Tuesday, 17 September, 2024
The student protests, which escalated into a widespread movement forcing Bangladesh Prime Minister Sheikh Hasina to resign and flee the country, were also driven by severe economic conditions in what was once the world’s fastest-growing economy.
The major concern is that food inflation has reached a record high of 14.10 per cent, while general inflation stands at 11.66 per cent, compared to 9.72 per cent in June. This surge has been driven by a political crisis and an internet shutdown, plunging the country into a severe cost-of-living crisis. The unrest surrounding the quota movement and the imposition of curfews have exacerbated the rise in prices of daily essentials.
The major concern is that food inflation has reached a record high of 14.10 per cent, while general inflation stands at 11.66 per cent, compared to 9.72 per cent in June. This surge has been driven by a political crisis and an internet shutdown, plunging the country into a severe cost-of-living crisis.
The Bangladesh Bank has recently introduced a cautious monetary policy aimed at reducing inflation to 6.5% by the fiscal year 2025. However, this target appears overly optimistic, given that a significant amount of money has already been laundered by bad actors. Additionally, under Hasina’s leadership, Bangladesh has experienced a sharp widening of its current account deficit, depreciation of the taka, and a decline in foreign exchange reserves.
The economy is likely to face more jolt in the coming days as many banks are now ‘clinically dead,’ according to the CPD, and the government’s increased borrowing of high-powered money from the banking system has already reduced credit to the private sector, the main engine of the economy.
The central bank kept interest rates at 8.5% in July, following two rate hikes earlier this year. This has exacerbated the struggles of low-income individuals, such as garment workers, who already earn very low wages. Rising living costs have led to protests by garment workers demanding higher salaries.
Readymade garments, the primary engine of growth, are facing significant pressure due to declining export shipments in recent months, exacerbated by the student movement and the government's internet shutdown. The situation has been aggravated by the drastic fall in remittances from Bangladeshis living abroad—who have stopped sending funds supporting the student movement.
The economy is likely to face more jolt in the coming days as many banks are now ‘clinically dead,’ according to the CPD, and the government’s increased borrowing of high-powered money from the banking system has already reduced credit to the private sector, the main engine of the economy.
Adviser for the Ministries of Finance and Planning of the newly-formed interim government Dr Salehuddin Ahmed, also a former central bank Governor admitted the economic situation and said last Friday that the country's economy should have to be rejuvenated braving various existing economic challenges, especially in the financial and banking sector.
The economy has sharply slowed since the Russia-Ukraine war drove up fuel and food import prices, prompting Bangladesh to seek a $4.7-billion bailout from the International Monetary Fund (IMF) last year. Political unrest has further placed the economy at a critical juncture, especially as disruptions in the Red Sea zone have hampered shipping processes.
Political unrest has a heavy toll on the economy. The average cost of a one-day hartal to the country's economy was estimated at Tk 6,680 crore in 2023, according to a study by the Bangladesh Institute of International and Strategic Studies (BIISS) while it was Tk 5,500 crore in 2011, according to a UNDP report that indicated that the hartal caused a 20 per cent fall in the overall economy of the country.
Besides, export-import activities witnessed a 10 per cent decline, and the prices of goods in the country surged by 10 per cent as a result of just one day of hartal.
The country's estimated loss to the economy stands at over US$ 3.5 billion from the six days alone between October 28 and November 6 as BNP, Jamaat-e-Islami, and their allies observed a total of six days of blockades and strikes.
"The hardest hits are small traders, day labourers, and SMEs. The supply chain is in shambles, hurting both importers and exporters at an already critical economic period. Educational activities of children and youth are being drastically disrupted," he wrote in a Facebook post from his verified account.
The pressing question is how much the economy will suffer due to the ongoing student movement, which has already escalated into a mass movement. This unrest comes at a time when the economy is already struggling with high inflation, a dwindling dollar reserve, slowing exports, and declining private sector activity.
The ongoing student movement in Bangladesh, which has escalated into a broader mass upsurge, presents a complex challenge with significant economic implications. While the immediate disruptions are evident in business, transportation, and infrastructure, the medium to long-term effects on investment, education, tourism, and government expenditure could be profound.
