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The Financial Express

Settling Bangladesh economy into the Covid-19's new normal

| Updated: July 10, 2020 20:54:12


Settling Bangladesh economy into the Covid-19's new normal

In Bangladesh, we are currently caught in a dilemma between life and livelihood. It is essential to save lives as well as ensure livelihood in the foreseeable future. It is uncertain how long the COVID-19 pandemic is going to linger. As much as we need to save lives and help our heroes in the healthcare sector, ensuring availability food and basic services for the population is imperative. Despite enough demand persisting, these goods and services are not reaching peoples' doorsteps due to bottlenecks in the transportation and proper supply chain management. Consequently, people across the country's socio-economic spectrum have been disadvantaged. Members of the civil society, politicians, economists, policy makers, administrators alike have repeatedly expressed the need for aiding those gravely affected by the slowdown in economic activities during and after the general holidays due to COVID-19.

A large assistance programme of four packages totalling some BDT677.5 billion has been announced by the Prime Minister Sheikh Hasina since April 05, 2020. The first package of BDT 300 billion is aimed at the larger business enterprises affected by the crisis and available at an interest rate of 4.5 per cent. The relatively smaller business enterprises will be able to access a package of BDT 200 billion in credit at an interest rate of 4 per cent. The Export Development Fund is enlarged by US$1.5 billion at a reduced interest rate of 2 per cent. The fourth package includes the Import Refinancing Scheme which will provide struggling importers with BDT 50 billion at an interest rate of 7 per cent. Shortly after, another package worth BDT 50 billion credit has been made available for the agricultural sector at an interest rate of 4 per cent. This credit package will be granted and disbursed by commercial banks. This brought the entire assistance programme amount to BDT 727.5 billion. In mid-June, the Asian Development Bank (ADB) provided US$ 500 million in aid to Bangladesh to tackle the COVID-19 shock on the country's healthcare and economy.

Bangladesh is a resilient country that is not alien to natural disasters or humanitarian crises. The South Asian riverine nation is on the frontline of the adversities of climate change and is home to one of the World's largest refugee camps housing more than 1 million Rohingya victims of genocide in Myanmar. Since independence in 1971, the young nation has experienced and successfully overcome many natural calamities, including floods and cyclones as well as economic crises such as the Asian Financial Crisis in 1997 and the Global Financial Crisis in 2008. However, the COVID-19 pandemic presents an unforeseen challenge in terms of magnitude and severity.

The Bangladesh Economic Association (BEA) estimates that nearly 36 million jobs were lost during the 66 days of general holidays announced by the government in a bid to contain the coronavirus. Most of the job losses were in the agriculture, industry and service sectors. According to Dr. Abul Barkat, current President of the BEA, some 59.5 million Bangladeshi have been pushed down into lower/different socio-economic strata during this period. Of these, 25.5 million people are now living in extreme poverty. Bangladesh's national poverty rate rose to 35 per cent in 2020 from 24.3 per cent in 2016 due to the adverse impacts of the coronavirus pandemic, according to an analysis of the Centre for Policy Dialogue (CPD). The country's GDP growth rate is also expected decline by more than half in the current fiscal year (FY2019-20). Estimates of growth include 1.6 per cent by the World Bank, 2.5 per cent by the CPD, 3.8 per cent by the International Monetary Fund. The CPD also expects the income inequality, measured by Gini coefficient, might increase to 0.52 in 2020 from 0.48 in 2016.

The numbers, as well as human suffering, is staggering and of great concern to those in government and the civil society. The government's allocation of funds for the poor is insufficient according to Bangladeshi-Australian economist at Monash University, Professor Asad Islam. The government has allocated some BDT 720 billion, but Professor Islam thinks another BDT 720 billion is necessary to feed the poor, including those that have been pushed back into poverty, for one year. The question is, where to find such an astounding amount of funds so quickly? It is no secret that Bangladesh's taxation (revenue) as a share of GDP remains begrudgingly low, even compared to our developing and South Asian peers. The government can opt for emergency progressive taxation on the wealthy top 10 per cent. This 'redistribution' is not expected to be economically unjust as the rich will see their relative affluence and wealth positions improve as the number of the poor people doubles. To put it, simply the rich have become better off, not because their income and wealth have increased, but because others have become poorer. In fact, such a redistribution will go a long way in maintaining relative economic positions of everyone and ensure a level playing field for all citizens.

