Second wave could inflict bigger harm to economy

Image: Collected
The next wave of Covid-19 will derail Bangladesh's feeble monetary recovery, deal an enormous blow to the indegent and low-income groups, reduce fiscal space and constrain public expenditure, said economists.

The crisis, which compelled the federal government to enforce a countrywide strict lockdown for at least two months before easing restrictions in June, wiped out at least 50 per cent of the gross domestic product (GDP) growth potential last fiscal year, which ended in June.

It undid the country's gains in poverty reduction in the last couple of decades, created 20 per cent new poor and ate away millions of jobs as the economy found an unprecedented halt.

The economic misfortunes can continue at least for a larger the main current fiscal year even at the existing pace of monetary revival and infections. The problem may exacerbate if the united states is hit with another wave, as has been witnessed in lots of other countries.

"The second wave will be more painful compared to the first one and it could rub salt into the wound," said Zahid Hussain, a former lead economist of the World Bank's Dhaka office.

"So, it will be a wise technique for the government to avoid the second wave rather than looking at whether the economy can stand it or not."

The export sector would face pressures again as the number of infections is rising in the developed world, said Ahsan H Mansur, executive director of the Policy Research Institute (PRI) of Bangladesh.

Economic recovery is underway and the united states is expected to go back to positive territory in the 3rd quarter of the existing fiscal year, he said. 

"But if there is a second wave and massive impact, the economical recovery would be further delayed."

Fahmida Khatun, executive director of the Centre for Policy Dialogue (CPD), said low business activity and the resultant low income from businesses would reduce tax assortment of the National Board of Revenue (NBR).

"This, in turn, will certainly reduce the fiscal space of the federal government and may constrain the government's expenditure."

If the second wave hits, the cottage, micro, small and medium enterprises (CMSMEs) will be the hardest hit again, said Hossain Zillur Rahman, executive chairman of the Power and Participation Research Centre.

The warning from the economists came against the backdrop of many countries around the world, from England, France, Spain, Germany and the Czech Republic to Iran and South Korea, having to reintroduce lockdowns amid rising coronavirus infections and deaths.

In September, Prime Minister Sheikh Hasina warned of a second wave in the upcoming winter. 

Mansur of the PRI said the fiscal situation may worsen in case of a second wave as income collection has slowed. Value-added tax collection grew only one 1 % in the first quarter of the existing fiscal year whereas inflation stood at 6 per cent.

"This means, the real taxable economic activity has still experienced the negative territory," he said.

There might be a earnings shortfall of Tk 80,000 crore by the end of the fiscal year, the same level of that was also witnessed last fiscal year.

"The government's expenditure management would face difficulty since it would not be able to keep the deficit financing within the mark," said the former economist of the International Monetary Fund. 

Zahid Hussain said the economic recovery was occurring in Bangladesh but its outcome was definately not what was at the pre-pandemic period. If the transmissions accelerate, the problem may warrant lockdowns.

"We may choose never to enforce lockdowns. But if things go out of control there could possibly be no other alternative but to impose it."

That means a supply and demand shock to the economy since it witnessed in April and May.

"The next wave would undo the monetary gains and the economy might face the W-shaped recovery," Hussain said.  

A W-shaped recovery is when an economy passes through a recession into recovery and immediately turns down into another recession.

The first wave has already caused massive job and income losses, particularly in the urban informal sector.

Winter is among the major spending seasons in Bangladesh. Social and community interactions would pause as a result of the next wave.

A critical factor in recovery may be the state of mobility. The Google Mobility Report shows mobility has returned to the pre-pandemic state with the only real exception of retail and recreation, where it was still down by 9 per cent in early October. 

"If the mobility shrinks, there will be contraction on both demand and offer sides," Zahid Hussain said. 

The former World Bank economist welcomed the recent government policy of "no mask no service". Under the stance, the authorities ordered public and private organisations to refuse services to persons not wearing a face covering.

"Scientists are universally in agreement about some issues and data are also available. It has been shown in every cases that masks work in the event that you properly maintain it," he said.