Bangladesh is currently witnessing a significant student movement, which began peacefully with demands for merit-based job quotas and has rapidly evolved into a mass uprising. Despite the imposition of curfews, students and citizens alike have taken to the streets, driven by calls for better governance, educational reforms, and accountability.
The economic impact of any kind of political or non-political incident can be traced with the help of the lead and lagged economic variables. Lead variables are those that forecast the likely impacts whereas the lagged variables reveal the impacts only after they have been felt.
One of the most renowned lead economic variables across the globe is the stock price index which is now at its lowest level in both the bourses. It is assumed that the buyers and sellers participating in the stock markets are forward-looking and use all information available to them at a given time to make a decision about buying and selling of stocks. Therefore, any event that can potentially affect the business and economy in future will affect the price of the stock today. Any incident that can potentially negatively affect the economy in future will reduce the stock price today, and vice versa.
In the last budget session, the economy was projected to grow by 6.7% in the new fiscal year, down from the previous target of 7.5%. However, analysts expressed scepticism about this revised forecast, pointing to high inflation and stagnant growth in private-sector investment. This has been aggravated by serious infrastructure damages caused by the ongoing student movement agitated by the government’s crackdown on the protesters.
The government has to allocate substantial resources to maintain law and order, diverting funds from developmental and welfare programs. This increase in security expenditure can strain the national budget. To address the demands of the movement, the government might introduce new policies or reforms. While these can have long-term benefits, the initial implementation phase can be costly and challenging.
Bangladesh's post-pandemic recovery faces continued headwinds. Real GDP growth slowed to 5.8 per cent in FY23, down from 7.1 per cent in the previous year. The introduction of a multiple exchange rate regime in September 2022 disincentivised foreign exchange inflows, leading to a financial account deficit.
Despite significant economic progress over the past fifteen years, which the current government proudly claims credit for, there are still not enough jobs for the young population in the country. Private investment remains stagnant at 23.5 per cent of the gross domestic product (GDP) in fiscal year 2024, limiting the private sector's ability to generate sufficient employment opportunities.
Meanwhile, government jobs have become the most coveted form of employment due to their higher salaries, additional perks, job security, and greater power while the government’s borrowing from the banking system has increased 5 times in recent days which will fuel inflation and squeezed private sector credit.
Though the official unemployment rate is only 3.53 per cent according to the Labour Force Survey (LFS) 2022, youth unemployment stands at eight per cent, according to the Bangladesh Bureau of Statistics (BBS). The percentage of youth aged 15- 24 years who are not in employment, education, and training (NEET) is 40.67 per cent. In a skewed labour market, the opportunity for decent employment is limited, due to which 84.9 per cent of jobs are in the informal sector where income and job security are low.
Clearly, the economic growth in Bangladesh could not create enough jobs. This is also reflected in a downward trend in the employment elasticity of GDP. Employment elasticity is a measure of how employment changes due to changes in economic growth. The quarterly GDP estimates and LFS data indicate that in FY2022, employment elasticity was 0.38 per cent, which has come down to 0.13 per cent in the first quarter of FY2024.
So, the impact of the ongoing student movement on the economy will be severe in the days ahead. The most alarming fact is that daily curfews and disruptions have severely affected local businesses and retailers. Reduced operational hours and safety concerns have led to a significant drop in consumer footfall, impacting sales and revenues.
The movement of goods has been hampered, leading to delays in supply chains. This affects everything from perishable goods to manufacturing inputs, causing a ripple effect across various sectors. Strikes and roadblocks have led to a standstill in public transportation. This not only inconveniences daily commuters but also affects the logistics of goods transportation.
Stability is a key factor for foreign investors. Ongoing disturbances may lead to a reassessment of investment risks, potentially causing a withdrawal or reduction in FDI inflows, which are crucial for economic growth. However, continued unrest creates an atmosphere of uncertainty, deterring domestic investors from committing capital to new ventures or expanding existing operations.
The top priority for the interim government led by Nobel laureate Prof. Dr Yunus should be to restore law and order nationwide and take decisive actions to mitigate the economic impact caused by the violent crackdown on the recent anti-discriminatory quota reform movement led by students.
