Covid-19 Weighs Heavily On Economy
- 16 million people lost jobs to Covid-19
- 39% informal sector workers unemployed
- Private investmen now below 13% of GDP
- High government borrowing squeezed private sector credit
Employment has been the biggest economic casualty of the pandemic and it should be addressed with more urgency, entrepreneurs and experts said at a webinar on Saturday.
Covid-19 has eaten away the jobs of 16 million people in Bangladesh, according to a recent estimate by the Bangladesh Institute of Development Studies (BIDS), said Dr M Masrur Reaz, chairman of the think tank Policy Exchange.
"The government has come up with financial stimulus packages, but businesses also need policy support along with necessary reforms," the economist added.
The online discussion on the current state and future outlook of the country's economy was organised by the Dhaka Chamber of Commerce and Industry (DCCI) and moderated by its President Shams Mahmud. Nine former presidents of the business body also participated in the discussion, where Planning Minister MA Mannan spoke as the chief guest.
"Our informal sector accounts for 43% of the GDP," Shams Mahmud said in his keynote presentation. "The pandemic has resulted in unemployment of around 39% of the informal sector workers. The government needs to create flexible regulations to bring informal businesses into the mainstream economy," he further said.
Micro, small and medium enterprises (MSMEs) have also been hit hard by the Covid-19 outbreak, he said, adding that banks are also reluctant to disburse loans to the sector under the stimulus packages.
"For MSMEs to recover from the Covid-19 crisis, a special refinancing scheme needs to be introduced with low-cost foreign funds and a minimum two years of grace period at 1-2% interest," he said.
The DCCI president also called for a flexible, hassle-free and collateral-free loan disbursement system under stimulus packages. He suggested using credit guarantees to give MSMEs access to stimulus packages.
Thousands of migrants could lose their jobs and repatriate to Bangladesh. To deal with this, Shams suggested ensuring stimulus packages for labour-intensive industries and the informal sector.
"Moreover, through reskilling and upskilling, unemployed migrants can be employed in the agriculture sector and other local industries," he added.
Dr Masrur Reaz said the economy could take at least two to three years to fully recover from the fallouts of the pandemic, noting that global trade and investment are set to fall drastically this year.
Private sector investment was projected to have come down to below 13% of the GDP in the last fiscal year from over 23% in the 2018-19 fiscal year. Foreign Direct Investment (FDI) also came down to $2.87 billion in 2019 from $3.60 billion in 2018.
"Bangladesh needs to frame sector-specific roadmaps with strategic action plans to receive investments relocating from China," said DCCI President Shams Mahmud.
Hossain Khaled, former president of DCCI, said large industries running at partial capacity are struggling to retain employees.
"The government could do a lot more to inspire job retention and employment generation through fiscal policies," he said.
Hossain called for a large refinancing scheme by the Bangladesh Bank for the housing sector to help fight the economic slowdown. He also said that the rare advance income taxes here are hurting businesses too much in a year when cash flow has been squeezed.
Due to the Covid-19 outbreak, both demand and supply shocks have weakened the international trade of Bangladesh. In FY2019-20, total export was $33.67 billion, which was 25.99% less than the export target and 16.93% less than total export in FY2018-19.
In order to boost international trade, DCCI leaders emphasised restoring GSP facilities in the US, eliminating non-tariff barriers with partners through strong diplomatic initiatives, free trade agreements and preferential trade agreements with potential partners, including ASEAN countries.
"The government could reduce corporate tax by at least 2 percentage points for companies against employee retention during these difficult times," suggested Abul Kashem Khan, another former president of DCCI.
He said Vietnam has had enormous progress based on institutional reforms, and the development of infrastructure and skills.
"Bangladesh now needs to revisit policy and implementation processes regarding investment, industrialisation, export and research and development initiatives," Khan added.
Dr Reaz pointed out that although Bangladesh has reduced corporate tax for non-listed companies to 32.5% from 35% this year, it is still the highest in the region.
"This is hindering competitiveness," the economist said, adding that India has reduced its corporate tax to 22%, which has been brought down even lower to 17% for new companies. Corporate tax is less than 20% in competitor countries like Vietnam and Cambodia.
"We cannot compete for investment – from both local and foreign sources – with such high taxes," he added.
He also stressed the need for a modern Company Act, enactment of the reformed Customs Act and modernised foreign exchange management by the central bank.
Aftab-ul Islam, another former president of DCCI, stressed on widening the tax net instead of increasing tax burden on existing taxpaying businesses.
DCCI former president Asif Ibrahim emphasised on capital-market based financing of long-term projects and urged that the bond market be developed sooner.
Among others, DCCI past presidents Benajir Ahmed, Sayeeful Islam and Sabur Khan also spoke at the webinar. DCCI Vice Presidents NKA Mobin and Mohammad Bashirduddin also attended the discussion.
In his concluding remarks, Planning Minister MA Mannan sought the private sector's participation and proactive stance in exploring new opportunities. He also discussed the efforts undertaken by the government to deal with the pandemic and its economic effects, stressing on the significance of good governance.