Swot Analysis Bangladesh Economy

Introduction

This paper aims to examine Bangladesh's overall economy with special focus on strengths, weaknesses, opportunities, threats (SWOT) analysis. The research has found that Bangladesh is going to encounter series of economic hurdles in near future. Over the last few decades, Bangladesh has been following a development path that was blazed by the fast growing Asian economies with export led growth fuelling higher living standards and falling poverty. Despite this, it is not too difficult to posit that Bangladesh today has more in common with the laggards in Asia.

Slow growth, rising inequality, and a deprived countryside deny the vast majority of the Bangladeshi people the opportunity to enjoy happier, healthier, and more prosperous lives. A SWOT analysis of Bangladesh Economy has uncovered its overall strength, weakness, opportunity and threat in terms of its current position in world economy. Despite some strengths and opportunities, Bangladesh has lots of weaknesses and threats that could seriously undermine nation's development process at any time. For moving forward, Bangladesh needs to identify the opportunities and the key weaknesses that the country faces and adopt appropriate measures.

Bangladesh Economy

Although one of the world's poorest and most densely populated countries, Bangladesh has made major strides to meet the food needs of its increasing population, through increased domestic production augmented by imports. The land is devoted mainly to rice and jute cultivation, although wheat production has increased in recent years; the country is largely self-sufficient in rice production.

Nonetheless, an estimated 10% to 15% of the population faces serious nutritional risk. Bangladesh's predominantly agricultural economy depends heavily on an erratic monsoonal cycle, with periodic flooding and drought. Although improving, infrastructure to support transportation, communications, and power supply is poorly developed. Bangladesh is limited in its reserves of coal and oil, and its industrial base is weak. The country's main endowments include its vast human resource base, rich agricultural land, relatively abundant water, and substantial reserves of natural gas.

Since independence in 1971, Bangladesh has received more than $30 billion in grant aid and loan commitments from foreign donors, about $15 billion of which has been disbursed. Major donors include the World Bank, the Asian Development Bank, the UN Development Program, the United States, Japan, Saudi Arabia, and west European countries. Bangladesh historically has run a large trade deficit, financed largely through aid receipts and remittances from workers overseas. Foreign reserves dropped markedly in 2001 but stabilized in the $3 to $4 billion range (or about 3 months' import cover).

In January 2007, reserves stood at $3.74 billion, and they increased to $5. 39 billion by January 2008, according to the Bank of Bangladesh, the central bank. Bangladesh’s resilient economy has so far weathered the global economic crisis, growing some 5. 9% in FY 2009. Exports dipped slightly, but the decrease was modest compared to other developing nations. Remittances from overseas workers remain strong, though growth in remittances could slow following an apparent slowdown in the numbers of Bangladesh workers going abroad. The United States is Bangladesh’s third-largest export market, and trade between the two nations reached $4. 2 billion in 2009.

The economy is predicted to grow near 6% in 2010. 2 Moves toward a Market Economy Following the violent events of 1971 during the fight for independence, Bangladesh–with the help of large infusions of donor relief and development aid–slowly began to turn its attention to developing new industrial capacity and rehabilitating its economy. The static economic model adopted by its early leadership, however–including the nationalization of much of the industrial sector–resulted in inefficiency and economic stagnation.

Beginning in late 1975, the government gradually gave greater scope to private sector participation in the economy, a pattern that has continued. A few state-owned enterprises have been privatized, but many, including major portions of the banking and jute sectors, remain under government control. Population growth, inefficiency in the public sector, resistance to developing the country's richest natural resources, and limited capital have all continued to restrict economic growth.

In the mid-1980s, there were encouraging, if halting, signs of progress. Economic policies aimed at encouraging private enterprise and investment, denationalizing public industries, reinstating budgetary discipline, and liberalizing the import regime were accelerated. From 1991 to 1993, the government successfully followed an enhanced structural adjustment facility (ESAF) with the International Monetary Fund (IMF) but failed to follow through on reforms in large part because of preoccupation with the government's domestic political troubles.

