Six months have elapsed since `holiday' (euphemism for lockdown) was announced at the outbreak of covid-19 in March. During the 'holiday' all sectors of the economy except agriculture, pharmaceuticals industries, some garments factories and food markets were closed down. The impact of the pandemic resulting from this wholesale closure has been two fold: firstly, shrinkage of output and stoppages of sales and services to consumers; secondly, sudden stoppage of income and wages for people employed in the private sector that suddenly snapped or drastically reduced the purchasing power of the overwhelming majority.
After the first flush of the pandemic the consensus has been that it's impact on small and medium units in the industries and services sector and the low income earners would be devastating. Timely intervention of the government soon after the lockdown with a slew of stimulus packages somehow blunted the damages, both to the sectors of the economy affected and the poor families who received cash assistance under the packages. But the delay in the implementation of the packages and the limited coverage of the beneficiaries for cash assistance made no major impact on the loses and sufferings caused by the pandemic. Even after the withdrawal of the lockdown in June, more than 60 per cent of the small and medium enterprises (SMEs) and 90 per cent of hospitality establishments, particularly hotels and restaurants, remains closed, some among these even after 6 months, both for fear of contagion of the virus and for lack of working capital.
According to a rapid survey by the world bank, 68 per cent of those previously employed remained without job during April-June period in Dhaka and Chittagong. According to a Perception Survey by BBS using telephone, households' income declined by 20.24 per cent during the period from March to August. According to similar survey made by World Bank 63 per cent of rural and 69 per cent of urban households had to reduce their food consumption to cope with the loss of income after the lockdown. Though recovery started in the month of June, neither production in SMEs and business in service sector has resumed in full swing nor all the persons who lost jobs have been re-employed to pre-covid level.
With the general picture sketched above on the short term impact and result of covid-19, a more comprehensive update on the state of the economy as a whole can be essayed on the basis of sectoral recovery and macr-economic developments till the month of September i.e., 6 months after the lockdown was declared in the country.
Out of the three main sectors of the economy, agriculture emerged as the least affected. With few cases of the virus outbreak in rural areas, activities in agriculture and related sub-sectors (livestock, fisheries etc.,) remained, more or less, uninterrupted. A problem arose at the time of harvest of Boro crops for lack of labourers and impending flood. But the problem was promptly addressed by the government by sending harvesters to areas like haors in Sylhet.
Volunteers from urban areas lent a helping hand, which though a token, boosted the morale of farmers. Aus crop and Amon seedlings were threatened by prolonged flood but here again prompt action by the government for distribution of seedlings avoided the damages. As a result of these measures coupled with procurement of Boro paddy at a higher quantity than last year has ensured both stability of the agricultural sector and food security.
Provision of agricultural loan with a low rate of interest at 5 per cent, subsidy amounting to Tk. 9000 crore, purchase of agricultural machinery worth 200 crore and distribution of Amon seedlings with Tk. 150 crores have given a major thrust to agricultural production during and following the period after the withdrawal of lockdown. Growth in agricultural sector is thus assured to keep the momentum up during the current fiscal.
In the industrial sector, according to the World Bank, there was negative growth of 0.9 per cent. The large units in the sector have, however, started recovery in right earnest though inadequate supply of inputs remains a problem in the short term because of supply chain disruptions. According to Bangladesh Bank, as of September, as many as 2602 large industrial units received loans at the rate of 4.5 per cent interest under the stimulus package. By the end of September 77 per cent, Tk. 25461 crore, of the total amount of Tk.33000 crore have been disbursed. The large garments industries made full use of Tk. 5000 crore, a stimulus given to them in March at 4 per cent rate of interest which helped them to stay afloat. But full payment of wages and salaries have not been paid to garment workers, according to their spokespersons. The most encouraging development in the garment sectors is that most of the orders worth over $3 billion have been re-instated by their global buyers. About 70 per cent of the work orders that were cancelled or withheld have now been restored, though at heavy discount prices and with deferred payments. As of September, RMG earnings registered a growth of 0.89 per cent and the earnings of the sector exceeded the target set by Export Promotion Bureau (EPB) for July-September period. Though woven products have suffered a decline because of fall in demand in summer, knitwear fetched $4.461 billion, registering a growth of 7.04 per cent.
The recovery in the garment sub-sector, however, is not even as small and medium scale factories have not received new orders yet. About 300 small factories remain shut while 1000 small factories are struggling to keep themselves above water, according to BGMEA.
In the services sector, the commercial bank rose to the occasion and provided services to their clients throughout the `holiday'. Some criticism, however, has been made regarding their slow response to the stimulus package, particularly in lending to the SMEs and the agricultural sector. Apparently, smarting under the burden of huge non-performing loans (NPL) they are hesitant to invest in what they consider risky sectors. Decision by the Bangladesh Bank to give re-finance and bank guarantee against loans given under the stimulus package has succeed in accelerating the disbursement of loans recently. But still, the SME sub-sector has remained without much of access to the loan facility designated for them. Most of these are new borrowers and as such banks are hesitant to provide them with loan. Much depends on the reactivation of the SME sector as it accounts for 20 per cent of GDP and employs 70 per cent of all employed workers in the country. The pandemic has exposed the vulnerabilities and weakness of the SMEs as they belong to the informal sector.
In the services sector, hotels, restaurants, barber shops, beauty parlors and restaurants, by and large, continue to remain closed. According to the spokesperson of the hospitality sector there are 60 thousand hotels, restaurants and sweetmeat shops employing 1.5 million workers. In Dhaka city 15 thousand restaurants are yet to be opened and 10 per cent have already closed, according to the same source. Workers in this sub-sector, as in many others, have not received any cash assistance under the stimulus package.
