Economy: troubling time ahead

The country's economy was passing through a challenging time well before the start of the 'quota reform' movement. The situation has become far more difficult following the violent protests that have claimed many lives and left public and private properties worth billions of taka damaged.

People in this part of the world have witnessed movements and protests on several occasions in the past, but never like the very recent one. The happenings centring the students' movement are bound to leave widespread ramifications, social, political, and economic. The trauma and shock emanating from death and destruction will last for a longer time in the public mind. Though normalcy has returned to a large extent following the imposition of a curfew and deployment of the army to restore law and order, there is a sense of uneasiness.

Whatever the situation, life must go on with the economy's wheels moving. What remains in store for the economy in the coming days is haunting businesses and policymakers' minds. All the ominous rumours and developments have only compounded their worries.

Businesses had faced prolonged trouble during the Covid pandemic. Yet they could continue with their activities albeit in a curtailed form. Uninterrupted internet communication helped them operate from home and maintain contact with local and foreign counterparts. In contrast, the events during the last couple of weeks came quickly. None was prepared for such a countrywide upheaval that has taken a heavy toll on the economy.

It is hard to assess the economic loss because of the latest disturbances. However, the Foreign Investors' Chamber of Commerce and Industry (FICCI) has come up with an estimate of losses caused to the economy. It says the economic impact of the shutdown is around US$10 billion. Its estimate comes close to the one done by economist Dr Ahsan H Mansur of the Policy Research Institute (PRI), who puts the economic loss per day at US$1.0 billion. The Bangladesh Garment Manufacturers and Exporters Association (BGMEA) has said its members have suffered losses worth Tk.64 billion because of the recent unrest. Others will surely come up with similar estimates, making the amount of losses a substantial one. The businesses always seek fiscal support from the government following any significant disturbance, natural or manmade. They usually want bank financing at a lower interest rate and other loan-related facilities, such as rescheduling with a nominal down payment.

Under the prevailing circumstances, the banks might find it difficult to offer any concessions to the businesses. They, however, could be pressured into swallowing the bitter pill.

The shutdown, marked by killings and widespread violence, has dented the image of the country abroad. Foreign investors, buyers and lenders might find Bangladesh violence-prone and unreliable. The international media highlighted the latest violent incidents in Bangladesh prominently. The positive image built through hard work and dedication of all over the years has come under threat because of violence that many think could have been avoided through timely and appropriate administrative measures.

The inflow of export orders in the coming weeks or months will show the buyers' attitude towards Bangladesh. Following the troubled times in the past, foreign buyers of apparel hardly deserted Bangladesh. They now have viable alternatives such as Vietnam, Cambodia, and Indonesia. Yet, they are unlikely to leave Bangladesh as a sourcing destination soon.

The inflow of greenbacks, such as export receipts, remittances, foreign investment, and assistance, must worry policymakers and businesses. The country's reserves have been under pressure despite a substantial cut in imports.

The Taka-dollar exchange rates stabilized because of the introduction of the so-called crawling peg system, which is somewhat near to the free float. However, stability is at risk because of the downward revision of export incomes through data correction last month and the latest violent incidents.

Remittance inflow, the second most important lifeline of Bangladesh's economy after RMG exports, is also facing uncertainty. The inflow has not been smooth in recent months, as there have been fluctuations. Demonstrations staged by a section of Bangladeshi expatriates in support of the quota movement and a campaign urging the expatriates not to send their money through legal channels might impact the forex reserves. There is a strong possibility that the majority of the expatriate population would ignore such a vicious campaign.

Another issue that the central bank and relevant authorities should note is that during uncertain and turbulent times, some people who have amassed enormous wealth through illegal means feel insecure and resort to transferring funds abroad. The Financial Intelligence Unit at the Bangladesh Bank needs to be vigilant against such moves, which can potentially erode the country's reserves.

There is no denying that the economy, which was amid a turnaround during the last couple of months, now faces unforeseen risks because of the latest developments. In a relatively tight situation, the government must meet certain conditions set by the International Monetary Fund (IMF) before the next tranche of the latter's $4.0 billion-plus loan is due. Implementing a few conditions might invite the wrath of the consumers, who are already hard-pressed because of soaring inflation.

Overall, the economy needs deft handling under the prevailing situation. We need to find out whether the men in charge are shouldering that responsibility. For quite some time, the finance minister has not been seen in public, nor has he spoken on the economy. It is a testing time for him, no doubt.