In the late 1990s the government's economic policies became more entrenched, and some of the early gains were lost, which was highlighted by a precipitous drop in foreign direct investment in 2000 and 2001. In June 2003 the IMF approved 3-year, $490-million plan as part of the Poverty Reduction and Growth Facility (PRGF) for Bangladesh that aimed to support the government's economic reform program up to 2006. Seventy million dollars was made available immediately. In the same vein the World Bank approved $536 million in interest-free loans.

Efforts to achieve Bangladesh's macroeconomic goals have been problematic. The privatization of public sector industries has proceeded at a slow pace–due in part to worker unrest in affected industries–although on June 30, 2002, the government took a bold step as it closed down the Adamjee Jute Mill, the country's largest and most costly state-owned enterprise. The government also has proven unable to resist demands for wage hikes in government-owned industries. Access to capital is impeded. State-owned banks, which control about three-fourths of deposits and loans, carry classified loan burdens of about 50%.

Key Sectors of Bangladesh Economy Reigning-in High Inflation, Particularly Food Inflation Reducing Income and Regional Inequality More Thrust on Agriculture Improving Quality and Enhancing Implementation of ADP Augmenting Remittance Flow Energy Security An Effective Safety Net Programme Improving Terms of Trade Higher Mobilization of Investible Resources Moving Ahead with Institutional Reforms 3 Medium Term Outlook and an Assessment of the New Mid-Term Macroeconomic Framework (MTMF) The new MTMF (FY2009-11) forecasts the economy to grow at 7.0 per cent and 7. 2 per cent during FY2010 and FY2011 respectively.

The MTMF also targets to lower inflation rate to 7. 5 per cent and 7. 0 per cent in FY2010 and FY2011 from 9. 5 per cent in FY2009. Such a target would require reversal of the prevailing price dynamics and demand an all out effort to increase domestic production at a time when world price is not showing any sign of retreat. According to the targets set by the MTMF, budget deficit, which has been targeted at 5. 0 per cent of GDP in FY2009, is expected to come down gradually to 4. 0 per cent of GDP by FY2011, mostly due to reduced growth in public expenditure and increased revenue earnings (in percentage of GDP terms).

However, slowdown of public expenditure is expected from slower growth of development expenditure rather than revenue expenditure. In the monetary sector, broad money growth is expected to slow down during FY2010-FY2011, compared to FY2009. Private sector credit, however, is projected to rise during FY2010FY2011. Significant growth is projected on all Balance of Payment components over the next three years.

Export growth targets have been set at 16. 5 per cent, 17. 0 per cent and 17. 5 per cent for FY2009, FY10 and FY2011 respectively against an import growth of 21 per cent projected for all the three years. Robust growth in remittance earnings is expected to continue while foreign exchange reserve is expected to remain steady and reach US$6. 5 billion by FY2011. 4 The SWOT analysis There are many ways of doing this analysis. One popular method is to list the Strengths, Weaknesses, Opportunities, and Threats (SWOT) facing the economy and society/ country at large.

In particular, SWOT analysis is forward looking; it is less for the past than for the future. The exercise identifies areas that need attention or might emerge as problem areas in future. There may be success in some areas. But that does not mean, we should continue to do the same or shift gears and put more emphasis on other issues. The main purpose of conducting a SWOT is to get a sense of the relevant issues of taking strategic decisions– of priorities, of possibilities, and of dangers. This is important to begin a thoughtful discussion; a serious conversation about the priorities that we should focus on.

From a strategic perspective, I would try to briefly identify some of the major strengths and weaknesses of Bangladesh Economy. Strengths and weaknesses: In terms of strengths, there is no doubt Bangladesh is in a good geographic location. It provides an important link between the economies of South Asia and the dynamic Southeast Asian region. Bangladesh sits on strategic trade lanes and Chittagong can emerge as a major port to service the regional economies. Although Bangladesh is a new nation, it represents an old and flexible civilization.

Both its ecology and history point to the people's hidden resilience in the face of adversities, with capacity to produce unexpected social renewals and economic recovery. Another source of its strength is the rapid advance made by the NonGovernmental Organizations (NGOs) and other grassroots bodies, creating alternative delivery mechanisms and acting as vocal civic institutions especially for the poor. This is an important source of 'social entrepreneurialism' and a channel of vibrant development of many elements in society.

