Bangladesh has achieved remarkable growth in the five decades since independence. The country has advanced much in social indicators as well. As a result, per capita income has risen. Bangladesh has also been successful in reducing poverty. More and more people have come out of poverty—in terms of both absolute and extreme poverty. That success has been seriously affected by the Covid-19 pandemic, creating new challenges because the pandemic has practically stopped all activities for some time. Even following the lifting of a two-month long lockdown, economic activities have not resumed in full swing. Of course, Bangladesh's economy has done far better than the global economies during the pandemic. Its internal strength, the resilience of people, an ever impressive agriculture sector, higher remittances and stimulus packages have helped it to perform well compared to most countries in the world. However, the challenges are not gone as the pandemic prolongs till now.
Since the Bangladesh economy is integrated with the global economy now more than ever before --- through export, import, remittances, FDI and foreign aid --- we cannot avoid the repercussions from a depressed global economy. Also, domestic production and marketing have shrunk, putting pressure on employment generation. Thousands of people have lost their earnings, particularly people in the informal sector, where more than 85 percent of the workforce is employed. They have been the first to lose jobs. Many of them have fallen below the poverty line. Those who were just above the poverty threshold have now slipped into poverty. A number of surveys have shown that the number of poor people has increased and new poor have been added to existing ones. Low-income people in the urban areas have also been struggling to survive.
Government role is crucial during crisis of such scale
In order to address the health and economic challenges, the government has introduced several stimulus packages since March 2020. This amounts to 4.3 percent of Bangladesh's gross domestic product (GDP). Among the sectors that received the support are export-oriented industries, large and small businesses, small farmers and traders, health sector and the poor. The stimulus has helped export-oriented industries and large businesses to pull through in these difficult times. But most of the support for cottage micro, small and medium enterprises (CMSMEs) has remained unutilised since the majority of these enterprises have not been able to access the fund yet.
More than 80 percent of the stimulus packages have been in the form of liquidity support. This means that the affected entrepreneurs will receive bank loans to restore their lost businesses. But during this type of crisis, when the economy is under tremendous stress, it is fiscal support which is more needed and works better. The role of the government is very important during this crisis. We have seen that private sector investment has not picked up during the last few years. It is low and has been hovering around 23 percent of GDP. During the pandemic, it has not picked up naturally. Monetary policy measure is not very effective in this situation. Even though the interest rate has been reduced, the private sector is not interested in investing in an economically depressed situation. Indeed, there is a lack of demand for credit, and banks now have excess liquidity. So the role of monetary policy is less during such a crisis. Although monetary support like loans at low interest rate helps, fiscal support is needed for the large number of people who have no means to survive now.
The poor need direct cash support
The pre-existing and the newly poor need direct cash support. The government had announced that it would provide Taka 2500 as cash support to 50 lac households. As of October 2020, about 35 lac households received this cash support. The number of households under this support programme is not sufficient because more families were in dire need for support. Now with the second wave of the pandemic hitting the world, in some countries, including India and the USA, second stimulus packages have been announced to give direct support to common people who are poor and also for the affected sectors. The need for more support for the poor in Bangladesh is also being felt badly.
Pay attention to the urban poor also
The urban poor will also have to be included in social safety net programmes, which are now focused on the rural poor only. We have ignored the fact that as more and more people have migrated to the urban areas from the villages, cities have become crowded. Not all migrated people could manage to have improved living conditions. They are not also getting basic needs. Their children are undernourished, they lack education, healthcare and other facilities despite their locational changes. With low and informal sources of income their livelihoods are also vulnerable. This was reflected during the pandemic when several urban poor returned to their villages as they lost their jobs and found it difficult to survive in the cities.
The number of urban poor has increased quietly while we have been focusing on rural poverty. We need to redesign social safety net programmes so that both rural and urban poor are included in the target list. The pandemic has also highlighted the need for a universal social safety net programme. We have been highlighting this for long. But due to resource constraints it has not been given due importance. The government has prepared the National Social Security Strategy 2015, which recommended universal social protection. But the strategy has not been materialised yet. Now is the time to implement the policy so that people who are really poor are covered during such critical times.
Efficiency in resource distribution has to be ensured
Several issues are attached with the allocation of resources. Targeting is one area of improvement. Many people who are in need of such cash support were not on the list. This is also observed in case of a distribution of regular social safety net programmes. The exclusion and inclusion errors in case of beneficiary targeting for government support are a long-term problem. This is a waste of valuable resources. Preparation of a correct list of needy people is the first step for an efficient social safety net programme. How resources are distributed is also very important. Leakage and wastage of resources have been reported in many cases. A multi-stakeholder overseeing committee with representatives from the administration, local organisations and respected local people can help in an efficient and transparent distribution of resources.
The poor need access to finance
Despite the roll out of vaccines, uncertainty with regard to the duration and impact of COVID-19 continues. No one knows when the world will fully recover from the malady. When people will be able to get back to the labour market is also uncertain. Besides, many will never get back their jobs. Low skilled and low paid jobs may not be there due to digitilisation. They will need to be up-skilled and re-skilled for the job market and also for self-employment.
