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Is there any strong correlation between national elections and economic growth? The answer is yes, although, in many cases, it is difficult to establish the correlation supported by adequate evidence and statistics. The most popular tool to explain the relationship in this connection is the political business cycle theory, which indicates the rise and fall of economic activities due to some external interventions by the political actors. The term, political business cycle, is used mainly to stimulate the economy just before an election to improve prospects of the incumbent government getting re-elected, according to Encyclopædia Britannica. It also adds that notwithstanding numerous attempts to establish their existence, 'empirical evidence of political business cycles remains rather equivocal'.
Nevertheless, trying to find out the political business cycle during a national election in a country is an interesting exercise. Over the decades, various institutions and individuals have undertaken the exercise. For example, the paper titled 'Political Business Cycles and Expenditure Policies in Developing Countries' was prepared and published by the International Monetary Fund (IMF) in 1994. It empirically studied fiscal policies around elections in 35 developing countries, including Bangladesh. It found that 'the governments try to improve their re-election prospects with the help of expansionary expenditure policies.' That's why fiscal deficits are enhanced prior to elections, and the newly elected or re-elected governments adopt fiscal consolidation after the polls. The paper also showed that these kinds of cycles are generally available in countries that are less trade-oriented or that pursue fixed exchange rate policies. Bangladesh fully fitted with these two conditions at the time of study.
The paper looked at the sample countries' national elections during 1970 to 1992 period but did not disclose the country-specific elections. So, it may be assumed that it included the first five parliament elections - 1973, 1979, 1986, 1988, and 1991 - in Bangladesh as well as the 1970 general election in undivided Pakistan. From the historical event, it can also be presumed that no political business cycle existed during the elections in 1970 and 1973. Again, economic growth or Gross Domestic Product (GDP) growth declined in fiscal year 1978-79 (FY79) but increased in FY86. It again dropped in FY88 and FY91.
During the '80s, there was a massive political movement against the autocratic Ershad regime, and the elections in 1986 and 1988 were mostly farce. Though the Awami League participated in the 1986 election, it stayed away from the polls in 1988. Bangladesh Nationalist Party (BNP), however, consistently refused to join any election under the Ershad regime. The mass movement in 1990 ultimately compelled Ershad to resign, and the country entered
the era of democracy through the sixth parliamentary election in 1991 under a caretaker government. So, political movements coupled with violence contributed to reducing economic growth.
A similar trend was also observed in the next two decades. GDP growth has consistently declined in the five election years until 2009.
Dr Zaihd Hussain, the then-lead economist of the World Bank in Bangladesh, explained the matter in an analytical note titled 'Economic growth and elections in Bangladesh' in 2013. He showed that almost every election came after a period of political impasse on the issue of how the poll would be held. So, every election year during the period under review was marked by uncertainty regarding the holding of elections and the peaceful transfer of power, street agitation, strikes and violence. All these disrupted economic activities, ultimately reducing the growth in election years. So, GDP growth also declined in FY96, FY01 and FY09. The economist, however, added that the election in 2009 was not preceded by strikes and violence, which showed a 'perverse relation between election and growth.'
An analysis titled 'Bangladesh Economy in FY2014: Three Months after the Budget, Three Months before the Elections', prepared and released by the Centre for Policy Dialogue (CPD) in October 2013, also discussed the prevalence of political business cycle in Bangladesh in detail. It said: "A large number of countries around the world experience the impact of political business cycle on GDP growth. Bangladesh has also witnessed a fall in real GDP growth during the election years. This is also because Bangladesh tends to experience significant violence during periods of political transition."
The CPD analysis also added that besides a fall in real GDP, tax revenue also falls during the election years while tax collection improves in the years following the polls. Moreover, revenue expenditure rises, and public investment falls during the election years.
The trend did not seem to continue in 2014 when the 10th parliamentary election was marked by pre-poll violence and a boycott by the main opposition party, BNP. GDP growth slightly increased to 7.0 per cent in FY14 from 6.60 per cent in FY13. During the 11th national election in 2018, the growth also increased to 7.32 per cent in FY18 and jumped further to 7.88 per cent in FY19.
So, how to explain the rise in GDP growth in the last two election years? There is no simple answer to the question at this moment. One explanation is that both elections were held in the middle of the respective fiscal years, reducing the uncertainty related to power transfer within a reasonable time before the end of the fiscal years.
Finally, how will growth in the current year be affected by the 12th parliamentary election? If everything goes well, the 12th national parliamentary election will take place today (Sunday) across the country, though there are certain controversies surrounding the general election. Like the past two general elections in 2014 and 2018, according to critics and analysts, it will also be another poll that will ultimately be labelled as a disputable one for obvious reasons. Nevertheless, the election's economic impact will be visible after a few months. Suppose the newly elected government address the ongoing challenges of high inflation, weak financial sector and sluggish investment with adequate corrective measures. In that case, the economy will rebound by the last half of the current fiscal year. So, the country may likely experience another growth in the election year.