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Bangladesh has been hailed as an economic miracle in recent times. Its unique focus on textile and clothing exports has enabled rapid growth, lifted millions out of poverty and earned fame and admiration for the country’s prime minister, Sheikh Hasina.
But Ms. Hasina’s abrupt ouster this week exposed the limits of that strategy as Bangladesh grapples with soaring inflation and unemployment that economists say is largely the result of flawed policy decisions. His increasingly authoritarian rule and Bangladesh’s endemic corruption only fueled the frustration that triggered his ouster.
Now, Bangladesh must decide its future.
Student protesters demanding Ms. Hasina’s resignation have asked Mr. Muhammad Yunus, a Nobel laureate and microfinance pioneer, to oversee an interim government. Mr. Yunus faces a difficult task.
More urgently, the country must restore order and stabilize the economy. In the long term, Bangladesh will have to confront the broader economic tensions that first brought protesters to the streets. All of this must come on top of addressing Ms. Hasina’s pressing demands to crack down on widespread government abuses.
It is unclear how long the interim government will last and what the scope of its mandate will be. But he and Mr. Yunus share “a desire entrusted to them by many people to deliver justice, to create a functioning economy and democracy, to establish the rule of law and a transparent, accountable government,” said Saad Hammadi, a colleague at the Balsillie Department of International Affairs in Canada.
Hammadi said in an email that the challenges could be too much for an interim government whose main purpose is to ensure a free and fair process for electing new leaders. “Institutional reforms are needed across the government,” he added.
The garment industry has been at the heart of Bangladesh’s economy for decades, as the country began reforming its economy in the 1970s. But Ms. Hasina, who came to power in 2009, has driven much of Bangladesh’s growth by narrowing its focus to a single industry and expanding into new global markets.
Low-cost clothing is attractive to global clothing retailers, especially fast-fashion brands such as Zara and H&M. At the same time, this demand has created livelihoods for millions of people, especially women, and transformed living standards.
Ms. Hasina has invested heavily in infrastructure, reassuring international companies that they can rely on the country to meet their needs.
“She brings a level of stability that’s attractive to foreign investors,” said Thomas Keen, Bangladesh adviser for the International Crisis Group. Keen said clothing buyers wouldn’t do business with Bangladesh if there were worker strikes, power outages or other factors that made business unreliable.
Ms. Hasina has also instilled confidence in the country. Mr. Keen added that there was almost an “agreement” between Bangladeshis and the government, even as it controlled the military and judiciary, suppressed dissent and became increasingly authoritarian. “People believed that she and the Awami League were the party that could bring economic growth and development,” he said, referring to the party that Ms. Hasina has led since 1981.
For more than a decade under Ms. Hasina, the economy has grown at a frenetic pace, exceeding 7% in some years, with garment exports generating more than 80% of the country’s profits.
But this dependence also led to Hasina’s undoing.
The pandemic has reduced global demand for textiles and clothing. At the same time, supply chain disruptions and Russia’s war in Ukraine have sharply increased the price of imported food and fuel. With an economy too poorly diversified, Bangladesh is unable to generate enough revenue from other sectors to pay its bills.
Hasina’s government’s efforts to control inflation have failed as it has soared. While trying to prop up the value of its weakening currency, Bangladesh has depleted its foreign exchange reserves, which have fallen so low that it will be forced to seek a loan from the International Monetary Fund in 2022.
While Bangladesh is in for a short-term problem when garment exports rebound after the pandemic, the situation also highlights the underlying problem. Bangladesh collects little tax revenue, partly because of a lax bureaucracy and the reluctance of many citizens to pay. Its tax-to-GDP ratio, a measure of the government’s ability to fund its priorities, is one of the lowest in the world. That means it can’t rely on taxes to pay its massive bills.
Bangladesh’s growth rate remains high, but economists and others say it is uneven and income inequality is high. Iftekhar Zaman, executive director of Transparency International Bangladesh, said the sense that the growth story on paper doesn’t match the reality people see on the ground is fueling distrust in the government.
Zaman said blatant corruption, including credit fraud, and reports of money laundering by many business people seen as close to the prime minister had caused further resentment. “Everyone knows this is being maintained by those who are supposed to be controlling corruption,” he said.
Perhaps the biggest long-term problem facing Ms. Hasina is that her government has been unable to create new jobs because of its exclusive focus on the garment business. There are not enough new or better-paying jobs for the country’s large working-age population.
That pent-up frustration found an outlet last month when students began demanding an end to a preferential quota system for government jobs that provides stability that Bangladesh’s private sector often cannot. At one point, Hasina sent in armed forces to quell the protests, and deep frustration with a system that had failed to achieve that goal turned into anger against her.
On Thursday, Bangladesh swore in a new interim government led by Mr. Yunus, 84, who called for calm and for order across the country to avoid violence. While it is unclear how long he will stay in office, Mr. Yunus, a social entrepreneur who pioneered microfinance through Grameen Bank to combine profit and development, is expected to implement market-friendly reforms.
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