How was 2024, and how will 2025 be?

As the cycle of the year turns, we step into a new calendar year. The eventful year of 2024 has now bid us farewell. Among the most significant years in the political history of Bangladesh, 2024 stands out as unique in every way. The events of this year serve as a vivid example of how attempts to cling to state power in disregard of public opinion never succeed in the long term. The student movement, which was supported by various local and foreign groups, eventually evolved into a government-toppling movement, something no one could foresee. The government did not take this seriously. They may have thought they could suppress the student movement with force, just like previous protests. However, the government failed to realize that this student struggle was not a scattered event like past movements. It was a long-planned movement, and the government lacked the power to suppress it.

The students' protests against the quota system were not part of an ordinary movement. The depth of the protests was linked to many other factors. If this were not the case, why did the students not suspend their movement even when the court ruled to reform the existing quota system for government jobs? The students' movement was fueled by the accumulated frustration of the masses. As a result, the movement against the government gained momentum and eventually turned into a government-toppling struggle. The Awami League government had lost all credibility and popularity after holding controversial national elections in 2014, 2018, and 2024. They seemed to believe that public opinion was unnecessary for governance, and with the police and administration on their side, they could manage any situation. But history tells a different story. No autocracy can last long while disregarding public opinion. This is the harsh lesson of history. However, the cruelest lesson of all is that no one ever learns from history.

It has been almost five months since the interim government, led by Dr. Muhammad Yunus, took charge after the resignation of former Prime Minister Sheikh Hasina and her departure from the country. Following the successful student movement on August 5, which had generated significant public expectations and aspirations, the momentum has begun to fade. Among the advisors appointed to the interim government, only a few have been actively visible. The general public is unable to understand or know what the other advisors are doing. If the situation continues like this, there seems to be little reason to expect improvements in the near future. Particularly after the interim government took over, its commitment to reforms in various sectors has been extremely slow. Political parties argue that reforms will be made through an elected government, but the interim government states that national elections will only take place after the completion of these reforms.

The chief advisor of the interim government, Dr. Muhammad Yunus, recently stated that national elections might be held at the end of 2025 or the beginning of 2026, but only after the necessary reforms are completed. This statement seems to reflect confusion. Just as political parties have failed to implement necessary reforms in various areas over the last 53 years, it is not realistic to expect the interim government to complete the reform process in one or two years. Reform is an ongoing process, and reforms must be conducted as needed over time. Therefore, if any government claims that it will complete reforms within two or three years, there is no rational reason to place trust in such a statement.

In 2024, political parties are not making strong demands for holding national elections. They are showing some level of tolerance; however, it can be confidently predicted that in 2025, political parties will exert pressure on the interim government to hold national elections. Therefore, 2025 is likely to be a year of political instability. The court's ruling has annulled the 15th Amendment. After some more legal procedures, it will be clear whether the next national election will be held under a caretaker government. It can be generally assumed that after the legal processes are completed, the 13th national election will be held under a caretaker government.

A corrupt aspect of our country's politics is that political parties take advantage of legal provisions to assume power. Once in power, they destroy the very process that gave them that opportunity. The Bangladesh Nationalist Party (BNP) came to power in 1991 through elections under a caretaker government; however, after their term ended, they tried to corrupt the caretaker government system in a way that exposed their meanness. Later, the opposition parties, under intense pressure, forced the BNP to incorporate the caretaker government system into the constitution.

In 2008, the Awami League came to power through elections held under a military-backed caretaker government. However, once in power, they used the court to abolish the caretaker government system from the constitution. Had the Awami League not removed the caretaker government system from the constitution, there would likely have been a more accountable government system in place, and the Awami League might not have faced such a harsh fate today. If the caretaker government system returns in the future, it must be reformed in such a way that no political party can manipulate the electoral process for their own benefit. The caretaker government system itself is not a guaranteed solution for fair and acceptable national elections. The success of this system will largely depend on the integrity and dedication of those who serve as advisors to the caretaker government. A method must be developed in the advisor appointment process to ensure that no political party can influence it. There are concerns that political instability will increase in the country next year.