Many of the new poor were actually involved in small jobs and in low income small micro businesses. We will not be able to provide each and everyone with a job. They will have to create their own jobs. So for these new poor and for the unemployed ones, the government has to give them access to finance. Stimulus packages which have been announced for CMSMEs is a welcome move. But, firstly, this was not enough compared to the need, and, secondly, whatever amount was allocated, that was not disbursed because of structural problems. That is, the system and the existing rules and requirements for accessing bank loans discourage small borrowers from accessing loans under the stimulus packages. Small businesses and women entrepreneurs in most cases cannot comply with the formalities which are required by banks. Many have never gone to banks for any services. Now when they go to banks for loans, they are asked to submit documents which they do not have. Most of these businesses are of an informal nature. Many do not have trade licenses or tax identification numbers. They also do not have collaterals as guarantees against bank loans. So even if you announce a facility, they cannot avail of it.
Besides, banks themselves are not quite interested in giving loans to them. They are apprehensive of their credit worthiness. They are scared whether these small entrepreneurs will be able to pay the money back. Banks are also worried about the cost of operation for small loans. So for the poor and small businesses, money has to be channeled through microfinance institutions (MFIs). We have seen for several decades how the rural economy has benefitted through MFIs. Villagers take small amounts from the MFIs. They are comfortable with MFIs. Hence small loans to the poor should be distributed through these institutions. MFIs are spread all over the country. They know the rural people well and visit households to disburse and collect loans regularly. This mechanism has worked well.
Public investment is essential in creating employment during pandemic
There is a need for higher public expenditure to create jobs to boost aggregate demand in the economy. People will spend more, so there will be demand for higher production and supply which in turn will create employment and income. This will boost the economy. Government investment is required not only in physical infrastructure, but also in social infrastructures like healthcare and education. This is also a time to invest in green infrastructure. Several countries have started to make green infrastructure to boost their economy in such a way which not only will help their economies to recover but also sustain them in the long run. Currently, several countries, including those in the European Union, South Korea, China and Japan are heavily investing in green infrastructures as part of their initiative to 'build back better'.
Building forward better in an inclusive manner
At present, the world is observing the second wave of COVID-19. This is apprehended to deepen the global economic crisis further, thus delaying recovery. Recent projections by the World Bank (January 2021) indicate that estimated global real GDP growth will be (-) 4.3 percent in 2020. This growth is projected to be 4 percent in 2021. Earlier in October 2020, the International Monetary Fund (IMF) had projected that the global real GDP growth would be (-) 4.4 percent in 2020 and 5.2 percent in 2021. The World Bank estimates that real GDP growth in Bangladesh will be 2 percent in 2020 and 1.6 percent in 2021. The IMF, on the other hand, estimates that Bangladesh will have real GDP growth of 3.8 percent in 2020 and 4.4 percent in 2021. However, the government of Bangladesh has estimated that in fiscal year (FY) 2019-2020 (July 2019 – June 2020) Bangladesh achieved GDP growth of 5.2 percent. Bangladesh's GDP growth has been projected to be 8.2 percent in FY 2020-21.
Whatever the GDP growth is, the most important issue is how the economy recovers and rebounds. Will this growth create enough employment in the economy? Will it reduce poverty and inequality? Will it improve the quality of government services? Will it improve institutional capacity? Clearly, old-style growth will not change anything. The pandemic has created opportunities to look at economic prosperity from a new perspective. Therefore, while the immediate need is to help people survive during the pandemic and get the wheels of the economy running in full capacity, the medium-term focus should be on creating more opportunities for people by addressing the weakest links of the economy.
The pandemic, which is primarily a health crisis, has spread to economic and social areas. As the government has been trying hard to overcome the challenges of the fallout from the pandemic, there are a number of structural issues which need to be fixed for a meaningful recovery. The pandemic has exposed our institutional weaknesses. It has reminded us about the limitations of the health sector --- the quality of healthcare, the efficiency of the sector and the management of the overall health system. And the victims of a weak health system are primarily the poor who cannot afford private healthcare. However, fixing health sector-related problems is not only a matter of resources but also of the utilisation of the resources and the delivery of quality services to all. The need for more resources is well recognised. How resources are being used is equally important.
This brings us to the broader issue of governance and institutional reform so necessary in all aspects. For example, when we talk about more public expenditure, the relevant question is one of where the money will come from. At present there is limited fiscal space in the economy. The government can of course save resources by curtailing administrative costs and wastage in offices, and defer less important projects which will not have any impact on employment. However, the bigger effort should be on increasing the tax-GDP ratio, which is very low. A modern tax regime with the introduction of technology and skilled human resources is long overdue.
Similar efforts should be taken to establish accountability in public expenditure to improve its quality. Besides, the distributional aspects of such spending must also be ensured. So, as we work towards a recovery of the economy, we should not only focus on higher growth but also on improving and sustaining the conditions of existing and new poor. The focus of the growth should also be on lowering inequality and on a better distribution of the benefits of growth.
Dr Fahmida Khatun is Executive Director, Centre for Policy Dialogue.