Not long ago, Bangladesh was celebrated as an economic success story. Under the leadership of Prime Minister Sheikh Hasina, the country’s focused push into the textile and apparel industry spurred rapid growth, lifting millions out of poverty and earning international admiration. However, Ms. Hasina’s abrupt departure from power this week has exposed the vulnerabilities of this single-sector strategy, as Bangladesh grapples with rising inflation and unemployment, challenges that many economists attribute to flawed policy decisions.
Ms. Hasina’s tenure, marked by increasing authoritarianism and pervasive corruption, eventually led to widespread frustration. This discontent boiled over, culminating in her ouster. Now, Bangladesh stands at a crossroads, faced with the urgent need to define its future path.
The student-led protests that precipitated Ms. Hasina’s resignation have ushered in an interim government led by Nobel laureate and microfinance pioneer Muhammad Yunus. The 84-year-old social entrepreneur faces a monumental task: stabilizing a country in the midst of economic turmoil while addressing the systemic issues that ignited the unrest.
In the immediate term, restoring order and stabilizing the economy are critical. Yet, Bangladesh must also confront deeper, long-standing economic challenges. The narrow focus on garment exports, which once drove growth, has become a liability in a world of fluctuating global demand and disrupted supply chains. The COVID-19 pandemic and Russia’s war on Ukraine exacerbated these vulnerabilities, revealing the dangers of an undiversified economy.
Under Ms. Hasina, Bangladesh experienced impressive growth, with the economy expanding at rates exceeding 7% in some years. However, this growth was heavily reliant on garment exports, which accounted for over 80% of the country’s earnings. When global demand for textiles plummeted during the pandemic, Bangladesh found itself in a precarious position, unable to generate sufficient revenue from other sectors to offset the losses.
Compounding these issues is Bangladesh’s weak tax system, characterized by low revenue collection and widespread evasion. With one of the world’s lowest tax-to-GDP ratios, the government has struggled to fund its priorities, further straining the economy. Income inequality and uneven growth have fueled public discontent, leading to distrust in the government. Corruption, including high-profile cases of loan fraud and money laundering, has only deepened this dissatisfaction.
Perhaps the most significant challenge facing the interim government is job creation. The garment industry’s dominance has left Bangladesh with a lack of new, better-paying jobs for its growing working-age population. The recent student protests, initially sparked by demands for reform in government job quotas, highlighted this issue, ultimately leading to Ms. Hasina’s downfall.