Bangladesh stares at political, economic uncertainty
AS the General Election is approaching in Bangladesh, concerns about its political and economic future are mounting. Despite having achieved a measure of political and economic stability in recent times, the country now seems to be facing renewed uncertainty. The challenges confronting Bangladesh are largely rooted in external factors. Although the Bangladeshi Government’s efforts and the assistance from neighbouring India have delayed the onset of the crisis, the global economic turmoil is making it difficult for the country, given its small-scale economy, to effectively tackle these issues.
Under the leadership of Sheikh Hasina during the past three terms, Bangladesh experienced remarkable economic growth. It emerged as one of South Asia’s fastest-growing economies and is at present the region’s second-largest economy, trailing only behind India. According to reports, Bangladesh has the highest per capita income in South Asia and has excelled across various social indicators.
However, the nation is grappling with economic setbacks caused by factors beyond its control. The decline can be attributed in part to the Covid-19 pandemic and the repercussions of the Russia-Ukraine conflict. This has led to diminishing exports and remittances, while major global economies are also confronting economic challenges.
The situation for smaller economies deteriorated when the US aggressively raised policy rates in response to record inflation triggered by the prolonged pandemic and the Ukraine war. It prompted investors to withdraw from Asian markets, leading to currency depreciation in many of these economies.
Such sharp currency depreciation typically fuels inflation due to increased costs of imported food and energy. It also negatively impacts the current account balance, potentially making it difficult for countries to pay for the necessary imports or service external debts. Bangladesh is facing these consequences as the value of the Bangladeshi taka has dropped by around 25 per cent compared to the US dollar.
As on July 6, Bangladesh’s foreign exchange reserves had dwindled to $29.97 billion from $41.8 billion in 2022. This decline of about 28 per cent over the past year has been attributed to the ongoing challenges in the foreign exchange market, primarily stemming from the scarcity of the dollar. The dollar crisis in Bangladesh has emerged from the increasing import expenses in comparison to the relatively modest remittances and export earnings. As a result, Bangladesh is facing difficulties in financing its imported fuel requirements.
While India extended support to Bangladesh during the pandemic by supplying essential goods and raw material for its industries, the worsening global economic conditions have begun to impact Bangladesh as well. All of this is unfolding as the country is on the verge of elections.
Regrettably, during this period of economic turmoil, Bangladesh is also facing accusations of democratic backsliding from the Joe Biden administration. In a bid to exert pressure, the US has threatened to impose visa sanctions on several current and retired officials of the Rapid Action Battalion (RAB), a paramilitary force accused of aiding Hasina’s Awami League in previous elections. Some of them are also accused of human rights violations.
The Biden administration’s actions, including omitting Bangladesh from democracy-focused summits while inviting Pakistan, India and other countries, and its neglect of Hasina during her visit to Washington for a World Bank meeting in May, have raised concerns.
This has not only emboldened Bangladesh’s main Opposition party, the Bangladesh Nationalist Party (BNP), but also its former ally, the Jamaat-e-Islami (JeI).
The US is apparently applying pressure on Bangladesh due to its interest in establishing stronger defence ties with the nation, driven by its strategic geographical location. The US has already provided frigates and military transport aircraft to Dhaka. It aims to encourage the Bangladeshi Government to sign two foundational agreements — the General Security of Military Information Agreement and the Acquisition and Cross-Servicing Agreement. These pacts are expected to bolster defence collaboration, facilitating expanded opportunities for defence-related trade, information exchange and military cooperation between the two countries. However, Bangladesh has not shown haste in finalising these agreements.
In response, India has conveyed its concerns to Washington regarding the perceived destabilising actions taken by the US that could affect the overall security of India as a neighbouring nation and the broader South Asian region. India is unhappy at America’s current involvement in the context of the impending elections in Bangladesh. The Indian Government is apprehensive that if concessions are granted to JeI, it could pave the way for an increase in fundamentalism in Dhaka in the near future.
Nonetheless, there exists a common understanding between India and the US that the Bangladesh General Election, slated for January 2024, must be free and fair. Both nations share the view that the Awami League needs to distance itself from leaders with pro-Chinese and pro-Islamist inclinations. Instead, they advocate the selection of non-communal candidates. These messages are likely to be conveyed to PM Hasina during her visit to Delhi next month, when she will be participating in the G20 summit.
Hasina’s government has made substantial strides in curbing fundamentalism and terrorism since assuming power in January 2009. However, these achievements now appear to be under threat due to the Jamaat resurgence.
Further, there is apprehension that China, which already has a significant presence in many South Asian nations, could capitalise on the evolving situation in Bangladesh. Although the risk of Bangladesh falling into the Chinese debt trap is minimal due to China’s limited lending to the country, other strategic levers exist. China, a major exporter to Bangladesh and the largest defence supplier, has demonstrated a pattern of utilising political and economic instability to its advantage, exemplified by its military activities in Sri Lanka. A similar scenario could unfold in Bangladesh if the BNP-Jamaat alliance were to regain power.