"The make use of masks have been at a reasonable level in the original days of the lockdown. Now there is lackadaisical attitude. The government would need to raise public awareness about the benefit for gaining masks."

Crores of families remain struggling as a result of the devastating impacts of the first lockdown.

"We haven't any idea how deep their struggle is. If the next wave comes, it could rub salt to the injury. But just how much can the federal government protect them through social protections?"

Rahman of the PPRC said both government and everyone have decided to use on their terms whatever the coronavirus earns.

"We may proceed with this co-existence but we need to think about how to create this co-existence even more effective."

The federal government should start preparations, particularly in the event of social protection programmes, Rahman said.

"We could not do it properly when the pandemic hit the country. This time, we can at least take preparation in the event of social protections."

He said the export-oriented industries have already been going right through uncertainties and there was a need to give encouragement to the domestic sector.

The stimulus packages unveiled for the large industries been employed by well however the support packages for the small-scale enterprises have not proportionately done well.

"The government could have to determine why the stimulus packages for the CMSMEs didn't deliver the expected results. If needed, the federal government may change the delivery agents and present the duty to the microfinance institutions instead of banks," said Rahman.

The virus has been tackled locally so funding for local governments such as for example municipalities should be increased.

The health sector should see an overall reform, the former adviser said. "Medical sector is operating as usual. If you want to do something, you will need to bring in serious reforms."

But the government continues to be getting the Ostrich syndrome, sticking its head in the sand and hoping that the challenge would just disappear completely, Rahman said. 

"Mobility restrictions would need to be reintroduced if there is any second wave."

Monzur Hossain, research director of the Bangladesh Institute of Development Studies, said lockdowns wouldn't normally be feasible options if the next wave happens. Health protocols have to be maintained so that industries, small and big, can continue running.

The CMSME sector hasn't received the stimulus package needlessly to say as only 20 per cent of the Tk 20,000 crore fund has been disbursed up to now.

"The rest of the fund should be released by next a couple of months. The packages could be implemented quickly through other (disbursement) models such as for example NGOs." 

The government would need to continue running its development projects targeted at poverty reduction and infrastructure development in the rural areas following health protocols. This might create jobs for the people, Monzur said.

The government should provide a thought to whether it could revive its employment generation programmes. A one-time loan facility ought to be offered for the returnee migrant workers.

Mansur of the PRI said the country would be able to bear the economic shock.

"Our agriculture might have been influenced by the recent floods. But I think we would be able to cope up with the losses."

"We may be had a need to go for some imports of rice before next boro crop. We have the reserves to cover the imports. So, we will not face any economic crisis."

Mansur said hospitals would need to take up massive preparations for admitting Covid-19 patients again.

Fahmida said foreign direct investment has already slowed down as a result of pandemic and it could further be delayed as the developed economies would face financial challenges.

She said as the global recovery will be delayed as a result of second wave, employment opportunities would come under great pressure.

"So, the chance of Bangladeshi returnee migrants getting back their jobs will be delayed further as those economies may also be under stress."

She said Bangladesh's health sector may face more pressure again if the amount of affected people increases.

She said many businesses, specially the small company, were yet to recuperate from the impact of the first wave. Many of them didn't receive stimulus package by yet.

Employment can be an area of vulnerability. Insufficient employment and income will increase their hardship. 

"During financial shocks, the role of public expenditure is really important as it helps create employment and increases domestic demand."

The call to use it from the economists is also in line with a fresh report that said it would be a huge selection of times cheaper to avoid outbreaks than to suffer the grim consequences.

The Intergovernmental Science-Policy Platform on Biodiversity and Ecosystem Services, setup by the United Nations, said the current pandemic may cost the world economy $16 trillion by next summer.

But preventive measures - such as for example cracking down on the wildlife trade - would cost between $22 billion and $31 billion annually. It's a sizable sum, but a fraction of the economic cost of dealing with a pandemic just like the Covid-19, the report said.

Source: https://www.thedailystar.net

Tags :

Share this news on:

Previous Story

Trending Topics

Archive