Impact of Covid-19 on Macroeconomic

Performance of Bangladesh

Introduction: Like in most other nations, the outbreak of COVID-19 pandemic is an

unprecedented shock to the Bangladesh economy. The report explores the possible impact of
the ongoing pandemic on the broad economy and major industries of the country. The banking
sector was already struggling prior to the COVID-19 situation from skyrocketing Non-Performing
loans, declining margins in a capped interest rate regime, deteriorations in various efficiency
indicators, government directed restructuring of loans, declining demand for loanable funds,
etc. Now, the pandemic has put the sector into further stress. It is high time for the country’s
banking sector to develop and implement a truly digitized financial system, which would include
a secured, contactless, and converged financial platform for transactions. The post pandemic
banking scenario would be unquestionably different than the present and technology would
play the dominant factor in creating competitiveness.

Impact on GDP growth: Global and local demand for manufactured goods, particularly in the
garments sector, will affect private sector growth and government’s focus in managing the
COVID-19 pandemic is expected halt public sector projects. Hence, based on the economic
disruptions following the pandemic, GDP growth forecast of Bangladesh by IMF, WB and ADB
has been revised downward from 7.8%-8.2% to a range of 2.0% to 3.8% for FY’20. We project
export to fall by 15.4%, import to slow down by 11.8% and remittance to grow at 6.0% in FY 20.
Fiscal stimulus worth BDT 1,029.6bn and various non fiscal stimulus has been announced to
tackle the economic fallout of the coronavirus pandemic. However, efficient implementation of
the fiscal stimulus will be a key challenge. The banking sector was already struggling prior to the
COVID-19 situation from skyrocketing Non-Performing loans, declining margins in a capped
interest rate regime, deteriorations in various efficiency indicators, government directed
restructuring of loans, declining demand for loanable funds, etc. Now, the pandemic has put
the sector into further stress.

Impact on Unemployment: Unemployment statistics for a country with a very large informal
sector are almost meaningless when gauging long-term prospects. They do not necessarily
reflect the supply and demand for labour. Unemployment in developing economies usually
means that people have the desire to work but employers cannot provide them with useful
tasks or payments in exchange for those tasks. But with the world held captive, this time it
really is different. Even if people want to work, they are simply not allowed to in most cases.
The demand for imports in advanced economies is likely to shrink further as a result of the
Covid-19-generated recession. The fall in demand in the global market will intensify
competition between exporting firms leading to a downward pressure on prices of exported
products. Intensified competition will force some of the small and the medium sized firms to
shut down their operations. The large and technologically advanced firms will survive but may
need to adjust their product portfolio. Such dynamics can result in the unemployment of a large
number of garments workers. As a significant proportion of these workers are females, they will
be in urgent need of support from government and non-government organizations. If the crisis
prolongs, these workers should be brought under the umbrella of social security system and
emergency credit program through microfinance institutions (MFI). A special training program
on income generating activities coupled with microcredit support should be offered for these
unemployed workers. The newly unemployed workers should be encouraged to participate in
agricultural activities including crop production, fishing and livestock rearing etc. MFI
membership will not only diminish vulnerability to poverty of newly unemployed women but
also reduce their risk of experiencing family violence.

Impact on Inflation: one measure governments would still prefer to keep in check is inflation. A
rise in inflation is triggered by an increase in the money supply or aggregate price levels. The
policy interventions undertaken to flatten the curve in terms of poverty amid social distancing
has been to ‘print more money’. Quantitative easing would increase the money supply and
aggregate liquidity — enabling the Bangladesh Bank to distribute this financial asset to meet
current liquidity needs. Nobel prize winner economist Abhijeet Banerjee, recommends ‘printing
money’ as a feasible strategy only if it can be used for financing the poor effectively via income
transfers. While many might debate about such income transfer schemes, it will help keep the
country peddling along as the money continues to circulate within the economy. While this
method of distributing ‘helicopter money’ will most certainly increase money supply and
aggregate price level in the short term, the central bank can reduce their policy rate to bring
inflation back on track once the crisis is over. Manipulating the policy rate will trigger
commercial banks to adjust their lending/borrowing rates which will ultimately boil down to the
overall economy by affecting the value of other real assets and the purchasing power of its
citizens. Hence, cash flow to the people is what matters immediately until the shutdown ends.
Shortly afterwards, we can access how much damage was done in terms of lost jobs,
bankruptcy and failed municipal budgets.