With a brief review of the present status in the three main sectors of the economy, a short resume may be given on the major macro economic variables. The first among these is exports which showed a decline before the outbreak of the pandemic because of global recession ('synchronised recession', according to IMF). True enough, exports showed decline after the outbreak of pandemic till the month of May. Then the unthinkable happened. The country's merchandise exports during first quarter (July-September) of fiscal 2020-2021 (FY 21) grew by 2.58 per cent fetching $9.89 billion, surpassing the target set by EPB for the period. RMG sector as a whole fetched $8.12 billion during that period as a result of revival of demand in Europe and America.
Among other export items, jute and jute goods marked an upward trend, increasing by 39.261 per cent and fetching $307.55 million during the Q1 (first quarter) of FY 21, up from $ 220.95 million over the corresponding period during last fiscal. During the same period (Q1) pharmaceuticals products earned $42.17 million in exports marking a 20.90 per cent growth. Export of agricultural products grew by 3.4 per cent, fetching $271.49 million during Q1 of FY 21. Exports of frozen fish also increased by 5.11 per cent but leather and leather goods marked a decline in exports. Likewise, furniture and plastic exports registered decline because of the pandemic. Overall, exports have rebounded almost robustly retching earnings during the first quarter of FY 21 that ended in September, eclipsing the fall in April and May, immediately after the onset of the pandemic and also reversing the declining trend at the end of the last fiscal.
Imports that were on the rise during the end of last fiscal, have registered decline during the first quarter (Q1) of FY 21. It fell by 13.85 per cent, amounting to $7.43 billion. The corresponding figure for the same period during last fiscal was $8.63 billion. Fall in imports have been attributed to covid-19 that has seen fewer demand for industrial raw materials, machinery, parts and consumer goods. As a result of exports exceeding imports, the current account balance has recorded a surplus during July-August period amounting to $ 3.3 billion. The current account has been augmented by higher flow of remittance during Q1 of FY 21.
Remittance showed a high figure of $ 6.71 billion during this period compared to $ 4.5 billion for the corresponding period of last fiscal. In August alone, remittance amounted to $ 1.48 billion.
In addition to export earnings and increased flow of remittance during the first quarter of FY 21, external loans and grants from multilateral institutions have contributed to rapid increase in the foreign exchange reserve in the country crossing $40 billion for the first time. Among the multilateral lenders ADB has already disbursed $600 million as loan and $ 4.80 million as grant to help the country to cope with the pandemic. The World Bank approved $2.27 billion last year of which $1.17 billion has been disbursed after March this year. The Bank has indicated that $1.75 will be available as soft loan from IDA during the current fiscal. It is estimated that total loans and grants received in this fiscal will amount to about $7 billion.
The record foreign exchange reserve has led the government to mull over the fact whether to use part of this to meet the budget deficit. It seems, keeping 6 months import bill amounting to 36 billion, the government can afford to spend from the foreign exchange reserve that will help it to avoid excessive bank borrowing. Considering the impact of a huge foreign exchange reserve on the value of Taka against US Dollar, the Bangladesh Bank has already intervened in the foreign currency market buying $2.3 billion from commercial banks.
Given the favourable macro-economic situation as of September, Bangladesh economy can expect to grow on a higher growth path that was estimated at the beginning of the pandemic. On the basis of developments in the sectors of the economy and the macro-economic variables since July till the end of September, a growth rate of over 6 per cent for the FY 21 can be reasonably forecast, which is near the estimate of ADB (6.85 per cent). If the growth rate is estimated for the calendar year of 2020, then the growth rate will be over 4 per cent, near the IMF estimate. The World Bank estimate of 1.6 per cent is way too low to be realistic, particularly after the favourable macro-economic developments that have taken place since July.
Whatever is the rate of growth now and later in the current fiscal, it is likely to make much of a dent on developments that have accompanied during the pandemic viz., unemployment and poverty. In fact, these two are intertwined and unless there is improvement in the prevailing unemployment situation, the likelihood of improving poverty is very slim. According to BBS Perception Survey the number of unemployed was just 2.3 per cent before the pandemic. It increased 22 per cent in July and came down to 4 per cent in September. Experts have questioned the accuracy of this sharp decline in such a short period. The World Bank survey by phone calls found that 68 per cent people of Dhaka and Chittagong were unemployed during April to July and the majority of them are unlikely to get back their jobs. According to Policy Research Institute (PRI) 1.3 crore to 1.5 crore became unemployed during March-April and 30 per cent of them were still without jobs at the end of September. The magnitude of unemployment is reflected in the percentages of people who became poor during the pandemic. As regards extreme poor, the percentage has increased from 10 per cent before pandemic to 18 per cent. Even at the most optimistic growth of the economy during the current fiscal it will be next to impossible to raise the number of poor people above the poverty line. Therefore, it can be said that the quality of the recovery of the economy will leave much to be desired.
The estimate about the growth of the economy is based on a few assumptions. Firstly, it is assumed that the second wave of the pandemic will not be serious enough to shut the economy down-- again resulting in decline in exports among other things. As a corollary of this it is assumed that the flow of remittance will keep up the present momentum during the rest of the fiscal year.
Secondly, it is assumed that the financial sector will not be subjected to any serious shock like ballooning volume of NPL. Thirdly, it is assumed that the macro-economic management, particularly in respect of the rate of foreign exchange will continue to be prudent. Finally, inflation rate which has surpassed the target of 5.5 per cent set for fiscal 21 will be kept under control. These are the possible downsides to a rapid recovery and growth of Bangladesh economy during the current fiscal.