Bangladesh coping well with the pandemic
Bangladesh is not new to disasters or major humanitarian crises. Sitting astride a river delta at the bottom of the Himalayan range, the country is fighting a longstanding battle against the impact of climate change and currently hosts the world’s largest refugee camp along its southern border. In its 49-year existence, Bangladesh and its people have shown tremendous resilience in fending off not only natural disasters such as floods and cyclones but also manmade ones, like the 1997 Asian financial crisis and 2008 global financial crisis.
The COVID-19 pandemic, however, is a crisis of a completely different magnitude and one that will require a response of unprecedented scale. Bangladesh’s leaders in the public and private sectors showed very commendable and innovative response to the immediate threats to health systems and the long-term effects to the country’s economy.
Bangladesh detected its first confirmed coronavirus case on 8 March. In early February, the government evacuated close to 300 Bangladeshi citizens from China. The government also installed screening devices across its international airports and land-ports, which screened more than 650,000 arrivals , of which 37,000 were immediately quarantined.
The government also moved swiftly to transform two religious centers into temporary quarantine facilities. In addition, after the first case was detected, the government closed education institutions and encouraged all non-essential businesses to move their activities online. It initially declared a nationwide public holiday which was subsequently extended to May 31.
Despite the presence of a large Bangladeshi diaspora in Europe, the government also took the bold step of suspending all flights from Europe. Learning from its East Asian neighbors including South Korea and Singapore, the government launched an aggressive awareness campaign through national mobile phone operators. This has been complemented by private-sector cooperation, with the government launching more than 500 telephone hotlines and cross-promoting private service providers on its platform.
In order to ensure that frontline healthcare workers have the necessary personal protective equipment (PPE), the Bangladesh Garment Manufacturers and Exporters Association (BGMEA) coordinated with five of its member companies to convert their production lines to produce 500,000 PPEs.
While the response initially to the health threat was admirable, yet this pandemic also posed an economic and humanitarian grave challenge. Our Prime Minister initially announced an emergency stimulus package of $600 million on 25 March, which on 4 April was enhanced significantly to $8.5 billion (equivalent to 2.5% of GDP).
According to the forecast released by the Economist Intelligence Unit on 26 March, the global economy is expected to contract by -2.2% in 2020. These effects are expected to be more pronounced in major G20 economies, such as Germany, Italy, the United Kingdom and the US – all countries that are major markets for Bangladesh’s most vital tradeable good: readymade garments.
With lockdowns imposed across Europe and North America , it was projected that even in the best-case scenario it would take a long time for market confidence to be restored in these economies. But taking appropriate and timely policies, our garments and other export oriented sectors could recover from the export downslide spectacularly fast. Needless to say our government also extended mightily all sorts of supports to these export oriented sectors to be able to stage such a successful comeback. The implication is that nearly six million workers in Bangladesh’s formal sector – which is largely manufacturing – will continue to find steady work for an extended period.
Notably, the government of Bangladesh (GOB) could wonderfully incentivize our remittance earners abroad to keep on sending greater amounts in remittances. This was mainly done through enabling the remitters’ beneficiaries to get more monies while sending the monies through official channels Thus, the apprehended drop in remittance flows did not occur. Rather highest ever records of remittance flows have been witnessed in recent months that worked like bulwarks in keeping our economy in a strong position.
The enhanced stimulus package announced by the Prime Minister is commendable and step in the right direction. The package which has nearly $2.5 billion allocation for bridge financing of the working capital of small and medium sized industries is a bold step to protect the livelihood of people employed in that sector.
Data from the Bangladesh Bureau of Statistics indicates that Bangladesh has more than 60 million workers in the informal sector. While there will be a significant impact on the livelihood of workers in the formal economy, there can be no doubt that the informal sector will be hit even harder. The prime minister was right to identify this as a challenge and her decision to distribute stepped up food aid through Bangladesh’s existing social safety programmes such as the Vulnerable Group Feeding and Vulnerable Group Development must also be welcomed.
The government should also consider an unconditional cash transfer program for a period, which corresponds to the minimum wage for the formal sector in Bangladesh. This would cost the government roughly $14 billion, or 4% of GDP. While this sort of cash transfer program always suffers from targeting issues, Bangladesh enjoys a highly sophisticated mobile financial services network, which could improve the cover of the program. A concerted effort involving the non-governmental organizations working in the informal sector, mobile financial service providers, and the government could be developed to deliver this urgently needed social assistance.
Taking such an aggressive step would mean that Bangladesh would have to forego its usually prudent and disciplined fiscal policy of maintain its budget deficit within 5% of GDP. However, with a low debt-to-GDP ratio, Bangladesh has enough fiscal headroom to adapt an expansionary approach in the short run to fight off the economic and humanitarian aspect of this crisis. To finance this expansion, Bangladesh should also look to tap into the concessionary financing available at its disposal through the multilateral development banks.
The steps on the fiscal side – the stimulus packages – must also be complemented by steps on the monetary policy side. Bangladesh Bank has already put a freeze on loan repayments for a period and relaxed foreign exchange regulations for trade transactions . It has also increased the transaction limit on mobile financial services as well as cut the monetary policy rate by 25 basis points.