The World Bank, the global leader of the multilateral lenders, has forecasted a 5.7 growth of GDP (gross domestic product) of Bangladesh for FY14, implying a fall by 0.3 percentage points and a 1.5 percentage points from the original target set in the fiscal budget. Given merciless damages done in the economy in recent months, this forecast is an optimistic one and the country should be happy if the growth rate is accomplished in the end.
One should not worry much about the projected decline in the growth of GDP in the current fiscal year. Our past experience since 1990s - the beginning of the democratic regime in the country - suggests that growth of GDP declined in every election year and then picked up the normal trajectory in the following years. In FY96, when two national elections took place - one in February and the other in June - growth of GDP declined from the previous year by 0.3 percentage points but picked up again by 0.8 percentage points in FY97.
Similarly, growth of GDP declined from 5.9 per cent in FY00 to 5.2 per cent in FY01. The 8th parliamentary election took place in FY01. Eventually growth escalated to 6.3 per cent by FY04. In the fiscal year of 9th parliamentary election, GDP growth declined to 5.7 per cent which was 6.2 per cent in the previous fiscal year, FY08.
Above numbers suggest that the political unrest and the looming uncertainties of the election years put a brake on our growth momentum, which picked up again in the following years. There is no ground for this year to be anything different. Rather, the brake on the wheel of our economic growth is likely to be more forceful this year for several reasons:
First, the nature of the political unrest has been different this year compared to the previous election years. It has been more intense, prolonged, and continuous leaving no windows of opportunities to transportation of goods. This has seriously affected the agricultural and export-oriented RMG sectors.
Second, in the case of other election years, a good amount of money was injected into the economy in the form of election-time spending on activities like campaign and production of campaign materials. This provided growth stimuli into the economy, which to some extent compensated for the lost stimulus. No research is currently available to quantify the multiplier effects of election-time spending. But, according to Keynesian economic logic, such effects are supposed to be significant.
For whatever reasons, election did not take place in more than half of the total parliamentary seats depriving them of any kind of election-time spending. Election in the remaining seats was not competitive at all due to non-participation of the opposition parties, which also deprived them of any tangible election-time spending. Thus, in this election year, the economy experienced only the destructive elements without any growth stimulating election-time spending.
In the above backdrops, a 5.7 growth of GDP should not be a matter of disappointment. Rather the policymakers should be happy if this predicted growth can be accomplished in the end. In fact, such an accomplishment will be a pointer to our growing economic resilience. Not many economies of the world can accomplish a 5.7 per cent growth following what has happened in Bangladesh during last couple of months.
The main question is, can we really achieve a 5.7 per cent growth this year? There is no yes or no answer to this question, or to any economic question for that matter. We can achieve a 5.7 growth of GDP provided that some measures are taken to control the damage already done in the economy by the violent activities in the recent months.
As a populous country with more or less equitable distribution of land, most of our farmers are small and medium ones in terms of landholdings. While they are mostly subsistence farmers in case of production of cereal crops, many of them cultivate vegetables and other non-cereal for commercial purpose. Due to the blockade of roads and other modes of transportation, they could not sell their produce this year and faced an economic loss. Whatever portion they managed to sell in their own localities, they did not get the fair price for them. All these mean, the producers of winter crop, especially the non-cereal crop, do not have adequate cash in hand at the moment to plant crops in the following season. The poultry and dairy producers are also facing similar cash constraint for similar reasons.
These farmers in distress will find it very difficult to continue their farming activities in full swing in the upcoming season unless they receive some support from the government. This will definitely affect the growth of agricultural sector and the livelihood of 48 per cent of the total labour force who are directly employed in this sector. To prevent that happening and keep the wheel of growth rolling, the government has to play a significant role. The farmers in need should be provided adequate agricultural credit on easy terms without much delay so that they don't have to compromise with the cultivation of agricultural produce in the coming season.
Although Bangladesh economy has been continuously increasing its penetration in global markets, the economic growth of the country still significantly depends on domestic consumption. Unlike the other election year, the economy was deprived of the domestic consumption revitalising election-time spending. Therefore, there is a possibility that overall domestic consumption may face a downturn or may not grow adequately to ensure a 5.7 growth of GDP. The Government and policymakers should remain vigilant on whether this possibility becomes a reality or not.
If domestic consumption really suffers from the lack of adequate demand, the government needs to take required measures to provide stimulus for consumers. Depending on the nature of the problem, government can think of easing of the stringent conditions currently in place in case of consumer credit.
Given our low tax-GDP ratio, any tax break following the developed country will not be effective in our case. However, whether domestic consumption is going to suffer and if it does, to what extent it suffers, is yet to be seen. But the government should remain vigilant and act promptly as soon as any sign of deficient demand is detected.
Finally, this election year is different from the past election years in nature. The economy only experienced the economic bad like hartals and blockades this time but not the usual election-time spending that compensates for growth momentum lost by these economic bad. Therefore, the government needs to walk an extra mile even to accomplish a 5.7 growth of GDP as forecasted by the World Bank.
Abul Basher, PhD is Researcher at the Bangladesh Institute of Development Studies (BIDS), former economist, World Bank, and former faculty, Willamette University, USA. [email protected]
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