Bangladesh’s ongoing political crisis is a ‘high risk’ for a weak economy Business and Economics
Vegetable trader Afsar Uddin was frustrated. He had to pay almost 50 percent more to bring a truckload of vegetables to his store in Karwan Bazar, the largest wholesale market for fresh produce in Bangladesh’s capital, Dhaka.
The ongoing nationwide rail blockade by Bangladesh’s main opposition party (BNP) and its allies has disrupted supply chains and pushed up transport costs significantly as only a fraction of the trucks and the buses have been on the road. during the shutdown.
“Just days ago, I had to pay 15,000 Bangladeshi takas ($136) for a truck to bring vegetables from the country to my shop in Dhaka. Now it has become 22,000 takas ($200) because very few truck owners are allowing their vehicles to carry goods,” said Uddin. This is due to the already high inflation in the country, he said.
“If we don’t raise the prices again, we will lose. But if we do, then we will end up with unsold rotten vegetables,” Uddin lamented.
Tailor Samrat Mia, who lives on a daily wage by sewing and altering ready-made clothes at the Dhaka New Market, is also frustrated by the lack of business. “We sit here all day but there are no customers. Who would come out to buy and change pants in the middle of this political crisis?” he asked. “But we have a family [take care of] and a mouth to feed. will be [politicians] worried?”
Political unrest in Bangladesh is wreaking havoc on the country’s already shaky economy and hurting small traders like Uddin and Mia, as opposition parties try to push Prime Minister Sheikh Hasina to resign before the general election in January.
BNP and its allies have been calling for the restoration of a caretaker government system to oversee national elections as they believe free and fair elections cannot be held under Hasina’s rule.
Hasina’s party – the Awami League – has been in power since 2009, and the last two general elections of 2014 and 2018, respectively, were marred by opposition boycotts and allegations of massive vote rigging.
Hasina, the world’s longest-serving female head of government, is also accused of brutally suppressing opposition and dissenting voices during this nearly 15-year period.
In 2011, the country’s parliament dissolved the caretaker government, an electorally unpopular administration that had successfully held at least four elections since the South Asian nation transitioned to democracy from a military dictatorship in the early 90s. Both Awami League and BNP came to power twice, otherwise, in these elections.
The BNP’s efforts in recent years to restore the caretaker government have invited police brutality and thousands of court cases. Now the party and its allies have promised to push ahead with disturbing events before the national elections and have announced a series of national blockades from early November.
But the impact of this political unrest is ultimately affecting the ordinary Bangladeshi.
Rahul Amin, the chief executive of a travel agency, is paying at least 10 times the normal fare for work because few buses, autorickshaws and taxis ply, pushing up prices.
“We have already been struggling hard with rising food prices and inflation for the last couple of years. Now this political turmoil is damaging the market,” Amin told Al Jazeera. “I understand the opposition’s demand for free and fair elections, but the whole economy will collapse [blockades] carry on.”
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The growing political situation is causing serious concerns for the South Asian economy, which is already being squeezed by the global effects of the COVID-19 pandemic and the war in Ukraine. With dwindling foreign currency reserves and strong inflationary pressures, Hasina’s administration pushed to seek a $4.7bn loan from the International Monetary Fund (IMF) earlier this year.
At a recent public forum, Abdur Rouf Talukder, the governor of the central bank of Bangladesh, admitted that the country’s economy has reached “rock bottom” and that they are navigating “very intense times”.
In the July-September quarter, Bangladesh’s payments deficit – as imports of goods, capital and services exceeded exports – increased to $2.8bn. Meanwhile, its current account deficit – which occurs when a country sends more money abroad than it receives – rose to $3.93bn. According to central bank data, foreign currency reserves have fallen to a new low of $20.66bn.
Last month, earnings through exports, the lion’s share of which came from the readymade garment industry (RMG), fell 13.64 per cent to $3.76bn, the lowest level in the past 26 months, which according to the Export Promotion Bureau.
Inflows of remittances, another important lifeline after exports, fell 4.4 percent in the last quarter.
