The shaky foundations of Bangladesh's growth

The lack of diversification in its economy, the small size of its middle class, and subdued wages have contributed to the current crisis. Aggregate GDP numbers put a gloss on it

- Pramit Bhattacharya

Bangladesh's political crisis caught India's strategic community off guard earlier this year. India's intelligence agencies were roundly criticised for failing to track the storm brewing in India's neighbourhood. But they were not the only ones who missed the warning signs in that country. Another tribe completely misread Bangladesh - economists.

Until recently, economists viewed Bangladesh as a paragon of development. They raved about its booming garment sector that employed millions of women and generated billions of dollars in export earnings. Some economists argued that India should follow the "Bangladesh growth model" to boost exports, create more factory jobs in the country, and raise the country's female workforce participation rates. Noah Smith, a popular economic commentator, declared in 2021 that Bangladesh was the "new Asian Tiger".

By 2022, Bangladesh's garment-led growth engine had run out of steam. Struggling to pay for its imports, it approached the International Monetary Fund (IMF) for a bailout package. As this column pointed out then ("The great divergence across South Asia", August 9, 2022), India was the only large economy in South Asia that didn't need an IMF bailout in the wake of the pandemic. Pakistan and Sri Lanka also dialled IMF for help. The economic bailouts were followed by political upheavals in these countries.

Economists were so enamoured with Bangladesh's impressive growth numbers that they failed to check beneath the hood. They missed the dark underbelly of Bangladesh's garment industry.