A few days ago the Centre for Policy Dialogue (CPD) said that a discomforting environment is prevailing in the country and such an environment impacts the economy as investors fear they would not be able to work freely and independently. According to CPD, political unrest from January to mid-March of the current year has caused a gross domestic product (GDP) loss of 0.55 per cent or Tk 49 billions. It is a conservative estimate as it has analysed only 11 major sectors and did not include all sources of loss. The CPD suggested for incentives to the affected sectors in the upcoming budget.
The CPD noted that a total of 81 days of blockade and 67 days of strike disrupted supply chain, severed the rural-urban and domestic-international market links. It forecasts that revenue collection may fall short of target by an aggregate amount of Tk 2.50 billion. The National Board of Revenue (NBR) could miss its target for a third consecutive year. A major challenge would be the implementation of the new pay scale for government employees. The government may consider phased implementation of the pay scale.
Political issues need to be resolved to boost investment. Investors are quite uncomfortable as administration and state machinery are allegedly serving partisan interests. Almost all sectors of the economy are showing risks. In the first eight months of the current financial year, from July to January, export earnings increased by two and half per cent only. This is the lowest in recent times. Export orders are going down in the garment sector. Some orders are being cancelled, shipments are not made on time. Some orders have also reportedly shifted to India.
Because of political violence since the January 05, 2014 election, normal economic activities have been hampered. There was negative impact on many economic indicators. Private sector investment is almost nil. One example is that actual loan disbursement is much less than the target fixed by the Bangladesh Bank.
Business operations of those who borrowed money from banks are not satisfactory. Therefore, they are failing to make repayment. As a result, loan default is increasing. Loan repayment schedule has been made easier. This will have impact on the income of the banks at the end of the year. There are a lot of risks in the financial sector. People have lost confidence in banks because of Hallmark, Destiny and Bismillah group scams.
Situation in the share market is also unhealthy. The index is now below 4500. Investors feel that because of declining economic indicators the listed companies may not be able to give good dividends. So they are not investing. Banks have linkage with the share market. Lower income of banks will affect the share market.
Both retail and wholesale market was hampered by transportation problem due to country-wide blockade. VAT collection has decreased. This means that consumption has gone down.
Last year revenue collection was set at Tk 1200 billion. This year it has been raised to Tk 1500 billion. Under the prevailing circumstances, it is difficult to achieve the target. Revenue collection up to January was lower by Tk 25 billions. Target is fixed much lower during the first half of the financial year. Revenue shortfall will be much higher at the end of the financial year. Disbursement of foreign aid in the first six months of the year was much less than last year.
Government is borrowing more from saving certificates which will require repayment at an interest rate of 12 to 13 per cent. This will have serious impact on the development budget. Lowering of revised development budget by Tk 65 billion is a clear indication.
Remittance is fluctuating. Current increase in remittance is 7/8 per cent. This rate is not very high as there was negative growth in remittances last year. The government will have to reduce expenditure and depend on borrowing from internal sources.
If Bangladesh wants to reach the status of middle income country by 2021, a growth rate of 9.0 per cent will have to be achieved. It may not be possible to achieve such a high growth rate. However, a positive indicator is the foreign exchange reserve which is now 23 billion dollars. It is said that dollar is transferred abroad through overinvoicing.
Bangladesh economy suffered a loss of $2.2 billion (nearly Tk180 billions) due to recent political troubles, according to the World Bank. This came after the CPD finding. World Bank also projected a slide in economic growth to 5.6 per cent in the current fiscal. The impact on direct production loss could be equivalent to around 1.0 per cent of the GDP.
Given the state of things, efforts towards recovery should take into account the priorities in as objective a manner as possible.
The writer is an economist
 and columnist.
jamaluddinsyed23@yahoo.com.au
Challenges affecting the economy
Syed Jamaluddin | Published: April 18, 2015 00:00:00 | Updated: April 17, 2015 19:05:47
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