Economic woes to linger

Bangladesh's economy may continue to suffer under the Covid-19 pandemic throughout the current fiscal year due to vaccine shortages and the government's incapability to enforce a strict lockdown, said a recently released Fitch Solutions report.

It also has revised down its forecast about the country's GDP growth for fiscal year 2021-22 to 5.5 per cent from its previous projection of 6.7 per cent.

"We believe that Bangladesh will continue to struggle to achieve Covid-19 herd immunity via vaccines as a result of vaccine shortage, given its reliance on the COVAX programme for supply," said the report.

"Moreover, an inability of the government to credibly enforce stringent lockdowns for as long a duration required to stem an ongoing outbreak will likely see pandemic-related reasons weigh on the country's economic recovery," it said.

"…and prevent a return to pre-pandemic trend growth of 7 to 8 per cent over the near term," said the report titled "Persistent Pandemic Headwinds to Cap Bangladesh's Economic Recovery Prospects".    

The report, however, said such a GDP forecast of 5.5 per cent reflects its expectation for the country's economy to still record resilient growth.

The country's economic activity will also experience less disruption from weak lockdown enforcement, it said.

Meanwhile, exports will recover from strong external demand as garment factories remain open amid lockdowns and externally financed public infrastructure investments will drive fixed capital formation growth, it added.

The Covid-19 vaccination campaign has seen low progress since beginning in February, with 3.7 per cent of the population getting at least one dose between April and most of July, due to a shortage of vaccines, it said.

The vaccination drive has only begun to accelerate from the end of July following improved vaccine supplies, with 5.4 per cent of the population getting at least one dose as of August 1, it said.

Still-low rates of vaccination for Bangladesh will imply elevated contagion risks through FY22, with repeated lockdown implementation likely as the authorities attempt to contain domestic outbreaks, it opined.

Bangladesh is reliant on the international COVAX scheme, and the scheme is reliant on India's Covid-19 vaccine exports, which India has halted since May to redirect supplies to its domestic vaccination drive, it said.

So, there remains the risk of further vaccine shortage down the line posing a bottleneck to Bangladesh's vaccination drive once again, it stated.

Fitch Solutions in its report highlighted the risk of waves of outbreaks being more frequent and persistent with subsequent lockdown implementations, with the spread of the more contagious Delta variant of the coronavirus.

It, however, said a high tendency for society to circumvent lockdown restrictions and weak government enforcement of lockdown regulations will blunt the immediate economic shock from lockdowns.

European and North American economies are being strong supported by rapid vaccination progress and fiscal and monetary stimulus, it said.

For this, demand for apparel is likely to follow in tandem over the coming months, said the report, adding that Bangladesh was likely to benefit from diverted orders from the region.

It mentioned that Cambodia's garment exports to the European Union have fallen significantly since August 2020 following their partial loss of the Everything but Arms (EBA) trade concessions on certain garment categories.

"With Myanmar being an unattractive supply source amid the political turmoil in the country, we expect Bangladesh, India and Vietnam to be beneficiaries of order diversions," it stated. 

The report also opined that implementation of large-scale public infrastructure projects was likely to boost private sector business investment amidst pandemic uncertainty. 

The projects include that of the Dhaka metro rail network, the Padma bridge, railway expansion as well as land port, sea port and airport expansion.

The government has fixed June next year to open the Padma bridge while the Dhaka metro rail would open partially next year.

Private investment in the country fell to its lowest level in 14 years in the just concluded fiscal year owning to the lingering uncertainty caused by the pandemic and continuing structural weaknesses.

In 2020-21, the private investment-to-GDP ratio declined to 21.25 per cent, according to provisional data from Bangladesh Bureau of Statistics.