Bangladesh’s ongoing crisis may severely impact its diplomatic and trade relations. International criticism over violence against minorities and human rights concerns could strain ties with key partners like the U.S. and EU, potentially jeopardizing trade preferences. Additionally, escalating attacks on Bangladesh’s Hindu minority could worsen tensions with India, risking significant economic fallout due to the deeply interconnected trade and investment ties between the two nations, writes Dr Fazal Rahman
Bangladesh, once hailed as an emerging economic success story in South Asia, now finds itself at a critical crossroads. Recent political turmoil, coupled with a resurgence of Islamic fundamentalism, threatens to undermine years of hard-won economic progress and social development. As the nation grapples with leadership changes and civil unrest, there are growing concerns that radical elements may exploit the chaos to advance their agendas, potentially derailing Bangladesh’s growth trajectory and eroding key developmental gains. The resignation of Prime Minister Sheikh Hasina on August 5, 2024, marked a turning point for Bangladesh. Hasina’s Awami League party had long been seen as a bulwark against religious extremism, championing a vision of secular, inclusive governance. Her departure amid widespread protests has created a power vacuum that radical groups appear eager to fill. In the week following Hasina’s resignation, over 200 incidents of persecution against religious minorities were documented across 52 districts. Hindu temples have been vandalized, businesses looted, and community leaders killed. This surge in communal violence signals a dangerous shift away from Bangladesh’s constitutional principles of secularism and religious tolerance.
The immediate economic impact of the unrest has been severe. The Foreign Investors’ Chamber of Commerce and Industry (FICCI) reported that recent shutdowns have cost the economy over $10 billion, with losses expected to mount. Key industries, including the vital garment sector responsible for 85% of the country’s exports, have been disrupted. Factory closures and supply chain interruptions threaten to erode Bangladesh’s competitive position in global markets. Moreover, the climate of insecurity and communal tension is likely to deter foreign investment, a crucial driver of Bangladesh’s economic growth in recent years. S&P Global Ratings has already lowered Bangladesh’s credit rating, citing political instability and economic headwinds. This downgrade will increase borrowing costs and further strain the nation’s finances.
Bangladesh had made significant strides in human development over the past decade, improving indicators such as literacy rates, life expectancy, and poverty reduction. However, the current crisis threatens to reverse many of these gains. The World Bank’s projection of 5.6% GDP growth for FY2024, already below the pre-pandemic average, may prove optimistic if political instability persists. Inflation, which reached a decade-high of 9.7% in April 2024, is likely to worsen amid supply disruptions and economic uncertainty. This will disproportionately impact the poor and vulnerable, potentially pushing millions back into poverty. The unemployment rate, which had already surged by 3.51% in early 2024, may spike further as businesses struggle to operate in the volatile environment.
As secular institutions weaken, radical Islamic groups are poised to expand their influence. These organizations often oppose policies that have driven Bangladesh’s economic growth, such as women’s participation in the workforce and openness to foreign investment. Their growing prominence could lead to regressive social policies and economic isolation, hampering Bangladesh’s integration into the global economy. The garment industry, a key employer of women and a major source of foreign exchange, may be particularly vulnerable to fundamentalist pressures. Any retreat on women’s rights or labor standards could jeopardize international partnerships and market access, dealing a severe blow to the economy. The rise in communal violence and perceived insecurity is likely to accelerate the outflow of skilled professionals and entrepreneurs, particularly from minority communities. This brain drain could deprive Bangladesh of vital human capital necessary for innovation and economic diversification. The exodus of minority-owned businesses may also disrupt local economies and supply chains.
Bangladesh’s diplomatic and trade relations may suffer as a result of the current crisis. International condemnation of the violence against minorities and concerns about human rights could lead to strained relationships with key partners. The United States and European Union, major destinations for Bangladeshi exports, may reconsider trade preferences if the situation deteriorates further. Additionally, tensions with neighboring India, home to a large Hindu population, could escalate if attacks on the Hindu minority in Bangladesh continue. Any disruption in Bangladesh-India relations would have significant economic repercussions, given the countries’ deeply intertwined trade and investment ties.
To avert economic disaster and preserve its developmental gains, Bangladesh must take swift action to restore stability and reaffirm its commitment to secular, inclusive governance. The interim government led by Muhammad Yunus faces the daunting task of reining in extremist elements while addressing the legitimate grievances that fueled recent protests. The international community also has a role to play in supporting Bangladesh through this critical juncture. Diplomatic pressure, coupled with targeted economic assistance, can help incentivize reforms and stabilize the economy.
Bangladesh stands at a precipice. The rise of Islamic fundamentalism, fueled by political instability and communal tensions, poses an existential threat to the nation’s economic future and social fabric. The progress of recent years – rising incomes, improving living standards, and growing global integration – is at risk of being undone. The coming months will be crucial in determining whether Bangladesh can reclaim its path towards inclusive, sustainable development or succumb to the forces of extremism and economic decline. The stakes could not be higher, not just for Bangladesh but for regional stability and the global economy. As the nation navigates these turbulent waters, the world watches with bated breath, hoping for a return to the principles of secularism, tolerance, and progress that have underpinned Bangladesh’s remarkable journey thus far.