Now, the restrictions are causing Bangladesh’s economy to lose 65 billion takas ($588m) a day, according to the Federation of Bangladesh Chambers of Commerce and Industry (FBCCI), the country’s main trade body.
“All businesses, big and small, are affected by these barriers,” Mahbubul Alam, president of FBCCI, told Al Jazeera. “We saw how political violence disrupted the economy for a long time back in 2014 before the elections [then]…. The urgency this time will be even greater. “
Zahid Hussain, former chief economist at the World Bank’s Dhaka office, warned of the same. “The current political situation looks like 2014 in which the economy suffered damages worth several billion dollars. This time it could hurt more not only because the economy is bigger, but also because the buffers are thin to begin with,” he said.
Hussain, however, said that the current economic crisis cannot be attributed to the political crisis alone. “[It] has been there for over 15 months and counting,” he said. While the global shocks have played a role in creating some of these pressures, the monetary policy response, rate exchange, financial and fiscal more, he said.
Since the start of the pandemic, Bangladesh had capped the lending rate at 9 percent for more than three years until this July. This allowed businesses to capture money at real interest rates close to zero (loan rate minus inflation, which was running at around 10 percent).
The central bank’s policy to artificially maintain the value of the country’s currency – the taka – also increased inflation.
“Now, deepening political repression and violence will add a lot of salt to existing wounds,” Hussain said.
Financial analyst Zia Hassan told Al Jazeera that while the political impasse has obviously led to economic instability, the roots of the struggle over balance of payments and dollar reserves can be traced back to deeper structural weaknesses in the import-dependent and non-diversified economy of Bangladesh.
In the fiscal year ending June 2023, Bangladesh imported goods worth $90bn against exports of $55bn – more than 80 per cent of which came from RMG products.
Bangladesh’s narrow export base, which is entirely dependent on RMG products, and over-reliance on remittance inflows, has left it vulnerable to external shocks for several years now, Hassan says .
Need for ‘democracy renewal’
Hassan also attributes the current economic decline to an oligarchy of political elites based in Sheikh Hasina’s regime that controls banking, bureaucracy and business.
Corruption in the country’s banking sector caused a loss of 100 billion takas ($900m) in the 2016-17 fiscal year, a study by the South Asian Network on Economic Modeling (SANEM), a Bangladeshi think tank, found.
Global Financial Integrity (GFI) data shows that between 2008 and 2017, Bangladesh lost a staggering $7.53bn – or 17.95 per cent of its international trade – every year on average to misinvoiced trade where companies declare a lower value for their imports and exports to paya lower. taxes
This oligarchy, accused of corruption and money laundering, has stopped reforms that threaten their economic interests, said Hassan. “Without a political settlement that restores true democracy by dismantling entrenched oligarchic networks, meaningful economic reforms are unlikely to be undertaken or effectively implemented,” he said. .
Meanwhile opposition leaders and activists say their ongoing blockades are part of their effort to break this oligarchy and “restore democracy” in Bangladesh. “In the last 15 years, Hasina’s governments and their beneficiaries have committed unprecedented corruption. The entire economy is depressed because of that,” said Ruhul Kabir Rizvi, joint general secretary of BNP.
“Obviously obstructions are damaging the economy, but if we don’t fight to restore democracy now and allow another election, the economy and the whole country will be in more trouble ,” he told Al Jazeera.
Ali Riaz, a distinguished professor of politics and government at Illinois State University in the United States, told Al Jazeera that the lack of an inclusive democratic system and the pursuit of cronyism have led to Bangladesh’s economic crisis.
“The ruling party must understand that stubbornness, the use of brute force, silent resistance and manipulation may give an aura of invincibility, but they do not deliver a solution to the economic crisis,” he said. blame the opposition or the global economy to stop it, he said.
Riaz said that the Awami League has to deal with the sources of problems – breaking the hold of a small group of beneficiaries in various sectors. “It is not an easy task,” he said, “and only a new political arrangement with a popular mandate can deliver this.” “
