Analysis: Charting a course for economic renewal
Writer: Qazi Kholiquzzaman Ahmad, Economist and Chairman, Palli Karma-Sahayak Foundation (PKSF) | Published by Financial Express on May 10, 2020.
The Government of Bangladesh has allowed partial opening of the economy with effect from early May, while the Covid-19 pandemic is spreading faster than has been the case hitherto. Broadly, the issues relate to human lives and health on one hand and economic renewal on the other hand. The first set of issues is certainly the most important, but the second set is also crucial for both livelihoods and economic renewal and rejuvenation. The countries around the world are struggling to find the best possible balancing between the two tasks to achieve minimum possible direct impact on human lives and health and the maximum outcome from economic renewal.
One serious problem in Bangladesh, perhaps elsewhere also, is that people generally are ignoring the key protective practice of maintaining social and physical distancing. In the wake of the opening up, this may create a facilitating environment for the virus to spread fast, a highly unsavoury prospect. The situation needs to be kept under watch and corrective measures introduced where and when required quickly and effectively.
Let us summarise the key issues facing Bangladesh, given rise to by the pandemic. Prior to it, the country was on an economic pathway, along with impressive progress concerning major social indicators, ahead of most other developing countries around the world. And the projections by, for example, the World Bank and the Asian Development Bank showed that the country would maintain the much lauded forward march.
It has been recognised, however, that poverty, though sharply reduced, was still about a fifth of the country’s total population and socio-economic disparity was glaring and increasing, just as it was around the world. The Government of Bangladesh was planning to address these issues purposefully through, for example, Agenda 2030 for Sustainable Development.
In the encouraging backdrop as above, the coronavirus pandemic struck, catching Bangladesh as well as the whole world unawares. As it is elsewhere around the world, broadly the key issues faced by Bangladesh include the following.
- Human lives at stake
- Human health threatened
- Loss of livelihoods of the poor and low income people (such as marginal farmers, farm workers, job holders in informal sectors, self employment, hawkers, rickshaw pullers, micro entrepreneurs) due to loss of employment and other sources of income
- Collapse of domestic consumption/demand, and also supply crunch simultaneously
- Increasing and deepening poverty
- Major adverse impact on GDP growth
- Dampening impact on government revenue generation
- Declining exports, overwhelmingly garments — regarding which diversion of buyers to other countries is a serious risk
- As to the rural economy, rice production is encouraging but poultry and eggs, dairy, fish culture and diverse cottage and micro enterprises and small businesses have been shattered resulting in the collapse of livelihoods of millions of people
Clearly, it’s a mind-boggling scenario to handle. The government is addressing all these challenges; of course, how effectively is a matter of evaluation. Exceptions are mobilisation of resources through revenue generation, securing funds from international sources as grants and loans and borrowing internally from the banking system and members of the public.
On the issue of human lives and human health, there are significant gaps in capacity and supplies of needed paraphernalia, particularly as Covid-19 situation worsens. But there have been and are major gaps in these regards even in the USA and the UK, for example. Not very surprising as all countries including Bangladesh were, as noted earlier, caught unawares. However, the Government of Bangladesh has been taking various measures to increase capacity and supporting facilities and supplies. Regarding this, there is no room for complacency. Also, it is important that the government make preparations to acquire coronavirus vaccine quickly and adequately as and when it becomes available.
Prime Minister Sheikh Hasina announced a support and stimulus package of Tk. 95,619 crore (3.5% of GDP) on 13 April last to address collapsed livelihoods, burgeoning unemployment, domestic demand and supply shocks, shattered micro, small and medium enterprises, emerging issues in agriculture, increasing poverty, problems faced regarding exports — particularly garment exports, and GDP slide. That is, one way or another, all the key economic issues listed above are in the package. It does not include addressing Covid-19 related health issues, revenue generation and remittances. However, let me hasten to say that the human life and health issues arising from Covid-19 are being addressed anyway, as these constitute the centre piece in the times of Covid-19. I intend to make a few comments on the other two issues later.
Obviously, this package is not going to solve all the problems being addressed, with things reinstated to their pre-Covid-19 state. Far from it. This package is expected, first of all, to help stop further rot and start a process of rehabilitation and rejuvenation. But, unless the package is implemented quickly and effectively, the desired outcome will not materialise. In this context, it may be noted with concern that it’s about a month since the package was announced but implementation in most respects is yet to start. These are extraordinary times and extraordinary dash is called for regarding all actions. Further delay would mean that the circumstances of the intended recipients would continue to worsen and become more entrenched. As a result, resumption and recovery of their activities will be that much more difficult. Hence, it is very urgent that implementation starts soonest and goes forward purposefully, without bureaucratic hitches, political interferences and interventions from influence peddlers. Also, effective coordination and monitoring need to be in place to ensure proper delivery without leakages through corruption and misappropriation.
But then the package is a beginning, budget for 2020-21 is in the offing. One key task of the budget is guiding the mobilisation of resources for the budget. The government is actively seeking international assistance, already with some successes in terms of support from Asian Development Bank and Asisn Infrastructure Investment Bank. Surely, more will be forthcoming from both multilateral and bilateral development partners, as Bangladesh’s standing is high, given its genuine development efforts over the past decade or so, with much lauded successes to show for. But, in seeking and accepting foreign assistance, our sovereign decision making cannot be compromised at all. In borrowing money from international sources and from domestic sources including the banking system and members of the public, it is necessary to be mindful about keeping the budget deficit within manageable limits. No chance is there, it would seem, to keep it at around the generally acceptable 5.0 per cent of GDP in the next fiscal year, but it should not go beyond, say, 7.0 per cent or so.
The budgetary allocations for 2020-21 are expected to be made, keeping into account the dynamics faced in the wake of Covid-19 pandemic. Some indications relating to priority setting are already there in the list of the key challenges faced at this time, shown earlier in this paper.
In concluding, let me talk a little bit about remittances. The prospects of recovery seem discouraging. Over 70 per cent of our remittances originate in oil exporting Middle Eastern countries. Oil prices have totally collapsed in the wake of the Covid-19 pandemic. The likelihood of much recovery any time soon is bleak. This would imply that the prospects of Bangladeshi expatriates finding work in these countries are consequently limited. For improving remittances, focus should be on finding other host countries and sending of skilled workers trained in those skills which are in demand in the particular target countries.