One of the major challenges currently facing the interim government is improving law and order and returning the situation to normalcy. Under the previous government, law enforcement agencies were used like party cadres. There was no crime that the police did not engage in. Even a senior police officer has admitted this. The moral authority of the police force has been severely undermined. In past movements in Bangladesh, and even when governments changed, the police never ran away from their stations. This time, however, that has happened. If police officers are not assured of their security, they will not be motivated to perform their duties. Therefore, instability within the police force may continue in 2025, making it unlikely that the desired improvements in law and order will be achieved.

In the calendar year 2025 and the current fiscal year, the most complicated issues for the country will stem from economic problems. First, let’s discuss inflation. For more than two years, inflation in the domestic economy has remained above 9 per cent. Despite various measures taken by the Bangladesh Bank, inflation has not come down to a tolerable level. The impact of inflation has caused severe distress for the lower-income and fixed-income groups, who are in a dire situation. No matter how much the interim government talks about reforms, it will not feed the people. They want to be able to buy essential goods within their means. The extent of the hardship people are facing due to rising inflation is evident from a recent survey by the research organization Research and Policy Integration for Development (RAPID).

The organization mentioned in its survey that the number of people living below the poverty line in 2022 has now increased by an additional 7.8 million. In other words, in the past two years, the number of people living below the poverty line has increased by 7.8 million. There are also some people who are slightly above the poverty line, but even a small setback could push them below it. When 25 per cent more income is added to the poverty line, those who live just above the poverty line are considered to be at risk of falling below it. There are still about 10 million people who are above the poverty line but could easily fall below it with a minor shock. Therefore, in the past two years, the number of people who have fallen below the poverty line or are at risk of doing so has reached 17.8 million. Another research organization had earlier mentioned in its report that 34.5 million people lost their jobs during the COVID-19 period, most of whom have fallen below the poverty line. However, we do not know what their situation is now. Have they been able to rise above the poverty line again?

The measures taken by Bangladesh Bank to control high inflation have not been effective. In fact, the economy of Bangladesh is not always governed by economic principles. Many countries have successfully controlled high inflation through contractionary monetary policies, but this has not been the case in Bangladesh. The reason is that the market system in Bangladesh is controlled by syndicates, which are politically supported. Therefore, those in power hardly take action against these syndicates. These syndicates are very powerful and have the ability to "manage" everything with money. The individuals running these syndicates manage both the ruling and opposition parties, those who have a chance of coming to power through elections. Next year, we are likely to experience high inflation throughout the year. Along with other measures, the transport sector needs to be made business-friendly to control inflation. Recently, the price of fuel has been increased by 42 per cent per liter, but even when international oil prices have dropped drastically, domestic fuel prices have not been reduced. Fuel is a commodity that impacts everything. The upward trend of inflation may create the most challenging situation for the interim government in 2025. The government will attempt to reduce high inflation, but the chances of success seem very slim.

Due to the upward trend of inflation, various sectors of the economy may face serious challenges. Political instability, which has prevailed for half of 2024, has had a detrimental effect on various economic indicators. It is almost certain that the GDP growth rate for the current fiscal year will be much lower than expected. An international organization has stated that Bangladesh may achieve growth of less than 4 per cent this year. However, given the current situation in the country, bringing inflation down to a manageable level is more urgent than achieving high growth rates at the moment. Next year, the scope and scale of social protection programs for the country's general poor population can be further expanded. At this moment, saving the lives of poor people is the most critical priority.

