On Bangladesh GDP in the time of coronavirus

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The purpose of this article is to highlight conditions that can effect on  Bangladesh GDP because of the controversy surrounding the most recent published data on the GDP growth rate for 2019-20. Based on the Bangladesh Bureau of Statistics (BBS), Bangladesh GDP grew by 5.24 per cent during 2019-20 raising the per capita income by US$155 to US$2,064. This growth rate has been achieved when the global economy is contracting, in particular the complete developed world where in line with the Organisation for Economic Cooperation and Development (OECD) major economies are expected to contract by 2.4 % in 2020. The World Bank GDP projection for 2020 predicts a fall by 2.5 % for developing countries and 1.8 % for developed countries. Even the neighbouring country India recorded a contraction of the economy by 23.9 % through the April-June quarter of 2020.

This growth rate can be much above the economical growth forecast provided  for Bangladesh by the World Bank (WB) at 1.6 percent, International Monetary Fund (IMF) at 3.8 percent and Asian Development Bank (ADB) at 4.5 percent for 2020. While these forecast figures are for the calendar year 2020, however the BBS growth figure is for the 2019-20 financial year. In fact, the Bangladesh government believes  that the economy is on the right track to attain 8.2 % growth rate in 2020-21 and in addition expects the economy to rebound at a higher pace than before after the pandemic has ended (FE, August, 28). There is an implicit message that the economy isn't just trekking back to pre-pandemic levels but will surpass that.

The outbreak of the Covid-19 pandemic created highly uncertain circumstances for households, businesses and governments all over the world including Bangladesh. While cost of the shutdown could possibly be substantial,  the price of not shutting down the economy would have been even higher. This situation will continue until a highly effective vaccine or treatment becomes available. People in Bangladesh, like elsewhere are in an unprecedented situation where in fact the economy is struggling to recover from shutdowns and  partial shutdowns. In such circumstances  persons are struggling to create sense of  the published data, which frequently includes a  substantial lag.

Bangladesh reported the first cases of Covid-19 in the first March and in response to widespread concern regarding the intensity and duration of the pandemic, the economy was primarily shut down from the mid -March to the finish of May. Thereafter some partial openings to complete shutdowns in a localised fashion have continued depending on the intensity of the pandemic. But since early August most restrictions have already been lifted. Therefore, the impact of four months of economic slowdown from March to June is reflected in this published figure assuming July, 2019 to February, 2020 economy operated as normal and was on the right track with the projected growth rate of 8.2 % for the period in mind. But available data on macroeconomic aggregates such as household consumption, trade and private investment usually do not support that the economy was tracking along the projected growth rate path prior to the onset of the pandemic.

Not surprisingly it seems there exists a general consensus among the economists generally speaking and the leading financial research institutes in particular  in the united states that the published growth figure is an  overestimation and unrealistic because to the fact that the economy had been slowing down even before  the onset of the pandemic. In addition they questioned the methodological process found in estimating the growth figure including its reliability. In line with the BBS, the growth figure was attained by extrapolating actual data from July 2019 to March, 2020 for another three months (April-June, 2020), which means figure remains provisional. But a very important factor for sure, you will have ongoing costs to the economy both as a result of impact of shutdowns as well as the fear of pandemic preventing persons to resume normal monetary activity. The combined impact will cause a substantial contraction of the economy.

To comprehend the intensity of the impacts from the Covid-19 pandemic on the Bangladesh economy, we should need to have a clear grasp in identifying the mechanism by which shocks through individual markets to the economy are transmitted. The most widely reported measure across the world of nation's financial performance is gross domestic product (GDP) or the aggregate output of the economy which comprises household consumption (C), private investment (I), government expenditure (G) and net exports (X-M).  Therefore, the equilibrium  growth path of the economy  can only just be understood as the sum of the growth of every of these components.

Now we may easily work out what's happening to the economy by simply looking  at Covid-19 induced  financial shocks that are transmitted  through individual pieces to the aggregate economy. The striking feature is the short run decrease in the way to obtain labour which contributes to declining spending on consumer goods and services, specifically durables, health insurance and personal care services, travel, recreation and entertainment etc. This is because of social isolation, illness, concerns because of their income and savings. Also, there is perceived fall in the worthiness capital assets or what's referred to as the ''wealth effect'' which also must be taken into account.

It's estimated that Bangladeshi RMG staff lost US$500 million in wages in four months from March to June. The Institute of Labour Studies also estimated that 1,915 garments factories were closed down rendering 324,684  staff unemployed as a result of pandemic. A number of these workers weren't paid  their outstanding wages and salaries. It really is most likely that many of these workers won't work again.

