Political turmoil hurts the economy

Syed Jamaluddin International credit rating agencies have warned that escalating political turmoil will eventually hurt the economy. The Centre for Policy Dialogue (CPD) said that dull private investment, low revenue generation and slow implementation of development projects would affect the gross domestic product (GDP) in the election year. The local think tank has found that during an election year the budget deficit widens and public expenditure increases. According to CPD, the economic performance during the current fiscal year will critically hinge on an early consensus between the two political camps in the country. The investors are taking a cautious approach, given the looming political uncertainty. The rate of inflation went up by 0.6 per cent to 7.4 per cent in September 2013. Growth in revenue collection was 16.2 per cent during July-August period of the current fiscal against the annual target of 25.3 per cent. Implementation of the Annual Development Programme (ADP) was 6.2 per cent during the first two months of FY14. The corresponding figure in the FY 13 was 8.3 per cent. The CPD study shows that aid utilisation was 4.2 per cent in FY 14 while the comparable figure in FY 13 was 6.6 per cent. It has called for measures to raise both labour and capital productivity through technological and skill upgradation. The think tank called upon the major political parties to reach a consensus for not indulging in any confrontational political activities which may hamper economic interest of the country. Bangladesh generally goes through a turbulent time during election time. The World Bank recently said volatile politics and a host of other factors are likely to slow down Bangladesh's economic growth in the current fiscal (2013/14). They have projected GDP growth downward at 5.7 per cent as against the projected growth at 7.2 per cent for the current fiscal. The World Bank country director said a free, fair and credible election is imperative for providing due impetus to the economy. The Bank has also portrayed a challenging picture of the apparel industry. Bangladesh's image has suffered globally due to recent factory collapse and fire incidents. It must act now to enforce building safety and security and health of workers. Overall, the Bangladesh economy is moving into a more volatile phase. Bank default is increasing due to stagnation in business. Stagnation is prolonged because of gas and power crisis as well as political instability. Those who have made investment by borrowing money can not repay bank loans under the present situation and have, therefore, become defaulters. Recovery of loans is slow and nobody is taking new loans. Income of banks is going down because of stagnation in business but their management cost is not decreasing. This will bring disaster to the banking sector unless the situation improves. Bank defaults have doubled because of bank scandals. Defaulters do not get new loans. New enterprises are not coming up. The existing industries can not utilise their capacity. Some industries are using generators to keep their factories going. This has increased the cost of business. Cost has also increased due to political instability. That is why the borrowers can not repay loans. Capacity of banks for investment is going down gradually. Political tension pulls down stocks. Opposing stances taken by the political parties have left a negative impact on investors' psychology. Anticipation of potential turmoil created fear among investors and derailed the market outlook. The drop in investors' confidence can be attributed to the prevailing political uncertainty. The investors' shaky confidence also pulled the turnover down. The president of the Federation of Bangladesh Chambers of Commerce and Industry (FBCCI) told The Financial Express that if confrontational politics further deteriorated, it would be a great blow to the economy. Business people want an end to the differences of opinion among major political parties over polls-time government so that they can do business smoothly. The president of the country's apex trade body said many of the businessmen had put on hold their fresh investment due to the political turmoil. According to the data of the Board of Investment (BOI), local investment proposals decreased by 40.50 per cent in the July-September period of the current fiscal year over that of the corresponding period of the previous fiscal. The president of the Dhaka Chamber of Commerce and Industry (DCCI) said that business people were worried about the country's volatile political situation. He called upon the ruling and opposition parties to resolve the on-going political crisis through discussions. Foreign business delegations are now reluctant to visit Bangladesh. The Financial Express has editorially commented that economy is the casualty of the current political situation. Bangladesh was supposed to operate as a stable democratic political system. Unfortunately, it has not happened. Transfer of power without troubles is rare. The country is now in the midst of yet another round of political uncertainty over the next general election. Citizens are deeply worried about their safety, security and economic well-being. None is certain about the route in which the problem will be resolved. The businesses are deeply worried over the on-going political deadlock. There is no doubt that economic activities have slowed down under the prevailing circumstances. Political programmes, like shutdowns, would trigger panic and aggravate the situation further. The writer is an economist and columnist. [email protected]