Election-centric political business cycle to cut GDP growth below 6pc
The growth of gross domestic product will fall below 6 per cent in the current fiscal year as the country has entered into political business cycle in election year when economic activities become stagnant, said Centre for Policy Dialogue on Tuesday. The private think-tank also observed that the country’s banking sector marked its worst year in the last fiscal year 2012-2013.
The country loses 0.67 percentage point of GDP growth on an average in an election year and the loss continues for the next few years, it said.
‘We think that the country’s GDP growth will fall below 6 per cent this fiscal year as the country has entered into political business cycle because of stagnancy in economy centring the election,’ said CPD distinguished fellow Debapriya Bhattacharya at a news conference in Dhaka while presenting a research titled ‘Bangladesh Economy in FY14 — three months after budget, three months before elections.’
Political business cycle is a notion which suggests that a business cycle is caused by elected government leaders who manipulate the economy to achieve personal goals like to remain in the office, explained CPD.
The prominent factors that determine the political business cycle — increased budget deficit in election year, increased public expenditure in pre-election year, increased public consumption in election year and increased tax collection effort after election — are present in the Bangladesh economy, it said.
‘The FY 2013 should be marked as the worst one for the banking sector. The government had a surreal budget for which banking sector had to bear the brunt,’ said Debapriya.
He also said the banks had nearly Tk 80,000 crore in liquid money but they could not lend the cash.
‘Despite that we did not see the decrease in rates. The people who had said new banks would help reduce the rates proved incorrect,’ he said.
The CPD research paper said the private sector credit growth was 11 per cent compared to the target of 18.5 per cent in the FY13 when capital machinery import fell by 8.5 per cent.
‘It is a sign of stagnancy. And although many businesses took bank loan and bought capital machinery, they could not start production because of power shortage,’ said Debapriya.
‘Without political stability the local and foreign investors will not come up with big investment proposals,’ he said.
The CPD said the revenue collection by the National Board of Revenue in the FY13 fell short by Tk 3,644 crore than the target and the government borrowing from banking channel was Tk 3.852 crore higher than estimated in the budget.
‘The trends of declining GDP growth will continue and whoever comes to power will have to bear that. So the politicians should consider economic stability as priority,’ said Debapriya.
He said the overall economic performance of the FY13 already indicated stagnancy highlighting many problems in the financial sector and major indicators did not reach the expected benchmark.
The share of classified loan in the total outstanding loan rose to 11.9 per cent in the FY13 compared to 7.2 per cent in the FY12, he added.
The ruling class people, engaged in power politics, use economy for their gain and to increase their chances to get reelected, said the think-tank.
The political parties should consider the country’s economic stability as priority in order to avoid declining economic growth in their upcoming term, it said.
According to the CPD data, which quoted government sources, the real GDP growth fell to 4.6 per cent in the election year of 1996 from 4.9 per cent in 1995.
It showed that the real GDP growth fell significantly in election year of 2001 to 4.4 per cent from previous year’s 5.2 per cent and it fell to 5.7 per cent in 2009 from the previous year’s 6 per cent.
The CPD predicted that the real GDP growth would
be less than 6 per cent in the coming year as it already dropped to 6 per cent in the FY13 from 6.2 per cent in the FY12.
The CPD data also showed that the rice production declined by 0.02 per cent in the FY13 when the cultivable land for paddy reduced by 1.2 per cent. It, however, said the growth sectors of the FY13 were mainly linked to external issues.
Net foreign aid disbursement increased to $1.9 billion in the FY13 compared to $1.2 billion in the previous year.
The remittance inflow increased by 0.9 per cent only as the number of workers going abroad declined by 36.2 per cent. ‘Although the foreign exchange reserve rose significantly, it is mainly due to stagnancy in the economic front,’ said Debapriya.
‘So the political parties should give priority to the economic stability and avoid conflicting situation in order to ensure safety of the people and brighten the country’s international image,’ he said.
CPD executive director Mustafizur Rahman, research director Fahmida Akter Khatun and additional research director Khondaker Golam Moazzem were present.
-With New Age input
