Published in Dhaka Tribune on Wednesday, 1 January 2014.
Bleak outlook for economy in new year
Continued political turmoil may lead to a collapse
Kayes Sohel, Asif Showkat Kallol
Ali Azgar, a cauliflower grower from Narsingdi, said most of his harvest this year had rotten away unsold, for it could not reach the markets in absence of transportation amid all the political turmoil.
“I am wondering how I will pay back the Tk20,000 bank loan. Maybe next year I will have to drive a rickshaw,”he said.
Like Azgar, most of the economy is looking on to bleak economic prospects in the new year.
Economists and market stakeholders have warned that the country might plunge into an economic downturn if the political turmoil continues for more than another two or three months.
They estimate that GDP growth might plunge below 5%, much lower than the budgetary projection of 7.2% for the current fiscal year and close to the International Monetary Fund’s forecast of 5.5% and the World Bank’s 5.7%.
Bangladesh Bank has already revised down and said growth is likely to be between 5.7% and 6%.
The fabric of the economy has already been shattered due to long spells of political violence and blockades, with all sectors facing losses.
The economic slowdown means the country may face a multitude of problems, including financial sector collapse, increased unemployment and poverty, reduced growth and slow social development.
“We are moving backwards fast. It looks bad for the economy,” said Ahsan H Mansur, executive director of economic think-tank Policy Research Institute.
He said the country was on its way to lose what it had achieved since its independence.
“This is the worst situation in terms loss of income, loss of opportunities and loss of life…everything,” he said.
“No one is saying growth will be below 6% now. They are saying it will be below 5%, as there is no sign that the crisis will be resolved anytime soon. Politicians are beating around the bush.”
Cultivation of the country’s largest crop, Boro, is facing a serious supply crunch of fertilisers and diesel. This could pose a serious threat for the country’s food security.
Echoing Mansur, economist MA Taslim said if political turbulence continued for another one or two months, the GDP growth might drop below 5%.
Production, consumption, supply chain, investment, export and import have already been badly hit by the political turmoil, he said.
“But I am afraid that if the banking system collapses, whole economy might break down,” he said.
Taslim, the chairman of Dhaka University economics department, said if the communications system continued to crumble, food prices would go further up, fuelling inflation.
“I have never seen a worse situation since the independence,” he remarked.
“We are not feeling the impact of the economic damage that the country has already suffered because of the economic strength we have built up since the 1980s,” Taslim said.
The implementation of Annual Development Programme (ADP) would also definitely face setbacks, he added.
Center for Policy Dialogue Fellow Debapriya Bhattacharya told the Dhaka Tribune that two decades of continued development and democratic management was facing a big risk this year and the economic crisis would deepen if the election took place.
The economy may move from a short term crisis to a medium term crisis due to the prolonged political turmoil, he said.
“The country’s social coherence has been badly damaged because of the chaos and political disruption by the political parties and without the social coherence, investment will not come to Bangladesh.”
He also said the country needed a “passable” democracy for development and growth, in the experience of two decades.
Development think-tank Unnayan Onneshan forecasts that the country‘s the real GDP growth in this fiscal may fall below 5.60%, well below a decade’s average of 6%.
It said the drastic fall would be caused by stagnant business, agriculture, industry and investment. The income inequality has also increased due to the impact of politics in the rural economy.
According to the Economic Relations Division, of the Tk65,872 crore earmarked for the annual development programme (ADP) in the current fiscal year, only Tk13,156 crore or 20% was spent during July-November.
Two weeks ago, Finance Minister AMA Muhith also expressed the fear that the economy may not recover from the losses incurred in the continuous hartals and blockades.
Losses are piling up in every sector each day due to the prolonged political turmoil.
The readymade garment sector the mainstay of the economy that makes up almost 80% the country’s total foreign earnings is set to suffer badly, as buyers continue to cancel orders from Bangladesh. The volume of cancelled orders has already crossed $3.6m in 21 days, according to Bangladesh Garment Manufacturers and Exporters Association.
Although exports have surged by 21% in the July-November period, the garment sector is threatened by the risks of cancellation of orders, GSP cancellation in June next year and Pakistan’s recent acquisition of GSP-plus facilities from the European Union.
Owing to political violence, eight factories have already been shut down, according to Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA).
According to the country’s apex trade body FBCCI, small entrepreneurs incur a total loss of about Tk1,000 crore in a single day of shutdown.
The manpower export sector is also collapsing, with remittance flow falling by 8% in November, according to the Bangladesh Bank. The current political turmoil and strained relationships with some Middle Eastern countries has also reduced the outflow of workers.
The poultry industry that contributes to 19% of the GDP has incurred losses worth more than Tk4,000 crore due to political unrest in the last three months, said Moshiur Rahman, the convener of Bangladesh Poultry Industries Coordination Committee.
All sub-sectors of the poultry industry, such as breeders, feed vendors, meat and egg producers and medicine sellers are incurring losses due to blockades and shutdowns.
Poultry farmers are selling products more than 30-40% below the production cost, said Saidur Rahman Babu, general secretary of the Breeders’ Association.
The poultry feed industry has suffered losses of around Tk1,000 crore in the last three months, said Fazle Rahim Khan Shahriar, the secretary of the Feed Industries Association of Bangladesh.