Published in The Financial Express on Monday, 27 January 2014.
Economy dependent on political understanding
Syed Jamaluddin
The economy of the country has been badly shattered due to the political turmoil during the last few months centring the issues of election-time government and war crimes trial. Election to the 10th parliament has been held without any understanding between the government and the opposition. The cabinet has been formed. The new government has started its journey. But the political crisis is lingering. Experts feel that economic future will depend on the understanding between the two major parties – the ruling Awami League (AL) and the Bangladesh Nationalist Party (BNP), the main opposition party.
Economists and businessmen feel that political stability is needed for economic turnaround. They are emphasising on the settlement of political issues. Confidence will return to the investors if political issues are resolved. Uncertainty will disappear. Investment will flow to the country if political stability is established. Economic growth will accelerate. Without stability, the support of the international community will decline. Employment generation will be affected. GDP (gross domestic product) growth will decelerate.
The World Bank and IMF have estimated growth rate around 5.7 per cent during the current year but the Finance Minister has said that it will be above 6.3 per cent. Inflation has exceeded 9.0 per cent. There is problem in the financial sector. Loan defaults have increased. There is idle money in banks for lack of investment. The donors have reduced the flow of funds to the annual development programme (ADP). Registration of investment proposals has declined, according to the Board of Investment (BoI). This was attributed to political instability. Political uncertainty continues even after the election.
During the last six months, revenue shortfall stood at Tk 80 billion (8,000 crores). The finance minister said that the economy will gather momentum soon. The Centre for Policy Dialogue (CPD) has said that the budget will have to be revised downward. Unless the political situation improves, the economy may fall into a mid-term crisis. Investment will increase provided stability returns. CPD has said that it will be difficult to activate the economy as political uncertainty continues. People will not take risk of investment. Top business leaders of the country have urged the government to take initiatives to help regain the image the country lost due to recent political turmoil. Cost of doing business has increased. The election has not solved the political problem. The challenge before the government is to arrange the next election as soon as possible after ending the stalemate. Dialogue between the parties is needed.
The investors are watching the situation very carefully. Political stability and discipline are needed for the investors. Understanding is necessary between the two parties for the welfare of the country. The president of the Federation of Bangladesh Chambers of Commerce and Industry (FBCCI) said that investors want permanent solution. The business community is looking for permanent stability. Government ministries have spent only 27 per cent of the development budget in the first half of the current financial year. The political turmoil in the last few months hit the development work of the government badly. It affected overall project implementation, said IMED (Implementation Monitoring and Evaluation Division) officials. The poor spending rate from the external resources (project aid) has affected overall foreign aid inflow to the country. The Bridge Division is the worst performer in executing projects.
Recruitment in the country’s private sector has almost halted over the last 12 months due mainly to the absence of moves for fresh investment and reinvestment by the employers. The recent political impasse and unfavourable development in business have severely affected the growth of the private sector and prompted the entrepreneurs to be cautious in making further investments, hindering the normal recruitment process. In the last one year, new investment in private sector has shown a downward trend mainly due to unstable political situation.
Economists have expressed doubt about the achievement of 6.3 per cent economic growth in the current year as stated by the finance minister. Given the present macroeconomic scenario, it will be hardly possible to achieve such economic growth. Public and private consumption, investment and net foreign trade position have not shown positive indication. Revenue income has fallen. Remittance has recorded a negative growth in the last five months.
Rural economy has been badly affected. The rural people could not sell their winter vegetables. There was no means to transport the vegetables to Dhaka and other cities. They could not recover even 50 per cent of the cost of production. In November the farmers harvested aman crop. But due to blockade and hartal, price of paddy went down by Tk 50 to 100 per maund. About 10 million farmers are in financial crisis. They have failed to repay bank loans.
Diplomatic efforts regarding Bangladesh politics still continues. Diplomats of the western countries in Dhaka are working for bringing the two major parties in the negotiating table for a dialogue. Western countries are in favour of participatory election. US Ambassador, British High Commissioner and the Ambassador of European Union are in favour of an early election. But no official reaction is available from the government. Some ministers have, however, said that they have come to power for five years. The CPD has warned that unless a free, fair and participatory national election was held, the political uncertainty would linger and affect long-term investment.
The writer is an economist and columnist. syedjamaluddin22@yahoo.com