The recent regime change in Bangladesh, with erstwhile Prime Minister Sheikh Hasina resigning amidst widespread protests, has significant financial implications.
The violence and looting in Bangladesh have led to significant financial losses. The unrest, which includes widespread protests, vandalism, and looting, has disrupted businesses and daily life. The destruction of property and looting of state resources have been particularly damaging. The overall economic impact of the protests and violence is substantial, affecting various sectors and leading to a broader economic slowdown. These events highlight the severe economic consequences of political instability and social unrest.
Bangladesh is currently going through a dangerous phase of chaos and vacuum in the wake of Hasina’s ouster. Vital institutions, including the central bank, the secretariat, and the National Board of Revenue (NBR) —key regulatory authorities for the business and financial sectors — have remained very under-functional for the past few days. The Bangladeshi Taka has seen increased volatility against major currencies, reflecting market uncertainty. Banks are struggling to refill cash at ATMs and branches, as private cash carrier agencies like G4S and Elite are unwilling to operate under such insecure conditions. Business leaders have voiced their grave concerns about the ongoing destructive activities targeting industrial and commercial establishments at a program organised by ICC Bangladesh.
The new interim government, supported by the military, is expected to revisit many of the previous administration’s policies, especially those favouring Indian investments.
Many businesses are struggling to operate amid the uncertainty. As the backbone of Bangladesh’s economy, the garment sector has been hit hard by curfews and internet blackouts, leading to significant production delays and financial losses, with some factories closing temporarily.
The political crisis has led to disruptions in supply chains, causing prices of essential goods to rise. The blockade of major roads and railways has severely impacted the movement of goods and people, increasing transportation costs and causing supply chain disruptions. For example, the cost of transporting vegetables to markets in Dhaka has increased significantly.
Many businesses, especially small and medium enterprises, have faced closures and reduced customer footfall due to safety concerns and restricted movement. The delivery of essential public services and the progress of infrastructure projects have been disrupted, affecting long-term development goals.
The current political instability can lead to a slowdown in economic activities, affecting GDP growth and overall economic development. Internet and mobile service disruptions have affected communication, e-commerce, and digital transactions, further hampering business operations. Essential services like healthcare and education have been disrupted, with hospitals and schools struggling to operate normally amid the chaos.
Ironically the political change which began with a movement demanding jobs, and had drastic implications, could lead to further job uncertainties. The political impasse can lead to job losses or hiring freezes, affecting employment rates and household incomes. Government instability can disrupt the delivery of essential public services, such as healthcare, education, and transportation. Funding and implementation of social development programs may be delayed or reduced, affecting poverty alleviation and social welfare initiatives.
These factors combined can slow down the progress towards sustainable development and economic stability. This shift could lead to several financial challenges, including, the discontinuation of tax incentives for foreign investors, renegotiation or termination of existing government contracts, the possible nationalisation or expropriation of assets, and legal proceedings and restrictions on repatriation of profits.
All this can potentially disrupt the economic stability and investment climate in Bangladesh, leading to substantial financial losses for both local and foreign investors. International markets are reacting cautiously to the regime change in Bangladesh. Both local and foreign investors may delay or cancel planned investments, impacting infrastructure projects and industrial growth.
The Dhaka Stock Exchange has experienced significant fluctuations, with investors uncertain about the new government’s policies and their impact on the business environment. Foreign investors are adopting a wait-and-see approach, with some reconsidering their investments due to potential policy changes and instability. Neighbouring countries and regional markets are also monitoring the situation closely, as Bangladesh’s economic stability can influence trade and investment in the region.
The unrest has already led to a decline in tourist arrivals and cancellations of bookings, affecting hotels, restaurants, and related services. Prices of key commodities, especially those imported from Bangladesh, may be affected due to potential disruptions in supply chains. Overall, the market’s reaction underscores the importance of political stability for economic confidence. Political turmoil can indeed have long-lasting effects on an economy, potentially setting back progress by several years. Prolonged instability can deter both domestic and foreign investment, slowing down economic growth and development projects. Continuous unrest can lead to business closures, job losses, and reduced productivity, impacting overall economic output. Economic uncertainty can lead to inflation and currency devaluation, reducing purchasing power and increasing the cost of living. Both local and international stakeholders may lose confidence in the economy, leading to capital flight and reduced economic activity. Disruptions in public services like health care and education can have long-term social and economic consequences, affecting human capital development. While the exact impact will depend on the duration and severity of the turmoil, these factors combined can indeed set back Bangladesh’s economy by several years.