Linking political stability to economic growth

According to the World Bank, Bangladesh would require an average growth rate of 8.0 per cent up to 2021 to become a middle income country. But the political turmoil in Bangladesh affected the business environment as is manifested in the poor private investment scenario, sluggish growth in foreign direct investment (FDI) and the declining trend of export growth during the last two years. So, it is a big challenge for the government to ensure political stability as early as possible. Otherwise, it will be very difficult for the government to protect the economy from the slide, writes Mamun Chowdhury

Social development is undoubtedly a wider concept. In fact, economic development is one of the accomplishments in the area of social development. The widespread diffusion of education to generate skilled and knowledgeable human capital, appropriate health services, construction of social infrastructure, creation of sufficient employment opportunities to improve the living standard of the poor and marginalised people, proper spread of religious norms and the appropriate practice of ingenuous culture are some of the elements of effective social development.

In fact, the effective social development ensures the balanced economic growth.  This social development largely depends on the healthy practice of peaceful politics, because the proper implementation of government policies depends not only on the financial and technological capabilities but also on the supportive political and social environment. So, the politicians either in the ruling party or in the opposition party are the key players framing and implementing effective policies. It is quite normal to have different political parties with different views in a country. The parties may have different paths to reach the goal but should have consensus on the issues of sovereignty and prosperity. On the contrary, when the greed for power and money becomes the main factor for major political parties, the anti-social development factors like corruption, terrorism and egotism demolish the social values and ethics that vigorously interrupt the economic development in the long run. 

The recent political turmoil, corruption and vandalism turned out to be the extreme point of politics in Bangladesh. In a developing country like Bangladesh such a violent political flare-up is an ultimate threat to socio-economic development. The poor democratic practices of both the ruling party and the main opposition party not only claimed human lives but also taught the young generation negativity which is a threat to future potentiality. The ultimate effects of such political instability on the socio-economic development of the country can be as follows:

• Brain drain  effects
• Economic effects

BRAIN DRAIN EFFECT: The brain drain effect caused by the malpractices of major political parties can be considered as the most damaging of the two, when it comes to socio-economic development of the country. In Bangladesh, politics is dominated by two major political parties. Both the parties have their activists of all ages from the grassroots level to the top level. The political philosophy, the mood of the ruling party, their attitude towards the opposition, the degree of respect for democracy all leave very serious effects on the minds of young leaders who are going to take leadership of the country in near future.  In recent years all the young political leaders as well as all the educated and uneducated young generation people were learning how to show disrespect to democracy and how to overrule the people’s right to consolidate their achievements. So, the continuous and poor democratic practices would not only lead to violence in the short term but also dawdle the economic growth permanently. 

ECONOMIC EFFECT: Economic stability is negatively related to the political turmoil of a country. For, political excitement engulfs the environment of the country. Since the magnitude of the overall economic activity slows down due to strikes, the general price level comes under pressure. So, the inflation rate goes up because of the supply-side constraints. On the other hand, Remittance inflows and export earnings are the main driving force of Bangladesh’s economy. Any disturbance in these two areas will put the economy into the reverse gear for a long time.

          Source: Bangladesh Bank (Major Economic Indicators, December 2013).

The political upheavals during the last quarter of 2013 affected prospects of all the crucial macroeconomic indicators. The crucial economic indicators recorded ups and downs from July to June of the fiscal year 2012-13. From July, 2013 the overall economic performance saw a significant downturn as the political situation continued to worsen. In July, 2012 the total export earnings were US $ 2439.08 million. But from July to November of the FY 2013-14 the export earnings fell by 27 per cent from US $ 3,024.29 million to US $ 2,212.44 million.

The remittance flow, which is the lifeline of Bangladesh’s economy, was affected severely by the continuous political volatility during the last two years. In July, 2012 the total remittance inflow was US $ 1201.15 million. It fell to US $ 1061.45 million in November 2013. During the period of July 2012 to November 2013 the overall remittance flow fell by 11.63 per cent.

The table above shows the point-to-point inflation registered rising trends from the beginning of the fiscal year 2012-13. Transportation-related problems, production shortfall, low domestic and foreign investments and the lack of a congenial economic environment to implement fiscal and monetary policies pushed up the inflation rate. In September 2012 the point-to-point inflation was only 4.56 per cent, it rose to 8.06 per cent in June at the end of the fiscal year. At the end of the first half of the fiscal year 2013-14, the point-to-point inflation was 7.51 per cent, which was 0.52 per cent higher than the earlier rate of the first half of the same fiscal year. In this backdrop, if the current political crisis persists throughout the remaining half of the current fiscal year, it will be an ultimate challenge for the government to curb the inflationary pressure. 

     Source: Bangladesh Economic Review 2013

The key economic targets of Bangladesh are achievement of the Millennium Development Goals (MDGs) by 2015 and becoming a middle income country by 2021. The existing poor economic strength, along with the long-lasting political crisis, will make it almost impossible to attain the goals within the stipulated time.

Balanced investment growth is most important to reach the target. The investment level did not show any significant progress during the last decade. Poor infrastructure, an acute power crisis, very poor productivity growth and the political instability affected the expected investment growth. Though the private investment had been the highest (20.04 per cent of GDP) since 2007-08, it registered a substantial decrease in 2012-13 (18.99 per cent). According to the World Bank, Bangladesh would require an average growth rate of 8.0 per cent up to 2021 to become a middle income country. The political turmoil in the country affected the business environment as is manifested in the poor private investment scenario, sluggish growth in foreign direct investment (FDI) and the declining trend of export growth during the last two years.  With the poor economic performance, the GDP growth rate continued to be low during the last two years. In 2000-11, the GDP growth rate was 6.71 per cent, but it fell to 6.03 per cent in 2012-13. So, it is a big challenge for the government to ensure political stability as early as possible. Otherwise, it will be very difficult for the government to protect the economy from the slide.

(The writer is a lecturer of the Department of Economics, Jagannath University, Dhaka.)

Email: chowdhurym31@yahoo.com