The Board of the International Monetary Fund (IMF) has approved a $4.7 billion assistance program for Bangladesh, after which Bangladesh has become the first country to benefit from several new IMF facilities.

But Bangladesh was once the fastest growing economy in South Asia and just two years ago Bangladesh overtook India in terms of GDP.

Then why did Bangladesh suffer from an economic crisis that it had to ask for a loan from the IMF to meet its needs?

It should be noted that there was a time when Bangladesh was proud of its foreign exchange reserves but now it is facing a balance of payments crisis.

Professor of Economics at Dhaka University, Dr. Rashid Al-Muhammad Titumir, believes that the decline of Bangladesh's economy is due to prolonged economic recession, weak institutions and political centralization.

Professor Rasheed says that 'Bangladesh's economy is in a way threatened and if it is not managed properly, it will come under pressure. The economy will suffer.'

There are three units of economy; Household Income, Industrial Income and Community Income. At present in Bangladesh only these three are in need of financial assistance.

Internationally, there is a balance of payments crisis in the country and the proposed IMF loan to Bangladesh is being discussed in the country.

Even before the Russo-Ukraine war, Bangladesh's foreign exchange reserves had started to fall. Due to the increase in the price of oil in the international market, inflation has also increased in Bangladesh.

Analysts believe that all these reasons are leading to economic crisis in Bangladesh.

Professor Rasheed Titumir says, "Right now we are seeing that the household income of people in Bangladesh is decreasing.

During the Corona epidemic, people in Bangladesh have reduced their income and started taking loans for expenses. Rising inflation destroyed the household economy and deepened the crisis.

New poor were born in the country:

Bangladesh's working class has been the backbone of its economy, but soaring inflation has created new poor in the country.

These are the people who used to run their families with their income but due to inflation they have to take loans to meet their needs.

According to a study conducted last year, a total of 39 million people in the population of Bangladesh are newly poor, which is 18.54 percent of the total population.

Research shows that most households in Bangladesh have cut back on food purchases to cut costs.

Professor Rashid Titumir says, 'The structure of Bangladesh's economy is such that rising inflation has created a new class of poor in the country. If compared to the level before the epidemic, now new poor people have been born in the country.

The income of these people has not increased as much as inflation has increased. Due to which they do not have money and have to take loans to meet the expenses. Along with this, a large middle class population has started relying on credit cards to meet their expenses.

The government also has to borrow to meet its expenses.

The government has taken a loan of one trillion taka in the current financial year.

'Government has to borrow'

Professor Titumir says, 'Bangladesh's GDP to tax ratio is the lowest in South Asia. This is the main problem of Bangladesh economy. After Afghanistan, Bangladesh has the lowest GDP-tax ratio.

He says that due to inflation, people's shopping time has decreased, which has reduced the government's revenue.

The tax-to-GDP ratio, which was already low, fell further. In such a situation, the government has no choice but to borrow from the central bank. The government is borrowing, but it is not able to fund many projects.

One of the reasons for the worsening economic condition of Bangladesh is that the economy of Bangladesh is based on consumption, but the increase in inflation has reduced the purchasing power of the people and the GDP has started to fall.

Professor Titumir says that the growth of the economy of Bangladesh has been based on consumption. Economic growth based on consumption is not sustainable. Migrant workers (who are predominantly women) have contributed to the economic development of Bangladesh.

When the income of the working class increased, the expenditure also increased and this affected the economic growth. But the problem with consumption-driven economic growth is that it keeps increasing demand.

He further explains that this is the main problem of the economy of Bangladesh. In a consumption-based economy, the demand for imports continues to rise, in a situation where prices in the foreign market rise, which has a direct impact on payments. This is what happened in Bangladesh.

If Bangladesh had invested in its own productivity, it would have protected itself from external factors to some extent.

External factors like the corona epidemic and then the Russia-Ukraine war directly affected the economy of Bangladesh and that is the reason why the economy of Bangladesh, which was once growing rapidly, now seems to be in trouble.

