Bangladesh economic forecast 2021: what’s coming next?

Bader Al Hussain

PaySpace Magazine Analyst

 


Bangladesh is one of the best-performing economies of the world. Throughout its history, the country has suffered numerous socio-political turmoil events. However, the country managed to carve out its position as an emerging economic powerhouse amidst this turbulent time. Presently, despite all its challenges, the country has managed to grow its economic output at the highest rate in the South Asian region. Hence, the country is largely going through a transition phase, whereby the country is moving up the value chain to offer more sophisticated products. This transition is going to inevitably increase the overall economic productivity of a country.

This article is going to highlight the measures taken by the Bangladesh government that contributed to the rising economic productivity of the country.

Bangladesh

Bangladesh economic forecast 2021: what’s coming next?. Source: pixabay.com

Economy at glance

Bangladesh is the 37th largest economy in nominal terms and 31st largest according to PPP (Purchasing Power Parity) in the world. Its economy is categorized as emerging middle income in the frontier markets. Before the advent of the COVID-19 pandemic, Bangladesh’s economy was regarded as one of the fastest-growing in the world. The country registered 8.2% growth in its economy in 2019, according to the World Bank.

As far as the composition of the economy is concerned, the services sector forms the largest part by contributing approximately 50.11% to the total economic output, whereas industry and agriculture accounts for approximately 35.7% and 14% respectively.

Being a part of the former Indian subcontinent, the country is now richer than India and Pakistan in terms of GDP per capita.

However, its industry is largely concentrated into a few sectors such as textile and seafood products. Additionally, although the country has increased its income relative to Pakistan and India, the country’s economic complexity is still lower than that of these countries. This means Bangladesh technological prowess is not comparable to these economies as the country is pursuing exports in few particular and less sophisticated sectors in the world.

Current COVID-19 situation

Bangladesh has fared much better in tackling of COVID-19 pandemic than its larger neighbor India. The country is witnessing a gradual reduction in the ratio of the positive cases coupled with dwindling COVID-19 related deaths. Thus, the current situation foretells the uptick in economic activity is around the corner. Here we want to emphasize that Bangladesh was one of the few countries in the world that posted positive GDP growth during the COVID-19 pandemic. This speaks volumes about the governance and the effectiveness of the administration exhibited by the incumbent government.

Economy outlook

HSBC strategist, Joshi explained that the Bangladeshi economy is larger than Vietnam and also growing at a faster pace than the Southeast Asian nation. “They will need more and more investment in the capital markets if they are to sustain the growth,” he said. According to the Asian Development Bank (ADB), Bangladesh is poised to grow by 6.8% and 7.2% in 2021 and 2022 respectively.

The Bangladesh government took targeted measures to enhance the labor productivity of its economy. Some of the prominent ones are as follows:

  • Emphasis on the skills development and education of the workforce
  • Emphasis on women education and undertake measures to increase female labor participation.
  • A shift from a consumption-led growth model to exports based productivity-led economic model.
  • Higher budget spending on the social and development sector.
  • Increasing transparency in the government sector and undertaking reforms to enable level playing fields for all players.
  • Encouraging foreign direct investment in the export sector.

As far as the future outlook of the country’s economy is concerned, the country’s GDP per capita is inching closer to $2,000, leading to a rise in demand for discretionary products such as those related to non-essential consumer goods and services, which tend to increase as disposable incomes rise.

The country is moving up the value chain through high-end exports. It is noteworthy to mention that Bangladesh’s garments export and remittance sector have been key drivers of its economy over the last three to four decades, that mix is changing, according to Joshi. “The next leg of growth is going to come from domestic consumption, the domestic engine of the economy,” he added.

On the external position, the country’s situation is stable as rising exports and remittances provided the needed cushion to the surge in import bill of the country.

Bangladesh stock market performance

Bangladesh has two large commercial and financial centers (i.e., Dhaka and Chittagong). Both of these cities possess their own stock exchanges. Nevertheless, Dhaka Stock Exchange (DSE) is the largest of the two. The country’s largest listed companies by market capitalization and liquidity are on DSE 30 index. Here it is pertinent to note that the country has more than 300 companies listed on its bourse, however, only 7 stocks have market capitalization of more than $1 billion.

According to HSBC’s Devendra Joshi, “Bangladeshi economy is larger than Vietnam and growing at a faster clip than the Southeast Asian nation. Vietnam is a favored frontier market among investors.” Further, the report by HSBC highlights that Bangladesh’s stock market is where Vietnam was five years ago. Thus, it offers attractive investment opportunities for fund managers as the country is well-positioned to close the gap with Vietnam.

“It is less correlated with global macro and equity themes than Vietnam and also receives far less attention from analysts, creating opportunities for fund managers looking for diversification and ‘hidden gems,’” HSBC analysts said in the report. As far as the performance of the stock market is concerned, DSE-30 furnished a return of over 65% in a year.

However, some caveats remain related to the investment in the DSE. Bangladesh stock market is relatively small, illiquid, and not easy to access, and the market capitalization-to-GDP ratio is 14%. This means that the country’s stock market is largely undervalued as the number above 50% indicates that a market is relatively over-valued. The market is illiquid, but that’s where the opportunity is,” said Devendra Joshi, ASEAN and frontier markets equity strategist at HSBC said Tuesday on CNBC’s “Squawk Box Asia.”

Conclusion

Bangladesh is following the path of ASEAN countries whereby these countries accumulated wealth and boosted their economy by following export-led economic growth. Moreover, the country’s gradual shift to the manufacturing of more sophisticated products is a welcome development. However, this development is happening in small pockets. Therefore, a government has to incentivize the provision of technology transfer and research & development within the business houses. To conclude, international investors should be wary of the positive developments that are materializing in Bangladesh.

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