For several years now, Bangladesh’s economic growth has remained stagnant. Growth has hovered around 3–4 per cent, which is far below the expectations level. It cannot be said that the economic indicators have rebounded; rather, the decline has merely been arrested.
The economy is moving forward, but it is progressing with a limp. We have not yet been able to break out of the stagnation that has gripped economic growth in recent years.
One of the key reasons behind this stagnation is political instability. At present, alongside political uncertainty, concerns about the future persist. Entrepreneurs are optimistic about the election, but the environment has not yet evolved to a point where they feel confident enough to “put their hands in their pockets”—that is, to invest.
Overall, political uncertainty has not fully dissipated, though it appears to be on a path toward resolution. The electoral train has left the station. Whether the election will ensure a smooth transfer of power also remains a consideration for investors.
There are three further reasons behind the slowdown. These include the energy crisis; the distress in the financial sector; weakened consumer purchasing power; and the ongoing uncertainty in the global economy.
The energy crisis remains the foremost obstacle to investment, an old and well-known problem. Additionally, because of weaknesses in the banking and financial sector, entrepreneurs are unable to invest in line with demand. Interest rates are not the only major barrier to investment; limited access to finance is also a significant bottleneck. Outside the banking sector, the scope for securing investment funds is extremely limited.
Moreover, inflation has remained above 8 per cent throughout the year, while wages have risen at a slower pace. As a result, people’s purchasing power has eroded. Meanwhile, the employment situation has shown little improvement. With investment failing to increase, job creation has stalled.
Global trade is also fraught with major uncertainties. The United States’ retaliatory tariffs may cause a decline in global trade, as worldwide demand for goods has fallen. Overseas buyers remain uncertain about where to source their products. This poses risks for Bangladesh’s apparel sector: foreign buyers are still hesitant and undecided.
* Zahid Hussain, Former Lead Economist, World Bank Dhaka Office