Over Reliance on Readymade Garments (RMG) exports and protective tariff regime challenge Bangladesh’s growth sustainability – World Bank

The World Bank (WB) has cautioned that over reliance on Ready Made Garment (RMG) exports and the perpetuation of the protective tariff regime may challenge the sustainability of Bangladesh’s growth model. Pointing out the low export to GDP ratio of Bangladesh at about 9 percent in 2020 and 2021, the World Bank said that the export basket is heavily dependent on RMG which accounted for over 83 percent of total exports in 2020. It said that the lack of export diversification can be partly attributed to the country’s protective trade regime. Bangladesh’s average tariff rate on intermediate goods is 18.8 percent which is more than double the rate in China and substantially higher than Thailand and Vietnam.

The World Bank in its economic memorandum for Bangladesh titled ‘Change of Fabric’, has lauded Bangladesh for being among the fastest growing economies of the world but cautioned that further major structural reforms are needed to sustain it in future. It pointed out three critical growth constraints which include export diversification, banking sector reform to allow for channeling savings to productive investment and tackling the challenges of urbanization. Infrastructure bottlenecks and slow human capital developments are the other factors that put constraints on growth in Bangladesh, says the World Bank.

The WB report points out that the higher GDP growth rate in the last decade has not translated into faster poverty reduction as in the past two decades. It indicates that the current episode of high growth has not been as inclusive as before.

The report says that the Non-Tariff Barriers (NTBs) account for an ad-valorem equivalent of close to 200 percent in Bangladesh. Burdensome sanitary and phytosanitary requirements, technical barriers to trade, pre-shipment inspection, nonautomatic licensing requirements, and price control measures are a significant deterrent to trade and competitiveness. Border and documentary compliance requirements lead to major delays for exporting firms in Bangladesh and, at a total of more than 300 hours required to comply, such delays are among the highest in South Asia.