Strategic Partnership of Bangladesh With Australia to Protect From Possible Debt Trap and Diseconomies of Scale of One-Belt One-Road: Lessons for SAARC Nations

Introduction

Bangladesh gained independence in 1971 after a ‘war of liberation’ (CIA, 2020). Bangladesh is about to celebrate its 50^th year of diplomatic relationship with Australia, which is one of the first few countries, which recognized Bangladesh in 1972 (Chowdhury, 2019). Bangladesh is a riverine South Asian country with a Population of 163.0 million growing at the rate of 0.98% annually. The total Area of the country is: 148,460 square kilometers where Land area is: 130,170 square kilometers and Water area is: 18,290 square kilometers. The rate of literacy is 73.9% and rate of urbanization is 38.2% (CIA, 2021). The country has a GDP (PPP) of $838.6 billion with a 7.9% growth, the compound 5-year annual growth is 7.5% 5-year compound annual growth, $4,951 per capita, an unemployment rate of 4.2%, inflation (CPI) rate of 5.7% and FDI Inflow of $1.6 billion. Bangladesh’s economic freedom score is 56.5, making its economy the 120th freest in the 2021 Index. Its overall score has increased by 0.1 point, primarily because of an improvement in the tax burden score. As of December 1, 2020, 6,675 deaths had been attributed to the pandemic in Bangladesh, and economic growth was forecast to decline to 3.8 percent for the year. (Country Rankings: World & Global Economy Rankings on Economic Freedom, 2021).

The country observed enormous economic growth since 1971 and will achieve the Lower Middle Country Status by 2026. In order to proceed beyond Bangladesh will need to invest in human capital, enhance female labour force participation and their productivity, continue sound macroeconomic management, and implement structural reforms (The World Bank, 2020). The country is expected to return to a 6 percent growth if supported by favorable domestic economic recovery and global economic conditions (IMF, 2020) even after the COVID. A concentric Ready Made Garments (RMG) Export based national income posed significant risks (Rasul, 2020) for the country and therefore it has attempted to diversify and create a risk hedge though attracting various foreign investments in the energy, power, telecommunication and infrastructure. But the analysis of the Ease of Doing Business Index shows that it ranks 168(Trading Economics, 2021), one of the lowest in the world and therefore necessitate the country to undertake various infrastructural and policy reform often financed by the aid and loans sourced from the international organizations and developed countries.

Recently the evolvement of China, as a global development partner (where Bangladesh has also become a part), through its One-Belt One-Road (OBOR) or Belt and Road Initiative (BRI) has attracted undivided global attention. The aim of BRI is to improve connectivity and cooperation on a transcontinental scale as an open arrangement in which all countries are free to join. The BRI’s impacts were assessed by World Bank (based on 70 countries with 35% of global foreign direct investments and 40% of global merchandise exports) particularly on BRI’s links to trade, investment, debt, procurement, environment, poverty reduction and infrastructure (World Bank, 2018). The estimated cost of the project is US$575 billion which will reduce the travel time by 12%, increase trade and income up to 9.7% and 3.4% and uplift 7.6 million people from extreme poverty. But the associated risks are: debt risks, governance risks (corruption and procurement), stranded infrastructure, environmental risks and social risks (World Bank, 2018).

But the gradual increase in the Bangladesh debt to China has raised a certain question whether Bangladesh will fall into a debt trap like some other countries like few African countries, Srilanka and Pakistan which have already fallen victim to the Chinese Debt Trap Diplomacy (Chellaney, 2017). Therefore it necessitates to identify whether there is adequate scope to promote bilateral strategic partnership with Bangladesh’s long held ally, Australia to enhance Bangladesh’s maritime power, to minimize the risk factors of OBOR and avoid debt trap. The chapter contains the following sections: a background outlines the literature review and the research gap, that is followed by the objectives, research questions, methods followed by the main focus of the chapter. In the main focus both the historic and the current engagement of the countries with Bangladesh has been discussed elaborately. After that the OBOR has been discussed, followed by the dilemma of Bangladesh and in search of a question whether Bangladesh is falling into the debt trap. After that the potential diseconomies of scale have been identified and ways have been identified on how the relationship with Australia may help Bangladesh and also SAARC countries to avoid the diseconomies of scale OBOR-Road Debt Trap.