Risk of civil unrest rises ahead of election in Bangladesh

03 October 2018

The ruling Awami League is likely to retain power in December 2018’s parliamentary elections, but the risk of opposition-backed protests and strikes will remain high. An expanding construction sector will drive economic growth of around 7.0% in 2018, but the prospect of political unrest and rising global trade protectionism pose downside risks to the economic outlook.

Security Environment

The ruling Awami League is likely to retain power in parliamentary elections due to be held in December 2018, which will support policy continuity. However, violent student protests occurred between July and August 2018, and the elections will further increase the likelihood of mass demonstrations. These will pose a high risk of ground cargo disruption between Dhaka and Chittagong, and protesters are likely to set fire to buses and trucks.

The leader of the opposition Bangladesh Nationalist Party (BNP), Khaleda Zia, was imprisoned on corruption charges in February 2018. While the BNP is likely to participate in the upcoming election, Zia’s imprisonment increases the risk that her party could repeat the boycott it carried out in 2014. This may provoke violent clashes between the party’s supporters and police, and main roads leading to Dhaka would likely be blockaded by protesters. The risk of terrorism remains significant in Bangladesh, and a July 2016 attack on a café in Dhaka by a group linked to Islamic State (IS) resulted in 24 fatalities. However, security forces have made progress in reducing this threat; the last attack claimed by IS in Bangladesh took place in March 2017, when suicide bombers in Dhaka attacked a military facility.

Trading Environment

Robust manufacturing exports and infrastructure development will support real GDP growth of around 7.0% in 2018. However, the prospect of political unrest and rising trade protectionism pose downside risks. Protectionist measures could lead to an economic slowdown in the US and European Union, which are key export destinations for Bangladesh’s garment sector.

Bangladesh’s currency, the taka, is expected to gradually depreciate to over BDT 88/USD during 2019 due to the country’s current account deficit and tightening US monetary policy. The taka is freely convertible for current account transactions, although there are some restrictions on the capital account.

The government unveiled its budget in June 2018, which pledges to increase spending on public services and cut taxes for financial institutions. The government is attempting to improve tax collection but revenue generation remains weak, and the fiscal deficit is forecasted to widen to 4.2% of GDP in the fiscal year ending in 2019 from 3.7% in the previous year.

Bangladesh’s banking sector is fragile and poses contingent liability risks, but government debt-to-GDP is relatively low at 27.1% in 2017, and is not forecasted to rise significantly over the coming years. Bangladesh has strong foreign exchange reserves of over USD 32 billion as of July 2018.

However, Bangladesh is dependent on capital inflows as a result of its twin current and fiscal account deficits. While Bangladesh’s balance of payments position is supported by remittances, there is a moderate risk that challenging global trade conditions or deterioration in the security environment could cause a loss of investor appetite in Bangladesh, which would increase exchange rate volatility.

CPS Subscribe banner

Investment Environment

The construction sector grew by over 10% in the fiscal year ending in 2018 as the government has promoted infrastructure development. The 2018/19 budget expedited a number of large construction projects including the Payra deep-sea port, Padma Bridge and Moheshkhali floating liquid natural gas terminal. The government is broadly supportive of foreign investment and there have been no instances of expropriation of foreign property since at least 1980. However, the threat of contract alteration is elevated in the telecoms and energy sectors as enforcing contracts can be highly protracted.

Foreign investors face significant legal and regulatory risks in Bangladesh, as high levels of corruption and the growing influence of the ruling Awami League over the judiciary undermine the business environment.

Bangladesh Pricing Outlook

In this month's Risk Outlook, we also provide a detailed forward looking assessment of developments within the security, trading and investment environments for Lebanon. Philippines, Bangladesh and Mali all of which have been the subject of recent enquiries from JLT's client base.

World Risk Review Rating October 2018

The monthly Risk Outlook is supported by JLT’s proprietary country risk rating tool, World Risk Review (WRR) which provides risk ratings across nine insurable perils for 197 countries. The country risk ratings are generated by a proprietary, algorithm-based modelling system incorporating over 200 international sources of data.

Download Risk Outlook

For further information, please contact Eleanor Smith, Senior Political Risk Analyst on +44 (0)121 626 7837 or email eleanor_smith@jltgroup.com.

YOU MAY ALSO BE INTRESTED IN