(The writer is the Editor of THE BANGLADESH EXPRESS and Chairman of BJFCI. He may be reached at [email protected])
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The student protests, which escalated into a widespread movement forcing Bangladesh Prime Minister Sheikh Hasina to resign and flee the country, were also driven by severe economic conditions in what was once the world’s fastest-growing economy.
The major concern is that food inflation has reached a record high of 14.10 per cent, while general inflation stands at 11.66 per cent, compared to 9.72 per cent in June. This surge has been driven by a political crisis and an internet shutdown, plunging the country into a severe cost-of-living crisis. The unrest surrounding the quota movement and the imposition of curfews have exacerbated the rise in prices of daily essentials.
The major concern is that food inflation has reached a record high of 14.10 per cent, while general inflation stands at 11.66 per cent, compared to 9.72 per cent in June. This surge has been driven by a political crisis and an internet shutdown, plunging the country into a severe cost-of-living crisis.
The Bangladesh Bank has recently introduced a cautious monetary policy aimed at reducing inflation to 6.5% by the fiscal year 2025. However, this target appears overly optimistic, given that a significant amount of money has already been laundered by bad actors. Additionally, under Hasina’s leadership, Bangladesh has experienced a sharp widening of its current account deficit, depreciation of the taka, and a decline in foreign exchange reserves.
The economy is likely to face more jolt in the coming days as many banks are now ‘clinically dead,’ according to the CPD, and the government’s increased borrowing of high-powered money from the banking system has already reduced credit to the private sector, the main engine of the economy.
The central bank kept interest rates at 8.5% in July, following two rate hikes earlier this year. This has exacerbated the struggles of low-income individuals, such as garment workers, who already earn very low wages. Rising living costs have led to protests by garment workers demanding higher salaries.
Readymade garments, the primary engine of growth, are facing significant pressure due to declining export shipments in recent months, exacerbated by the student movement and the government's internet shutdown. The situation has been aggravated by the drastic fall in remittances from Bangladeshis living abroad—who have stopped sending funds supporting the student movement.
The economy is likely to face more jolt in the coming days as many banks are now ‘clinically dead,’ according to the CPD, and the government’s increased borrowing of high-powered money from the banking system has already reduced credit to the private sector, the main engine of the economy.
Adviser for the Ministries of Finance and Planning of the newly-formed interim government Dr Salehuddin Ahmed, also a former central bank Governor admitted the economic situation and said last Friday that the country's economy should have to be rejuvenated braving various existing economic challenges, especially in the financial and banking sector.
The economy has sharply slowed since the Russia-Ukraine war drove up fuel and food import prices, prompting Bangladesh to seek a $4.7-billion bailout from the International Monetary Fund (IMF) last year. Political unrest has further placed the economy at a critical juncture, especially as disruptions in the Red Sea zone have hampered shipping processes.
Political unrest has a heavy toll on the economy. The average cost of a one-day hartal to the country's economy was estimated at Tk 6,680 crore in 2023, according to a study by the Bangladesh Institute of International and Strategic Studies (BIISS) while it was Tk 5,500 crore in 2011, according to a UNDP report that indicated that the hartal caused a 20 per cent fall in the overall economy of the country.
Besides, export-import activities witnessed a 10 per cent decline, and the prices of goods in the country surged by 10 per cent as a result of just one day of hartal.
The country's estimated loss to the economy stands at over US$ 3.5 billion from the six days alone between October 28 and November 6 as BNP, Jamaat-e-Islami, and their allies observed a total of six days of blockades and strikes.
"The hardest hits are small traders, day labourers, and SMEs. The supply chain is in shambles, hurting both importers and exporters at an already critical economic period. Educational activities of children and youth are being drastically disrupted," he wrote in a Facebook post from his verified account.
The pressing question is how much the economy will suffer due to the ongoing student movement, which has already escalated into a mass movement. This unrest comes at a time when the economy is already struggling with high inflation, a dwindling dollar reserve, slowing exports, and declining private sector activity.
The ongoing student movement in Bangladesh, which has escalated into a broader mass upsurge, presents a complex challenge with significant economic implications. While the immediate disruptions are evident in business, transportation, and infrastructure, the medium to long-term effects on investment, education, tourism, and government expenditure could be profound.
