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SUNDAY, MAY 28, 2023
Covid-19 and its impact on Bangladesh economy

Thoughts

M Shahriar Azad Bhuiyan
15 April, 2020, 04:50 pm
Last modified: 15 April, 2020, 04:59 pm

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Covid-19 and its impact on Bangladesh economy

Bangladesh will fall into a really difficult situation if the country remains locked down for a longer period. Here, a huge number of people live from hand to mouth

M Shahriar Azad Bhuiyan
15 April, 2020, 04:50 pm
Last modified: 15 April, 2020, 04:59 pm
Covid-19 and its impact on Bangladesh economy

The Covid-19 pandemic has thus far spread to 208 countries and regions of the world, significantly affecting the global economy. Since the virus has been growing exponentially, even the developed countries have been unable to contain its spread. As a result, people are dying in the affected areas at an alarming rate. 

We cant even think how deadly the highly contagious disease will turn if it spreads from a moderate to a strong category in India or Bangladesh. 

Bangladesh is the most densely populated country in the world, however, to our concern, the healthcare facilities in the country are too limited to serve its 160 million-plus population. 

If we look at the sector-wise resource distribution of operating and development budget for the fiscal year 2019-20, we would see the health sector has received merely 4.9% of the total allocation. 
Meanwhile, the education and technology sector has received 15.2% allocation which is more than 3 times higher than the health sector allocation. Due to poor investment in healthcare infrastructure nationwide and scarcity of medical equipment i.e. testing kits, and doctors to combat Covid-19, the government is passing a very hard time. 

The government should act promptly to allocate further resources to healthcare infrastructure development to tackle this pandemic. Till now, there is no vaccination for this virus. Thus isolation and lockdown are the only means to stop the spread of this deadly virus. 

Bangladesh outlook
The unprecedented Covid-19 pandemic has caused disruptions to global trade, business, and education. Bangladesh is equally affected by this contagion. 
The economic consequences of the Covid-19 outbreak are tough to handle as the entire of the global supply chain has been interrupted due to worldwide transportation shutdown. 

Till now, the Bangladesh readymade garments (RMG) industry has received work order cancellations of nearly $3 billion. 

Around 2 million workers in the industries will be affected by this. Around 4 million people are directly engaged with the RMG sector e.g. backward linkage industries, accessories and packaging factories and transportation sector. 

The import and export-oriented companies are also at risk. The foreign remittance will come down and thus it will hit the foreign reserves of the country.

Bangladesh will fall into a really difficult situation if the country remains locked down for a longer period. Here, a huge number of people live from hand to mouth. Consistent high growth has been unable to create sufficient jobs in the economy. Due to inequality of income and asset distribution, the advantages of higher GDP growth is not evident in society. 

Recently, garment workers coming back to Dhaka amid the government-imposed shutdown and the risk of getting infected only revealed that due to disparity in wealth distribution these people are unable to stay at homes without work for their survival, thus, they are concerned much more about their job rather than Covid-19. 

The higher growth and increased per capita income have benefitted a small group of rich people much more than the much greater number of poor people. Now its the time for the government to think about this crucial issue and chalk out a long-term plan to minimise the disparity between the rich and the poor.

We all know the banking industry is in back gear due to mounting non-performing loans (NPLs). If the RMG industry and its backward linkage industries fail, then the entire banking system will collapse. Today, fifty-nine commercial banks and general insurance companies are heavily relying on garments and related industries for their business. 

The government has already declared a Tk5,000 crore incentive package to mitigate the losses in the RMG sector. However, if the outbreak prolongs it will be difficult for the government to handle the situation and the result of this will be catastrophic as more than 85 percent of the countrys export earnings come through the RMG sector. 

We could not diversify our export basket, thus creating a huge risk in our export portfolios. If we look at our RMG rival Vietnams export portfolios, RMG has earned one-fifth of its total export earnings. 

Their export basket is pooled with some other industries combination; thus they dont need to rely on only one industry. For sustainable economic growth, Bangladesh should have diversified its export basket o reduce the sole dependency on the RMG industry.   

Economic challenges
Due to uncertainties over the invention of vaccination to prevent the fatal, it is fully unpredictable to make a to-do list as lockdown or isolation is not the ultimate solution. 

On a larger scale, we may have to face an economic slowdown in the short term while there might be a recession in the long term. 

On April 5, Prime Minister Sheikh Hasina unveiled a Tk72,750 crore stimulus package, including the previously declared Tk5,000 crore package, to address the economic impacts of the coronavirus outbreak. 

The amount is nearly 2.52 percent of the countrys GDP. The government could take both fiscal and monetary measures to combat the novel coronavirus. 

As per the prime ministers bailout plan, fiscal actions included stimulus packages e.g. direct financial support for the affected sectors, widening social safety net coverage for poor people, food distribution at a lower price among the poor people, as well as increasing monetary supply. 

The monetary actions would be lowering the repo rate and reduction of the Cash Reserve Ratio (CRR) to increase the money supply to the economy.

The author is the Head of ICC, UniCap Securities Limited. He can be reached at: [email protected]

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