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This is how Bangladesh can avoid the middle income trap

Only if the country sustains its current growth momentum

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The International Monetary Fund claims that the economy of Bangladesh is now one of the fastest growing major economies (6th) in the world and the first in South Asia, securing on an average 6.5% GDP growth rate from the beginning of the last decade though she has started her journey as a war-ravaged nation after independence in 1971.

Bangladesh achieved the eligibility status for graduation from LDCs, fulfilling the indicators in all three criteria (i.e., national income per-capita, human assets index, and economic and environmental vulnerability index) to be considered as a lower-middle-income country in 2018 and received the final recommendations from the UNGA committee in 2021 and be successfully graduated by 2026. 

In the history of socio-economic development, many developing countries fail to accelerate past their growth momentum after achieving the graduation status from LDCs to Middle-Income Countries (MIC).

As a result, they get stuck in the Middle Income Trap (MIT) for a long time.

For example, India has been a low-middle-income country for 13 years, Malaysia for 27 years, Vietnam for 11 years, Philippines for 34 years and Argentina and Brazil for 33 years respectively.

Bangladesh is reported as consistently progressing in the economic performance against Gross National Income (GNI) per capita criterion, on the back of robust macroeconomic fundamentals, and promoting growth of exports and remittances for the last decade.

According to the Ministry of Finance (2021) and BBS (2021), GNI per capita of Bangladesh was $2,554 in 2021, which was only $92 in 1975, $285 in 1990, $428 in 2000, and $840 in 2012.

GDP of Bangladesh is $411 billion in 2021 which was only $19.45 billion in 1975, $31.60 billion in 1990, $53.37 billion in 2000, and $133.36 in 2012.

The GDP growth rate of Bangladesh is 5.43% in 2021 recovering from Covid-19 pandemic which was 5.62% in 1990, 5.29% in 2000, and 6.52% in 2012.

According to UN-DESA 2021 and BBS 2021, stable growth has now been noticed in Bangladesh against the indicators of Human Assets Index criterion. The Human Assets Index of Bangladesh is 75.30 in 2021, which was 50.34 in 2000.

The prevalence of undernourishment in Bangladesh is 9.7% in 2021 which was 15.9% in 2000.

Mortality Rate Index is 87.4 in 2021 which was 64.78 year in 2000.

The lower the value of the Mortality Rate Index represents the better performance of the country.

Life expectancy at birth in Bangladesh is 72.8 year in 2021 which was 65.45 year in 2000.

Secondary School Enrollment Index is 69.5 in 2021 which was 41 in 2000.

The Adult Literacy Index is 66.2 in 2021 which was 36.79 in 2000.

Female enrolment at the secondary level is 79% in 2021 which was 47.9% in 2000 and the Maternal Mortality Ratio (MMR) in Bangladesh is 158 per 100,000 live births in 2021 which was 434 in 2000.

With the distinguished improvement in all human asset indicators, Bangladesh exceeded the graduation threshold at the 2018 triennial review for the first time.

According to UN-DESA 2021 and BBS 2021, Bangladesh has already made notable achievements in the indicators of Economic and Environmental Vulnerability Index.

Economic Vulnerability Index of Bangladesh is 27.2 in 2021 which was 32.41 in 2012.

The population size of Bangladeshis 168.2 million in 2021 which was 127.65 million in 2000. The Remoteness Index of Bangladesh is 34.8 in 2021 which was 53.30 in 2000. Merchandise Export Concentration Index is 36 in 2021 which was 36.73 in 2000.

The share of Agriculture, Forestry and Fisheries in GDP Index is 21.7 in 2021 which was 42.52 in 2000.

The Instability of Exports of Goods and Services Index is 5.4 in 2021 which was 10.13 in 2000.Victims to Natural Disaster Index of Bangladesh is 79.24 in 2021 which was 87.5 in 2000.

Agricultural Instability Index is 8.2 in 2021 which was 11.91 in 2000, and the population of Bangladesh living in low elevation coastal zones is 29% in 2021 which was 45.56% in 2000.

The lower the value of the Economic and Environmental Vulnerability Index represents the better the economic performance of the country.

According to Asian Development Bank 2014, there are four distinct income groups, which are defined in terms of GDP per capita: Lower- Income Economies (below $2,000); Lower-Middle-Income Economies (between $2,000 and $7,250); Upper-Middle-Income Economies (between $7,250 and $11,750); and Higher-Income Economies(above $11,750).

Though Bangladesh has capitalized a significant socio-economic milestone in her development journey to be graduated by 2026 having a mission to be entered into Upper-Middle-Income Economies (UMIE) by 2041, the country must avoid Middle Income Trap (MIT) taking into account the following strategies:

1) Bangladesh government should take a closer look at the covid waiver facilities and consider the actions what India and Brazil are taking and bargaining with the World Trade Organization (WTO)

2) It should focus on ICT transformation or digital transformations for making the administration efficient

3) The country should emphasize on monitoring, supervision and strong regulation to reduce corruption, unused and wastage of the allocated money

4) The country requires administrative and institutional capacity developments emphasizing on the reformation of the regulatory institutions

5) The country needs to concentrate on free trade agreements with the USA, European Union following Vietnam and South Korea. It should focus on green economy, green energy, ensuring rights and workplace safety of the labourers, and reducing corruption through digitalization. The more we digitize, the more we become transparent. The more we use digital technology, the less we have corruption

6) Bangladesh could emphasize on an export-oriented, FDI-driven development strategy, focusing on wage-led growth models, productivity gains and value chain improvement and focus on the socio-economic consequences of innovation-driven changes in the manufacturing and service sectors to escape the MIT like China and Vietnam

7) The country needs to create an environment to adopt modern technologies and reducing the imports through import substitution industrialization

8) Bangladesh should focus on skill development emphasizing on quality education (both formal and technical and vocational), health, and research following the countries like Vietnam, South Korea, Japan, Singapore, etc.) expending much on it and taking the full advantage of demographic dividend

9) It should modernize the agriculture sector. The country needs to connect with the global value chain by augmenting connectivity to take the full advantage of globalization

10) Successful implementation of ADPs and Five Year Plans would be the ultimate solutions to escape the Middle Income Trap.

Bangladesh is now in a right move implementing the 8th Five Year Plan considered as a first one that would support to achieve LDC graduation by 2026, SDG goals by 2030, the Perspective Plan 2041, and Bangladesh Delta Plan 2100 without losing our achievements so far on education, public health, women empowerment, etc.

Bangladesh would become a developed country by 2041 avoiding the Middle Income Trap that is not a myth but a reality, if the country sustains its current growth momentum.

We should remember that graduation from LDCs is just like a milestone but it is not the end of the destination.

 

The author is a researcher at the economic division of the Bangladesh Institute of Social Research (BISR) Trust. He can be reached at [email protected]

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