Political instability harms the services sector more than any other sector of the economy. The sector's contribution to the Gross Domestic Product (GDP) at present is about 50 per cent in the economy of Bangladesh. About 31 per cent of the people in the country are engaged in different kinds of services.
But the financial sector related to services was not in a favourable situation for new investments because of political turmoil in 2013. The demand for bank loans declined. Employment opportunities were lost as new investments in the sector were hampered. Transport, tourism and banking activities were hit hard because of recurrent shutdowns and blockades in 2013. The arrival of domestic tourists at resorts declined by a margin of about 90 per cent and many foreign tourists cancelled their tour programmes at that time.
On the other hand, the transport sector suffered a loss of about Tk 15 billion. Moreover, the financial institutions, directly and indirectly, suffered a lot.
The principal sub-sectors of the service sector are transport, hotel and restaurants, retail and wholesale businesses, social services, bank and insurance, education and housing. Apart from these, there are some minor sub-sectors. All of these were highly and adversely influenced by the political instability in 2013. It was found that the rate of occupancy in hotels and tourist resorts in different places of the country, including Dhaka and Chittagong, dropped below 20 per cent. Under normal circumstances, the rate stands at around 80 per cent. The Tour Operators Association of Bangladesh says the arrival of tourists in November-December of 2013 declined so much that about 50 hotels and 35 restaurants remained closed in Cox's Bazar and in different other tourist spots in the country. Normally the tourists attach more importance to political stability in their tour programmes. The domestic tourists could not go out because of the political turmoil. Political instability and uncertainties cast a long-term impact on the minds of foreign tourists and they never venture to tour a country where political violence prevails. This leaves a long-lasting bad image of a trouble-torn country in their minds. So, the wounds in the tourism sector of the country are yet to heal so far as the foreign tourists are concerned.
The financial sector in the country tops the list of worst sufferers because of the turmoil. Most of the banks suffered decline in profits and the number of debt defaulters increased. The demand for bank loans declined almost to the zero level. Some of the investors did not even receive their approved loans. As a result, the banks saw build-up of idle money. In six months from July to December 2013 the rate of growth in loans in the banking sector was 7 per cent, but the Bangladesh Bank's target was 15 per cent. Side by side with the decline in the flow of bank loans, there was a rise in the volume of default loans. The volume of total default loans stood at Tk 60 billion by December 2013 against Tk 42.70 billion a year back in 2012. Consequently, this adversely affected bank profits. Moreover, in the absence of demand for investments, the banks are still seeing a big volume of excess liquidity.
If the present political peace and tranquility prevail, the investors may again be interested in investments. But everything depends on the government as to how peacefully it can handle and solve the problems that have cropped up over the last January 5 general election. The election was highly flawed and is continually being challenged by the major opposition party.
The political instability in last six months of 2013 has also seriously affected and influenced the transport sector. As estimated, the sector suffered a loss of about Tk 15 billion. Digging roads and uprooting railway tracks by political activists caused a serious damage to road transports and road communications in most of the regions of the country. Apart from this, about 600 CNG filling stations had to be kept closed because of shutdowns and blockades causing a loss to the tune of Tk 70 billion.
On the other hand, retail and wholesale businesses had alarmingly declined because of the transport crisis. The producers could not timely bring raw materials to their factories and supply finished goods to the consumers. A study conducted by the Metropolitan Chamber of Commerce and Industry shows that the country's courier service providers lost 90 per cent of their business during those months of restive politics.
Some sort of structural change has occurred in the economy of Bangladesh. The service sector is now playing a significant role in accelerating the economic development of the country, although the real productive sectors were once dominant. One of the causes behind this is a rise in the purchasing power of the people with the inflow of foreign remittances and the emergence of the readymade garment (RMG) sector. To maintain this growth in the service sector, what is important and needed first is the continuation of political stability. If liberal and realistic policies are adopted for the related sectors at the same time as well, the desired level of balanced growth in the overall economy will be possible. Otherwise, an imbalanced growth of the service sector may overshadow the real productive sectors of the economy giving rise to unwanted, undesirable and harmful inflationary pressures.
Although the contribution and diversification of the service sector are far more in developed economies than ours, a developing country like Bangladesh will have to ensure a harmony between development of the service sector and the real productive sector so that the economy does not plunge into an inflationary trap. Bangladesh, suffering from unemployment and underemployment, needs to promote employment-generating and real productive sectors like agriculture and labour-intensive industries. These will meet the basic requirements of a large number of people by making commodities available at cheaper prices alongside development of the essential service sectors like road, transport and financial services. Political stability is a prime prerequisite not only in the case of development of service and real sectors alone, but also for economic progress and sustainable growth in the economy in general.
The writer is a retired professor of economics, BCS General Education Cadre.
 sarwarmdskhaled@gmail.com
Services sector growth key to buoyancy of economy
Sarwar Md. Saifullah Khaled | Published: March 21, 2014 00:00:00 | Updated: November 30, 2024 06:01:00
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