By Amy Kazmin

Every day, the narrow streets of Dhaka are jammed with Toyota Corollas and other imported cars, stuck bumper-to-bumper in standstill traffic. These choked streets are symptomatic of Bangladesh, which packs more people than Russia into an area only slightly bigger than Greece, even as its leaders dream of catapulting the impoverished nation into the ranks of middle-income countries by 2021.

Fuelled by the lowest labour costs in the world, garment exports and remittances from workers overseas, Bangladesh’s economy has grown steadily in the last decade despite political turbulence and recurrent natural disasters to grow by 5 to 6 percent a year.

The country, derided soon after its 1971 birth as “an international basket case”, has emerged relatively unscathed from the global financial crisis. Garment exports increased by 15 percent, to a record $12.3bn, in the 12 months through June and the economy grew by 5.9 percent last year, barely slowing from its 6.2 percent rate in 2007.

“Bangladesh can aspire to be a middle-income country in a decade and a half - that doesn’t looks like a fantasy any more,” said Zahid Hussain, a senior economist at the World Bank in Dhaka. “There is no reason why Bangladesh can’t achieve the kind of growth that India and China has seen over the last decade if we can solve our internal problems.” Analysts attribute the garment sector’s resilience to the “Walmart effect”, whereconsumers have switched to cheaper goods in the financial downturn.

“Bangladesh is the Walmart of exporters,” says Ifty Islam, managing partner of Dhaka’s Asian Tigers Capital Partners, a private equity fund. “It’s concentrated in the lowest segment of exports.” Yet the neglect of infrastructure development has created bottlenecks that are now preventing growth from rising quickly enough to lift 40 percent of the population, 60m people, out of poverty.

“They have to make the jump from 6 to 6.5 percent growth to around 8 percent plus,” said Jonathan Dunn, an International Monetary Fund representative. “They can’t do that without solving the power problem. Power is now a major economic constraint.” Despite vast supplies of natural gas and high-quality, clean coal, Bangladesh generates just 3,670 megawatts, far below peak demand of 5,000 megawatts.

An estimated 12,000 megawatts - $9bn of investment - is needed to provide power to all by 2020. However, no new plants have been built in years and even existing ones cannot run at full capacity owing to insufficient gas supplies. The new government is planning to sign production-sharing agreements with US-based Conoco-Phillips and Ireland’s Tullow Oil in the coming weeks, a step towards addressing such problems.

But the National Committee to Protect Oil-Gas Mineral Resources, Power and Ports, backed by the opposition Bangladesh Nationalist Party, is threatening mass protests against the deals. Despite these woes, many Bangladeshis believe their country could boom if it is afforded duty-free access for its goods into neighbouring India - a privilege that Dhaka has sought for years but that Delhi is in no hurry to grant.