Dhaka, Bangladesh — Queuing to try to buy food, Rekha Begum is upset. Like many others in Bangladesh, she struggles to find affordable basic necessities like rice, lentils and onions.
“I went to two other places, but they told me they had no supplies. Then I came here and stood at the end of the queue,” said Begum, 60, as she waited for nearly two hours to buy what she needed from a truck selling food at subsidized prices in the capital, Dhaka.
Bangladesh’s economic miracle is under strain as fuel price hikes amplify public frustrations over rising costs for food and other basic necessities. Fierce opposition criticism and small street protests have erupted in recent weeks, adding to pressure on the government of Prime Minister Sheikh Hasina, which has requested help from the International Monetary Fund to protect the country’s finances.
Experts say the plight of Bangladesh is nowhere near as dire as that of Sri Lanka, where months of unrest led its longtime president to flee the country and where people are suffering from total shortages of food, fuel and medicine, spending days in line for essentials. But it faces similar problems: overspending on ambitious development projects, public anger over corruption and clientelism, and a weakening trade balance.
These trends undermine Bangladesh’s impressive progress, fueled in large part by its success as a garment manufacturing hub, to become a wealthier, middle-income country.
The government raised fuel prices by more than 50% last month to counter soaring costs due to high oil prices, sparking protests over rising living costs. This led authorities to order the subsidized sale of rice and other commodities by government-appointed dealers.
The latest phase of the program, which started on September 1, is expected to help around 50 million people, Commerce Minister Tipu Munshi said.
“The government has taken a number of steps to reduce the pressures on low-income people. This impacts the market and keeps everyday commodity prices competitive,” he said.
The policies are a palliative to larger global and national challenges.
The war in Ukraine has pushed up the prices of many commodities at a time when they were already rising as demand recovered with the decline of the coronavirus pandemic. Meanwhile, countries like Bangladesh, Sri Lanka and Laos – among many others – have seen their currencies weaken against the dollar, which has increased the cost of importing oil and other goods. denominated in dollars.
To ease pressure on public finances and foreign exchange reserves, the authorities imposed a moratorium on major new projects, reduced office hours to save energy, and imposed limits on imports of luxury goods and non-essential items, such as sedans and SUVs.
“Bangladesh’s economy is facing strong headwinds and turbulence,” said Ahmad Ahsan, an economist and director of the Dhaka-based Policy Research Institute, a think tank. “Suddenly we are back in the era of blackouts, with the taka and foreign exchange reserves under pressure,” he said.
Millions of low-income Bangladeshis, like Begum, whose family of five can barely afford to eat fish or meat even once a month, still struggle to put food on the table.
Bangladesh has made tremendous progress over the past two decades in growing its economy and fighting poverty. Investments in garment manufacturing have provided jobs for tens of millions of workers, mostly women. Exports of clothing and related products account for more than 80% of its exports.
But with fuel costs so high, authorities shut down diesel power plants that were producing at least 6% of total output, cutting daily electricity production by 1,500 megawatts and disrupting manufacturing.
Imports in the last fiscal year, ending in June 2022, reached $84 billion, while exports fluctuated, leaving a record current account deficit of $17 billion.
More challenges are ahead.
Deadlines are fast approaching for the repayment of foreign loans tied to at least 20 infrastructure megaprojects, including the $3.6 billion bridge over the Padma River built by China and a nuclear power plant mainly financed by Russia. Experts say Bangladesh must prepare for when repayment schedules intensify between 2024 and 2026.
In July, in a move economists see as a precautionary measure, Bangladesh requested a $4.5 billion loan from the International Monetary Fund, becoming the third South Asian country to seek its aid after the Sri Lanka and Pakistan.
Finance Minister AHM Mustafa Kamal said the government had asked the IMF to start formal negotiations on loans “for balance of payments and budget support”. The IMF said it was working with Bangladesh to develop a plan.
Bangladesh’s foreign exchange reserves have shrunk, potentially compromising its ability to meet its loan obligations. By Wednesday, they had fallen to $36.9 billion from $45.5 billion a year earlier, according to the central bank.
Usable foreign exchange reserves would be around $30 billion, said Zahid Hussain, former chief economist at the World Bank’s Dhaka office.
“I wouldn’t call it a crisis situation. That’s still enough to meet three months of imports, three and a half months of imports. But it also means that… you don’t have a lot of leeway on the reserve front,” he said.
Yet despite what some economists say is overspending on expensive projects, Bangladesh is better equipped to weather the tough times than some other countries in the region.
Its agricultural sector – tea, rice and jute are the main export products – is an effective “shock absorber” and its economy, four to five times larger than that of Sri Lanka, is less vulnerable to external calamities such as a slowdown in tourism.
The economy is expected to grow at a rate of 6.6% this fiscal year, according to the latest forecast from the Asian Development Bank, and the country’s total debt is still relatively low.
“I think in the current environment, the biggest difference between Sri Lanka and Bangladesh is the debt burden, especially the external debt,” Hussain said.
Bangladesh’s external debt is less than 20% of its gross domestic product, while Sri Lanka’s was around 126% in the first quarter of 2022.
“So we have room. I mean debt as a source of stress on the macroeconomy is not really a problem yet,” he said.
Queuing to buy subsidized food, Mohammed Jamal, 48, said he didn’t feel as free for his own family.
“It has become unbearable trying to maintain our standard of living,” Jamal said. “The prices are just out of reach for ordinary people,” he said. “It’s hard to live this way.”