Pre-Pandemic Level: Poverty set to drop further
The World Bank in a report noted a gradual recovery in employment and earnings in Bangladesh, forecasting that the country's poverty rate will come down to pre-pandemic levels in the current fiscal year.
The pandemic reversed the country's steady trend of poverty reduction, lifting the poverty rate to an estimated 12.9 percent in the 2019-2020 fiscal year from 11.9 percent the previous year.
In the report launched yesterday, WB said the poverty rate is set to go down to 11.9 percent by the end of the 2021-22 fiscal year.
A "gradual recovery in employment and earnings" helped reduce the poverty rate, according to the WB report.
The global lender released the report as part of its fall 2021 economic update for South Asia titled "Shifting Gears: Digitization and Services-Led Development".
"The Covid-19 pandemic has put the substantial poverty reduction gains of the past decade at risk. Poverty increased from 11.9 percent in FY19 [fiscal year 18-19] to an estimated 12.9 in FY20 [19-20], using the international poverty rate [$1.9 in 2011 PPP]," said the report.
The WB's forecast is close to the government's poverty rate estimation for ultra-poor in the country. According to the government estimation, the poor constituted 20.5 percent of the population while the ultra-poor made up 10.5 percent in the 2018-19 fiscal year.
The new WB report estimated a further drop in the poverty rate -- 11.2 percent -- in the 2022-23 fiscal year, which would be lower than pre-pandemic levels.
Speaking on the poverty situation, Zahid Hussain, a former lead economist of the World Bank's Dhaka office, said towards the end of last year, people involved in small businesses like tea stall owners, hairdressers and peddlers returned to work albeit earning less than they did before the pandemic.
"It seems the situation of last year is no more. Now, the pre-Covid situation has almost returned. That is why this year's GDP will be higher than last year's. In that case, I assume that the horror of Covid will not come back," he told The Daily Star.
The poverty rate, measured by per capita expenditure per month, is calculated regionally across the country, according to the report.
The WB report stated that a nationally representative phone survey showed income losses and high levels of self-reported food insecurity in the 2019-20 fiscal year. In areas dominated by the poor in Dhaka and Chattogram, surveys showed that adults who stopped working due to Covid-19 were 11 percent more likely to report food insecurity, it said.
"As growth strengthened in FY21 [20-21], household surveys point to a gradual recovery in employment and earnings. Estimated poverty remained flat, although food security improved across the country, with the greatest increase in Chattogram," it said.
The report said a modest recovery in GDP growth was sustained in the second half of 2020-21, despite ongoing movement restrictions to control the Covid-19 pandemic.
The recovery is expected to gradually accelerate, particularly if the supply of vaccines rises and if the economic scarring effects of the pandemic can be contained, the World Bank said.
Growth was supported by a demographic dividend, sound macroeconomic policies, and an acceleration in readymade garment (RMG) exports, while job creation and remittance inflows contributed to a sharp decline in poverty, the report said.
Zahid Hussain said, "Recovery is happening now, especially in the labour-intensive sectors. Now, it turns out that the possibility of going to the pre-pandemic level is quite bright.
"But there is a risk in the form of hike of commodity prices. If the inflation rate rises to 8-9 percent, there could be an impact on poverty. The way energy prices are rising in the international market, it could have an impact on poverty also. This will increase people's income but will reduce their purchasing power," he said.
The former lead economist of the WB's Dhaka office said the rise in energy prices is not due to a shortage of production, but mainly due to supply disruption. This means that the price hike is "cost-pushed".
If these prices had risen due to a shortage of production, it would have had a long-term effect on the economy. As it is due to supply disruption, this price increase will become normal in the next six-seven months, he added.
While talking about the poverty rate forecast of local agencies, he said their forecasts are temporary and the outcome may change in another survey. But what the World Bank has done is much more extensive, he said.
"So, WB's figure is not comparable with theirs."
According to the WB, the pandemic is estimated to have created 62-71 million new poor in 2020 and 48-59 million new poor in 2021 in South Asia.
GDP TO GROW BY 6.4 PERCENT IN 2021-22
The World Bank projected Bangladesh's economy to grow by 6.4 per cent in the 2021-22 fiscal year, which is 1.3 percentage points higher than the global lender's previous forecast.
In June, the WB predicted the country's gross domestic product (GDP) would grow at 5.1 per cent in the current fiscal year.
"In Bangladesh, continued recovery in exports and consumption will help growth rates pick up to 6.4 per cent in the fiscal year 2021-22," it said.
However, they added, the recovery is still fragile and uneven. Most countries in South Asia are still far behind reaching pre-pandemic economic levels.
In June's budget, the government estimated growth to be 7.2 percent, and in September the Asian Development Bank (ADB) said it would be 7.8 percent.
"The pandemic has had profound impacts on South Asia's economy. Going forward, much will depend on the speed of vaccination, the possible emergence of new Covid variants, as well as any major slowdown in the momentum of global growth," said Hartwig Schafer, World Bank vice-president for the South Asia Region.
"While short-term recovery is important, policymakers should also seize the opportunity to address deep-rooted challenges and pursue a development path that is green, resilient and inclusive."
"The surge in official remittance inflows is unlikely to persist if the net outflow of migrant workers slows in FY22 [21-22] and use of formal payment channels declines as travel restrictions are eased."
"Revenue mobilisation will be supported by ongoing policy and administrative reforms to VAT and income tax, while higher capital expenditure on infrastructure megaprojects is expended to increase public expenditure."
Sustaining the economic recovery and further reducing poverty will depend in part on mitigating economic scarring through targeted support to vulnerable households and businesses, the WB report said.
It however said the risks to the outlook persist. Fiscal risks include weak domestic revenue growth if tax reforms are delayed and higher Covid-19 related expenditure.
"In the financial sector, contingent liabilities from non-performing loans combined with weak capital buffers could necessitate recapitalisations of state-owned banks and depress credit growth."
It said the external risks remain elevated -- while demand for RMGs appears to be stabilising, the recovery is fragile.
Demand for Bangladesh's overseas workforce in the Gulf region may also be affected by the ongoing recession in that region, impairing future remittance inflows, it added.