The ongoing process of mainstreaming women into development is a strategic strength to bring wider and deeper social and economic changes. Gains in increasing political and electoral participation of women, enhancing press freedom, and creating a vibrant civil society are important for strengthening democratic institutions and consolidating human rights. The country's vulnerability to natural disasters has significantly declined that used to inhibit greater investment flow and reduce its productivity and return in the past.

Several important structural changes have taken place, such as agriculture becoming more resilient with the spread of dry season irrigated crop production and rapid expansion of non-crop agriculture; nonagricultural sectors assuming greater importance; infrastructure and market developments contributing to greater spatial integration and lower price effect of exogenous shocks; and higher mitigation capacity in responding to natural disasters. Bangladesh has a fairly good and expanding stock of both physical and human capital, and with favorable policies, the upgrading potential of both capital is bright.

The remittances from overseas workers have already become a great source of strength and this can be increased manifold with right policies. Relative stability of the country's economic fundamentals has created a fairly good macroeconomic environment. As one can see, all the above elements represent significant strengths of the Bangladesh economy. 5 Against this, one can set some obvious weaknesses. One uncomfortable feature is that Bangladesh is one of the few countries where income poverty is falling slowly even though economic growth has picked up.

Even after three decades, most of the economic sectors (especially agriculture) are still weak; health and education indicators are low. Infrastructure, while improving, is still poor especially in electricity, having a per capita use which is among the lowest in the world. Corruption is certainly high. The economic and administrative cost of securing business is high as well. A feature of both a weakness and a threat is the rapidly rising inequality in income and wealth, which neither supports economic efficiency nor social equity.

This is socially destabilizing as underemployed urban masses and a swelling rural landless people are much more volatile than a well-rooted community of employed non-farm workers and landed farmers. The absolute size of the population, despite success in lowering the growth rate, is increasing fast that creates tremendous pressure on resources as well as on provision of essential services. Now the question is, what advantages or opportunities does Bangladesh have? In a sense, many of the weaknesses that can be remedied are opportunities.

If agricultural productivity is low, investments in irrigation, improved agricultural systems, markets, and infrastructure can raise production and productivity. If foreign direct investment (FDI) is low, then improvements in governance, infrastructure, and investment climate can attract more investments. A higher demand for skilled workers can create an incentive for better training and education. Services sector development including export of skilled manpower is a real possibility. There is a promising private sector and the dynamism of this sector, especially in information communication technology (ICT), can be an important opportunity.

A great deal of attention has been placed on corruption in Bangladesh. This is entirely justified since corruption is a serious problem in the country. Much less attention, however, has been placed on a related but equally serious problem which is the issue of waste. Waste occurs when an unnecessary and inappropriate investment is made. One important difference between corruption and waste is that with waste, there may or may not be a transfer of resources to a corrupt person but there is certainly a loss to everyone!

If a highcost factory were built or equipment procured for its proper cost, with nothing added in improperly padded costs or commissions, it would still create a loss for Bangladesh and its people. Higher prices have to be paid to cover the costs of the factory or the services of the equipment, or it is to be shut down. If it is shut down, there is a huge loss. If it operates, the price of the product or the service would be higher than it need be. Thus nobody benefits. When waste and corruption are combined, those who profit from a bad project derive benefit but society still loses.

Corruption must be fought, but we must remember that it exists in all societies. Waste is easier to avoid if there is a serious review of public investments and limited protection, subsidies, or guarantees to private projects. As there are large losses from bad project selection, a nation genuinely concerned with growth and stability will try to ensure that public investments are well chosen. 6 For selecting appropriate project, an effective review of the economic feasibility of the project is essential.

While this no doubt may involve some extra cost, it is much less costly than the 'free' feasibility studies provided by potential contractors or financiers who stand to benefit if the project is built. Such free feasibility studies examine what kind of project should be built rather than if it is sensible to build the project. These studies are often a rich source of technical data but a poor and weak guide to underlying economics of the project. Bangladesh must manage to insulate investment choices from corruption; we should build what should be built at about the right cost, rather than what should not be built at a wildly inflated cost.

We must also avoid wildly inflated costs even on well-chosen projects. Opportunities and threats: Ironically enough, opportunities can turn into potential threats. In the past, Bangladesh achieved a slow progress in poverty reduction. In the future, improper management of development may accentuate poverty and inequality leading to social instability. The threat is that governance would become worse and economic decisions would further concentrate wealth, fund capital flight, and increase social tensions.