In line with the Bangladesh Institute of Development Studies (BIDS), 164 million have joined as new poor in the united states due to Covid-19. A recently available survey conducted by the International Centre for Diarrheal Disease Research (ICDDR) in  Bangladesh found that through the lockdown  (March-May, 2000), 91 % of sample families considered themselves to be financially unstable. 47 % saw their earnings drop below the international poverty type of Tk160 (US$1.90) per person each day, 70 per cent experienced food insecurity and 15 per cent either ran out of food or remained hungry or missed meals (FE, August, 27).

An estimated 80 % of workers in the informal sector have grown to be unemployed. As many companies are closing, a very large numbers of workers are not having the capacity to get back to their jobs. That's clearly  reflected in a very large number of folks migrating from urban to rural areas. It's advocated that a big segment of the unemployed workers face the chance of everlasting job loss. Because of very high degrees of unemployment,  a very large number of people already are  finding it hard to create ends meet.

The Bangladesh economy can be currently facing the chance of plummeting remittances. It's estimated that migrant remittances have declined by a quarter through the pandemic globally. Migrant remittances constitute about 9 per cent of Bangladesh GDP. A lot of expatriate staff are returning home, further adding to the worsening unemployment situation.

All these factors clearly suggest that households, specifically in rural areas where almost all the persons live are experiencing serious financial stress creating a sharp decline in household consumption. A significant number households are also debt-laden and which will negatively impact on consumption expenditure. Household consumption makes up about two thirds of GDP, therefore it could be reasonably assumed two thirds of lost output because of Covid-19 can be attributed to the decline in household consumption expenditure.

Reduced household consumption expenditure causes a decline running a business confidence which brings about decline in private investment. The united states also faces suprisingly low degrees of foreign direct investment (FDI), accounting for approximately 4 % of total private investment. The drop in investment signifies that the country will be less wealthy later on and this will impact negatively on future productivity and income. Also, economy-wide  reduced productivity of capital  represents idle capacity in the economy caused by reduced consumer demand together with  the disruptions in global supply chains caused by Covid-19. However, this lack of productivity  must be offset  somewhat by effective gains in productivity linked to the increased telecommunicating and other associated method of communication.

There were some net changes in government expenditure to mitigate the consequences of the pandemic. While there has not been any decrease in government expenditure, but additional outlays were designed for taking increased health response measures and expanding existing transfer programs including subsidised food grain supply measures.

However, the federal government largely relied on monetary policy measures, in particular rates of interest for providing assist with the private sector to tide over the existing difficult situation including the provision of  subsidy for interest payments.  Monetary ease to counter fiscal stringency postpones and aggravates private debt problem. Such measures will also cause distortions in financial markets with the consequent impact on the economy. The budget  for 2020-21 stipulated some decrease in expenditure putting on hold low priority development projects while increasing expenditures on healthcare, agriculture and social safety. Overall, it seems  there's been little net change in government expenditures in real terms.

Both exports and imports have been declining  and are expected to further decline because of decreases in consumption and investment demand both at home and abroad. The Bangladesh taka is a proxy for the US dollar. As the united states dollar appreciates against all major currencies, so also the taka. But in any event that is unlikely to greatly help boost Bangladesh exports (Bangladesh exports are invoiced in america dollar)  as the domestic demand in america has been declining as in other major destinations of Bangladesh exports in Europe.THE UNITED STATES economy contracted by 9.5 % in the next quarter of 2020. During the same quarter, GDP in the Eurozone declined by 12.1 per cent and in the EU by 11.9 %.

The International Monetary Fund (IMF) already remarked that the global strengthening of the united states dollar was likely to amplify in the short run fall in global trade and financial activity. Actually, it further described the strengthening of the united states dollar and its dominance as the global currency could impact the way global trade worked and could make a global financial recovery from the Covid-19 pandemic even more difficult.

Additionally, there are increased costs of international trade now, especially for those industries where supply chains are integrated across borders and those involved in moving goods and persons i.e., trade and air transport. In line with the World Trade Organisation (WTO), global trade is likely to decline by 13 to 32 % in 2020. Even if we complete the pandemic, there is  the looming danger that the commitment to an open rule based trading system is on the retreat and therefore of this the Bangladesh economy may face increased challenges to its growth prospect.

Notwithstanding the country's overreliance on export of RMG and overseas remittances, the introduction of an external shock to one or more elements of GDP will have discernible effect on financial growth. As the problem is unfolding in Bangladesh resulting from the spread of the virus, all the broad economic indicators suggest  significant declines in household consumption, investment and exports with no significant counterbalancing government expenditures to revive the economy to equilibrium.

Therefore, the published GDP growth figure will not look tenable. This demands a vigorous financial stimulus package in the form of fiscal support and that's needed urgently. This fiscal support will be required for quite a while given the outlook for the economy and the prospect of rising unemployment. The crisis  once more brings to the fore the value of bringing the virus under control to enable the people to feel safe and the economy to start  moving forward again. 
Source: https://thefinancialexpress.com.bd

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