Published in The Daily Star on Monday 13 July 2020
How three economic impacts of Covid-19 could spell danger for Bangladesh
In mid-June, the IMF in a country focus report on Bangladesh said that the economic impact of Covid-19 has most notably been felt in three main areas: a fall in remittances; a decline in RMG exports; and a drop in domestic economic activities.
Stories of how Bangladeshi migrant workers have had their lives turned upside down by the pandemic have regularly made the news of late. Thousands have lost their jobs and many have been deported. Yet, defying expectations and in contrast to most other economic indicators that are in free fall, remittance somehow hit an all-time high of USD 18.2 billion in the recently concluded fiscal year.
This was somewhat baffling as there was absolutely no good reason for remittance to suddenly go up in June. The only logical explanation, according to experts, is that people are sending whatever money they had saved up abroad as they are being forced to leave their host countries and return to Bangladesh. Once this rush of money subsides and more and more people return home, remittance, a major pillar of our economy, could suffer severely.
Garment exports fell 18.12 percent year-on-year to USD 27.94 billion in FY2019-20. As it accounts for 84 percent of our total national exports, overall exports also fell 25.99 percent short of its annual target of USD 45.50 billion. This is another example of why we should have diversified our exports basket long ago, as experts suggested for decades. Nevertheless, since we are in the position we are in, it is essential that we support our garments sector to survive this crisis.
There could be one positive in the numbers. Bangladesh’s garments exports to its single largest apparel export destination, the US, declined by 12.50 percent year-on-year to USD 2.32 billion between January and May this year, according to the US Office of Textiles and Apparel data—whereas China’s declined by 43.87 percent year-on-year to USD 7.66 billion; India’s declined by 23.00 percent to USD 2.79 billion; and Mexico’s by 31.32 percent to USD 1.26 billion. Outperforming all those countries takes resilience, and it is possible that our RMG sector does have what it takes to recover quicker compared to other countries. But that is in the long-run.
Western economies are not expected to recover soon and this is the perfect time to be diversifying our foreign markets. Mustafizur Rahman, distinguished fellow at the Centre for Policy Dialogue, suggests Bangladesh should try and increase its share of the Asian market. China has recently allowed duty-free facility for 97 percent of Bangladeshi products. Bangladeshi shipment (led by garments) to India was more than USD 1 billion last year and crossed that mark to Japan in FY2018-19.
Making our trade policies more efficient is another key to recovery. One challenge in that department is the classic case of anti-export bias. Because we have high import tariffs on products we could export, domestic producers prefer to sell their products within the country for higher prices in the absence of competition from foreign sources. This is lowering exports and raising domestic prices. Therefore, the government should set its trade policies in such a way that makes exports and domestic sales equally lucrative.
Because most Bangladeshis are still relatively poor, despite GDP per capita rising in recent years—a lot of it being skewed by the rich getting richer—their consumption beyond necessity goods is still rather limited. And in times of crisis, that rings particularly true. On the other hand, a lot of the consumption of the richer segments of society depends on informally hiring the poorer segments for services—as maids, chauffeurs, etc.
The latter has taken a major hit due to the pandemic, as the richer segment of society has cut back on hiring part-time cooks, maids, etc. to maintain social distancing with the “unwashed masses”. According to the Bangladesh Bureau of Statistics (BBS), 85.1 percent of our workforce are employed in the informal sector, that is more than 50 million people. And it is now estimated that the pandemic has left 80 percent of them unemployed. Therefore, on the one hand, domestic consumption has taken a big hit, while on the other, we have mass unemployment lowering the disposable income of poorer people to near zero, which is then deflating domestic consumption further.
Last month, the World Bank projected in a report that across the Asian region, pandemic mitigation measures will severely hinder consumption and services activity, while high uncertainty about the pandemic will constrain private investment. None of this is good news for increasing domestic consumption anytime soon. The WB also warned that there is a risk that the pandemic will trigger a long-lasting rise in poverty, especially in low-income countries. And Bangladesh has already started experiencing that.
A study conducted in May by Bangladesh Institute of Development Studies (BIDS) found a whopping 16.4 million people sliding below the poverty line due to the pandemic. Around 50 percent of them reported a decline in income, while over 20 percent of people who had monthly earnings of below Tk 15,000 before said that they no longer had any earnings. Among the people earning less than Tk 11,000 per month, 57 percent said they had no income, 32 percent experienced a decrease in earnings, and only about 11 percent said their income had remained stable. In the same month, a study done by Brac revealed that about 36 percent city dwellers had lost their jobs and 3 percent did not receive salaries despite having jobs. And there is little doubt that things haven’t fared any better since then.
Therefore, all three factors the IMF is concerned about are leading to two things: i) mass unemployment; and ii) increased poverty. While relief packages are important to ensure that many of these people do not starve to death, the government has to start preparing to go further.
Creating employment—besides addressing the pandemic from the healthcare side of it—is the biggest need of the hour; maybe not right now, but soon enough. However, formulations of different strategies that can achieve that must begin immediately.
Much has already been said about the “jobless growth” we had been experiencing before the pandemic hit. And there were serious worries about the fact that Bangladesh was failing to create enough jobs for its people. Likewise, many solutions to the problem of joblessness were presented. And they still apply and should be implemented—even more urgently. And if we look close enough, many of those problems are systematic, and will require government reforms.
Unfortunately, the political will for those reforms was previously absent. But now the situation could get to a point were mass unemployment and poverty—due to previous systemic problems and corruption and issues brought forth by the pandemic—could start endangering our entire social structure. That is something the authorities should recognise.
Throughout history, great social upheavals have occurred time and again when unemployment and poverty reached a critical stage. There is no guarantee that this crisis will not push us over the edge. That is why policymakers need to be careful and gather up the political will to make the necessary changes that they were unwilling to make before. As well as make special arrangements for this particular crisis that we are in.