Economic cost of uncertainty

The International Monetary Fund's (IMF) approval of a US$1.3 billion disbursement of the third and fourth tranches of Bangladesh's $4.7 billion loan programme may help improve donors' sentiment and more foreign funds may be released in the coming months. But given the lingering state of political uncertainty there is little reason to be sanguine about a swift economic recovery.

The IMF's assessment of Bangladesh's economy also reinforces this cautionary outlook. While granting the disbursement of additional loan amount for Bangladesh, the global lender highlighted four major risks facing Bangladesh's economy: persistent political instability, continued tight monetary and fiscal policies, rising global trade barriers, and growing stress in the banking sector. In light of these challenges, it revised its economic growth forecast for Bangladesh from 6.5 per cent to 5.4 per cent in the next fiscal.

This subdued projection aligns with warnings from economists, who voiced concern at a recent post-budget dialogue hosted by the Centre for Policy Dialogue (CPD). They pointed to a growing sense of uncertainty that is stifling investment and slowing down economic momentum. GDP growth fell to just 3.97 per cent in the current fiscal year, which is the lowest in 34 years, apart from the pandemic period. Moreover, import of capital machineries has also dropped significantly, while private-sector credit growth slumped to a decade low of just 7 per cent in the first quarter of 2025.

In the face of sluggish investment, weak growth, and rising unemployment and poverty, the top priority for economic revival should be the stimulation of local investment. Yet, business leaders have voiced frustration at the CPD seminar that, while the interim government has been actively courting foreign investors, domestic investors continue to face inadequate support, unreliable utility services, and policy uncertainty.

Adding to their burden are surging operational costs, driven largely by rising interest rates. Business leaders have expressed their frustration at being made to bear the brunt of this economic burden, especially when many of them had no role in the financial mismanagement of the previous government that contributed to the current crisis. They have called on the authorities to hold those responsible for past misappropriations accountable, rather than passing the cost on to legitimate enterprises. The alleged approach of not bringing local investors into confidence is clearly proving detrimental to the economy, leaving many in a wait-and-see mood.

The interim government deserves some credit for modest progress in lowering inflation and initiating several reform measures aimed at stabilising the economy and put it on the growth path. Yet, these efforts are being undermined by persistent political uncertainty, which continues to act as a drag on investor confidence and policy implementation. The rapport between economic recovery and political stability should not be undermined.

Meanwhile, even though inflation is projected to ease, its lingering effects continue to weigh heavily on the low and middle income families. A recent World Bank report highlights an alarming rise in poverty. It warns that the national poverty rate will reach 22.9 per cent in 2025 from 18.7 per cent in 2022. Inflation and joblessness are key contributors, as the cost of living continues to outpace income growth. The report estimates that up to 3 million people may fall into extreme poverty, defined as living on less than $2.15 a day (adjusted for purchasing power parity), barely enough to afford basic necessities.

Therefore, the economic cost of political uncertainty is not merely a matter of delayed investment or recovery, it directly affects the everyday lives of ordinary citizens. So the question is what measure is the government taking to clear the cloud of uncertainty?

The Consensus Commission has been holding dialogues with political parties, yet a breakthrough on reform measures remains elusive. When there is deep ideological divides among political parties regarding fundamental state principles, it is an uphill task to reach a consensus.  In this context, the government would do well to focus on facilitating agreement among the parties on a minimum set of reforms necessary to ensure a peaceful and inclusive election and leave broader reform measures to be decided by the public through democratic processes.

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