Bangladesh faced a major setback following an executive order by the US President Donald Trump halting all aid to the Muhammad Yunus-led Bangladesh government making things worse for the bankrupt nation.
The United States donor agency USAID has announced an immediate suspension of all work in Bangladesh under contracts, work orders, grants, cooperative agreements, or other assistance or procurement instruments.
The USAID letter cited, “This letter is directing all USAID/Bangladesh implementing partners to immediately cease or suspend any work under your USAID/Bangladesh contract, work order, grant, cooperative agreement, or other assistance or acquisition instrument.”
As per the letter reasonable steps have to be taken by all USAID partners to minimize the incurrence of costs allocable to their awards. Further, the partners have been notified not to resume work until the “Stop Work Order/Suspension” is canceled.
Upon taking charge of the Presidential Office Trump has halted humanitarian aid to most of the nations except its allies, Israel and Egypt.
One of the causes of the US government’s crackdown on Bangladesh is to stop the radical Islamists who have been committing heinous acts against minorities. These acts may have angered officials such as Tulsi Gabbard, Director of National Intelligence and a follower of the International Society for Krishna Consciousness, which has been repeatedly targeted by the radicals and many others.
The decision came days after a brief discussion took place between Indian External Affairs Minister S Jaishankar and newly-appointed Secretary of State of the United States Marco Rubio on 22 January about Bangladesh.
Addressing the meeting, S. Jaishankar affirmed that he had brought up the minority issue in Bangladesh with the US Secretary but declined to share any further details about the meeting.
Bangladesh’s fiscal health
The World Bank has revised its forecast for Bangladesh’s economic growth for FY25, lowering it by 1.7 percentage points to 4 percent, citing “significant uncertainties following recent political turmoil” and “lack of available data.”
According to the latest Bangladesh Bank data, the BPM-6 method by the International Monetary Fund (IMF) expects Bangladesh’s forex reserves to remain steady at approximately $20 billion.
The country’s total imports decreased from $90 billion in 2021 to $70 billion in 2023. The lower imports are deemed to be the reason for lower revenue collection, low revenue growth, and lack of business expansion.
The implementation of the Annual Development Programme (ADP) during the first six months of the 2024-25 fiscal year declined by 19 percent compared to the same period last year.
The country’s depleting US dollar stocks since 2022 has prompted the government to adopt stricter fiscal policies and curb imports.
As per the Bangladesh Bureau of Statistics (BBS), the number of unemployed people reached 2.66 million by the end of September 2024 under the Yunus-led government, as compared to 2.49 million the previous year, marking a 6 percent increase.
Factors contributing to Bangladesh’s sluggish progres
According to Ahsan Mansur, the new governor of Bangladesh’s central bank, approximately $17 billion was drained from the country’s financial system during the 15 years leading up to the collapse of Sheikh Hasina’s government in August.
The slow execution of the development budget, officially referred to as the Annual Development Programme (ADP), is another factor contributing to the lackluster revenue collection.
Due to inflationary pressure people have been slashing their consumption for a couple of years. leading to stagnant revenue growth.
The value-added tax (VAT) and supplementary duties (SDs) from construction works, a project expected to generate substantial revenue, are not being credited to the National Board of Revenue.
The garment industry is one of the pillars of the Bangladesh economy which contributed to the steady export growth of the country over the last two decades. However, due to political protests in July and August 2024 leading to repression and violence, internet shutdowns and transport disruptions resulted in communication with buyers being temporarily halted.
This led to a negative impact on economic activity, with GDP showing a growth of only 1.8 percent during the July-September 2024 quarter.
Remittances, the other pillar of Bangladesh’s economic resilience, helping stabilise the balance of payments and accounting for 4.7 percent of the GDP will also be affected with the US deportation drive of illegal migrants leading to grave situations for Bangladesh.
Reforms to be instituted
Banking Reforms: Bangladesh’s banking sector faces challenges such as corruption, non-performing loans, and weak regulation. Strengthening governance and oversight is crucial to rebuilding trust in the financial system.
Taxation Reforms: Furthermore, the country’s low tax-to-GDP ratio calls for reforms to expand the tax base, enhance compliance, and boost revenue collection.
Employment Generation: Job creation programs focused on skill development, entrepreneurship, and investment in high-potential industries beyond traditional sectors are required. Expanding education and vocational training, particularly in the digital and service sectors, can empower the youth and help reduce economic frustration.
Economic Diversification: Bangladesh has heavily relied on garments, remittances, and effective social sector delivery mechanisms. As a result, there is a need to explore other areas of opportunity for growth and diversification.
