Election years in the past two decades were usually marked by a decline in economic growth, and a recurrence is feared as political turmoil has begun ahead of the 12th national polls amid the fallout of the Russia-Ukraine war and the global economic crisis.

Polls are expected in early January, but the opposition has already enforced hartals and blockades. The programmes and the ensuing violence have disrupted economic activities, including production. All this, economists and businessmen say, will hurt the economy.

The eighth parliamentary election was held in 2001. The Gross Domestic Product (GDP) growth in the fiscal year 1999-2000 was 5.3%, which fell to 5.1% next year and to 3.8% the following year, according to the World Bank data.

Bangladesh went to the polls again in 2008. In FY07, growth was 7.1%, which decreased to 6% in FY08 and to 5% in FY09. In 2014, the 10th national election was held. The GDP growth in FY13 declined to 6% from 6.5% in FY12. Growth then slightly increased to 6.1% in FY14.

The 11th general election was held in December 2018. Growth was not affected in FY18 and FY19 despite the elections. The GDP growth was 7.3% in FY18, which increased to 7.9% the following year.       

Zahid Hussain, former lead economist at the World Bank’s Dhaka office, told the Daily Sun growth would certainly decrease amid the current political unrest but the extent remains to be seen.

“We are seeing violence ahead of the polls. This will negatively impact everything – imports, production, exports, and investments.”

He said the present political situation is different from 2014, describing it as complicated. The economist further said many are worried about how the international community will react to the current situation while there is reluctance to make fresh investments.

The size of the economy increased in the past 10 years and growth may be affected accordingly, Zahid added.

Bangladesh achieved remarkable growth in the past decade. The GDP growth stood at 7.9% in FY19, which was the highest in the country’s history. In 2019, Daniel Gay, who worked in the United Nations Department of Economic and Social Affairs at the time, told the World Economic Forum, “It’s [Bangladesh] really a success story.”  

Like elsewhere in the world, growth fell in FY20 due to the Covid-19 pandemic. But the economy bounced back, with the GDP growth jumping to 6.9% in FY21 from 3.4% in the previous fiscal year. In FY22, growth increased further to 7.1%.

Khondaker Golam Moazzem, research director at the Centre for Policy Dialogue, said the current situation is characterised by high inflation, low investment forecasts, low government spending, and, last but not least, political violence.

Overall, it will be difficult to sustain the growth momentum at the end of the year, he said, adding growth cannot be sustained if production is disrupted.

Rizwan Rahman, former president of Dhaka Chamber of Commerce and Industry, told the Daily Sun growth would be lower this year even if there were no elections because there are many ongoing problems domestically and globally.

“We could not control inflation while dollar rates and fuel prices continue to rise. The prices of daily essentials have skyrocketed. There are challenges in industrial raw materials’ imports and exports.

“In this situation, political violence is adding fuel to the fire. As a result, private and foreign investments will drop,” he added.

Investment stagnation

Investment has stagnated due to various global and domestic factors, with the government’s annual development programme (ADP) spending falling because of fiscal imbalances.

Government spending was lower in the first three months of this fiscal year than the same period in FY23. Public investment usually accounts for 20-25% of GDP.

Private investment has also become sluggish. The Bangladesh Bank data shows private sector credit stood at Tk15.13 lakh crore at the end of September. The private sector credit growth was 9.69%, the lowest since October 2021. The August 2023 growth was 9.75%.

In the monetary policy for the second half of FY23, the central bank set a target of 14.1% private credit growth, but the achieved growth was 10.49%. It then reduced the target to 10.9% for the first half of FY24.

Due to lack of investment, both letter of credit (LC) opening and settlement for capital machinery imports declined. The central bank data shows LCs of $55 million were opened from July to September of this fiscal year, down from $71 million during the corresponding period of FY23. LC opening fell by about 24%, and settlement by nearly 40%, in this period.

Multi-pronged crisis

The GDP growth target was set at 7.5% in the FY24 budget. The ambitious target was fixed despite various problems and worries, including the upcoming elections and global economic headwinds.

Various global organisations lowered the target in their projections. The World Bank set it at 5.6% and the Asian Development Bank at 6.5%.

Experts say adequate private investment is needed to achieve the ambitious growth target but that will be hard due to uncertainties that have already arisen in the run-up to the general elections.

Ahsan H Mansur, executive director of Policy Research Institute, said banks do not want to give everyone loans during the election year while entrepreneurs do not want to make new investments amid political crisis.

This has slowed down private credit growth, which may create big negative impacts on production and employment in the coming days, he said. “In that case, it will not be possible to achieve the 7.5% growth target.”

He also said the government should now focus on containing inflation instead of GDP growth considering the global situation.

“Now is the time to resolve our crisis. If the GDP growth is even 5%, I think it is enough. The government should be careful so that inflation does not cross single-digit levels and foreign exchange reserves do not fall.”