How Bangladesh can avoid getting stuck in middle-income trap

The International Monetary Fund claims that the economy of Bangladesh is now one of the fastest-growing major economies (sixth) 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 it has started its journey as a war-ravaged nation after independence in 1971.

Bangladesh achieved the eligibility status for graduation from “least developed countries”, fulfilling the indicators in all three criteria (ie, 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 United Nations General Assembly 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 least developed countries to “middle-income countries”.

As a result, they get stuck in the middle-income trap – an economic development situation in which a country that attains a certain income gets stuck at that level – 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, the Philippines for 34 years, and Argentina and Brazil for 33 years.

Key statistics

Bangladesh is reported as consistently progressing in the economic performance against gross national income per capita criterion, on the back of robust macroeconomic fundamentals and promoting the growth of exports and remittances for the last decade.

According to Bangladesh’s Ministry of Finance (2021) and Bangladesh Bureau of Statistics (2021), the gross national income 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 was 5.43% in 2021 recovering from the Covid-19 pandemic which was 5.62% in 1990, 5.29% in 2000 and 6.52% in 2012.

According to the United Nations Department of Economic and Social Affairs (2021) and Bangladesh Bureau of Statistics (2021), stable growth has now been noticed in Bangladesh against the indicators of the Human Assets Index criterion. The Human Assets Index of Bangladesh was 75.30 in 2021, which was 50.34 in 2000.

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

Life expectancy at birth in Bangladesh was 72.8 years in 2021, which was 65.45 years in 2000. The secondary School Enrollment Index is 69.5 in 2021 which was 41 in 2000. The Adult Literacy Index was 66.2 in 2021 which was 36.79 in 2000. Female enrolment at the secondary level was 79% in 2021 which was 47.9% in 2000 and the Maternal Mortality Ratio in Bangladesh was 158 per 1,00,000 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 the United Nations Department of Economic and Social Affairs (2021) and Bangladesh Bureau of Statistics (2021), Bangladesh has already made notable achievements in the indicators of the Economic and Environmental Vulnerability Index.

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

The population size of Bangladesh was 16.82 crore in 2021 which was 12.76 crore in 2000. The Remoteness Index of Bangladesh was 34.8 in 2021 which was 53.30 in 2000. Merchandise Export Concentration Index was 36 in 2021 which was 36.73 in 2000.

The share of Agriculture, Forestry and Fisheries in the GDP Index was 21.7 in 2021 which was 42.52 in 2000. The Instability of Exports of Goods and Services Index was 5.4 in 2021 which was 10.13 in 2000. Victims to Natural Disaster Index of Bangladesh was 79.24 in 2021 which was 87.5 in 2000.

Agricultural Instability Index was 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).

Road to 2041

Though Bangladesh has capitalised a significant socio-economic milestone in its development journey to be graduated by 2026 having a mission to be entered into upper-middle-income economies by 2041, the country must avoid middle-income trap taking into account the following strategies:

1. Bangladesh government should take a closer look at the Covid-19 waiver facilities and consider the actions that India and Brazil are taking and bargaining with the World Trade Organization.
2. It should focus on information and communications technology transformation or digital transformations for making the administration efficient.
3.   The country should emphasise 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 emphasising on the reformation of the regulatory institutions.
5. The country needs to concentrate on free trade agreements with the United States, European Union following Vietnam and South Korea. It should focus on the green economy, green energy, ensuring the rights and workplace safety of the labourers and reducing corruption through digitalisation. The more we digitise, the more we become transparent. The more we use digital technology, the less we have corruption.
6. Bangladesh could emphasise 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 middle income trap like China and Vietnam.
7. The country needs to create an environment to adopt modern technologies and reduce imports through import substitution industrialisation.
8. Bangladesh should focus on skill development emphasising on quality education (both formal and technical and vocational), health and research following the countries like Vietnam, South Korea, Japan and Singapore) expending much on it and taking full advantage of demographic dividend.
9. It should modernise the agriculture sector. The country needs to connect with the global value chain by augmenting connectivity to take full advantage of globalisation.
10. Successful implementation of Annual Development Plans and Five Year Plans would be the ultimate solutions to escape the middle-income trap.

Bangladesh is now on the right move implementing the 8th Five Year Plan considered as the first one that would support to achieve least developed countries graduation by 2026, Sustainable Development Goals by 2030, the Perspective Plan 2041 and Bangladesh Delta Plan 2100 without losing our achievements so far on education, public health and women empowerment.

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 the least developed countries is just like a milestone but it is not the end of the destination.

This article first appeared in Dhaka Tribune.