Impact on Export: Bangladesh's exports in the first month of the current 2020-21 fiscal year
(July 2020-June 2021) reached about 4 billion U.S. dollars, registering a meager 0.59-percent
growth, the Export Promotion Bureau (EPB) data posted on its website showed Wednesday.
The EPB data showed export performance for July this year was 3,910.92 million U.S. dollars.
July export income was over 44 percent higher than that in June, meaning the country's export
sector is limping back to normalcy after suffering serious blows owing to COVID-19 impacts. Of
the total earnings, the EPB data showed the country's income from ready-made garment items,
including knitwear and woven, stood at 3.24 billion U.S. dollars. Knitwear garment export grew
4.30 percent to 1.75 billion U.S. dollars in July but woven garments decreased 8.43 percent to
1.49 billion U.S. dollars, comparing with the same period of last fiscal year. Bangladesh last
month set its export target in 2020-21 fiscal year at 41 billion U.S. dollars, including 33.79 billion
U.S. dollars from ready-made garment products. Due to the economic impacts of COVID-19 in
Bangladesh and elsewhere in the world, Bangladesh export earnings in the past financial year
2019-20 sank about 17 percent to 33.67 billion U.S. dollars, the lowest since the 2014-15 fiscal
year. The EPB data showed export performance for June, the final month of the last fiscal, was
2.71 billion U.S. dollars, 2.5 percent lower than the same month of the previous financial year.

Impact on Import: Import at the Chattogram port has decreased by 17 percent in a month in
the wake of the coronavirus pandemic, with readymade garment raw material recording the
highest fall, according to data of the Customs House, Chattogram. In January this year, over
1.06 crore tonnes of products were imported through the port. The number decreased to 88.18
lakh tonnes in February. Export also shrunk within this period at the Chattogram port. Officials
feared exports and imports would slide further this month if the coronavirus situation did not
improve. They said this would drastically affect the market of all import-based products,
including apparels. The Chattogram port is the country's major seaport and the gateway for 92
percent of import and export trades. More than 6,000 products are imported and exported via
this port. Most of the products imported under bond facilities are raw materials for the clothing
industry.

Impact on RMG industry: The performance of the RMG sector is more critical for an economy
like Bangladesh, since apparel contributes 84% of the country’s export, employing close to 3.5
million people. While gauging the possible impact of the pandemic on the apparel sector, it is
imperative to look into the demand side scenario by analyzing the European, US and the
emerging markets for apparel export. Bangladesh’s overdependence on apparel export might
prove to be its Achilles heel. Large scale order cancellation and deferment is causing a liquidity
crisis across the sector, prompting the BGMEA President to appeal for support, both from
international buyers and the government. The government has responded by announcing a
stimulus plan of BDT 5,000 crore, explicitly geared towards the export led sectors. The primary
goal of the stimulus package is to protect jobs, facilitate regular salary payment and ensure
survival of the financially weak apparel factories. Details of the plan are still being worked out
and timely deployment of the fund would be imperative to stabilize the sector.
Conclusion: The previous structural weaknesses coupled with pandemic shock has driven the
textile industry into a corner and has created a “do or die” situation. The government stimulus
gives the industry access to cheap financing which is not enough to address the demand and
supply chain disruptions over the long run. The post-COVID-19 world will not be the same
again. The new normal may come up with changed lifestyle, purchasing behavior and way of
doing business through new interfaces. The post-pandemic solutions of unique problems that
we are facing through this pandemic may lay the foundation for many business ideas and can
shape the future of our e-commerce industry in the coming years. The economic shutdown in
countries owing to the COVID-19 pandemic has been on its course to cripple the global
economy. Bangladesh should look forward to fighting this battle with collaborative efforts from
the public and private sectors. While designing the stimulus packages, industries should be
prioritized according to their economic vulnerability. The Government of Bangladesh has
introduced a reasonable amount of stimulus packages so far but the effectiveness of the
packages to stimulate the economic growth in the post-pandemic world still remains in
question. Therefore, policymakers should introduce inclusive stimulus packages and ensure
effective distribution systems to build preparedness for rapid recovery after the end of this
pandemic.

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