Bangladesh’s economic landscape has dramatically shifted in recent years, contributing to the downfall of Sheikh Hasina’s government. The country is grappling with two critical challenges: soaring inflation, which has surpassed 9%, and a significant devaluation of the national currency, the taka. These economic pressures have intensified the difficulties that emerged in the wake of the Covid-19 pandemic, which severely disrupted Bangladesh’s economy, particularly its textile export sector.
The economic boom and its collapse
Bangladesh’s economy was once a beacon of growth in South Asia. Between 2011 and 2019, the country experienced a period of steady development, characterized by robust GDP growth averaging around 6% annually. Inflation was brought under control, dropping below 6% after 2016, and GDP per capita more than doubled, from $1,032 in 2011 to $2,154 in 2019. This period of economic prosperity bolstered Sheikh Hasina’s leadership, with her government credited for fostering stability and growth.
However, the pandemic’s aftermath revealed vulnerabilities in Bangladesh’s economic model. The heavy reliance on textile exports, which constitute a significant portion of the country’s GDP, proved to be a double-edged sword. When global demand plummeted during the pandemic, Bangladesh’s export earnings took a severe hit, leading to a cascade of economic challenges.
Inflation and currency devaluation
The most pressing issues currently facing Bangladesh are inflation and currency devaluation. Inflation has surged past 9%, eroding purchasing power and increasing the cost of living for millions of Bangladeshis. This spike in inflation has been partly driven by the devaluation of the taka, which has made imports more expensive, further exacerbating inflationary pressures.
The devaluation of the taka has also impacted Bangladesh’s foreign exchange reserves, which have been steadily depleting. This has created a vicious cycle where the central bank’s ability to stabilize the currency is hampered, leading to further devaluation and more inflation. These economic troubles have been compounded by rising unemployment, particularly among the youth, who have grown increasingly restless in the face of diminishing job opportunities and economic prospects.
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Political fallout
The economic hardships facing Bangladesh have translated into widespread public discontent, particularly among the youth, who have been at the forefront of protests and demonstrations. This unrest has significantly undermined the Hasina government’s credibility, ultimately leading to its downfall. The regime’s inability to address the economic challenges effectively, coupled with perceived mismanagement and corruption, fueled the growing opposition movement that culminated in Sheikh Hasina’s ouster.
The interim government’s challenges
In the wake of Sheikh Hasina’s departure, an interim government has been formed under the leadership of Nobel laureate Muhammad Yunus. The top priority for this interim administration is to stabilize the economy and restore public confidence, particularly in the banking sector. Salehuddin Ahmed, a former governor of Bangladesh Bank, has been appointed as the finance and planning adviser, tasked with overseeing these efforts.
Ahmed emphasized the urgency of reviving the economy, noting that once an economy grinds to a halt, restarting it becomes exceedingly difficult. The interim government faces the daunting task of implementing necessary reforms while addressing the immediate economic crises to prevent further deterioration.
Bangladesh’s economic downturn has been a critical factor in the downfall of Sheikh Hasina’s government. As the new interim administration steps in, it faces the formidable challenge of restoring economic stability and rebuilding public trust in a nation that was once hailed as an economic success story in South Asia. The road ahead is fraught with challenges, but the focus remains on reviving an economy that has been pushed to the brink.
