On winter nights, I used to cross the Bhogai River in Nalitabari and go to watch jatra (traditional theatre) in the school ground. Back then, I was young, so even if people called me "Fatra" (irresponsibility and carefree), I didn't care. From that experience, I remember that if by midnight the songs like "Salam Salam Hazar Salam" or "Ek Sagar Rakter Binimoye" didn’t start at the theater, you could tell something was wrong backstage. Perhaps, the theatrical performance might have been ruined that night.
Reflecting on the five months of the interim government’s work, I’m reminded of those midnight performances. It seems there is a ruckus in the green room over an issue. Given the instability in the government and self-created issues, it can be said that 2025 will be the most challenging year for Bangladesh's economy.
The debate within the government over whether reforms should come before elections or vice versa will further add to the uncertainty of 2025. Even if elections are held, the problems might not be resolved until 2026. The root cause of the student and mass uprisings was economic issues—high inflation and unemployment.
The government should have tackled these two issues first. Instead of creating half a dozen reform committees, it was more urgent to form two task forces to address inflation and unemployment. Inflation is a short-term problem, but that doesn't mean it will go away quickly.
If inflation isn't reduced quickly, other complications arise. Just as prolonged cold or flu can turn into pneumonia, prolonged inflation leads to "stagflation," which is a situation of economic stagnation and high price instability. The United States experienced this kind of stagnation during the 1970s and early 1980s, and even president Jimmy Carter became unpopular as a result.
Controlling inflation is primarily the responsibility of the central bank, but a large part of Bangladesh’s current inflation stems from extortion and syndicates. The central bank has little power to deal with this. The government must take responsibility for maintaining peace, order, and security. This is where the issue arises, and it does not require a task force.
The home ministry has essentially become an "inactive" ministry. If this continues, growth will decrease, which is undesirable, especially given the global economic improvement in 2024. After president Trump assumes office in 2025, although a cold trade war may begin with China, the Western economies will be in a stronger position because central banks still have room to cut interest rates to stimulate the economy. Bangladesh, however, doesn’t have this advantage due to high inflation, which is making the situation worse.
Unemployment cannot be solved overnight. It requires a medium-term solution. The government should have recognized it as the nation's "number one problem" and formed task forces to address it accordingly. If the post-independence government had not identified population growth as the "number one problem," the population growth rate would not have fallen from 2.5 per cent to 1 per cent today. Pakistan, which did not focus on this, still has a growth rate of about 2 per cent, while India’s is 0.8 per cent, and Sri Lanka’s has even gone negative. As I read in my childhood, “Without effort, no one can achieve their desires.” In economics, the first step in solving any problem is recognizing it and then taking appropriate action.
There is no way to reduce unemployment without investment, especially private sector investment. No matter how good the relationship between the head of the interim government and world leaders, they won’t increase direct investment or FDI based on that relationship. Once an elected government is in place, they will invest based on its character. So, in the meantime, any hope for foreign investment is futile. The real hope lies in internal individual investment, but that has become stagnant or is even declining in some cases.
There have been frequent reports of factories closing and workers losing jobs. No white paper has been published on this issue, so unemployment has continued to rise over the past five months. The newspapers confirm this. Therefore, it is crucial that the election schedule is announced soon to reduce instability. It seems there is a ruckus in the government’s green room about this, and there are inconsistencies in their statements, which have halted investment. On the other hand, the government lacks the capacity to increase investment because there are concerns that tax revenues will be the weakest his fiscal year in comparisons to the past years.
Although reserves are increasing slowly, neither inflation nor unemployment will benefit significantly from it. Reserves are rising because the exchange rate is closer to the market, and remittances are increasing. However, exports have not increased, and imports have significantly decreased. From July to November 2023, compared to the same period in 2024, imports of consumer goods fell by 13 per cent, capital goods by 22 per cent, and intermediate goods by 15 per cent.
In other words, a major reason for the increase in reserves is the reduction in imports. Reducing weight by exercise and reducing it by starving are two different things, and the latter is dangerous. When the import of consumer goods decreases, the supply in the market decreases, and prices rise. Similarly, when the import of capital and intermediate goods decreases, future investment and economic capacity also decline. Some of this has already impacted the growth of national income, which, according to the World Bank, will drop to 4 per cent this fiscal year, the lowest in the last 22 years, excluding the COVID period.
By mid-January, the reform committees will start publishing their reports one by one. This will increase instability, not decrease it. Those whose interests are not protected will take to the streets. This has become the easiest thing to do, almost a duty. Even then, there is little expectation for the committees' work. It seems that these committees will suddenly emerge as "heroes" from the green room, which is an unrealistic expectation.
It is somewhat predictable what the white paper committees will do, but the reform committees could end up being the opposite, potentially becoming a “time bomb” of instability. Many questions are being raised about the capabilities of these committees, and there’s a risk that all the reforms will collapse and force the election to become the central issue.
In Bangladesh’s history, during every election or government transition, instability increases and growth decreases. In 1943, Polish economist Michael Kalecki introduced the idea of a "political business cycle." In 1975, William Nordhaus applied it to the United States.
Some of the significant years when Bangladesh’s growth slowed down include 1975, 1982, 1991, 1996, 2002, and 2009. It seems that 2025 will be no exception. Thus, overall, 2025 will be a challenging year for Bangladesh. However, the government's responsibility will be to reduce conflicts and disagreements, take a strong and clear position, and then conduct a fair election to minimize the loss of growth.
*Dr. Birupaksha Paul is a Professor of Economics at the State University of New York at Cortland