Economic slowdown marks election year

The national economy has slowed down of late, show some indicators, as investors fear uncertainty ahead of the next general elections.

The country's common people, too, are facing hardship due to erosion in their purchasing power with rising prices of essentials although official statistics of inflation say it otherwise.

Many businessmen are not getting loans as at least 20 banks are suffering from liquidity crisis, according to stakeholders.

Historically, analyses of economic data suggest, with some exceptions, key drivers of the economy remain stagnant in an election year. Bangladesh is scheduled to hold the 11th parliamentary polls in December.

However, this is for the first time investment is being seriously affected by sudden increase in interest rates.

Thus, all major indicators say, any comfort zone for anyone is missing under the current circumstances.

"There is volatility in the economy. The people’s purchasing power has understandably shrunk. Fear of political uncertainty is also there," said Syed Nasim Manzur, a former president of Metropolitan Chamber of Commerce and Industry (MCCI).

The entrepreneur expressed concern at the atmosphere that, according to him, has been plagued by three factors -absence of conducive atmosphere for investment, surge in interest rates and delay in loading and unloading of goods at the sea port.

The overall interest rate has bounced back to more than 10 per cent in recent months as the banks have been suffering from dearth of cash to disburse loans, especially to big players, according to bankers and businessmen.

Even prime minister Sheikh Hasina, addressing a ruling party meeting on Wednesday night, emphasised the need for bringing down the interest rate to single digit.

At the same time, the average inflation was recorded at 5.31 per cent in February, according to Bangladesh Bureau of Statistics.

But, the Trading Corporation of Bangladesh (TSB) found that the price of fine rice increased 27.45 per cent and coarse rice 18.18 per cent in the past year.

Also, the commoners’ declining purchasing capacity was reflected in the sales during the recent month-long Dhaka International Trade Fair. It saw sales of goods worth Tk 878.3 million compared to the previous year’s sales valued at Tk 1.13 billion.

Two main players in the country’s commodity market said seeing hardly any growth in their sales, they would not make further investment without observing the trends in the coming months.

Traders in the capital’s Moulvibazar and Shyambazar echoed the same reality as they said sales in the wholesale market are not encouraging in recent times.

“Market situation is not good at all. There are hardly any encouraging sales,” said vice president of Bangladesh Dokan Malik Samity (shop owners’ association) Rezaul Islam, referring to the trends in Malibagh and Mouchak supermarkets.

Already, the country’s private investment has stagnated at 23.1 per cent as share of gross domestic product (GDP) in recent times, according to an analysis by Center for Policy Dialogue (CPD). Savings as share of GDP also came down below 30 per cent in the previous year.

The World Bank (WB) has forecast a 6.4 per cent GDP growth for the current fiscal year whereas the government has fixed the GDP growth target at 7.8 per cent for the year.

Asked about the latest state of the economy, WB economist Zahid Hussain observed that it is hard to say with certainty that there is downtrend in the economy.

“However, seeing high bank interest rate, liquidity crisis, dollar crisis and its high rates, rising costs of living, and cautious attitude of entrepreneurs while making investment decisions, what comes to our mind is economic slowdown,” he added.

The capacity of the banks to disburse loans has seriously declined and they are instead focussing on collecting deposits - a situation that has triggered rise in interest rates.

Ten private banks of 20 overall that have been plagued by liquidity crisis, are not in a position to distribute fresh loans. Only a year ago, the banks had liquidity of more than Tk 1 trillion.

“Liquidity crisis added to high interest rate is hampering investment,” said president of Dhaka Chamber of Commerce and Industry (DCCI), Abul Kashem Khan.

“New entrepreneurs cannot get easy loans whereas whatever loans are given, cannot help small investors,” he added.

''Businessmen naturally stay alert before every national election. It's normal this year as well.''

Despite certain growth in export earning and remittances inflow, foreign exchange market has remained volatile due to higher import bills. In such a situation, the Bangladesh Bank is trying to sell dollars to keep the currency market stable.

AB Mirza Azizul Islam, a former caretaker government adviser, pointed out certain mismatch in the trend.

“It is obvious that the economy sees a downtrend in a year of national election… But if import bills surge in such a situation, it means this might be a strategy of the politicians to raise funds for electioneering,” he said.

* This report, originally published in Prothom Alo print edition, has been rewritten by Mushfique Wadud and Imam Hossain.