For the current fiscal year, the target for private sector investment has been set at 27 per cent of GDP. It is certain that this target will not be achieved. In an economy like Bangladesh's, achieving each percentage of growth requires at least 4 to 5 percent investment in GDP, and this investment must come from the private sector. This fiscal year, the private sector investment rate might be around 20 per cent of GDP. Reports from various international organizations regarding the investment climate in Bangladesh are not at all favorable for attracting investment. A few years ago, the World Bank's latest "Ease of Doing Business" index placed Bangladesh at 176th out of 190 countries. It cannot be said that Bangladesh has made significant progress from this position. Recently, the World Bank released another index called "Business Ready," which considered 50 countries. Bangladesh ranked in the fourth tier in this report. A survey conducted by the Japanese organization JETRO on Japanese entrepreneurs involved in business in Bangladesh found that 75 per cent of them were dissatisfied with the investment and business environment in the country. In this situation, it seems unlikely that investment activities will increase in 2025. Without private sector investment, high growth will not be achieved. Without investment, new job opportunities will not be created, and without new job opportunities, the situation of poverty alleviation may worsen further. Existing investment activities may also slow down. Some investors who had previously contributed to keeping the country's production activities running have either been arrested or fled abroad. As a result, their projects may be shut down or face disruptions in production.

Increased government investment often leads to a rise in corruption, as witnessed during the previous government's tenure. The pace of implementation of several mega projects, which have already been initiated, is expected to slow significantly in 2025. Additionally, some projects may be at risk of cancellation. The question now is whether it would be reasonable to cancel these projects. Rather, it would be more logical to implement them with necessary modifications and improvements, as public funds have already been invested in these projects.

One of the biggest challenges for the economy in 2024 was the failure to increase the tax-to-GDP ratio. Without achieving the desired level of tax collection, it will be impossible to fund development activities solely through domestic sources. Even for government expenditure, borrowing from abroad will be necessary. The amount of foreign debt has already reached unjustifiable levels. Bangladesh's tax-to-GDP ratio is the second-lowest in South Asia. Japan's tax-to-GDP ratio stands at 34.1 per cent, meaning the country collects 34.1 per cent of its GDP in taxes. In contrast, South Korea's ratio is 32 per cent, China's is 20.1 per cent, Vietnam's is 19 per cent, Malaysia's is 12.2 per cent, Thailand's is 16.7 per cent, and Bhutan and Pakistan's are 11.3 per cent and 10 per cent, respectively. In Bangladesh, the tax-to-GDP ratio is only 7.5 per cent, and for Sri Lanka, it's 7.4 per cent. There are concerns that the tax-to-GDP ratio will decrease even further in the current fiscal year. The inability to significantly raise the tax-to-GDP ratio means that the country's economy is increasingly reliant on foreign debt. Bangladesh's total foreign debt has already exceeded 100 billion USD.

Most of the projects funded by foreign loans are in the infrastructure sector. The investments made in infrastructure or the development achieved through them do not directly contribute to production. For instance, it was stated that the implementation of the Padma Bridge would increase the country’s GDP growth by 1.5 to 2 percent. While that sounds good, how exactly will this growth be achieved? Can the tolls collected from vehicles crossing the Padma Bridge generate this growth, or is it necessary for industries and factories to be established on both sides of the bridge for this to happen? Infrastructure does not directly engage in production. Instead, it supports the acceleration of production activities, but for that, the productive sector must see increased output. Are we able to achieve that?

The amount of foreign debt has reached an alarming level, and to pay back the installments on these loans, the government has to spend an increasing amount of money each year. In the fiscal year 2013-14, the country spent 1.29 billion USD on repaying foreign debt. By the fiscal year 2022-23, this amount had risen to 2.68 billion USD. For 2023-24, the debt repayment is expected to reach 3.28 billion USD. By 2029-30, it will increase to 5.15 billion USD, and by 2034-35, the repayment amount will be 4.45 billion USD. The situation will reach a point where new loans will have to be taken to repay the old ones. Even under the current interim government, the tendency to take foreign loans continues. The most unfortunate part is that in our country, governments are often regarded as successful if they can secure a large amount of foreign loans. In reality, it should be the opposite. The government that can carry out development activities with comparatively less borrowing is the one that deserves to be considered successful.

