Political instability in Bangladesh

Political instability in Bangladesh

THE year has been one of the most upsetting years for Bangladesh in the recent past in terms of domestic political instability caused by hartals, oborodhs and deadly violence for months. For that, the economy had to bear the brunt in many ways. The World Bank International Monetary Fund, Bangladesh Bank (BB) and many experts have projected the gross domestic product (GDP) to be lower than 6%. It is much below the target of 7.2% for FY2014.

It will be a blow to the growth momentum. This is considered to be promising by the international community because of its 'development surprise,' despite being trapped in a plethora of constraints. During the last three decades the country has increased its growth by 1% per decade. Reduced growth rate will have bad impact that will boil down to lower efforts for poverty reduction.

It is clear that political instability has contributed to this situation. Investment has been insufficient for the projected growth as it is under pressure to cross even 30% of GDP. But, public investment has increased; private, domestic and foreign investments continue to be disappointingly low. Infrastructural bottlenecks slow decision making, corruption and low skills of human resources are some factors that put off higher investment in the country.

This Prolonged political crisis could only make it worse. Credit to the private sector is lower than the target and banks are sitting with excess liquidity because investment demand has been slowing. Near to the ground investment implies less employment generation and low income, which in turn has poverty implications.

Government expenditure during political unrest also gets exaggerated, which is evident from low implementation of the Annual Development Plan (ADP) during the first few months of the current fiscal year. This is mainly because of low disbursement of foreign aid due to political instability

These factors will in turn force the government to rely on bank borrowing. Though there is low demand for credit by the private sector, high government borrowing will only add to the interest burden of the government.