Will political turmoil harm Bangladesh's economy again?

In 2013, the World Bank predicted political unrest ahead of the 10th general elections would hurt Bangladesh’s economic growth.

That came true 10 years later, as the country prepares to hold the 12th parliamentary polls, economists and businessmen say the same thing will happen to the economy if political instability marked by strikes, blockades, and violence arises amid the ongoing deadlock between the two major parties.

The Awami League came to power after the 2008 general elections. The economy started to grow, with the gross domestic product (GDP) growth reaching 6.5% in FY12 from 5% in FY09. But the World Bank, in its April 2013 Bangladesh Development Update, predicted economic decline.

It said growth would fall due to weak exports and investments resulting from the Eurozone crisis, domestic supply constraints, and intensified strikes and unrest in the run-up to the national elections.

It also said increasingly fragile political stability does not bode well for the revival of investment needed to accelerate growth. An immediate hindrance to the acceleration of growth is the unprecedented political complexity that Bangladesh appears to have entered, the report noted. 

The World Bank forecast finally came true as growth fell to 6% in FY13. Later, in its Bangladesh Development Update October 2013, the global lender said disruptions caused by political strife, deepening political tensions relating to the impending political transition, and inadequate improvements in the provision of power, gas, and infrastructure were the key factors behind the slowdown in growth. 

It further explained that the slower growth reflected the decline in agriculture and service sectors. While agricultural output weakened primarily because of stagnant cereal crop production, the service sector growth suffered mostly because of the direct impacts of strikes and political violence.

Strikes, also called hartals, and the violence that came with them had devastating impacts on businesses and the economy in the past. 2013 was marked by intense political instability, including hartals and blockades enforced by the opposition parties particularly after the then Awami League government had entered the last 90 days of its tenure in October.

A study by the Centre for Policy Dialogue said there were 55 days of hartal and blockade in the country from July 2013 to January 2014 and political violence during that period caused a loss of Tk49,000 crore, resulting in a daily loss of Tk891 crore. 

Dhaka Chamber of Commerce and Industry (DCCI) said in 2013 that a one-day hartal leads to a staggering loss of Tk1,600 crore.

The then DCCI president Md Sabur Khan said it was easily possible to build a bridge like the Padma Bridge with the money lost during 15 days of hartal.

Sabur’s calculation later proved to be not wildly different from the actual cost of constructing the Padma Bridge despite changes in the value of taka. The landmark structure was built at a cost of Tk30,193 crore, equivalent to the losses of around 19 days of hartal. 

The DCCI in January 2015 updated the figure, saying the economy incurs a loss of as much as Tk2,278 crore during a one-day hartal, with the readymade garment and transport sectors facing the highest and second-highest loss of Tk695 crore and Tk300 crore, respectively.

It released no updated figures after that, but Bangladesh Institute of International and Strategic Studies Research Director Dr Mahfuz Kabir said the amount would be as high as Tk6,680 crore now.

He came up with the new figure after adjusting the previous one based on the current value of taka.   

The BNP enforced a nationwide hartal on Sunday after its Saturday’s rally was foiled amid clashes with the Awami League and law enforcers. Fierce clashes broke out in different areas of Dhaka, including Kakrail and Nayapaltan. A policeman was killed in the mayhem while many were injured. There was sporadic violence, including arson, during Sunday’s hartal as well while BNP Secretary General Mirza Fakhrul Islam Alamgir was arrested and sent to prison. The BNP also enforced a three-day blockade from today.   

All this may lead to further instabilities in the political scene in the coming days as elections approach, which could negatively impact GDP growth like before.

Mahfuz said it is too early to say how the current political turmoil would impact GDP growth in numerical terms. But he noted that Bangladesh is still reeling from the global economic crisis and political unrest may aggravate that. 

“Inflation remains high in the country for a long time. The influence of syndicates in the market is also strong and will become stronger if more hartals and blockades are enforced. This will affect the supply chain, resulting in even higher inflation,” he explained.

The researcher said the country had enjoyed political stability for quite a long time, which was also marked by development, including the implementation of mega projects. This created enthusiasm among foreign investors to invest in the country. 

“But if hartals come back, investors will pull back. That will create trouble in the economy. Moreover, hartals will have harmful effects on employment, local investment and domestic production,” he added. 

Dr Zahid Hussain, former lead economist at the World Bank’s Dhaka office, said economic growth is already about to become slower due to various macroeconomic problems and political disruptions have added to that. 

“Some losses in daily growth cannot be recouped. For instance, if a rickshaw-puller is unable to work for one day, he cannot recover that loss. But a clothing factory owner may recoup such losses by offering workers overtime later. Those who live hand to mouth thus suffer more because of political unrest,” he said.

Zahid, who was one of the authors of the World Bank’s April 2013 Bangladesh Development Update, also said political turmoil creates uncertainties that disrupt export-import trade, investment, and production.

He described the current political situation as complicated, adding there are worries about how the international community will react to this.

The extent of negative impacts of all this on the economy would depend on how long the unrest prevails, he added. 

Zahid further said avoiding the losses caused by hartals could make the victims’ lives less complicated.

“You cannot necessarily implement projects by preventing such losses. There was, and still is, macroeconomic pressure, and hartals kind of rub salt into the wound.”

President of the Federation of Bangladesh Chambers of Commerce and Industry Mahbubul Alam emphasised the economy would tank if political instability continues.

He said foreign direct investment would also be affected as political turmoil would tarnish Bangladesh’s image among global investors.

The World Bank in its June 2023 Global Economic Prospects said Bangladesh's FY23 GDP growth would remain unchanged at 5.2%. It said elevated inflation, policy uncertainty, and weakening external demand are expected to slow growth to 5.2% in FY23 from 7.1% in the previous fiscal year. However, provisional data from the Bangladesh Bureau of Statistics put the FY23 growth at 6.03%.

The extent of the impacts of more possible hartals and political upheaval on the economy remains to be seen.