What uncertainties does the economy face?

The country may achieve the lowest economic growth since the Covid-19 pandemic this financial year. This prediction by the World Bank is being backed up by the flagging pace of the economy.

An analysis of various indicators indicates that economic activities have slowed down even further over the past few months. Economists and analysts feel that the government should speedily focus on the uncertainties that are cropping up in the economy.

The World Bank's South Asia Development Update, published on 10 October, states that Bangladesh may see a four per cent growth in the current fiscal. But this is the mid-point of the growth projection.

The report stated, if the economy does not proceed properly, growth may fall to 3.2 per cent. If it does very well, it may reach 5.2 per cent at the very most.

With the economy growing sluggish, if it plummets as predicted by the World Bank, then this will be even lower than the GDP achieved during Covid times. The country's GDP was 3.45 per cent at the worst point of the Covid pandemic in 2019-20.

Like other countries of the world, Bangladesh too had raised all sorts of prohibitions in order to prevent the spread of the pandemic. Industrial production had shut down for weeks. International trade was hit hard.

According to the World Bank, this financial year there may be negative indicators in two areas of Bangladesh's economy. In the words of one agency, there may be "significant" uncertainty.

The World Bank says this uncertainty will weaken investment and industrial growth. The other matter is, floods in various areas will restrict growth in the agricultural sector. That is why there will be an overall drop in economic growth which had been 5.2 per cent in the last year.

Former lead economist of the World Bank in Dhaka, Zahid Hussain, feels that this uncertainty is now the biggest obstacle in the path of Bangladesh's economy.

Speaking to Prothom Alo, he said, "Businessmen will not turn to investment if this uncertainty can't be cleared up. During uncertain times, investors remain inactive. They keep their money in their pockets. So the government has to make an effort to overcome this uncertainty and take steps accordingly."

According to Zahid Hussain, this uncertainty in Bangladesh's economy stems from three sources. Firstly, the deterioration of law and order is hampering industrial production and this continues despite a tripartite understanding between the owners of the industries, the workers and the government. Secondly, the weaknesses of the financial sector are harming business. Thirdly, there are the long-standing problems of the energy sector.

The slow pace of the economy obviously didn't suddenly pop up. According to the World Bank, Bangladesh's GDP in 2022-23 had been 5.8 per cent. That means it was from the last fiscal that Bangladesh's economic growth had turned sluggish and this trend may continue further this fiscal.

The local institutions that monitor the country's economic trends say that this contraction of the economy has been on for the last three consecutive months.

According to the Purchasing Managers' Index (PMI) jointly brought out every month by the Metropolitan Chamber of Commerce and Industry (MCCI) and the research institution Policy Exchange Bangladesh, in continuity of July and August, the economy remains in a contractionary trend. Compared to August, the PMI rate increased by 6.2 score in September.

The PMI score in September was 49.7, which in August had been 43.5. A PMI score below 50 means the economy has shrunk. This score is out of 100, based on four fundamental sectors of the economy - agriculture, production, construction and services.

In September, the expansionary trend was only restored in the production sector. The remaining three sectors continue to contract.

Research director of the Centre for Policy Dialogue (CPD), Khandaker Golam Moazzem, feels that overall the state of the economy is "quite bad".

He said that the economy is having to be viewed from a new angle due to weaknesses in the banking sector, corruption, fudging of the GDP figures and so on. At the same time, normal activities are also being harmed due the political uncertainty.

Speaking to Prothom Alo, Khandaker Golam Moazzem said, "The three main sectors of our country are Rice (food), Remittance (expatriate income) and RMG (readymade garments). These have all been more or less affected. Capital must be arranged for agriculture and small industries. It must be ensured that there is no shortage in fertiliser. And it also must be ensured that there is no obstacle for the workers travelling overseas."

Uncertainly looms large in the production sector at present. Despite all sorts of initiatives, the country's largest export-oriented sector, readymade garments industry, still remains in a precarious state.

From July, there has been labour unrest in the RMG industrial areas of Savar, Ashulia and Gazipur. Things have calmed down somewhat, but there is no guarantee that this calm will continue.

The association of RMG owners states that their production and exports have been affected and a number of purchase orders have been diverted to other countries.

The World Bank published its 'Business Ready' report towards the beginning of this month. This is a sort of alternative to the 'Ease to Doing Business' report.

The new report has been prepared on the basis of 10 factors including the start of any business by a company, running and halting operations, and changes in the competition trends. Bangladesh does not rank well in this report.

Economist Zahid Hussain said Bangladesh lags significantly behind in reforms. In Business Ready, it even falls behind Nepal and Pakistan in certain indicators. There are policy uncertainties.

For example, he said, in many instances there is no certainty as to what rules the National Board of Revenue (NBR) would apply at any time. That is why the businesspersons suffer from uncertainty.

In the budget of the present fiscal, the Awami League government has set a growth target of 6.75 per cent. But the World Bank from beforehand had said that was not an achievable target. Last April the institution had predicted a 5.7 per cent growth rate. Now they have lowered their prediction to 4 per cent.

In the newly published Bangladesh Development Update, the World Bank identifies four challenges in front of Bangladesh's economy.

These are inflation, which will remain high despite a slight improvement; pressure from the external sector, mostly due to reserves lower than demand; weakness in the financial sector, on which the central bank is now working; and, political uncertainty.

Uncertainty simply increases concerning the political direction of the country after the 5 August change in political scenario.

Zahid Hussain feels if these areas of uncertainty can be overcome speedily and if nature remains favourable, then it may be possible to achieve a 5 per cent growth in this fiscal.

He said, "We must try to advance towards a 5.2 per cent growth."

However, CPD's research director Khandaker Golam Moazzem feels that growth in the current fiscal will not be in accordance to government projection. However, he feels that of the underlying strength of Bangladesh's economy can be utilised to create a favourable advantageous environment, then perhaps the economy can turn around.

Khandaker Golam Moazzem said, "If we can take a lesson from the problems of the current financial year, we can hope that the economy will regain its vibrancy in the next fiscal."

* The report has been rewritten in English by Ayesha Kabir