Bangladesh's Future Hinges on Muhammad Yunus as Interim Government Faces Economic Challenges

With Muhammad Yunus at the helm, Bangladesh’s interim government faces the daunting task of stabilizing a fragile economy. The Nobel laureate's global reputation brings hope, but significant challenges remain as the nation grapples with declining reserves, unrest, and the need for reform.

Bangladesh Faces Uncertain Future as Interim Government, Led by Muhammad Yunus, Tackles Economic Turmoil

The future has suddenly become an open book for Bangladeshi businessman Mahbubul Alam and many of his fellow citizens. Until just over a week ago, Prime Minister Sheikh Hasina and her Awami League held a firm grip on power in this South Asian nation of 171 million. Despite growing cracks in the country's economic model, Hasina's increasingly autocratic governance stifled any discussion of change.

However, following a brief but intense student-led uprising, Bangladesh now has an interim government led by Nobel Peace Prize-winning economist Muhammad Yunus. This government comprises a diverse, nonpartisan team of activists, academics, and retired officials, including former central bank chief Salehuddin Ahmed.

The idea of radical change is now embraced by even the most established figures in Bangladesh's business community. Alam, who is the president of the Federation of Bangladesh Chambers of Commerce and Industry, expressed optimism about the new direction the country is taking. "It's a new Bangladesh," Alam told Nikkei Asia. "The spirit of the youth who fought for change, combined with the experience and global connections of the Nobel laureate, will help achieve an economic revolution."

Alam, whose businesses export steel and shrimp and import pharmaceutical ingredients, is acutely aware of Bangladesh's reliance on international commerce. He also understands the repercussions of Hasina's violent crackdown to suppress the student movement. "Our image abroad has taken a big hit," he said. “But with Dr. Yunus, who is globally respected, we can use his reputation to restore confidence among the international community."

The protests, which were initially sparked by the reinstatement of quotas that reserved the majority of civil service positions for children of veterans of the 1971 War of Independence, quickly escalated. In nearly three weeks of clashes with security forces and Awami League loyalists, at least 400 students and other demonstrators were killed. The unrest prompted the government to impose a curfew and suspend internet services for ten days, severely disrupting air and sea traffic and causing an estimated economic impact of over $10 billion, according to the Foreign Investors' Chamber of Commerce & Industry.

The timing of the turmoil could not have been worse for Bangladesh. The country is in the middle of a three-and-a-half-year, $4.7 billion financial aid program from the International Monetary Fund (IMF) to help alleviate financial strains caused by the COVID-19 pandemic and the Ukraine conflict. Despite this financial support, Bangladesh's foreign reserves continue to decline. S&P Global, which recently downgraded Bangladesh, reported that the country's reserves were only enough to cover 3.3 months of imports as of June's end and predicted that this coverage could drop to 2.6 months in the next two years.

Amid Economic Uncertainty, Bangladesh’s New Government Faces Challenges as Optimism and Caution Coexist

Despite these challenges, many in Bangladesh remain optimistic. The DSEX Index, the benchmark for Bangladesh's stock market, surged 15% in the four trading sessions following Hasina's departure from India. Sohela Nazneen, a Bangladeshi development scholar at the University of Sussex, emphasized the need for hope while outlining areas needing urgent attention, including depoliticizing institutions and setting in motion an inclusive democratic process. "We also have to ensure the economy is stable," she said.

However, the challenges are immense. S&P warned that recent events in Bangladesh had further undermined sovereign credit support and exacerbated risks to economic growth. Within Bangladesh's business community, there are concerns that the unrest's effects will linger, particularly in the IT and garment sectors, which are critical to the country's economy.

The new government, led by Yunus, faces the daunting task of stabilizing the economy, reducing inflation and youth unemployment, diversifying investment and exports, and widening the tax base. Yunus, best known for founding Grameen Bank and pioneering the microcredit model, has not said anything about his economic plans. However, his global reputation and connections have raised hopes that Bangladesh can navigate this period of uncertainty.

Syed Nazrul Islam, first vice president of the Bangladesh Garment Manufacturers and Exporters Association, voiced the hopes of many: "We believe the country will go forward by making good use of his connections."