Investment falls, so does production

It is understandable that private investors at home are jittery about making fresh plans for expanding their business in the country at a time when politics of violence in the run up to the next general election seems to be back with a vengeance. The scenes are a throwback to the pre-election violence in 2014 and it has created an air of uncertainty for would-be investors. This is reflected in a fall in short-term external borrowing by private sector in September of this year. The amount has come down to US$12.42 billion as major Bangladesh companies have put on hold both domestic expansion and / or plans to expand businesses in foreign markets.

This of course is hardly good news for the economy. Any fall in capital expenditure for industrial purposes is correlated with a contraction of production and employment generation. Existing businesses have already witnessed a fall in business and now that there are confrontational messages coming from both aisles of the political divide backed up by blockades and attacks on transportation and movement of goods, the general mood is turning from one of optimism to one of uncertainty, at least till election time.

As pointed out by a leading economist Dr. Masrur Reaz, "lack of confidence among global lenders may dampen overseas credit flow". Looking beyond the politics of the land, the two main factors that have dampened foreign borrowing is the depreciation of the national currency against the greenback and a dearth of foreign exchange in general. The volatility of the political situation will inevitably have an adverse effect on an already volatile economic situation.

While private sector believes that reduction in foreign loans is bad for business, the central bank is certainly relieved as it believes this trend will lessen the pressure on foreign exchange. The hope is that remittances will rebound when time comes to pay back these foreign liabilities but that is not as simple as it may sound. The recent closure of the Oman labour market to Bangladesh (and many other countries) could not have come at a worse time. Not only will there be no new work visas issued by that country, there is every indication that many Bangladeshis employed there may soon be sent back home. Although Bangladesh has approached the Kingdom of Saudi Arabia to take more skilled workers from Bangladesh, this is still a proposal and that country is also in the process of increasing domestic participation in its labour market. So, waiting around for remittances to rebound miraculously will hardly make sense for resuscitating economy.

Private bankers have shared their fears about prolonging of the situation based on the fact that global lenders may be considering Bangladesh a risk-prone country in the light of the foreign exchange situation. Not only that, the economy at large has been facing other problems, particularly cost of production going up substantially due to rising energy costs and power disruptions. Then there is the question of the new wage board coming up for the apparel sector. There are no easy answers to any of these issues but given all the troubles the country is facing presently, Bangladesh in no way can give the impression that as a country it is not safe for investment. It is up to policymakers to work out the macroeconomic issues to regain its international image.

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