FY2019-20 concluded with major departures from the relevant annual targets set for most key macroeconomic correlates. Pre-COVID stress points in the economy were exacerbated due to the COVID-19 pandemic compounded by repeated natural disasters. These multiple shocks, alongside the longstanding reform and policy related challenges, underpinned a shaky foundation for FY2020-21. Also, there were debates as regards whether the economy has entered into a recovery phase or is only exhibiting early signs of rebound or just a mere turnaround. As the earlier analyses show, there are mixed signals as far as rebound and recovery was concerned if the first half of FY2020-21 is taken as the reference point. A number of indicators have experienced positive trends despite the adverse situation originating from the pandemic. These include, among others, revenue mobilisation, industrial production of large and medium industries, remittance inflow, and foreign exchange reserve.
In general, indicators pertaining to production have exhibited better performance in terms of recovery compared to the investment related indicators. Both public and private investment correlates remained subdued throughout the first half of FY2020-21. The restrained state of investment, in all likelihood, is indicative of the uncertainties triggered by the pandemic.
These observations emerged at Centre for Policy Dialogue (CPD) virtual Press Briefing on State of the Bangladesh Economy in FY2020-21 (First Reading). As part of its Independent Review of Bangladesh’s Development (IRBD) programme, the CPD undertakes several interim reviews of the economy throughout every fiscal year. Recently, CPD prepared an assessment report titled “State of the Bangladesh Economy in FY2020-21 (First Reading).”
Macroeconomic stability was maintained, to a large extent, during the first half of FY2020-21 which was reflected in the surplus budget, declining aggregate inflation as per official data, large overall surplus in the Balance of Payment (BoP), and a stable exchange rate of BDT against USD. This positive scenario is underpinned by several negative factors. It was surprising to find that the fiscal balance was in a state of surplus. This shows a lack of institutional capacity and lax macroeconomic management. Low implementation of ‘fast track’ projects is not indicative of prioritisation of public expenditure. The asymmetry of recovery is a recurring phenomenon from within and across sectors perspectives.
The reliance on monetary instruments (or the so-called ‘hybrid’) for stimulus packages rather than fiscal ones is perhaps a recognition of the restrained fiscal space. Asymmetry is observed in terms of access to and implementation of the stimulus packages. Large industries were more successful in accessing and attaining the benefits of the packages compared to their smaller counterparts. The economy is most likely to require a second round of stimulus packages for the attainment of a sustainable recovery. Taking the experience of the first stimulus package into cognisance, the next round of packages will require serious revisiting to formulate and design new support measures which should be SME prioritised and employment focused. Continuation of the same packages with an extended timeline will not produce the intended results and outcomes.
Progress as regards the implementation of the medium-term reform agenda has been less than satisfactory. Weak budgetary programming has resulted in a budget surplus even in the backdrop of the pandemic during the early months of FY2020-21. The budget for FY2020-21 should be revised at the earliest for mid-course correction. Also, the budget for FY2021-22 should come up with a medium-term strategy to phase out tax exemptions and subsidised credit schemes. Public expenditure priorities should be revisited and adjusted accordingly to meet the attendant needs in view of the pandemic. More public money needs to be injected for rural infrastructure and employment related social protection programmes. Weak and poorly governed commercial banks should not be allowed to provide COVID-19 related support packages. Transparency and accountability mechanisms should be built into all such packages including timely dissemination of relevant information and data.
Micro-credit financial institutions (MFIs) should be more actively engaged in the implementation process of the next stimulus packages in order to reach the grassroot levels and the marginalised population groups. Longstanding issues such as improving the ease of doing business should be given the highest priority. Given Bangladesh’s dual transition scenario, enhancement of negotiating skills to go for CEPA type of arrangements should be a key policy priority. Particularly pertinent in the backdrop of the depressed global trade scenario. The government should think of setting up a Negotiating Cell in the Ministry of Commerce. COVID-19 management at the national level is going to be a key driving force underpinning economic recovery of Bangladesh. The success of the ongoing vaccination programme will play a critical role in restoring confidence of investors and entrepreneurs which is important for sustainable recovery in the near term.
Dr Fahmida Khatun, Executive Director, CPD moderated the media briefing. Mr Towfiqul Islam Khan, Senior Research Fellow made the keynote presentation titled, “Economic Recovery during the Pandemic Period: How does the economy fare in view of sustainable recovery?” Professor Mustafizur Rahman, Distinguished Fellow and Dr Khondaker Golam Moazzem, Research Director, CPD were also present at the briefing and responded to questions from the journalists.