An Iffras report
In the COVID-19 pandemic and amid major changes unseen in a century, the global economy is mired in its deepest recession since World War II and multilateralism and the international order are confronted with unprecedented challenges, which has created considerable obstacles to South Asian development in the economic and other fields. Bangladesh is the only country which has been able to ride over the pandemic better than any other nation.
The country which US National Security Adviser, Henry Kissinger acerbically referred to as basket case in 1972, has in the last 50 years since its independence performed better than Pakistan. Its growth rate was way above Pakistan, even before the pandemic; in 2018-19 it was 7.8% compared to Pakistan’s 5.8%. Bangladesh’s foreign exchange reserves in May 2021 hit a record $45.10 billion amid the Covid-19 pandemic, which is more than double compared to Pakistan’s17.1 USD bn in Jun 2021. The real marvel lies in the fact that even in FY’20, when economies around the world contracted as a result of pandemic lockdowns, Bangladesh managed a 5.24% growth.
In 2021 Bangladesh’s GDP per capita had grown by 9% rising to $2,227. Pakistan’s per capita income, meanwhile, is $1,543. In 1971, Pakistan was 70% richer than Bangladesh; today, Bangladesh is 45% richer than Pakistan. With macro-economic stability as its cornerstone, Bangladesh’s economy has increased by 271 times over 50 years. Concentrating on its traditional labour-intensive light manufacturing industry, Bangladesh is today the world’s second-largest clothing exporter behind China.
Bangladesh’s successful journey is a good example, given the similarity in terms of religion, poor work ethics, messy politics, bad governance, weak public administration, high corruption, elite capture etc. In just two decades, Bangladesh has overtaken Pakistan on key economic indicators. Over the last twenty years, Bangladesh’s GDP per-capita increased 500 percent, two and a half times that of Pakistan. How did Bangladesh become a miracle story and Pakistan a disaster tale?
Pakistan, which was better off than many post-colonial states in terms of its economy, human development, infrastructure and industrialisation progress till mid-1980s, went downhill because of corrupt, incompetent and dishonest leadership. One Pakistani economist has pointed out that “it is in the realm of possibility that we could be seeking aid from Bangladesh in 2030.” Pakistan’s leaders blame its poor performance on regional enemies and the IMF and World Bank.
But the deep hole that Pakistan is in is largely its own doing, with corruption and the economic impact of terrorism play a large role. The poor performance is also a result of pursuing irresponsible, inappropriate and unpredictable policies, and half-hearted reforms, for instance excessive overspending by government, financed by domestic and foreign debt; and imports far exceeding exports leading to unsustainable external debt.
Bangladesh encouraged savings over consumption. Its savings rate is around 30 percent of GDP, compared to 15-20% for Pakistan. Pakistan’s irresponsible and impulsive policies encouraged public spending and import consumption way beyond what the country could afford. Because of imprudent import and exchange rate policies, Pakistan has been incurring foreign commercial loans, deposits and bonds, at high interest rates, to finance unnecessary imports.
There are thousands of garment factories in Bangladesh, a country which does not grow cotton. But by importing cotton worth a couple of hundred million dollars, Bangladeshi garments factories are exporting it in the form of readymade garments worth $35 billion. On the contrary, Pakistan – despite being a cotton-growing country – has failed to increase its exports of garments and textile products beyond $10 billion. Even worse, Pakistan is now importing cotton. In fact, a lack of innovation and commitment on the part of the authorities in Pakistan because of its feudal and tribal structures, it is unable to make use of its agricultural resources, particularly cotton, to increase its exports of textiles and textile madeups.
Other indicators are equally stunning. East Pakistan’s population in the 1951 census was 42 million, while West Pakistan’s was 33.7m. But today Bangladesh has far fewer people than Pakistan – 165m versus 200m. A sustained population planning campaign helped reduce fertility in Bangladesh. No such campaign – or even its beginnings – is visible today in Pakistan. The share of women in the labour force has consistently grown in Bangladesh, unlike in Pakistan, where it has decreased.
Bangladesh and Pakistan are a world apart today because they perceive their national interest very differently. Bangladesh sees its future in human development and economic growth. Goal posts are set at increasing exports, reducing unemployment, improving health, reducing dependence upon loans and aid, and further extending micro credit. For Pakistan, human development comes a distant second.
The bulk of national energies remain focused upon check-mating India and nurturing extra state actors in the 1990s. Bangladesh’s economic miracle also benefitted from separation of religion from state, elimination of unelected institutions’ role in politics, and their leaders’ single-minded focus on Bangladesh.