The New Nation - Internet Edition

UNB, Dhaka

London-based Economic Intelligence Unit (EIU) has said political scene in Bangladesh will remain unsettled during the early part of 2008-09, as mounting discontent over rising food prices could lead to widespread demonstration.

In its Country Report for May, EIU said the public discontent would "test the caretaker government's ability to govern and could prolong the state of emergency."

The report, released on May 1, said despite the introduction of a range of electoral reforms, the next election battle would be fought between long-standing rivals, the Awami League and the BNP - the two largest political parties. "To ensure that the elections are free, fair and transparent, it will need all the main political parties to take part, following the cancellation of the parliamentary poll in January 2007."

It said that ahead of the dialogue, Awami League and BNP are likely to use the opportunity to press for the release of their respective leaders, Sheikh Hasina and Khaleda Zia.

Members of the BNP have already threatened to boycott the election unless Begum Zia is released, while the AL have organised a nationwide hunger strike to press for the release of Sheikh Hasina.

It said preparations for the parliamentary polls could be hampered by mounting discontent over food prices. Garment workers in the capital, Dhaka, defied the state of emergency in April by holding strikes to demand higher wages to cover the cost of rising food prices.

The situation is unlikely to improve over the short-term, despite reports of a bumper rice harvest, and further demonstrations are likely, which will test the caretaker government's ability to govern and in turn could prolong the state of emergency.

Assuming that the main political parties decide to take part in the next election, the caretaker government will be able to claim that it has reinforced the electoral process, the report said. "What it will not be able to do, however, is to move the country away from a two-party political system," it said, adding that political opinion is so strongly polarised in Bangladesh that the parliamentary contest will once again pit the Awami League against the BNP.

The EIU expects the budget deficit in fiscal year 2007/08 (July-June) to rise to the equivalent of 5% of GDP, compared with the official target of 4.7%.

It said real GDP is expected to grow by 5.7% in 2007/08 and by 6% in 2008/09 while consumer price inflation is expected to average 8.9% in 2008, after averaging an estimated 9.1% in 2007.

The report said the trade deficit is expected to swell to record levels in 2008-09 as demand for industrial raw materials strengthens and international oil prices stay high.

The caretaker government has secured a loan from the IMF to help finance imports, the cost of which has increased substantially on the back of high international prices for fuel and food.

The latest external trade data pointed to a recovery in the textile sector, it mentioned.

On outlook for 2008-09 fiscal policy, EIU said Bangladesh would continue to post a budget deficit in the forecast period, as revenue expansion fails to keep pace with growth in spending.

It said the interim government faces a difficult task in achieving its revenue target, owing to the narrow tax base and low rates of revenue collection. At the equivalent of 10% of GDP in fiscal year 2006/07 (July-June), the revenue collection rate in Bangladesh is one of the lowest in the world.

Despite the measures outlined in the 2007/08 budget to boost collection, the EIU report said revenue is expected to remain low as a proportion of GDP during the forecast period.