Second wave of COVID-19 poses major blow to the economic recovery
To keep the economy alive, government should resort to cetain policy options to enable the recovery. First, sector-based approach should be followed to evaluate the distressed sector and execute the effective policy to support the respecting sector.
Golam Sarowar Rasel
COVID-19 is one of the biggest global catastrophes in living memory, killing millions and causing economic damage in dollar incessantly. Global lockdowns and economic stagnation as well as a 66-day public holiday initially in Bangladesh due to the outbreak of Covid-19 led to a disruption to the countrys economic activity. The economy showed the sign of recovery in the third quarter of the fiscal year 2021. However, Bangladesh faced significant economic stagnation due to the resurgence of COVID-19 with record number of COVID-19 death and infection when it was expecting to expedite the pace of the economic recovery from fallout.
Bangladeshs economy has shown the sign of recovery backed by a rebound in export, and strong remittance flow. Bangladesh has experienced impressive growth of GDP 5.24% (provisional) in FY19-20 amid the subversive impact of OVID-19. Bangladeshs exports have experienced significant growth about 502.75% to USD 3134.38 million from April 2020 to April 2021. Export has shown rapid growth after the pandemic which is a great sign of economic recovery. According to the data of Bangladesh bank, import has also increased 37.03% making it to USD 420.71 billion. Bangladeshs economy is getting stronger through exporting its labour to different countries throughout the world.
Remittance has hit record high $2171.03 billion in May 2021 amid the pandemic. Foreign reserve has also shown the sign of improvement as it hits all time high record $46391.4 billion in June 2021. Agriculture productions perform in decent manner in pandemic nevertheless farmers have suffered due to improper functioning in supply chain. Multinational bank stated in a report that Bangladesh debt to GDP ratio may increase to 40% in FY21 but still in comfort zone in compared to peers. This plague generates crisis in banking sector through increasing the rate of NPL. This is very much true about developing economy which has poor financial market architecture. The volume of NPL rose by more than 7% to Tk 950.85 billion from the period of January to March. It is a great concern for the economy as continuous growth of NPL put economy in great danger. While Bangladesh is recovering economic crisis at that time second wave of COVID-19 hit the economy severely.
Bangladeshs exports have reduced by USD .83 percent which stood $ 3108.09 million in May 2021. In June export rose by 15.07% to $3577.49 million which is still 2.52% less than the targeted amount. Remittance shows negative sign by declining 10.60% to $1940.81 in June which poses threats in the way of keeping economy sound as export and remittance are the two key drivers of economy. Bangladesh Bank expresses concern that banking sector with weaker asset quality caused by higher level of NPL and poor profitability condition may further ruin the performance in the forthcoming quarter and worsen the performance of banks having shocking effect on the countrys economy. On the other hand, according to the joint report of Power and Participation Research Centre (PPRC) and BRAC Institute of Governance and Development (BIGD) significant number of people who fall into poverty line in the first wave of COVID-19 couldnt make their return to their erstwhile status and 24.50 million more people have become poor in March this year.
A survey conducted by South Asian Network on Economic Modelling (SANEM) found that countrys poverty rate has shifted to 42% from 21%. In line with the report of PPRC-BIGD 21% people have become new poor and a portion about 15% could return to their erstwhile position after the restart of business. But unfortunately, the situation got ugly when the second wave of this virus hit so badly and it will be a great deal to manage the severe impact of damage. In dealing with the COVID-19, Prime Minister Sheikh Hasina has come up with great strategic move through launching stimulus packages to keep the economy intact and has declared 23 stimulus packages with an overall outlay of Tk 1.24 trillion which is 4.44% of GDP including two new packages to boost up SME and develop the living standard of the people. Another joint survey report conducted by SANEM and Asian Foundation on May 2 have traced that 22% of the targeted business firms have benefited from the stimulus packages declared by government in the outbreak of COVID-19, 69 percent havent got any incentive while 9% didnt know about it.
To keep the economy alive, government should resort to the following policy options to enable the recovery. First, sector-based approach should be followed to evaluate the distressed sector and execute the effective policy to support the respecting sector. Second, Government should declare additional stimulus packages as loan with lower interest rate for long period of time and should extend the coverage of export development on an immediate basis to boost up the sectors. Third, ensuring proper distribution of stimulus packages incentive as its very crucial to facilitate future recoveries. Fourth, Government should recoil traditional bank-led financing model and keep focusing on capital market instrument like Commercial paper, Zero Coupon Bond and Sukuk bond for long term financing which makes the financial sector more vibrant through attracting local as well foreign investor. Fifth, Ongoing vaccination campaign should be carried out to take 80% of people under this campaign within December this year which would give us competitive advantage in RMG sector by capturing new international market. Finally, private sector should also play a vital role here in this situation alongside the government who would have to play the key role by ensuring infrastructure development, strengthening labor market and attracting private investment doing necessary reformations.
Second wave of COVID-9 last for a long period of time which caused severe damage to Bangladeshs developing economies. Bangladesh has some positive economic drivers that kept the economy alive during the unprecedented situations. We have experienced record high remittance flow and foreign reserve that helped to overcome economic shock. Ensured stimulus packages from the government side for the small businesses facilitated the faster recovery of the economy. Proper policies and strategies kept the adverse effect of this plague to minimum and revived the economy back to the pre-pandemic level.
The writer BBA MBA (major in finance), University of Chittagong
