Slides and speaking notes for a webinar presentation.
Greetings and acknowledgement. Preliminaries. The photos are from Southeast Asia 1997, not Bangladesh.
These are the stuff that presaged the Asian Crisis of 1997. And they all could be Bangladesh after the election. This is not a prediction. A crisis is not inevitable. But another one-sided election and the continuation of status quo makes the country that much more vulnerable.
Bangladesh has become a capital importer. Left hand chart shows that over the past decade, Bangladesh has not been a particularly low saving country —around 30% of incomes are saved.
Rather, investment share of GDP is rising. Before covid, it was both private and public. Forecast is for pvt investment to recover, but public investment to boom!
In itself, there is nothing wrong with it at all. Bangladesh is a developing country. It needs investment — lots of it, private and public! If domestic capital isn’t enough, foreign capital should be welcomed.
CAD in itself is not an issue at all if foreigners are willing to finance it.
But…..
Are all the public investment that are in the pipeline genuinely good projects? There are governance issues such as cost over runs etc. There are loan repayments issues too.
Back in 2019, IMF AIV printed the top two charts. State owned banks were carrying bad loans, and were poorly capitalised. There were also governance issues around megaprojects and power plants. Look at the latest charts at the bottom panel.
Now, capital importing country with weak banking sector, governance issues — this is the story of Thailand or Indonesia of mid-1990s. For Bangladesh, things have not necessarily so bad because the capital and financial accounts are not liberalised — not so much foreign hot money coming in. But the problem of governance is perhaps even worse than Southeast Asia.
Another perspective is that BD has muddled through and avoided a meltdown so far, and so maybe it can do this for years? Maybe. Economists can’t really predict when things will go wrong. Economic analysis is generally right but precisely wrong, and generally speaking, at some point this will bite.
Even before the latest events, Bangladesh started scoring poorly on these measures of democracy. Naomi Hossain and others have written about elite consensus post 1975 to avoid another famine. That underpinned the economic policies to the mid to late 2000s. But after that, the need for a new elite settlement became apparent. People like Joe Studwell and others point to east Asian examples: education; industry policy; infrastructure. In practice, the new elite bargain may reflect a ‘spin dictatorship’ (Daniel Treisman and Sergei Guriev) backed by an oligarchy.
How will the current order navigate the economic shocks and domestic political transitions if there is another one sided election?
I am indebted to Imran Ansary, Dr Badiul Alam Majumder and Prof Ali Riaz.
Further reading
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