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Banking Sector in Bangladesh has collapsed, Banks not able to give money back to customers


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Bangladesh is currently experiencing a serious financial crisis that has caused chaos in its banking sector. Many banks, especially Sharia banks, have not been able to give cash to their customers for the last four to five weeks. This has led to panic among the people who are worried about their savings.

Banking Issues

The situation reached a breaking point recently when the manager of Social Islami Bank was attacked and verbally abused by angry depositors. Many people are desperate to access their money, but the banks simply don’t have enough cash. The economy has been struggling, especially after a coup by fundamentalist groups, making it difficult for the government to maintain stability.

As people wait anxiously to withdraw their money, the crisis deepens. The political situation in the country has changed dramatically, with Prime Minister Sheikh Hasina resigning and Nobel Laureate Professor Mohammad Yunus being appointed as the Chief Advisor of the interim government. These events have created significant uncertainty in the country, which affects not only Bangladesh but also neighboring countries and major global powers like India, the U.S., and China.

Political Turmoil

Since July, Bangladesh has been facing social and political unrest, including widespread protests and violence. This unrest culminated in Sheikh Hasina’s sudden resignation as she fled to Delhi for safety. Meanwhile, Professor Yunus has taken over the interim government, promising to protect democracy and organize new elections soon.

The protests are linked to the country’s economic problems. While Hasina’s government has been accused of being autocratic, the economy has been struggling for years. For example, the country’s GDP growth fell sharply from 6.01% in the previous year to just 3.78% between October and December 2023.

The World Bank also reported in April 2023 that Bangladesh’s economy is expected to continue declining. The country is facing serious financial challenges, including a large financial account deficit and falling foreign exchange reserves. Problems such as bad loans in banks, a weakening currency, decreasing remittances from abroad, and reduced exports have made the situation worse.

Impact on Foreign Investments

The ongoing financial crisis and political instability are directly affecting foreign investments and trade in Bangladesh. Once considered a good place for investment, the country is now facing issues like tight cash flow, rising interest rates, and slow growth in private sector lending.

Bangladesh has signed 31 bilateral investment treaties and double taxation avoidance agreements with 42 countries, but the current turmoil raises doubts about the future of these agreements and the stability of foreign investments. The textile industry, which has attracted a lot of foreign direct investment (FDI), saw $1.2 billion in investments in 2022, with major contributions from countries like the U.S. and the UK.

The U.S. is the largest investor in Bangladesh and has a strong interest in maintaining stability in the country. However, the U.S. has not seen significant strategic gains in South Asia, even with its investments. With elections approaching, the political situation in Bangladesh could complicate U.S. interests even further.

Regional Implications

China is not the top investor in Bangladesh, but it plays a vital role in the country’s infrastructure development through its Belt and Road Initiative (BRI). Projects like the Padma Bridge and Payra Power Plant highlight China’s influence in Bangladesh. However, Sheikh Hasina’s relationship with China has reportedly declined, especially as she has strengthened ties with India.

India also has a significant interest in Bangladesh’s stability. As the second-largest export partner, India has made investments in essential sectors like power, infrastructure, and consumer goods. Companies such as Adani Power, Tata Motors, and Hero MotoCorp have established operations in Bangladesh. However, the ongoing political instability could put these investments at risk.

The return of Tarique Rahman, the acting chairman of the BNP, who is known for his anti-India stance, raises concerns about the future of India-Bangladesh relations. Historically, India has supported Sheikh Hasina, but it now faces the challenge of navigating a changing political landscape.

Conclusion

Bangladesh’s financial crisis and political instability have serious implications for the entire region. As the country heads toward new elections, the stakes are high for neighboring countries and major global players. India’s interests are particularly vulnerable, and the coming months will be crucial in determining how these challenges unfold. The evolving situation will require careful attention from India, the U.S., and China, as they seek to maintain stability in Bangladesh and the surrounding region.

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