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Quick Facts
- Population:
- GDP (PPP):
- $282.2 billion
- 6.1% growth
- 6.1% 5-year compound annual growth
- $1,693 per capita
- Unemployment:
- Inflation (CPI):
- FDI Inflow:
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Bangladesh’s economic freedom score is 52.6, making its economy the 132nd freest in the 2013 Index. Its overall score has decreased by 0.6 point since last year, reflecting declines in labor freedom and monetary freedom that counterbalance a notable improvement in freedom from corruption. Bangladesh is ranked 28th out of 41 countries in the Asia–Pacific region.
Although Bangladesh has recorded significant increases in economic freedom over the past five years, economic development remains hampered by the fragile rule of law. Corruption and marginal enforcement of property rights have driven people and enterprises out of the formal sector. Poor economic management, worsened by repeated political crises, has severely constrained economic dynamism and exacerbated persistent poverty.
Despite some progress in streamlining business regulations, entrepreneurial activity is hampered by an uncertain regulatory environment and the absence of effective long-term institutional support for private-sector development. The government’s inability to provide basic public goods further limits economic opportunities for business development and job growth.
Background
Islamist extremist groups threaten Bangladesh’s democracy and pluralist traditions, but the current government, led by Prime Minister Sheikh Hasina Wajed, has taken steps to curb their activities. The opposition Bangladesh National Party fueled political and economic uncertainty in 2010 with street protests against a constitutional amendment to reverse the 15-year practice of holding national elections under a neutral caretaker administration. Bangladesh is one of the world’s poorest nations, and the majority of its people work in agriculture, though service industries now account for over half of GDP. Weak institutions, poverty, and too much government intervention, which leads to corruption, undermine economic development and fuel social and political unrest. Bangladesh receives relatively large inflows of remittances and around $100 million a year in aid from the United States.
The civil court system is based on the British model, and the constitution provides for an independent judiciary, but contract enforcement and dispute settlement are inefficient. Corruption remains a serious problem. The government says it is committed to fighting corruption, but its efforts to ease public procurement rules and proposals to curb the Anti-Corruption Commission’s independence may undermine institutional safeguards.
The top income tax rate is 25 percent, and the top corporate tax rate is 45 percent. Other taxes include a value-added tax (VAT) that is currently being reformed. The overall tax burden is equal to 9 percent of GDP. Government spending equals 16.2 percent of total domestic output, and public debt has declined to below 50 percent of GDP. A large bureaucracy hinders government effectiveness.
Business start-up has become simpler, with required procedures reduced to seven and no minimum capital required. Obtaining necessary permits takes more than 150 days. Although a well-functioning labor market has not fully developed, labor productivity growth has been slightly higher than wage hikes. Inflationary pressure has moderated somewhat, but price-control measures remain in place.
Myriad non-tariff barriers and the government’s reliance on tariffs as a revenue source increase the cost of trade. Although foreign investment is welcome, potential investors face a host of challenges, including regulations that may favor domestic firms. Reform of the financial sector has been ongoing, but government ownership and interference remain considerable, undermining much-needed increases in efficiency.