Bangladesh, having been under a form of partial lockdown (i.e., the general holidays) for over four weeks to save lives, is taking heavy economic losses equivalent to BDT33 billion a day in GDP, and with more than 10 million marginalised families missing out on the daily-waged income they rely on. Business membership organisations with considerable clout such as the ones representing the garments and textile sectors have successfully pursued the policy makers to allow re-opening of factories. The government, having been left with the difficult choice of weighing lives against livelihoods, has finally decided to allow gradual opening, a decision which, according to many experts, may have come ahead of time or without adequate preparations.

In spite of redistribution's effectiveness in ensuring economic justice and level playing field, it will be a one-off transfer. In other words, it will not be able to provide the poor with a steady flow of income for the poor. While the threat of COVID-19 shows no signs of abatement, it is essential-for the sake of the economy and welfare of the poor-to restart the economy by engaging the Readymade Garment (RMG) sector as well as the agricultural and transportation sectors and gradually phasing out the restrictions on people's movements, particularly in these sectors. It is important these crucial sectors of the economy-apart from healthcare and law enforcement-keep running while maintaining health awareness and social distancing.

The media in Bangladesh have reported the continued decline in orders from overseas clothing brands and retailers with the onset of the COVID-19 pandemic. The Bangladesh Garment Manufacturers and Exporters Association (BGMEA) fears the possibility of permanently losing US$5 billion in RMG exports by the (fiscal) year-end. Rubana Huq, current President of the BGMEA, has also warned of job losses that may result from factories operating at lower capacities due to declining export orders. In particular, there have been media reports of about 18,000 job losses from RMG factories during the past couple of months, in spite of a tripartite agreement between the government and the owners and workers in the sector. The leaders and stakeholders in the sector need to arrive at a mutually beneficial solution that minimises job losses.

The agriculture and transportation sectors in Bangladesh remain highly informal. The informal sector currently contributes 87 per cent to the total GDP and employs the vast majority of the poor, especially those who live in slums. By gradually easing restrictions on these sectors, the government may ensure employment for the poor and need not continue haranguing the powerful and wealthy for taxation. Such a carefully coordinated easing of the restrictions on movement-perhaps with the help of those in the sector, Non-Governmental Organisations (NGOs) as well as law enforcement agencies and defense forces-would contribute significantly to reducing starvation. Of course, such initiatives will require extensive and detailed planning and coordination of the different government agencies and relevant stakeholders; a phenomenon that has rarely been well executed in Bangladesh.

The (crop) agricultural sector is one of the biggest employers in the country. The sector produces the lion's share of food crops consumed by the people and, as such, inextricably linked with the food security. The supply chain of crops, as well as transportation to markets, requires extensive, coordination, and monitoring. This is because mismanagement and outright theft have been observed in the distribution of relief to the poor. In addition, as the essentials (food) become dearer during this crisis, there will be incentive for unscrupulous agents to expropriate food while it is still on the field, after harvesting, while in transit, and/or in storage. The informal nature of the sector makes this situation even more critical, as record keeping is generally poor in the informal sectors. This highly informal sector is also dominated by unscrupulous middlemen who manipulate the supply chain to their advantage unfairly high prices from consumer while paying unfairly low prices to farmers.

The country's poultry and livestock sector has also taken a beating in this pandemic. The price of broiler chicks plummeted to zero as the lockdown resulted in a drastic drop in demand. Many farm owners, especially in the poultry sub-sector, were forced to shutter their operations and count heavy losses. Other types of livestock, such as cattle and goat, have also suffered from lack of demand and increases in feed price and other associated cost of doing business.

One of the key sectors that is essential to ensure movement of crop, livestock and fisheries products is the transportation sector. While the Supreme Court has ordered formalisation of the sector, transportation in Bangladesh languishes in informality and mismanagement. The sector has been marred by incessant preventable deaths on the roads, worker agitation, extortion (of passengers as well as workers and owners), and crippling strikes etc. The COVID-19 presents a blessing in disguise for this sector to revamp and revitalise itself. 

In essence, Bangladesh needs to reopen for business and become habituated with the 'new normal' the COVID-19 pandemic has brought upon its shores. The suffering brought upon the nation by this coronavirus pandemic has been immense. To ensure our development achievements are not undercut by this crisis and the economic shock in its wake, it is important that the country gets back up on its feet but needs to stringently ensure health and safety standards. The sectors that hold the key to doing so are, in the authors' opinion, the RMG, agriculture and transportation. This article highlights some of the issues that require the government's immediate attention in recommending economic policies that are practical, safe and beneficial for all.

Muhammad Shafiullah is an Assistant Professor of Economics at the University of Nottingham Malaysia. Muhammad.Shafiullah@nottingham.edu.my

Sk. Zohirul Islam is a Curriculum Coordinator at Siddiqui's International School. 

zohirulbgsjpo@gmail.com

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