The Challenge of Export Diversification

Bangladesh has secured outstanding long-term export performance, growing from a mere USD 1.5 billion in FY1990 to an astounding USD 55.6 billion in FY2023 (Chart 1).  On average, exports grew by an amazing 12.7% per year over a 33-year period, which makes Bangladesh one of the fastest growing export countries. This export-orientation of the development strategy has served Bangladesh well, contributing handsomely to GDP growth, employment and poverty reduction. Moving forward, the main development challenge for Bangladesh is to preserve this superb export performance as it seeks to climb up from a lower-middle income country status, as defined by the World Bank, to an upper-middle income country by 2031.

While the long-term highly favorable export trend is good news and speaks well to the Bangladesh potential, over the past 18 months or so the economy is facing some severe headwinds that are threatening to derail this long-term progress with export performance. These headwinds have been cumulating over the past several years, although they gathered force in the wake of the 2022 global inflation and the Ukraine War. Imports have surged, growth of exports has slowed, and foreign exchange shortage has mounted. Import and exchange controls are being used to manage the shortage of foreign exchange. The reduction in imports is deep and has tended to hurt both investments and GDP growth. The push for higher growth of exports has become critical to restore the momentum for investment and GDP growth.

A review of Chart 1 tells the clear story of the domination of ready-made garments (RMG) in the export basket. Not only that RMG has led the way to the remarkable expansion of exports in Bangladesh, but its domination has also rapidly expanded and has continued to do so (Chart 2). Thus, the share of RMG in total exports has surged from a low of 46% in FY1990 to a high of 85% in FY2023.