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SUNDAY, OCTOBER 01, 2023
Covid-19: A fracture to economic sustainability

Thoughts

Arunima Dutta Tushi
11 May, 2020, 04:35 pm
Last modified: 11 May, 2020, 04:46 pm

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Covid-19: A fracture to economic sustainability

Oxfam has warned that more than half a billion people around the world could be pushed into poverty unless urgent action is taken to bail out poor countries affected by the economic fallout.

Arunima Dutta Tushi
11 May, 2020, 04:35 pm
Last modified: 11 May, 2020, 04:46 pm
Covid-19: A fracture to economic sustainability

The shutdowns in Bangladesh due to the novel coronavirus started from 26th March and is still continuing, suspending many economic activities within both the public and private organisations. As the country depends highly on the garment industry, it is clearly evident that Bangladesh is going to face a financial crisis soon.

Bangladesh Garment Manufacturers' and Exporters' Association (BGMEA) has already revealed that export orders worth $3.11 billion have been cancelled and 2.23 million workers are affected by the shutdown. 

More than a million Bangladeshi garment workers were laid off after western clothing brand "Primark", "Matalan" & "Edinburge" collectively cancelled orders worth £1.4 billion and suspended an additional £1 billion orders due to the coronavirus pandemic, as reported by The Guardian.

According to BGMEA, more than one quarter of the 4 million RMG workers in the country may lose their jobs. The outbreak will impact our macro-economic environment and the standard of living of the poor will ultimately make Bangladesh more vulnerable. The country will need adequate time to recover. 

Over the time, due to loss of jobs and income, the low-earning people will face drastic consequences as their purchasing power will fall. The inactivity rate of this country is as high as 41.8%. Of that 63.7% are females. Thus the government might feel the pressure to create millions of new jobs to reduce the current rate of unemployment, which stands at approximately 4.29%, as per data of 2019. 

In Bangladesh, job creation is fundamental to reduce poverty, improve standard of living, mobilise economic safety, increase government's income and achieve the Sustainable Development Goals (SDGs) by 2030. But will Covid-19 fracture our vision of making Bangladesh a poverty-free nation with sustainable economic growth?

Globally, Covid-19 outbreak is being perceived as the worst economic collapse after the financial crisis of 2008. Back then over the course of 517 days, the stock market dropped by more than 56% and surprisingly in 2020 it happened in just 21 days. 

Within a few months, the global stock market has panicked and shook the confidence of investors due to the virus outbreak. It has dropped roughly by 20% and analysts have said the world just might be in the worst economic trajectory in history. 

Along with this, the crude oil war between Saudi Arabia and Russia is adding extra tension to the rising panic, injecting volatility into other assets, causing commodity and currency markets found to be in turmoil along with equity and debt markets. 

The Organization for Economic Cooperation and Development (OECD) has forecast growth of just 2.4% in 2020, down from 2.9% in November, 2019, as per BBC reports. If this outbreak gets more severe, it would not be a surprise if the global growth comes down to 1.5% in the near future. 

Oxfam has warned that more than half a billion people around the world could be pushed into poverty unless urgent action is taken to bailout poor countries affected by the economic fallout.

The central bank, the monetary authority of a country, should ensure that in case of any financial collapse there is a steady supply of money in the economy. So, the central banks have injected millions of dollars in the global financial system. This is important to ensure that there is adequate liquidity in the hands of commercial banks and other financial institutions to mobilise the lending-borrowing activities. 

Also, during a crisis the central bank should ensure that the credit market does not freeze up. 

The Federal Reserve System of the United States allowed other central banks to borrow enough US dollars for mobilising lending and borrowing transactions. The Bangladesh Bank (BB)has already reduced the CRR (Cash Reserve Ratio), the amount of funds commercial banks need to keep mandatorily in the central bank. 

On a weekly basis, the rate of CRR has been decreased to 4% from 5% and to 3.5% from 4% on a daily basis which will be implemented from 15th April. 

Due to the reduction in CRR, commercial banks will have enough money in their treasury which will help them to lend to the businesses at a low rate of interest. When the liquidity position of commercial banks improves, economic entities have more cash on their hands. 

Moreover, Bangladesh Bank (BB) has already increased the size of "Export Development Fund(EDF)" to US$5 billion from US$3.5 billion. Exporters will now be able to borrow from the EDF at an interest rate of 2%, as reported by local newspaper.  

But only the central banks' initiatives aren't enough to let the ongoing crisis see a light of hope. That's why, understanding the discernible impact of Covid-19 towards the global economy, leaders of different nations are taking certain approaches.

Governments of different countries are providing stimulus packages for minimising the losses of economic entities. With respect to this, our honourable Prime Minister Sheikh Hasina also announced two stimulus packages for immediate, short and long terms with a view to increase monetary supply, to make social safety coverage widen, to increase the amount of public expenditure and thus to make the economy stable during this outbreak.

Now, the overall size of stimulus packages stood at around $11.6 billion which is roughly 3% of the country's GDP. Let us hope the large allocation will go appropriately in the right hands and will ultimately meet its desired goal of running our economic cycle and thus mobilising our export oriented businesses.

Arunima Dutta Tushi is an executive, Business Analysis Department, BSRM

Economic Sustainability / Coronavirus

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