Analysts believe that there is also a problem in the management of the economy in Bangladesh. The current government has borrowed more in the last five years than the governments borrowed from 1971 to 2017.

This means that there is a problem in the management of the economy itself, says Prof Tetomir. There are problems at the institutional level, which need to be solved immediately.

Bangladesh's foreign exchange reserves have also declined sharply due to inflation.

In December 2022, Bangladesh's foreign exchange reserves were $30 billion. While in January 2022 it was $44.9 billion.

"There is hardly any place in the world where there is a bright board outside a central bank announcing the position of foreign exchange reserves," says Professor Titumir. But that was the case in Bangladesh, the country's foreign exchange reserves were displayed on a bright board outside the central bank.

But now there is a crisis of foreign exchange reserves in the country. This simply means that Bangladesh's economy lacks, or has not developed, the capacity to absorb external shocks.

According to experts, the root of the economic crisis in Bangladesh is the balance of payments crisis. 

Professor Arun Kumar, a professor of Delhi's Jawaharlal Nehru University and an expert in economic affairs, says that the world economies were shocked by the Corona epidemic and the war in Ukraine. This includes India.

The rise in commodity prices has worsened the balance of payments of many countries. Sri Lanka is an example of this. Due to which a severe economic crisis has arisen there. It seemed that Bangladesh would not come in this situation. But now there is a problem of balance of payments.

He said that due to the increase in the prices of crude oil and other commodities, the import bills of the countries increased and Bangladesh was also affected.

When a country's balance of payments deteriorates, it directly affects the country's foreign exchange reserves. If the foreign exchange reserves are low, the debt situation also worsens, the country faces difficulties in paying the loan installments. Bangladesh now has to borrow to meet its needs.

In October 2020, it was estimated that Bangladesh will overtake India in terms of GDP per capita in 2021.

In July 2021, Bangladesh overtook India in terms of GDP growth.

However, the economies of India and Bangladesh differ greatly and comparisons between the two are not fair.

Bangladesh's GDP in 1960 was $4 billion. In the year 2021, this figure had reached 416 billion dollars. That is, the economy of Bangladesh increased more than 100 times in 50 years, but the Corona epidemic and the war in Ukraine had a direct impact on the economy of Bangladesh.

"Bangladesh's economy was doing well, but earlier the pandemic and the war in Ukraine affected it," says Professor Arun Kumar. Large economies are less affected by such factors, but smaller economies are affected more quickly.

Bangladesh used to maintain its balance of payments through textile exports. It mostly ships clothes to European countries and developed countries. But epidemics and war also affected these markets and Bangladesh's garment exports declined.

Professor Arun Kumar says that a kind of cold war is going on in the world. On one side there are Western countries and on the other side there are countries like Russia, China and Iran. This cold war has also affected the market. This is having a direct impact on small economies like Bangladesh.

Will India help Bangladesh?

Amidst the worsening economic situation of Bangladesh, the question is whether Bangladesh is going the way of Sri Lanka and if so, will India come forward to help Bangladesh?

Dr. Rajeev, an assistant professor at Christ Church University in Bengaluru and an expert on India-Bangladesh relations, says, "Bangladesh's economy is no longer so bad that it can be compared to Sri Lanka's economy." Bangladesh was the fastest growing country for two years.

Bangladesh's relations with India have improved over the years.

Bangladesh is one of the largest trading partners of India and many sectors of India depend on Bangladesh.

Dr. Rajeeb says, “Today is the era of global supply chain. Parts of some products are made in Bangladesh and some in India, so the economies of India and Bangladesh are interdependent. If the economic condition of Bangladesh worsens, it may affect some sectors of India as well.

Analysts also see Bangladesh's deteriorating economic situation as an opportunity for India to expand its influence in South Asia.

The deteriorating economic conditions of any country also affect its politics.

Analysts say that fundamentalist elements have also strengthened in Bangladesh in the last decades, if the economic condition there deteriorates, these radical elements may become stronger, which will not be a very good sign for Bangladesh.

He says that if the economic condition of Bangladesh worsens, India should come forward to help to prevent the rise of radicalization there.