Will the Pandemic Derail Bangladesh’s Economic Growth?

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Bangladesh is a major beneficiary of globalization. The united states has benefitted from the outsourcing of production to places where it could be done in a far more cost-effective way. The ready-made garments (RMG) industry is labor intensive and labor comes in Bangladesh by the bucket load at a cheap price. The abundance of labor in addition has made Bangladesh a significant labor exporting country, bringing valuable forex. It also helps in the total amount of payment situation. The political stability in Bangladesh within the last decade and propitious circumstances due to globalization has led to very fast economic growth in the united states. Bangladesh’s GDP growth in last couple of years has averaged around 8 percent. This was happening at the same time when economic growth in rest of the world was slowing. However, this fast economic growth has been disrupted by the outbreak of the COVID-19 pandemic. 

The RMG industry and remittances from overseas employees will be the two biggest contributors to Bangladesh’s forex reserve. Manufacture and export of RMG contributes 13 percent to the GDP of the united states. It employs practically 4 million workers. It is estimated that out of the 1 million workers are already unemployed. 

For the RMG industry, major export destinations are the USA, U.K., Germany, France, and Italy. However, garment stores in these countries are actually shut. People have already limited their discretionary spending. Exporters in Bangladesh are now not getting their payments promptly. Buyers are cancelling or modifying orders. As a result of this, industry owners are finding it difficult to pay salaries to workers. Laid-off employees are time for villages, creating additional problems in the rural economy. The unemployment of the personnel and the shutdown will generate further problems in the realm of food security. 

Remittances are another major way to obtain forex. According to World Bank data, Bangladesh received $15.5 billion in remittances in 2018, 15 percent higher compared to the previous year. In 2017, Bangladeshi migrant staff sent $13.5 billion back home. Bangladesh was the 3rd highest recipient of remittances in South Asia in 2018, after India and Pakistan, and the 11th highest recipient globally.

Nearly 10 million Bangladeshis are working in foreign countries. Many of them are in Gulf countries, Western countries, plus some Southeast Parts of asia like Malaysia. A large number of these workers are actually returning home due to the disruptions in their host countries. Many host countries will have travel restrictions and financial slowdowns of their own. These returnees generate additional problems, both with regard to possible new infections and the economy. In addition they won’t manage to go back to their usual workplaces abroad before global situation improves.

Pohela Boishakh - the Bangladeshi New Year - is normally a period when business is brisk in Bangladesh. This is when people do a large amount of shopping. Unfortunately, as a result of the pandemic most people will not be able to do their shopping or celebrate because they normally would. That is going to affect the local economy in Bangladesh. Though some business owners are trying to shift online, in Bangladesh especially this won’t be adequate to displace empty marketplaces.

In early March, the Asian Development Bank (ADB) estimated that in the worst case scenario the gross domestic product of Bangladesh may contract by as much as 1.1 percent, wiping $3.02 billion off the $300 billion-plus economy. The ADB further estimated that in this scenario 894,930 jobs will be lost. Unfortunately, in Bangladesh the number of unemployed employees in the garment sector has recently exceeded this figure. 

The impact of the pandemic can be apt to be greater on Bangladesh due to its reliance on China. China is Bangladesh’s biggest trade partner and may be the biggest source of imports including recycleables necessary for its industries. China is currently also emerging as an export destination for Bangladesh. Moreover, the major portion of tourist traffic in Bangladesh originates from China. The barriers to imports from China, the initial epicenter of the virus, will hurt the export-oriented sectors and disrupt the supply chain. It will also affect the entire trade.

The Bangladesh government has come out with an enormous stimulus package to check on the impact of the pandemic. The stimulus package, to the tune of 727 billion Bangladeshi taka ($8 billion) was announced by Bangladesh Prime Minister Sheikh Hasina on April 5. The government at first declared a 50 billion taka ($5.9 million) emergency incentive package to support the export-oriented industry. Further packages were announced aimed at affected industries. The full total stimulus package will probably be worth practically 2.52 percent of GDP.

Exports of RMG and the return of migrant personnel to their host countries will rely upon how quickly the problem improves on the planet. As of now it really is feared that the impact of the pandemic on the Bangladeshi economy will be enormous. The Economist Intelligence Unit (EIU) estimates that the GDP of Bangladesh for another year could decline by about 4 percent. The stimulus package announced by the Bangladesh government is impressive but it remains to be seen how effective it will be given the culture of embezzlement and previous tendencies to grant loans to cronies and politically linked people.
Source: https://thediplomat.com

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