Bangladesh economy better among LDCs, but faces risk: UN-DESA

Bangladesh is in a better position among most other least developed countries (LDCs) as it depends on manufacturing exports instead of commodities, prices of which are depressed now. 

However, high dependency on exports of income-elastic products such as apparel poses a risk of reduced export earnings amid insufficient internal consumption, while supply chain for imports of intermediate raw material also faces disruption due to the Covid-19 pandemic. 

In addition to that, remittance dependency could hurt the GDP growth, balance of payment and employment, said the United Nations Department of Economics and Social Affairs' (UN-DESA) recent policy brief.

The report said 70 percent of merchandise exports from least developed countries, on average, are mineral and agricultural commodities, while only Bangladesh, Cambodia, Haiti, Gambia, Nepal and Lesotho receive more than 50 percent of their export revenue from exporting manufactured goods. 

In 2018, manufacturing made 95.8 percent of Bangladesh's merchandise exports – top among the LDCs. 

But the problem is that a single type of product – clothing and apparel – accounts for more than 50 percent of exports from six manufacturing LDCs, which is over 85 percent for Bangladesh.

These countries are susceptible to external demand shocks. 

Household spending on clothing and apparel is discretionary and highly income elastic. Facing income shock, families can forego buying clothes.

Furthermore, demand for non-essential products does not necessarily pick up immediately after the crisis. 

In 2009, during the global financial crisis, 1.3 percent decline in the GDP Growth resulted in over 12 percent drop in apparel imports in the USA. 

As more than 80 percent of apparel exports go to Europe and North America, and demand is to decline there, the major apparel exporters could face at least 20 percent fall in exports. 

Given the magnitude of the Covid-19 crisis, the direct and spill-over effects could translate to at least 2-3 percent decline in the GDP growth for the apparel exporter LDCs. 

Their vulnerability is further compounded by the fact that these economies are also highly dependent on remittances, which are likely to experience a similar level of contraction this year. 

According to the UN-DESA forecasts, the GDP growth of these LDCs will decline, on average, by 4 percentage points relative to their growth rates in 2019. 

For Bangladesh, the report forecasts slightly over 2 percent GDP growth for 2020, which crossed 8 percent a year ago. 

The shocks could hurt employment and increase poverty, fears the UN-DESA.