By Dr Utpal K De, Dr Simi Mehta*
The COVID-19 pandemic has added fuel to the fire in an era of global economic downturn and political unrest. Incontestably, the less developed nations are hit harder than their counterparts. Pandemic had led to global economic contraction (barring China) with national shutdowns and employment losses. In a webinar organized by South Asian Studies Center (SASC), IMPRI, Counterview and Centre for Development Communication & Studies (CDECS), Jaipur on “State of Bangladesh Economy in the Time of COVID-19”, by Dr Fahmida Khatun, the Executive Director at the Centre for Policy Dialogue (CPD), Bangladesh says that before pandemic there was a significant upsurge in the Bangladeshi economy, with a promising projection of 8.2% for financial year 2019-20. However, the pandemic came as a wrecking ball on the economy with growth estimates plunging to as low as 1% (according to World Bank). As unemployment surged, an additional estimated 1.75 crore people fell into poverty raising the poverty rate to 35%.
The Bangladeshi economy has been well-integrated in the international networks as evident with 40% of the economy accounting for international trade, foreign investments and remittances. The pandemic-induced disruption of the existing supply chains, combined with a drop in investment, impacted the country’s economy. As global uncertainties continue with the manufacture and dispense of COVID-19 vaccines, the projection stays grim.
The domestic economy is also saddled with uncertainties in an already-disappointing private investment. National lockdowns disturbed supply chains in essentials, manufacturing and consumer items. This has added to the pressure on public expenditure. The government introduced stimuli for the various sectors in the economy. The Centre for Policy Dialogue report indicates that, as of November 2020, the total public pandemic-related funding comprises an appreciable 3.7% of the GDP. It focused mainly on liquidity support in social safety measures for interest-waivers, employment loans and pro-poor economic measures. To create an additional fiscal space for the same, the banks were mandated to maintain a higher CRR.
Some indicators have shown positive signs recently. The agricultural sector has done spectacularly with bumper harvests in both the seasons. In the latter part of 2020, the exports of readymade garments spiked as global demand gained traction. Remittances also grew, informally via Bangladeshi nationals sending money back or themselves, returning and formally via government incentives and foreign aid.
Yet, the road ahead is uncertain. Adding to the pre-existing worries of the extent of the pandemic and vaccination plans, Bangladesh is hit by the second wave. The order of public vaccination and the measures to deal with its possible side-effects, are in the works. Moreover, Bangladesh is highly dependent on the external market for vaccine technology as well as global trade. In the short run, the public demands a second stimulus package like their foreign counterparts.
However, the capability of producing one and its efficacy are contestable. Despite earnest banking reforms, the nature of disbursement renders it inaccessible to MSMEs. As, the population is majorly dependent on smaller enterprises in the informal sector, the employment rates are in jeopardy.
Dr Khatun concluded that Bangladesh needs improvement on three fronts: health, economic and social. The infrastructure to enable MSMEs and microfinance institutions to avail of stimulus disbursement packages. The reform is critical owing to an estimated 70% of MSME workers are considered to be in a vulnerable position – employed in businesses that are temporarily closed or partially open. As gender-related issues still plague the social ecosystem, labour laws to bridge the gender gap achieve a dual target. Education and skill development programmes for the poor and women, is one way to go about it.
There is an abject need for better financial allocation in these sectors. It is possible through making a better fiscal space in public expenditure, private and foreign investments. A higher tax-GDP ratio is essential for the former. However, to resist a private investment crowding out, these funds need to be better allocated, which is necessary for employment (re)generation.
As of December 13, 2020, the Bangladesh Planning Commission is still preparing for the eighth five-year plan spanning the period from 2021 to 2025. The main goal is to raise the status of Bangladesh from the “Least Developed Countries” category to the “Developing Countries” one by 2024. This leaves the country five more years to accomplish the 17 UN-stipulated Sustainable Development Goals to 2030. The climb ahead is steep and daunting. An inclusive, equitable and “green” growth is crucial for the revival of the economy.
*With Impact Policy and Research Institute (IMPRI), New Delhi