Coronavirus and the Bangladesh economy: Navigating the Black Swan event of 2020

Collected
During writing, a worldwide recession is known as an inevitability, however the jury is still from the likely duration

Globalization has brought great advantages to the apparel industry as international fashion companies farm out production to cost-effective centers for manufacturing, and by carefully orchestrating a supply chain that spans multiple countries, are still able to deliver products at stores, with time. COVID-19 has exposed the vulnerability of the cross-country supply chains, with negative consequences for Bangladesh. There are other global impacts that will cascade to the Bangladesh economy, and local impacts on demand and offer in-country. This white paper aims to reveal these global and local monetary impacts of COVID-19. 

At the time of writing, a worldwide recession is known as an inevitability, but the jury is still from the likely duration. Current measures of social distancing will flatten out the ongoing curve of infections. However, you will find a limited probability that infections may return in subsequent wave(s), whether or not in limited quantities, which may continue to have monetary impacts. There are authorities however who opine that the recession will fade out by Q4 2020. 

The International Monetary Fund (IMF) thinks that the recession will be worse but more short-lived than the global financial meltdown of 2008.  The duration matters greatly for Bangladesh, because its financial fate is closely linked with the fate of countries that permit both R’s that drive it: ready-made garments (RMG) and remittance. 

The 2 2 R’s: RMG & Remittance

Large Ready-made Garments (RMG) companies which obtain Bangladesh are literally closing doors all over European and American cities. Stores have closed for H&M, GAP, Zara, Marks & Spencer, Primark, which are major buyers. Shopping has come to a standstill as people avoid discretionary spending. There is also a way of measuring panic regarding recycleables sourced from China. By March 23, 264 Bangladeshi garment factories have faced cancellations.  H&M, one of the major buyers of Bangladeshi garments, has already established to “temporarily pause new orders together with evaluate potential changes on recently placed orders.” 

At the time of writing, BGMEA President Ms. Rubana Huq suggested the total impact of order postponement/cancellations will amount to US$1.5 billion, which is roughly 50% of our average export income in per month.  Insiders interviewed advise that if the virus continues to impact global supply chains, buyer demand, and of course, health insurance and safety of workers, by Q4 2020, loss in export revenues could reach US$ 4.0 billion. 

This is not surprising because slowdown in US and EU economies experienced ripple effects in the Bangladesh economy (Figure 1).  This correlation is most evident for the global financial meltdown in 2008, when Bangladeshi GDP growth curve mirrors those folks and EU, albeit the drop off was less extreme than for the developed economies.

However, international credit rating agency Moody’s expects that the RMG sector in Bangladesh will recover by the finish of the entire year, as demand recovers and supply chain shocks are overcome.[i]

Meanwhile, the other pillar of the Bangladesh economy, remittances sent by migrant workers, will also take an inevitable hit. Bangladesh has around 10.0 million employees overseas, with many in the centre East and the united states, UK, and Malaysia. Travel restrictions as well as economic slowdown and curfews in host countries, e.g., Saudi Arabia, UAE, Qatar, Kuwait, Malaysia, US and EU countries imply that the personnel are losing out on wages. The Japan News tells us a tale of a Jahirul Islam, 30, who will overlook 2 months’ pay, after being instructed by his employer, the Abu Dhabi Sports Academy, to go back home.[ii] While he made a decision to stay put for fear not being able to re-enter, there are news reports an untold number of migrant workers have returned. Additionally, there are disconcerting stories of migrant employees being shepherded into “labor camps” in Qatar.[iii]

Furthermore, oil prices have fallen precipitously, which is likely to aggravate demand for migrant workers. Oil prices tend to be an efficient leading indicator of inward remittances (Figure 2). History implies that falling oil prices have a lagged influence on remittances into Bangladesh. At present, prices are falling because of reduced demand from sectors such as for example aviation and transportation sectors, plus the Russia-Saudi Arabia price war. 
Source: https://www.dhakatribune.com

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