Over the last six months, since the first Covid-19 infection was reported in the country, the Bangladesh economy has gone through a series of challenging episodes. Almost all the macroeconomic correlates were already shaky as the economy suffered a major setback due to a full lockdown of two months in April and May.
The Covid-19 pandemic put the economy at serious risk and challenges. A significant number of people engaged in the informal sector lost their jobs.
Even many formal sector enterprises also released employments while earnings of lower-income people were reduced, which led to a rise in poverty rate. Regrettably, many marginalised people had to leave the major growth centres for good, leading to a reverse migration.
The economy is slowly moving towards a partial and fragmented recovery. The global economy has started recovering from one of the deepest slides in the recent history amid the adverse impacts of the Covid-19 crisis.
This has led to a window of opportunity for resumption of export earnings and inflow of remittances. The positive developments towards a Covid-19 vaccine are also making us hopeful.
It is critical to remember that not all sectors are progressing at the same pace. The large manufacturing industries, particularly in the export-oriented sectors, have started to find their feet amid the revival of the global economy.
Nevertheless, the challenge remains for the small and medium enterprises, including those in the informal sector and led by the self-employed people. These new vulnerable groups are yet to recover their losses and receive a justified share of public policies. The absence of adequate fiscal measures accentuated the situation of these people.
The economic policy analysis should take cognisance of the pre-Covid-19 policy space. Let us recall that the pre-Covid-19 economy was already under pressure in terms of a number of indicators, such as lower revenue earnings of the government and the declining trend in export earnings.
The banking sector was already fragile while the capital market remained volatile. Private sector credit growth was already low while the prevailing liquidity crisis did not help. Foreign trade, particularly imports of capital machinery and raw materials from China, was hampered even during the first three months of the calendar year.
The limited fiscal space during the pre-Covid-19 period had a significant influence on the ability of the government to respond to the pandemic. Indeed, the extent of fiscal support in Bangladesh was somewhat inadequate compared to many peer countries.
Almost all economic pundits overwhelmingly urged to provide extended cash transfer and food support programmes for the marginalised people. Regrettably, the government could not live up to the expectation.
On the contrary, the government relied heavily on monetary tools to be implemented by a fragile banking system. We should not forget that most of the small entrepreneurs are out of the formal banking channel, particularly in terms of accessing credit. A lack of credit history and collateral do not make them worthy clients of the credit-led stimulus packages.
It is time to realise that despite a slower recovery in the external sector, there remain enough concerns in the informal and the cottage, micro, small and medium enterprise (CMSME) sector. Small entrepreneurs failed to access the stimulus package as the designs were not distributive enough to reach them.
Complete recovery of the economy is now depending on the success of the distribution of these instruments for the CMSMEs and protection of the informal sector. More importantly, risks related to health and safety issues must be prioritised alongside charting a path to economic recovery.
Rather than being complacent with the fragmented signs of recovery, we must reflect on how we can use the policy instruments in a more distributive manner in order to ensure a full recovery of the economy. To be fair, the national budget did not reflect the depth of the crisis and a plausible path to recovery.
As the closing figures of the fiscal data will abandon the overambitious revised budget for the previous fiscal year, the budgetary targets will need to be rationalised. The government has taken a correct approach to principally opt for prioritisation of government expenditures.
It is time for revising the budget along with making stimulus packages more accessible for marginalised entrepreneurs. The institutional capacity along with good governance will be critical as ever.
As we have started to see light at the end of the tunnel, we must be more vigilant and revise our fiscal and monetary policy tools in light of reality. The road to recovery of the economy is still a long way.
Towfiqul Islam Khan is a Senior Research Fellow at the Centre for Policy Dialogue (CPD).