Published in The Daily Star on Wednesday, 1 January 2013.
Eye on 2014
Economy cast in gloom
Md Fazlur Rahman
The economy looks set to be stretched to its limit in 2014 given the lingering volatile political state of affairs, economists said yesterday.
“The dismal picture is, there is no immediate light at the end of the tunnel on the political front,” said Akbar Ali Khan, a former finance secretary, adding that it has become difficult to predict how the incoming year will pan out.
Mustafizur Rahman, executive director of the Centre for Policy Dialogue, said the economy has achieved resiliency over the last two decades. “But there is a limit to things.”
He said the lingering of the current scenario will have an adverse impact — both short- and medium-term — on the economy from three sides: stagnation of the economy, paralysis in taking major policy decisions and missed opportunities.
“If the situation persists, the economy will become hostage to politics whereas the politics is supposed to create conducive environment for the economy to flourish.”
“Altogether, the beginning of 2014 is not auspicious,” Mirza AB Azizul Islam, a former finance adviser, said, while tipping the GDP growth to be between 5 percent and 5.5 percent, the lowest in the last four years.
Although the export situation is still under control, there are signs that orders are being cancelled and diverted to other countries, he said.
If the shipment uncertainties brought by the political crisis lingers then the export sector will not be able to retain the current growth.
There has already been negative growth in remittance flow amid failure to send more workers abroad to traditional markets and explore new ones, he said.
“If we cannot send new workers then there will not be significant growth on the remittance front, as current migrant workers are sending money home as per their maximum capacity and have little capacity to increase the remittance flow.”
Islam said the government’s revenue generation target would fall short of targets as the collection of value-added taxes will be squeezed amid a fall in trade and business activities and income taxes and corporate taxes will also fall due to fall in profits.
As a result, the government might either have to cut its expenditure or borrow. “If the government borrows from the internal banking system then it will crowd out the private sector.”
However, the private sector investment is going downhill. “Investors are saying that there is no point for going for investment when there is no security for investment.”
Islam added that the country is going backward at a time when it is supposed to march forward in terms of raising GDP growth and accelerating investment and exports as part of its long-term vision of becoming a middle-income country by 2021.
Zahid Hussain, lead economist of World Bank, said both the disruption in production and supply chain and disruption in trade and commerce have created a peculiar situation for the country: the prices will not go down even if there is good production, as the produces will not reach the markets.
“Production will also suffer if we cannot take fertiliser and diesel to rural farmers on time, which will ultimately have a negative impact on boro plantation,” he said, adding that it might lead to food security problems sometime in June.
Unlike Rahman, Hussain has great faith in the resilience of the country.
“If we are able to somehow quickly come out of the current scenario with an amicable and acceptable solution to all important parties, the economy will take eight to 10 months to get out of it.”
However, if it drags on for the next eight to 10 months then it might lead to a longer-term crisis.
“We are not still at the point of no return, but we are getting there fast. So, we need a quick end to the crisis.”