Economy buffeted by political unrest amid declining forex reserves: Analysts

The ongoing political and labour unrest has hit the country's economy at a wrong time.

Since 28 September the BNP-led opposition has imposed on-again off-again nationwide hartals and blockades to press for resignation of the government paving the way for a free and fair election under a non-partisan caretaker government.

The situation has been compounded as the political unrest coincides with continuing protests by garment workers for hiking their wage.

The protests have been marked by clashes with police, casualties and torching of vehicles, mainly buses.

The anti-government protests have hit the country even as the economy, smarting from Covid-19 setbacks, is struggling with the foreign exchange shortage, the value of taka sliding over 30 percent, double-digit inflation, the high price of energy and labour unrest cantering salary hike, economists say expressing worries.

Bangladesh Bank has recently held discussions with prominent economists and its former governors on the ways to overcome the situation. 

The invited economists suggested policy changes to overcome the US dollar crisis, a stable exchange rate and reduce the inflation at a tolerable level, according to sources familiar with the talks.

The labour unrest for higher wage in the garment sector is also solvable by the RMG owners and policymakers of the sector, they opined.

But the economists and businesspeople felt that they had little to say about the political unrest except suggesting a consensus among the political parties on how to hold the next election which may be held by the first week of January. 

Talking with UNB, former senior economist of the International Monetary Fund (IMF) Dr Ahsan H Mansur said the political conflicts are pushing the economy towards great uncertainty.

Until there is a peaceful solution to the impasse on the upcoming national election, this situation may continue having dire economic and social consequences.

"But so far there is no sign of flexibility in the attitude of politicians. Disruption of production activities for a few days can be a long-term effect. This will lead to an adverse effect on inflationary pressures, dollar crisis, and employment opportunities," said Mansur. 

Export-import, private sector credit growth, remittance inflow, investment, jobs creation, GDP growth, revenue collection, and all other sectors will be affected by this political uncertainty, said Mansur, who is also chairman of Policy Research Institute (PRI), a private think tank.

He said a key source of the country's foreign exchange income is the export sector. An average of $5 billion a month comes from the export of goods.

Exports of goods fell by 14 percent in October compared to the same month of the previous fiscal year, he pointed out.

Garment exports fell by 13 percent in October compared to September. Exports worth $3.76 billion were earned in the month in October FY2023-24. That is $600 million less than the same month FY2022-23.

FBCCI president Mahbubul Alam said traders are worried about the strikes and blockades. This is seriously disrupting the product supply system. This has led to hike in the prices of many items,

He said the business people feel that there should be a political compromise anyway. Everyone has to consider the economy and the interests of the country.

President of Bangladesh Garment Manufacturers and Exporters Association (BGMEA) Faruque Hasan told UNB that amid the election-centred conflict and recent labour unrest the buyers of Bangladeshi products are expressing concern.

Some brand buyers have reduced export orders due to the uncertainty of getting the product in hand on time, he said.

"Buyers are worried; they want us to understand the situation. They have been requested for a meeting on behalf of Buyers Forum in Dhaka," the BGMEA President said.

Bangladesh Shop Owners Association General Secretary Md Zahirul Haque Bhuiyan said that a day's strike causes a loss of Tk6,000 to 6,500 crore.

The economic loss from the siege is also huge. Some shops remain open during the blockade. But there are only a few buyers. The daily loss in sales can reach up to Tk5,000 crore.

He also urged the political parties to reach an understanding for an early solution to the problem and save the economy.

"All have to keep the country's interest above everything else," he said.

Lokman Hossain, general secretary of Karwan Bazar Kitchen Market Traders Association, said that supply of goods has been affected by the blockade.

The number of cargo trucks arriving at the market came down by at least 30 to 40 percent during the protest days.

"There are a few buyers in the market. If the blockade continues and goods trucks are unable to arrive, there will be problems in the supply chain," Lokman said.

Dr Masrur Reaz, economist and Chairman of Policy Exchange told UNB that political uncertainty affects all the sectors of the economy.

This should be resolved with the consent of political parties for the sake of recovering the economy.

He said that growing political uncertainty will bring a double blow to the economy after the Covid-19 pandemic and the Russia-Ukraine war.

The domestic supply chain is disrupted, production is being affected and buyers' confidence is reducing due to the uncertainty, he pointed out.

The trend of decreasing import of capital machinery used in production is quite alarming. A decrease in capital imports means output will decrease. This will further reduce exports.

Analysing different financial data it is found that the main source of foreign exchange is the export sector. But there has been a fall in earnings from this sector.

An average of 5 billion US dollars is earned in a month from the export of goods. But the exports of goods fell by 14 percent in October compared to the same month of the previous FY 2022-23.

In the first three months of the current FY2023-24, the import of capital equipment has decreased by almost 20 percent. The import of raw materials of various types of ready-made garments has decreased by about 26 percent compared to the same period of the FY2022-23.

Imports of cotton, the main raw material for apparel production, have declined the most, by about 39 percent. Yarn, cloth and other raw materials also decreased at almost the same rate. Imports of other raw materials other than apparel fell by more than 36 percent.