Bangladesh is currently witnessing a significant student movement, which began peacefully with demands for merit-based job quotas and has rapidly evolved into a mass uprising. Despite the imposition of curfews, students and citizens alike have taken to the streets, driven by calls for better governance, educational reforms, and accountability.
The economic impact of any kind of political or non-political incident can be traced with the help of the lead and lagged economic variables. Lead variables are those that forecast the likely impacts whereas the lagged variables reveal the impacts only after they have been felt.
One of the most renowned lead economic variables across the globe is the stock price index which is now at its lowest level in both the bourses. It is assumed that the buyers and sellers participating in the stock markets are forward-looking and use all information available to them at a given time to make a decision about buying and selling of stocks. Therefore, any event that can potentially affect the business and economy in future will affect the price of the stock today. Any incident that can potentially negatively affect the economy in future will reduce the stock price today, and vice versa.
In the last budget session, the economy was projected to grow by 6.7% in the new fiscal year, down from the previous target of 7.5%. However, analysts expressed scepticism about this revised forecast, pointing to high inflation and stagnant growth in private-sector investment. This has been aggravated by serious infrastructure damages caused by the ongoing student movement agitated by the government’s crackdown on the protesters.
The government has to allocate substantial resources to maintain law and order, diverting funds from developmental and welfare programs. This increase in security expenditure can strain the national budget. To address the demands of the movement, the government might introduce new policies or reforms. While these can have long-term benefits, the initial implementation phase can be costly and challenging.
Bangladesh's post-pandemic recovery faces continued headwinds. Real GDP growth slowed to 5.8 per cent in FY23, down from 7.1 per cent in the previous year. The introduction of a multiple exchange rate regime in September 2022 disincentivised foreign exchange inflows, leading to a financial account deficit.
Despite significant economic progress over the past fifteen years, which the current government proudly claims credit for, there are still not enough jobs for the young population in the country. Private investment remains stagnant at 23.5 per cent of the gross domestic product (GDP) in fiscal year 2024, limiting the private sector's ability to generate sufficient employment opportunities.
Meanwhile, government jobs have become the most coveted form of employment due to their higher salaries, additional perks, job security, and greater power while the government’s borrowing from the banking system has increased 5 times in recent days which will fuel inflation and squeezed private sector credit.
Though the official unemployment rate is only 3.53 per cent according to the Labour Force Survey (LFS) 2022, youth unemployment stands at eight per cent, according to the Bangladesh Bureau of Statistics (BBS). The percentage of youth aged 15- 24 years who are not in employment, education, and training (NEET) is 40.67 per cent. In a skewed labour market, the opportunity for decent employment is limited, due to which 84.9 per cent of jobs are in the informal sector where income and job security are low.
Clearly, the economic growth in Bangladesh could not create enough jobs. This is also reflected in a downward trend in the employment elasticity of GDP. Employment elasticity is a measure of how employment changes due to changes in economic growth. The quarterly GDP estimates and LFS data indicate that in FY2022, employment elasticity was 0.38 per cent, which has come down to 0.13 per cent in the first quarter of FY2024.
So, the impact of the ongoing student movement on the economy will be severe in the days ahead. The most alarming fact is that daily curfews and disruptions have severely affected local businesses and retailers. Reduced operational hours and safety concerns have led to a significant drop in consumer footfall, impacting sales and revenues.
The movement of goods has been hampered, leading to delays in supply chains. This affects everything from perishable goods to manufacturing inputs, causing a ripple effect across various sectors. Strikes and roadblocks have led to a standstill in public transportation. This not only inconveniences daily commuters but also affects the logistics of goods transportation.
Stability is a key factor for foreign investors. Ongoing disturbances may lead to a reassessment of investment risks, potentially causing a withdrawal or reduction in FDI inflows, which are crucial for economic growth. However, continued unrest creates an atmosphere of uncertainty, deterring domestic investors from committing capital to new ventures or expanding existing operations.
The top priority for the interim government led by Nobel laureate Prof. Dr Yunus should be to restore law and order nationwide and take decisive actions to mitigate the economic impact caused by the violent crackdown on the recent anti-discriminatory quota reform movement led by students.
(The writer is the Editor of THE BANGLADESH EXPRESS and Chairman of BJFCI. He may be reached at [email protected])
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