Coronavirus Putting the Brakes on Economic Growth in Bangladesh

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Bangladesh has emerged as an engine of regional growth in South Asia, enjoying Gross Domestic Product growth of around eight % in 2018 and 2019. A substantial source of that growth has been the very successful garment industry, which makes up about 13 % of the country’s GDP. Bangladeshi garment exports have already been enjoying increasing demand globally, and especially from america.

Now, however, Bangladesh has been confronted by the coronavirus and its economic consequences, which, furthermore to falling remittances from Bangladeshis working overseas, could bring about the loss of large numbers of jobs in the home. The garment industry alone employs four million personnel and the Bangladeshi Garment Manufacturers and Exporters Association (BGMEA), for example, estimates that up to two million workers in garment factories stand to reduce their jobs.

Analysis

An Engine of Growth

Bangladesh has emerged recently as an engine of South Asian growth, its GDP growing at 8.1% in 2019 and, in 2018, at 7.9%.

Its monetary rise has been acknowledged globally. The united states has improved when it comes to attracting foreign direct investment (FDI). It isn't solely reliant on China, having also drawn FDI from Japan and South Korea. In 2018-19, there was an abrupt jump in FDI, when Bangladesh received US$3.88 billion ($6.3 billion). In 2019-20, Bangladesh received a little over US$3 billion ($4.8 billion) in FDI. Those investments are, however, considerably less than Bangladesh’s true potential to attract FDI, which is estimated at US$9 billion ($14.6 billion).

A Beneficiary of the US-China Trade War

Bangladesh’s textile industry has benefitted from the US-China trade war. The sale of Bangladeshi garments rose significantly - to an archive US$3.81 billion ($6.2 billion) - as demand for Bangladeshi garments rose, especially in the United States.

The coronavirus (Covid-19) pandemic will have an impact on the Bangladeshi economy, just since it will across South Asia; the estimated growth rate for South Asia for 2020 has been revised downward to 4.1%. Bangladesh announced a lockdown on 26 March, with the full total number of coronavirus-related cases standing at 218 by 8 April, with 20 fatalities.

According to estimates in a report from the Asian Development Bank (ADB), the coronavirus could get rid of around US$3 billion of Bangladesh’s US$300 billion economy. That could result in the loss of near to 900,000 jobs.

The report highlighted three key impacts of the coronavirus: ‘… disruptions in export demands, suppressed consumption, and curbed remittances.’ All three have played a significant role in Bangladesh’s economical growth recently.

Workers Already Losing Jobs

While the ADB’s estimate of lack of jobs was 900,000, around a million Bangladeshi personnel in garment factories have already been let go, after big retailers like Primark, Matalan and the Edinburgh Woollen Mill cancelled orders worth over US$2.4 billion ($3.85 billion), according to estimates of the Bangladeshi Garment Manufacturers and Exporters Association (BGMEA). According compared to that body’s estimates, up to two million personnel in garment factories could lose their jobs.

That is significant, because four million workers are used in the garment industry, which makes up about 13 % of the country’s GDP. Garment exports, at US$34.12 billion ($55.5 billion), account for 84 % of Bangladesh’s total exports of US$40 billion ($65 billion).

According to a survey of 300 garment suppliers by the Worker Rights Consortium (WRC) and Penn State University, the largest problem for Bangladeshi suppliers is that retailers have refused to pay them even for goods already produced. Subsequently, many staff in textile mills usually do not receive their salaries promptly. Some retailers, such as for example H&M, Marks and Spencer, Next and Zara, have decided to honour existing orders, but none have provided any assistance in paying severance costs to the workers.

Beyond exports and the garment sector, Bangladesh is dependent upon remittances. There are various immigrants working overseas (especially in the Gulf region), whose remittances are crucial for the Bangladeshi economy. In 2018-19, remittances reached an all-time most of US$16.4 billion ($26.6 billion), a sizable part of which stemmed from the Gulf. In recent months, Bangladesh has been prepared for a dip because around two-thirds of these staff returned to Bangladesh between January and March 2020, at the beginning of the Covid-19 outbreak. The consequent reduction of remittances will have a direct effect on the country’s economy. Workers who return from overseas and lose their jobs may also must be rehabilitated by the federal government. The Bangladeshi Government requires a strategy to manage this challenge.

To arrest a potential decline in the economy, Bangladeshi Prime Minister Sheikh Hasina announced a stimulus package on 25 March.  During her speech, she announced a stimulus package (estimated at US$590 million) to help export-oriented manufacturing industries that contain been afflicted by the pandemic. Those industries could use the amount of money to pay their workers’ wages. More stimulus measures (estimated at US$8 billion) were unveiled on 5 April. The focus of the second package was twofold. First, it had been to help entrepreneurs. According to Hasina:

The main aim of the financial packages is to introduce loan facilities through the banking system. Reviving monetary activities, stopping [fiscal] retrenchment and helping the entrepreneurs maintain their competitiveness are the main purposes of the financial packages.

Second, additionally it is designed to expand social safety-net programmes to help those living below the poverty line meet their basic necessities. The Bangladeshi PM also explained that the government would distribute free food - with a give attention to the indegent and elderly - and in addition help them buy to rice at a subsidised price.

Some observers advise that the harm to Bangladesh’s economy could possibly be a lot more profound than has been forecast. They also advise that it is important never to be fixated on GDP figures, which may well not reflect some of the challenges that the economy faces. It is vital to raise taxes to ensure that more resources could be channelled towards assisting those workers who have lost their jobs. Aside from helping businesses, moreover, you will find a dire have to increase welfare spending for all those workers.

Bangladesh needs to make some major alterations to deal with the disruptions due to the coronavirus. It'll need to formulate and implement progressive policies that concentrate on spending. It is also important for Bangladesh to utilize other regional countries which may have also been damaged by the pandemic. While Bangladesh has immense potential and will bounce back, for the moment at least, the coronavirus will end up being a significant setback to its economic success.
Source: http://www.futuredirections.org.au

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