BD’s growth-governance gap a cautionary tale: Economists

Bangladesh’s decades of strong economic growth came at a cost of overlooked governance failures that eventually contributed to political upheaval, economists warned at the opening session of the 9th SANEM Annual Economists Conference on Friday night.

Speaking through an online keynote address session, economists Shanta Devarajan, Professor, Georgetown University and Kunal Sen, Director, The United Nations University World Institute for Development Economics Research (UNU-WIDER) said rapid economic growth, when it masks underlying governance weaknesses, ultimately breeds political instability, declining investment and economic slowdown.

In his keynote titled ‘The Costs of Denial,’ Devarajan argued that many developing countries including Bangladesh experienced robust growth during 2000-2015, which generated optimism and reduced poverty but also allowed governments and development partners to ignore deep-rooted problems such as corruption and weak institutions.

He noted that Bangladesh quadrupled its GDP per capita since 1990 and recorded strong manufacturing growth, yet governance remained persistently weak.

The country was earlier described as having achieved development “despite corruption,” as individuals and institutions found ways around state constraints while NGOs and the private sector retained space to operate, he said.

Devarajan also cited warnings issued in April 2024 that Bangladesh risked becoming a fragile state, a concern that was followed by the Awami League regime fall in August 2024 amid the July revolution, which he identified as one of the major political events that the cost-of-denial dynamic helped produce, alongside the Arab Spring and Sri Lanka's Aragalaya movement.

Contrasting the optimism of 2000-2015 with the pessimism of the years that followed, Devarajan said the latter period brought stagnation, rising debt and political instability across several regions, with Bangladesh's growth forecasts downgraded amid the political upheaval.

His central hypothesis was that strong growth itself contributed to subsequent slowdowns by enabling denial as economic indicators improved, citizens continued to face poor public services and institutional failures, which eventually fuelled deep resentment.

Commenting on the keynote, Kunal Sen called it a “provocative hypothesis” that growth may carry the seeds of its own destruction if governance problems go unresolved.

Kunal explained that economies often begin growing when political arrangements shift from disordered to close but ordered deals, typically in sectors benefiting from discretionary rents.

Sustaining that growth, however, requires a further transition toward open and predictable policies, a shift that is rarely achieved because elites benefiting from closed deals resist reform, he said.

He warned that growth booms frequently create conditions for subsequent stagnation when they reinforce elite interests incompatible with long-term development, citing South Korea as a rare example of a country that successfully made the transition to open, ordered arrangements.

Kunal also stressed that the cost of denial is not confined to autocracies, pointing to Sri Lanka and India as democracies where closed-deal growth later triggered institutional pushback, leading to disordered arrangements and slower growth.

Both economists concluded that governance and growth reforms must proceed simultaneously, not sequentially.

Devarajan urged policymakers to use periods of rapid growth to strengthen governance and improve transparency, while ensuring that poverty-reduction policies do not neglect the middle class.

Kunal echoed the point, saying growth should not be treated as an end in itself but as a means to build inclusive and robust economic and political institutions over the long term.