The economic crisis triggered by Covid-19 is deepening over time in Bangladesh. The scale of the crisis is unparalleled at both the national and global levels. It is now likely that a deep recession will sink the global economy. If Bangladesh's economic downturn is prolonged, then there is a high risk of social crisis too. Bangladesh is already seeing alarming health-related impacts as the number of people infected with coronavirus has risen by many-fold over the past two weeks and the number of deaths is also growing.
There is no doubt that during this economic crisis all the major drivers of Bangladesh's economy have been seriously affected which include the export sector, remittances, domestic industries and services, livestock and fisheries, and small and medium enterprises. This crisis also has a tremendous effect on the country's poor and vulnerable people.
SANEM's ongoing work indicates that the crisis will lead to a significant jump in Bangladesh's poverty rate and that Bangladesh's progress in poverty reduction over the past decades could be lost. The poverty rate can rise from 2019's figure of 20.5% to as high as around 41% as a result of the crisis. However, the extent of the effect of the ongoing crisis on Bangladesh's economy will depend on the length of the crisis and its spread. Nonetheless, it is highly apparent that this crisis would leave a big dent on Bangladesh's economic development and social achievement.
What needs to be done? A two-year economic recovery plan is required in the face of this ongoing crisis, the main goal of which is to get Bangladesh's economy back to its pre-crisis state. At this juncture, both the government's announced stimulus package and some much-needed 'politically feasible' policy reforms in the areas of health, education, social protection, trade, taxation and banking sector need to be properly implemented.
The next national budget (2020-2021) should be very different from the previous budgets. On a priority basis, this budget needs to include clear action plans for the health sector, support to the affected economic sectors and social protection programmes. The allocations for the public health sector and social protection programmes need to be significantly increased and the allocated money should be properly used. A quick review is required to cut down unnecessary public projects to support the large additional funds required for these priority sectors in the budget. At this time we should not think much about the budget deficit. In this crisis, the government may consider a budget deficit of up to 8-10% as opposed to the 4-5% budget deficit in normal times.
As the government has announced a large stimulus package, the effectiveness of this stimulus package, however, depends on the use of appropriate financing options, proper management so that genuinely affected sectors receive the support, and establishment of a proper monitoring mechanism to ensure transparency and accountability.
To ensure food security for the poor and vulnerable, it is important to distribute essential food items quickly at the local level based on the government's list of poor people under the social security programme. New lists need to be drawn up quickly to include the excluded poor and vulnerable population. Local administrations, peoples' representatives, private sector, volunteers and NGOs need to work together at the local level to prepare and update lists, distribute food, and avoid irregularities in the process. Capable private sector individuals and private sector organisations (such as BGMEA, FBCCI, MCCI, DCCI) need to come forward to ensure food security for their workers and staff.
Despite that, the infection situation is deteriorating, the relaxation of lockdown is being announced and visible. Apparently, there is a conflict of choices between life and livelihood. While many put livelihood as the priority, experts view life has to come to the fore. In my opinion, if lockdown restrictions are relaxed in an unplanned way amid the rise in health risks, it will take longer to recover from the economic downturn and we may be forced to go to lockdown again. This will increase the economic loss.
Therefore, for the normalisation of the economy, the public authorities and the private sector have to act responsibly. Initiatives can be taken to keep the necessary economic sectors open to a limited extent while maintaining the highest level of health safety standards for workers. In this case, the relevant government agencies and factory owners need to come up with appropriate sector-specific and region-specific protocols fully complying with health and safety standards. At the same time, full transparency and accountability must be ensured in how this protocol will be implemented.
Dr Selim Raihan is the professor at Economics Department of the University of Dhaka and executive director at South Asian Network on Economic Modeling (SANEM). Email: [email protected]