Originally Published 2020-05-27 10:01:13 Published on May 27, 2020
Bangladesh: Global slowdown and Covid19 hits nation hard

The upsurge of the Covid-19 pandemic is not only threatening the public health systems but also affecting the economy of the countries across the globe. Bangladesh, the impoverished South Asian nation, is not isolated from this global trend. In the past few years, the low-income country had made exceptional economic progress and was likely to become a middle-income country by 2021.

The country has maintained a steady growth of 6 percent for a decade.   The outbreak of the Covid-19 disease tends to falter the economic progress of the country that was expected to attain 8.2 percent growth this year.  The World Bank forecasted the country’s growth is now going to be around 2-3 percent only in 2020.

The government has declared an economic stimulus package to cope with the economic fallout of the Covid-19 disease. However, there are scepticisms about the ability of the country to sustain these measures in the long term without robust international support.

Causes for disruption

Bangladesh’s economic slowdown is due to not only domestic reasons. It is also because of its linkages with the global economy. The Lockdown, a measure practised globally to curb the spread of Covid-19, imposed on 26 March, halted the wheels of the domestic economy, with all economic activities remaining suspended. The exports too are impacted because of the drop in the global demand following the flaring up of the Covid-19 worldwide, and economic slowdown everywhere.

The readymade garment sector, the country’s principal product dominating 80 percent of exports, is the most affected sector.  Lack of demands in countries like the United States, the United Kingdom, Germany, Italy, France and other nations impacted the exports badly.

Unfortunately, Bangladesh’s largest buyers are the countries in the European Union and the United States, and they are the worst affected by the Covid-19 pandemic.  Nearly, US$6 billion worth of orders of readymade garment factories has been either cancelled or withheld by its international buyers due to falling in demands in the EU and the US.

Also, remittances, an important source of earning foreign exchanges, has been hit.  In 2018, the country’s earning from remittances was $15.53 billion, comprising 5.64 percent of the GDP. A large section of expatriates, who are the contributors to the remittances, has returned after job losses in their host countries, mainly in the gulf who are facing a slump in their economy because of the falling prices of oil besides the Covid-19 pandemic.

From mid-April, the government has been slowly relaxing the lockdown.  The easing off the lockdown has resulted in the resumption of some economic activities, bringing relief to some sectors like transport, which was badly impacted after the declaration of the lockdown in March. Still, the country’s struggle is far from over.

Given the nation’s interlinkages with the global economy, its economic revival is also dependent on the improvement of the global economy or atleast the economies of its trading partners. The lingering of the economic slowdown is going to increase unemployment and poverty in the country. In the readymade garment sector only, around 2 million workers are facing the threat of unemployment.

Government’s responses

The government rolled out around US$ 9 billion worth of fiscal stimulus packages, which is roughly 3 percent of its GDP. These packages were  announced in two phases.  On 26 March, Prime Minister Sheikh Hasina announced U$560 million worth of stimulus package for the export-oriented garment industries. The package offered an interest-free loan to factory owners for bearing the cost of running the factories.  On 4 April, the second phase of the stimulus worth US$8.5 billion was declared and the range of inclusion of sectors was widened.

Nearly US$3.5 billion were allocated for industries and service sectors, while another US$ 2.53 billion were kept aside for small and medium scale industries. Additionally, the government also expanded its transfer programme to the vulnerable groups. It also subsidised the cost of food.

In order to accommodate the necessities of the time, some alternation in the monetary policies were also undertaken. These measures included delaying repayments for non-performing loans by six months, extending the time for paying the bill of entry on import-related letters of credit and lowering policy rates. Bangladesh Bank, the central bank, lowered repo rate from 6 percent to 5.25 percent, while the Cash Reserve Requirement was reduced from 5 percent to 3.5 percent.

The steps undertaken by the government are welcoming and aims to provide some immediate relief to the people. Most of the packages are liquidity support which will be disbursed through the bank.  Economists of the country, however, are a bit apprehensive about the banks' ability in efficiently implementing the measures because of the challenges facing the banking sectors.  This include non-repayment of loans, weak management system, nepotism, etc. There are also apprehensions about the new loans further burdening the banking sector.

The government is looking towards the international organisations for support to tackle the economic challenges facing the country.  The government has sought US$700 million from the International Monetary Fund for financing the stimulus packages. Already, some international organisations have responded positively to the government’s call.  In April, the World Bank approved US$100 million for financing the government’s Covid-19 related responses.  Similarly, the Asian Development Bank (ADB) has agreed to provide US$600 million to support various government programmes addressing the impact of Covid-19.

The present measures may help stabilise the economy for the time being, but these are short term. Since Covid-19 is likely to stay for a long time, at least till an effective vaccine is found, these steps do  not seem sufficient to tackle the challenges in the long run. The government needs to develop a long-term strategy to deal with Covid-19. International organisations should come ahead to support the country and work out a framework that will not burden the country with debt, and assist the country in advancing  the welfare schemes harmoniously.


This commentary originally appeared in South Asia Weekly.
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Joyeeta Bhattacharjee

Joyeeta Bhattacharjee

Joyeeta Bhattacharjee (1975 2021) was Senior Fellow with ORF. She specialised in Indias neighbourhood policy the eastern arch: Bangladeshs domestic politics and foreign policy: border ...

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