The Remarkable Rise of Bangladesh

When people think of the Indian Subcontinent, they think of, well, India, and secondarily Pakistan, two rival nuclear powers. Often lost in the mix is another populous country with a long, shared, and bloody history: Bangladesh.

The end of British colonialism in India was associated with a rushed and botched partition of the country by Viceroy Mountbatten (better known to Americans as Prince Charles' ambitious uncle in Netflix's The Crown). In any case, at the stroke of midnight on August 15, 1947, two countries were born: Hindu-majority India, and Muslim-majority Pakistan. Pakistan itself was divided into two parts, East and West, separated by over a thousand miles (the two green sections, as shown below). In 1971, Bangladesh declared its independence from the richer and more powerful (West) Pakistan.

At the time, there seemed to be little hope for the new nation, reeling from a brutal war and a terrible famine. Henry Kissinger, then National Security Advisor, famously called it a “basketcase.” Oh, how times have changed! Fifty-years on, Bangladesh has emerged as an unlikely economic success eclipsing its two larger neighbors. In a fascinating piece for Bloomberg, Mihir Sharma argues that Bangladesh is South Asia's standout star. Per Sharma:

Bangladesh's GDP per capita grew by 9% over the past year, rising to $2,227 [in 2020-21]. Pakistan’s per capita income, meanwhile, is $1,543. In 1971, Pakistan was 70% richer than Bangladesh; today, Bangladesh is 45% richer than Pakistan. One Pakistani economist glumly pointed out that “it is in the realm of possibility that we could be seeking aid from Bangladesh in 2030.”

India — eternally confident about being the only South Asian economy that matters — now must grapple with the fact that it, too, is poorer than Bangladesh in per capita terms. India’s per capita income in 2020-21 was a mere $1,947.

Bangladesh’s growth rests on three pillars: exports, social progress and fiscal prudence...Between 2011 and 2019, Bangladesh’s exports grew at 8.6% every year, compared to the world average of 0.4%. The success is largely due to the country’s relentless focus on products, such as apparel, in which it possesses a comparative advantage. Meanwhile, the share of Bangladeshi women in the labor force has consistently grown, unlike in India and Pakistan, where it has decreased. And Bangladesh has maintained a public debt-to-GDP ratio between 30% and 40%. India and Pakistan will both emerge from the pandemic with public debt close to 90% of GDP. Fiscal restraint has allowed Bangladesh’s private sector to borrow and invest.

But Sharma also notes that success brings its own set of problems. For one, Bangladesh's exports benefit from the country’s participation in various mechanisms that allow tariff-free access to developed economies, such as the U.S.’s Generalized System of Preferences. These groupings are only open to the world’s least developed countries. Thanks to its growth, Bangladesh will likely have to give up these privileges by 2026 or so. Structurally, as its economy matures, its comparative advantages will also change. Like Vietnam and others, it will then have to shift emphasis away from garments to higher-value exports. The transition will test Bangladesh as it has those other nations.

These are good problems to have, and Bangladesh has demonstrated an ability to meet challenges. Moreover, the country isn't content to just be a local success story. It aims to be a developed economy by 2041. Ambitious? Yes. But as Sharma notes, "the past 50 years have shown how unwise it is to bet against Bangladesh."