During the previous government, there was a tendency to exaggerate positive economic indicators and downplay negative ones. The interim government is attempting to overcome this situation, but it seems unlikely that they will be very successful. Many sectors of the economy are on the verge of collapse, and recovery from this state will not be easy. In a developing country like Bangladesh, no meaningful progress can be expected without a healthy banking system. However, under the previous government, the banking system was handed over to looters. The situation has become such that the sector is unlikely to recover soon. To truly understand how severely the banking sector has been weakened by providing legal advantages to loan defaulters, we will have to wait another 7 to 8 years. To benefit a few financial criminals, international standards of law in the banking sector have been altered, making the sector vulnerable. Various legal advantages have been given to reduce the non-performing loans (NPLs) in the banking sector. Currently, the amount of NPLs reported in the sector is at least three times lower than the actual amount. Due to the high level of NPLs, the banking sector is facing liquidity crises, and the interest rates on loans are rising.

The interim government's White Paper Committee has highlighted a dire situation in the banking sector. According to a recent report by the Centre for Policy Dialogue (CPD), in the past 15 years, a group linked to the government has embezzled a staggering 93,000 crore Taka from major corruption and looting incidents in the country's banking sector. The White Paper mentions that during the Awami League government's tenure, a total of 28 lakh crore Taka (equivalent to 23,400 crore USD) was illegally transferred abroad, averaging about 1.8 lakh crore Taka per year. One member of the White Paper Committee has pointed out that, recently, the amount of money transferred abroad is far greater than the known cases of illicit financial outflows. Corrupt politicians, businesspeople, and bureaucrats are implicated in these activities. In Dubai alone, 532 properties belonging to Bangladeshis have been found, and in Malaysia, Bangladeshis own 3,600 properties under the Second Home Project. During this period, political leaders have taken 1 lakh 4 thousand crore Taka in bribes, while bureaucrats have received 98,000 crore Taka. Additionally, 1 lakh crore Taka was looted from the stock market, and nearly 3 lakh crore Taka was stolen from various development projects.

One of the major challenges for the interim government is bringing back the money that has been laundered abroad. Listening to some of the advisers, it almost sounds like a plea to a relative, as if asking for returning the smuggled money from foreigners and they will return it. In order to repatriate the smuggled money, bilateral agreements must be signed with the destination country, and only through a lengthy process can the money be brought back. However, the interim government may not have the time or the opportunity for such efforts. Instead of trying to recover the money after it has been transferred, the more pressing matter is to prevent further money laundering. The question remains: can the interim government ensure that no more money is laundered?

Political interference has tainted the working environment in state-owned enterprises (SOEs). Over the past 15 years, the presence of leaders from the “Bangabandhu Parishad” in every state-owned enterprise has been strong. However, now they have become silent, and many have joined the “Zia Parishad.” Why is this unethical practice still being allowed to continue? Employees in state-owned enterprises are public servants. Their primary responsibility is to follow the reasonable directives of the political party in power, not to engage in political activities. Those who have engaged in political activities under the banner of the Bangabandhu Parishad in past years, and now those who are doing the same under the Zia Parishad, should be identified and removed from their positions, and their assets should be confiscated. It is high time that state-owned enterprises be freed from political influence.

The interim government has committed to bringing those responsible for crimes against humanity under trial, who committed such acts under various banners during the previous government. This commitment must be fulfilled promptly and transparently. However, there seems to be a certain laxity in many areas. The general public will certainly give time to the interim government, but they must show visible progress. There are doubts regarding the qualifications of many of the advisers. Therefore, if necessary, advisers may be replaced. Actions cannot be driven by emotions; reality must be faced. Some advisers have been making anti-India statements in various ways, which is absolutely unacceptable. India is Bangladesh's closest neighboring country. Any disagreements with them should be resolved through dialogue; making statements or taking actions that hinder bilateral relations should not happen. We will certainly follow an independent foreign policy, but that does not mean we should engage in disputes with anyone, as that is not desirable.

M A Khaleque: Retired banker and writer on economic affairs