The efficiency in use of resources, and a political strategy for stability, equity, and growth is of greater priority in the coming years than it is now. Several other developments also threaten to undermine the sociopolitical stability and future economic progress, such as the challenge to ensuring good governance and stable law and order situation, reducing corruption and ensuring political stability, and adverse global developments including terrorism and sharp increase in commodity prices in the global market. What of other threats?

The loss or reduction in garment exports is one such possibility. Building up a real competitive advantage by lowering port and other transport costs and informal charges and bringing in more efficiency in garments production is the best and only response. Similarly, any development that adversely affects the healthy growth of remittances will create a serious threat to economic and social progress. It is very hard to improve the quality of education and skills within a short time, just as it is hard to provide good health services.

The failure to enhance the supply of quality education and good health is likely to create another threat. For the majority with poor education, the prospects for earning a decent income to move and stay out of poverty are not good. For them, indeed jobs will remain insecure and low paying. To help the growing number of young workers find decent jobs, to increase competitiveness, and to improve poverty situation, finding a way to improve critical services, including quality education and health services, is necessary.

Perhaps, at this stage, we can put these general points together into a comprehensive format as various elements; but it is a beginning to visualizing the overall situation. 7 Suggestions ? Policy implications and interactions: As we have done, it is useful to list all elements but like a good recipe a well-functioning economy or society requires the proper mixture and sequencing of policies to be just right. Furthermore, the outcomes (e. g. high poverty) are distinct from and rely upon the causes (e. g.lack of decent employment, poor health and education, high corruption) that contribute to them.

Of course, poor health and education and rising corruption create many other ills in society. Thus getting the causality clear, which can and often does flow in both directions, helps to understand the importance of combination of different policies. Rather than trying to do everything equally all at once, it helps to have a sense of priority. Putting the prioritized elements together in a mutually supportive and logical package creates a strategy.

The desirable outcome of a SWOT should be a strategic plan to address the challenges. Moreover, there is also the question of feasibility and timing. ? Lowering corruption is an excellent idea, but this requires a complicated set of policies and building institutions that take effect only over time. ? Raising educational quality (as opposed to coverage) requires training of teachers, developing curricula that fit current circumstances, providing better incentives, improving supervision and management, and other measures that can take several years.?

A further element concerns the urgency or pace of change of negative or positive development. Is income inequality rising very fast? That would suggest moving aggressively to deal with it. Is the garment industry in need of sizeable cost reductions in transport and port charges? This too could be dealt quickly through increasing efficiency and improving management, so that more of the existing base can be preserved and expanded in future.

Thus, by identifying the key issues and establishing their relation with each other, a degree of clarity is possible that helps to make one clear about priorities and the time a policy will take to bring the outcomes. Conclusion A holistic and concerted effort is much sought after to address those problems while capitalizing on strengths and opportunities. Side by side, Bangladesh should try its level best to attract quality Foreign Direct Investment (FDI). Remittance inflow plays very crucial role in Bangladesh's economy.

But deplorably, since it is almost impossible to follow the successful model of South East Asian nations, Bangladesh does not have any sure success formula of any country in hand to follow. In fact, many less successful countries will have to struggle for long uncertain period. And sadly, Bangladesh falls into that category indeed. In fact, Bangladesh's economy has been on an inherently unstable path that can only end in tears. But remittance inflow will act as lifeblood for Bangladesh's economy and it will slow down the total apocalyptic process indeed.

However, considering the totality, Bangladesh must have to face several critical challenges at once even before embarking on the track of vision 2020! 8

Source:

  1. Ahmed Salman, (2009) "Bangladesh's economy: surrounded by deadly threats", International Journal of Social Economics, Vol. 36 Iss: 1/2, pp. 138 – 181
  2. Bureau of South and Central Asian Affairs, May 24, 2010; US Department of State
  3. Mustafa K. Mujeri, Chief Economist, Bangladesh Bank, Dhaka
  4. CPD-IRBD: An Analysis of National Budget FY08-09 4 9 “Management Problems and some remedial measures in an small organization” 10.