Economic Future of Bangladesh: Navigating Uncertainty amidst Leadership Transitions and Global Power Dynamics

Ajay Pratap Singh (PhD)

At the start of this month, Sheikh Hasina, Bangladesh’s longest-serving Prime Minister, was forced to resign and flee the country. The student demonstrations against the controversial quota system for government jobs turned violent. The inherent interests of opposition parties, including the Bangladesh National Party (BNP) and Jamaat-e-Islami, added to the downfall of the Hasina regime of 15 years. The political quagmire that Dhaka finds itself in can be attributed to a myriad of accusations the ‘Iron Lady’ faced for undemocratic practices and human rights abuses over the years.

Bangladesh has made substantial economic progress over the past decade, but the vast majority remained ignored amidst this economic transformation. From sustaining an average GDP growth rate of 6.6 percent to reducing the poverty rate from 12 percent in 2008 to 5 percent in 2022, Dhaka boasted a graduation from the Least Developed Country by the year 2026. However, what is often touted as the ‘Bangladesh miracle’ remained marred by economic inequality, massive unemployment, and cronyism[1]. This article seeks to anticipate the future course of Bangladesh’s economy and its economic relations with major powers such as China, India, and the United States. Two possible political scenarios are considered to make this analysis plausible – the present interim government and the Bangladesh National Party (BNP) coming into power post-election.

Interim Government: Bangladesh Under Yunus

In the transition phase, the appointment of Nobel laureate Muhammad Yunus as chief advisor has lent some credibility to the interim government, yet it has an uphill task ahead. Often titled the ‘banker of the poor’, Prof Yunus’s microfinance initiatives are known to address economic and social inequality in Bangladesh society- a vision also reflected in his address to the nation after assuming office.

The current Yunus roadmap for Bangladesh promises comprehensive reform in every sector and at every level of government. With internal stability in mind, the priority is given to taming growing inflation and reforming the banking sector to restore people’s faith in the system[2]. The chief adviser’s office has also announced the release of a white paper on the economy of Bangladesh covering essential issues related to public finance management, inflation control, food procurement, foreign direct investment, remittances, and employment. Whereas, on the foreign policy front, Dhaka promises to maintain good relations with all the countries without compromising its national interests[3]. The Hasina government balanced all the powers and derived concessions for Dhaka, a policy the interim government intends to follow, especially in its relationship with India and China.

Beijing has been an important economic ally to Dhaka, and the interim government will look to capitalize on Hasina’s trip to Beijing, where the relationship between the two countries was upgraded to a ‘comprehensive strategic cooperative partnership’. China’s various infrastructure and connectivity projects during the Hasina regime are expected to continue. In the past, India has succeeded in convincing Bangladesh to check the rising influence of China, but it will no longer enjoy such a diplomatic edge. New Delhi persuaded Dhaka to terminate the Sonadia deep water port project, initially planned by China[4], and to allow India to execute the Teesta River Comprehensive Management and Restoration despite an active Chinese interest in the initiative. Unlike India, China maintains ‘political neutrality’ vis-à-vis its engagement with Dhaka, which will reap significant economic advantages in the future. Whether China will rise in ranks or be introspected on a case-by-case basis, it is clear that India will no longer enjoy the leeway and preferential treatment that it did due to the personal camaraderie between PM Modi and Sheikh Hasina.

The United States, a harsh critic of the Hasina government, is another contender to India’s influence. Yunus is considered close to Washington, as several US senators came to his defense against harassment over corruption cases. The US is already the primary provider of Foreign Direct Investment in Bangladesh and is the leading export market for items from Bangladesh[5]. Though Bangladesh-US relations have suffered due to mutual tension and suspicion arising out of the US sanctions against elite paramilitary forces of Bangladesh and its continuous pressure over Saint Martin’s Island[6], the volume of Bangladesh’s textile exports to the United States has nearly quadrupled during the past five years. As the accusations of yet another regime change orchestration are slowly surfacing[7], one can expect deeper economic ties and a greater strategic presence of the US around the Bay of Bengal.

Post-election Scenario: BNP in power

In the recent interim government statement, the timing of holding a general election is vaguely stated as a matter of political decision. However, the domestic milieu is charged with talk of the return of Khaleda Zia and the Bangladesh National Party (BNP). Zia has been an ardent advocate of privatizing the industry and is seen as pro-market. In her first term as Prime Minister, she reduced Bangladesh’s dependence on aid and remittance and promoted an export-led path for its growth.[8]

This time, the BNP will face a modest per capita income, a decline in foreign exchange reserves, and a rising current account balance[9]. Adding to its woes is the looming uncertainty around the golden goose, i.e., the garment sector. The industry contributes around 85 percent of the country’s exports, and there are apprehensions that the importing partners might shift to other countries in South and Southeast Asia if the political uncertainty keeps clouding Bangladesh. Amidst this chaos, China will have a broader window to influence Bangladesh’s pro-liberalization trajectory.

BNP is historically known to be a close ally of China in South Asia. Khaleda Zia has praised China’s development as peaceful on multiple occasions[10] and facilitated its strategic economic and military presence in the Bay of Bengal. Unlike earlier, China is expected to have less restrained access to Bangladesh’s transportation and energy sector, which rings security alarm bells for India. India and Bangladesh achieved a ‘golden era’ of trade, connectivity, and investments in infrastructure projects in the last decade. Sheikh Hasina’s government invited Indian investors through special economic zones despite strong opposition within. With the BNP’s return to power, there are genuine fears in the Indian strategic community of sabotage on both the economic and security front. Khaleda Zia, during her last stint, fomented the anti-India narrative, continuously denied a transit route for India’s land-blocked northeast states, supported the BNP-ISI nexus, and ardently supported Sino-Pakistan ties[11]. Even the efforts for rapprochement by the then-UPA government under Manmohan Singh fell on deaf ears. A hostile attitude towards Indian companies and a red carpet for Chinese state-backed investors would not be a surprise.[12]

China wants Bangladesh to participate in its Global Development Initiative and Global Security Initiative, whereas India and the US consider it to be a key player and partner in their Indo-Pacific strategy. Unlike its very vocal stands against Hasina, Washington had earlier maintained a strategic silence for Zia’s tactics to the displeasure of India. However, US interests in current South Asia are more than ensuring a balanced India and an acclaimed pro-China government at the node of maritime security would not sit well with the challenged power. [13]

In conclusion, Bangladesh’s political and economic future is at a critical juncture. The transition under the interim government presents an opportunity for reform and stabilization, though challenges remain. On the other hand, the potential return of the Bangladesh National Party (BNP) under Khaleda Zia could drastically alter Bangladesh’s economic landscape, particularly in its relations with India, China, and the United States. The unfolding political dynamics will have significant implications for Bangladesh’s economic trajectory, regional influence, and strategic alliances.

Dr. Ajay Pratap Singh is currently working as a Guest Faculty at the University of Delhi. He has received his PhD from the School of International Studies, JNU, Delhi. His research interests lie in South Asian Security, Eurasian geopolitics, and China’s Silk Road diplomacy.