Economy hangs in the balance: As Sheikh Hasina hangs on to power, state capacity to deal with crises reduces further By M Niaz Asadullah Bangladesh, one of Asia’s most promising cases of growth under democracy, will head to the polls on 7 January. The country has become a test case for electoral democracy, with the election marked by descriptions of being “staged” and a “farce” even before the actual voting begins. Bangladesh already has a long legacy of election controversies. Two consecutive rigged national elections since 2014 have been sustained by a hidden alliance of power elites that cuts across all key institutions—civil and military bureaucracy as well as the judiciary and business elites. Each of these key power groups has become highly partisan and stands to benefit from political continuity. In the aftermath of the last election in 2018, the Bangladesh Nationalist Party waited out Sheikh Hasina’s new government, hoping they would bring about their own downfall as cronies crippled financial and other market-enabling institutions, pushing the economy on the edge. Despite decades of sustained GDP growth and improvements in social indicators, Bangladesh’s economy is now on a fragile footing. The incumbent government faces a moderate risk of running out of reserves. A series of negotiated loans from international financial institutions such as the World Bank, International Monetary Fund, and the Asian Development Bank recently helped avoid a Sri Lanka-like fate. Despite those multilateral concessional loans, Bangladesh’s financial crisis is not over; the structural fault lines remain clear. The International Monetary Fund has expressed concerns over risks of capital flight. In September 2023, the US government also intensified external pressure by issuing a visa embargo on those engaged in suppressing opposition and labour leaders. Further foreign sanctions could lead to costly fallouts. In 2013, the US government punished Bangladesh for its failure to protect worker rights by leaving it out of the generalised system of preference list of countries. This subsequently hurt Bangladesh’s export diversification efforts. That legacy remains: Bangladesh’s sole reliance on readymade garments exports leaves it extremely vulnerable to external shocks. The gravity of new sanctions must not be ignored—especially considering that Bangladesh’s economy is at a crossroads. As the country is set to graduate out of Least Developed Country status, it will lose the duty-free benefitsunder preferential tariffs. At the same time, it has to phase out the existing export subsidies for readymade garment factory owners while reducing protection afforded to import-substituting businesses. The latter is owing to unusually high nominal tariffs on the import of raw materials. This means a potential double negative shock to export earnings and import duty revenue. With every branch of the government already deeply politicised and led by individuals loyal to the PM, there is little political accountability left. Another sham election will further weaken bureaucracy, judiciary and financial institutions. All these also will mean reduced state capacity. On the domestic front, the unholy alliance with oligarchs will further constrain the government’s ability to implement tariff and subsidy reform as well as restore fiscal discipline. As the repayment schedule for many of the costly loans to finance controversial mega projects begins, the tax-to-GDP ratio will need to increase while local banks need to recover bad loans. Fighting tax evasion and bringing loan defaulters to book will only become harder. On the external front, the risk of external debt distress remains low given the high share of concessional loans. Yet prominent Bangladeshi think tank Centre for Policy Dialogue warns that Bangladesh’s external debt situation may soon slip into the yellow zone in 2024-2025. According to one projection, the debt-to-GDP ratio will cross the 100% mark in 2024. By lowering export receipts, a trade sanction may further add to popular concerns over debt sustainability. Other related risks involve increase in speculative behaviour by foreign traders in anticipation of further depreciation of Bangladeshi currency. This may worsen the ongoing dollar crisis. Ultimately, another election without choice in Bangladesh is likely to come at a hefty cost. What some had hoped would be Asia’s next tiger economy may be soon heading for a deeper economic crisis, reversing years of gains. After 15 years of continuous rule by Awami League, Bangladesh’s culture of election engineering has coincided with cronyism and institutionalised corruption. Most worryingly, this has polarised Bangladeshi society and weakened all key institutions including the parliament. With the enduring absence of a credible opposition party, a free press and an independent judiciary, prospects of economic recovery from further shocks look grim as critical reforms will become increasingly challenging. It will be something of a miracle if Bangladesh’s economy continues to thrive within a democratic autocracy without experiencing a major social and economic collapse by 2025.
The Japanese pharma major is also filing a plea before the Delhi HC seeking appointment of forensic auditors to analyse transactions involving IHH, Fortis Healthcare and RHT, Singapore, as directed by the HC on October 18.
The development is likely to create legal hurdles and delay the proposed open offer as IHH had recently told FE that it could only go ahead if Sebi agreed with its legal interpretation that the SC’s September 22 order has lifted all such restraints.
IHH managing director and CEO Kelvin Loh told FE on November 9 that the company would like to go ahead with the open offer “as soon as possible” as there has already been a delay of four years. Ravi Rajagopal, chairman of Fortis Healthcare, had added that their legal counsel has advised that the company can go ahead with the open offer as the SC order has disposed of various appeals, including the suo motu contempt. “We have represented to the Sebi and the matter is with them,” Rajagopal had said.
However, legal observers told FE that the matter is not that straightforward and simple as the Delhi HC has to take the final call on the matter of open offer as well as whether a forensic audit has to be done in the share sale which was executed in 2018.
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Loh and Rajagopal had said the possibility that the matter may take a different turn when it comes up in Delhi HC cannot be ruled out.
IHH had in July 2018 acquired a 31% stake in Fortis Healthcare for Rs 4,000 crore through the bidding route. It had also earmarked Rs 3,000 crore to make an open offer for an additional 26% to the public shareholders as required under the law.
Daiichi has written to Sebi that the SC in its September 22 order had asked the HC to consider ordering a forensic audit into the dilution of FHL shareholding, repeated violation of undertakings and assurance by former FHL promoters — Malvinder and Shivinder Singh — and the transaction between FHL, IHH and the clandestine transfer of Rs 4,666 crore to RHT Singapore.
Daiichi is “severely prejudiced” with IHH’s clandestine attempt to subvert the status quo order directed by the SC on December 14, 2018, and September 22 with respect to the conduct of forensic audit and the pending proceedings before the HC by purportedly consulting regulatory authorities, including Sebi, on the proposed FHL-IHH transaction. It has reiterated that the FHL-IHH transaction was currently sub-judice before the HC where FHL is also a party, its solicitors, P&A Law Offices, have said in the letter.
“We further state that any such attempt by FHL and/or IHH to proceed with the FHH-IHH transaction would be in direct contravention of the HC and SC orders,” the letter sent by the law firm has stated. Daiichi Sankyo is pursuing the enforcement of Rs 3,500-crore arbitration award against the Singh brothers pronounced by a Singapore tribunal for concealing information when they sold Ranbaxy Laboratories to it for $4.6 billion in 2008. The apex court had in 2018 put on hold the sale of Fortis Healthcare to IHH on a contempt plea filed by the Japanese drugmaker against the Singh brothers.