Bangladesh rings in the New Year on a cautious note shaped by a mix of hope and uncertainty.
A positive outlook on the economic front may fizzle out in the face of sluggish exports and risks of a further fall in demand in Europe and the US.
The most disturbing sign for the economy originates from the domestic front: political uncertainty.
The feud between the ruling Awami League and opposition BNP over the next general election is likely to deepen uncertainty and cause the economy to suffer.
“The major challenge for the economy will be the political uncertainty,” Mustafa K Mujeri, director general of Bangladesh Institute of Development Studies (BIDS), said on the economic outlook for 2013.
The political situation will be the main factor to set the course of the economy, he added. The economy fared well in many fronts in 2012.
Inflation came down to a single-digit level, supported by the falling prices of rice amid increased production and the central bank's tight monetary policy.
Remittance inflows were also faster compared to the preceding year, facilitating a refill in the foreign exchange reserves.
On December 26, the reserves stood at $12.72 billion, $3 billion higher from the same day a year ago.
Imports also dropped. And remittances, low import bills and higher fund release by donors helped the current account balance to return to the positive territory.
However, sluggish exports continue and the uncertainty over political stability grows further.
The year 2013 will be challenging year partly because of political unrest and partly for the negative effect of global economic slowdown on exports, said Hossain Zillur Rahman, a former adviser to the caretaker government.
Zahid Hussain, senior economist of the World Bank in Bangladesh, said delayed recovery in Eurozone, the main export market for Bangladeshi products, poses risk to quick recovery in exports.
“The US economy has been doing well so far. But it is likely to fall in recession after the 'fiscal cliff' comes into effect this year,” he said.
As the fiscal cliff becomes effective, taxes in the US will increase and spending will be cut.
It means individuals and companies will be hit by tax rises and reductions in government benefits.
“Under such a scenario, the demand for Bangladesh's garments in the US will come down,” Hussain said, adding that internal challenge would be increasing investments in infrastructure and improving investment climate.
Domestic demand has to be raised to tackle the fallout of negative impact on exports, said Mustafizur Rahman, executive director of Centre for Policy Dialogue (CPD).
Bangladesh has attracted global attention due to its economic potential, competitive strength, duty-free market access, especially to India, and its big domestic market, he said.
“Overall, there is a sense that Bangladesh has potential to flourish. But the overall economic management will be challenging in the year 2013 as there will be a number of tensions in economic management,” he said.
Another challenge will be to stimulate agricultural production and to find a balance in protecting the interests of crop producers and consumers.
David Hasanat, chairman of Viyellatex Group, a leading apparel maker, said conflict between major political parties might create a 'destructive political and social situation' in 2013.
Hasanat said the banking scams and sluggish project implementation under the annual development programme might affect the cash flow to the economy.
“All these will directly and indirectly affect the economy next year (2013),” said Hasanat, who is also worried about the negative effect on exports due to a delayed recovery in Europe and the US.
Aameir Alihussain, managing director of BSRM, a steel manufacturer, said a stable political environment will help the economy grow by tackling the negative impact of global economic slowdown.
“Bangladesh's economy showed resilience even during the global recession in 2008. So, the overall economy will perform well although there will be some challenges. But all depends on political stability.”
Source: The Daily Star
