.
Mansur has previously worked with the International Monetary Fund as the division chief of the Middle East and is the founder of the Policy Research Institute of Bangladesh.
What has sustained Bangladesh’s economy in the last year and through the pandemic, given that the numbers seem to suggest that the economy will continue to expand, whereas, in most parts of the world, economies are contracting?
I think Bangladesh has been doing remarkably steadily and quite well in terms of macroeconomic performance. It did not have any balance of payment shocks in the last 20-30 years.
Macroeconomic stability has been one of its founding cornerstones and that has helped the growth process to be sustained, and it also maintains exchange rate stability related to the Indian currency. That is why, in dollar terms, there is an acceleration of growth in Bangladesh compared with India, because of the change of stability factor, which is underpinned by its solid macro foundation. Bangladesh’s macroeconomic performance is also a reflection of its very prudent fiscal management.
The fiscal deficit is very much under control between 3.5-4.5%. Generally, despite the fiscal targets being set at 5%, the outturn is less than the fiscal target. So that is very strong performance and that anchors the economic performance in terms of inflationary performance and exchange rate stability.
It is also underpinned by good solid external sector developments like exports, which have historically done very well. [Exports have had] double-digit growth, on average, for the last 30 years. Remittances [from abroad] have done very well and have also worked as a countercyclical factor. Even during this pandemic, the remittance is at an all-time high. And not only simply high, it is about 20% more compared with last year, same time. So it is acting as very much of a solid shock absorber for our economic system and for the rural economy.
These factors add up. And the result is that although Bangladesh has not done too well in terms of economic reforms in the fundamental sense, which we always complain about, its export performance, remittance performance and the resilience of the private sector in the domestic economy has made growth very much an impressive outcome.
