Rekha Begum desperately stands in line to buy groceries. Like many others in Bangladesh, she struggles to find affordable necessities such as rice, lentils and onions.
“I went to two other places but they told me they had no supplies. Then I came here and was at the end of the line,” said Begum, 60, as she waited nearly two hours to buy what she needed from a truck selling groceries at subsidized prices in the capital, Dhaka.
Bangladesh’s economic miracle is taking a heavy toll as soaring fuel prices add to public frustration over the rising cost of food and other necessities. Fierce opposition criticism and small-scale street protests have erupted in recent weeks, increasing pressure on Prime Minister Sheikh Hasina’s government, which has asked the International Monetary Fund for help to protect the country’s finances.
Experts say Bangladesh’s plight is nowhere near as dire as that in Sri Lanka, where months of unrest prompted the president to flee the country and people are suffering from a complete lack of food, fuel and medicines and days spend in queues for essentials. But it faces similar problems: overspending on ambitious development projects, public anger over corruption and nepotism, and a flagging trade balance.
Such trends are undermining Bangladesh’s impressive progress towards becoming a more prosperous, middle-income country, driven in large part by its success as a garment manufacturing hub.
The government hiked fuel prices by more than 50 percent last month to counter rising costs due to high oil prices, prompting protests against the rising cost of living. This prompted authorities to order the subsidized sale of rice and other staples by government-appointed traders.
The final phase of the program, which began on Sept. 1, is expected to help about 50 million people, Commerce Minister Tipu Munshi said.
“The government has taken a number of measures to ease the pressure on low earners. That affects the market and keeps the prices of everyday goods competitive,” he said.
The guidelines are an emergency solution to larger global and national challenges.
The war in Ukraine has pushed up the prices of many commodities at a time when they were already rising sharply as demand recovered as the coronavirus pandemic waned. Meanwhile, countries like Bangladesh, Sri Lanka and Laos – among many – have seen their currencies weaken against the dollar, raising the cost of dollar-denominated imports of oil and other commodities.
To ease public finances and foreign exchange reserves, the authorities imposed a moratorium on large new projects, shortened office hours to conserve energy, and imposed restrictions on imports of luxury and non-essential goods such as sedans and SUVs.
“Bangladesh’s economy is facing severe headwinds and turmoil,” said Ahmad Ahsan, economist and director of the Dhaka-based Policy Research Institute, a think tank. “Suddenly we are back in the era of ongoing blackouts, with the taka and forex reserves under pressure,” he said.
Millions of low-income Bangladeshis like Begum, whose family of five can barely afford to eat fish or meat once a month, still struggle to put food on the table.
Bangladesh has made great strides in growing its economy and reducing poverty over the past two decades. Investments in garment manufacturing have provided jobs for tens of millions of workers, mostly women. Exports of clothing and related products account for more than 80 percent of exports.
But with fuel costs so high, authorities shut down diesel-powered power plants that produced at least 6 percent of total production, reducing daily power generation by 1,500 megawatts and disrupting production.
Imports surged to $84 billion in the most recent fiscal year ended June 2022, while exports have faltered, leaving a record current account deficit of $17 billion.
More challenges lie ahead.
Deadlines are fast approaching for foreign loan repayments related to at least 20 mega-infrastructure projects, including the $3.6 billion China-built Padma River Bridge and a nuclear power plant funded mostly by Russia. Experts say Bangladesh needs to brace itself as repayment schedules ramp up between 2024 and 2026.
In July, Bangladesh applied for what economists see as a precautionary measure for a $4.5 billion loan from the International Monetary Fund, becoming the third country in South Asia to recently apply for its help, after Sri Lanka and Pakistan.
Finance Minister AHM Mustafa Kamal said the government had asked the IMF to start formal negotiations on loans “on balance of payments and budget support”. The IMF said it was working with Bangladesh to develop a plan.
Bangladesh’s foreign exchange reserves have fallen, potentially undermining its ability to meet its borrowing obligations. By Wednesday, they had fallen to $36.9 billion from $45.5 billion a year earlier, according to the central bank.
The usable foreign exchange reserves would be about $30 billion, said Zahid Hussain, a former chief economist at the World Bank’s Dhaka office.
“I wouldn’t say this is a crisis situation. That’s still enough to cover three months of imports, three and a half months of imports. But it also means that … you don’t have a lot of wiggle room on the reserve front,” he said.
Despite what some economists call overspending on some costly projects, Bangladesh is better equipped to weather hard times than some other countries in the region.
Its agricultural sector – tea, rice and jute are major exports – is an effective “shock absorber” and its economy, four to five times larger than Sri Lanka’s, is less vulnerable to external disasters such as a decline in tourism.
The economy is expected to grow 6.6 percent this fiscal year, according to the latest forecast from the Asia Development Bank, and the country’s overall debt is still relatively low.
“I think in the current context the most important difference between Sri Lanka and Bangladesh is the debt burden, especially the external debt,” Hussain said.
Bangladesh’s external debt is less than 20 percent of gross domestic product, while Sri Lanka’s was around 126 percent in the first quarter of 2022.
“So we have some space. I mean, debt as a source of stress for the macro economy is not a big problem yet,” he said.
Mohammed Jamal, 48, who waited in line to buy subsidized groceries, said he felt no such latitude for his own family.
“It has become unbearable to maintain our standard of living,” Jamal said. “The prices are simply unattainable for ordinary people. It’s hard to live like this.”