Some indicators of the Bangladesh economy have started to show positive signs in the recent period. Among those are remittances and exports of readymade garments (RMG), which were affected hugely since the outbreak of Covid-19 in Bangladesh in March 2020. Both these sectors are important sources of employment and foreign exchange income for the country. These two sources are important transmission channels of pandemic-induced impacts on the economy.
Before the pandemic, remittances registered a robust growth of 21.5 percent during July to February of fiscal year (FY) 2020. As soon as the pandemic hit the world, Bangladeshi workers started to return to the country. Outmigration of workers also stopped. This created much concern regarding the flow of remittances into the country. Surprisingly, remittance inflow has increased significantly in recent months, which is even higher compared to the last fiscal year. The amount of remittances sent by Bangladeshi migrant workers was USD 2.6 billion in July 2020, compared to USD 1.6 billion in July 2019. Similarly, in August 2020, remittance inflow was USD 1.96 billion as opposed to USD 1.44 billion in August 2019. This increase has happened when the number of workers going abroad has slowed down noticeably. Although most of the workers returned to the country in the first two weeks of April 2020, the flow of returnee migrants still continues.
Several explanations for this unprecedented increase of remittances have been offered. It is not uncommon for overseas workers to send more savings back home during a crisis. This is mainly for two reasons. First, they want to help their families during economic hardships. Second, since many workers have to return home and there is no guarantee of going back to their jobs, they bring back all their savings. There may also be other reasons. For example, the unofficial route of sending money to families may have been disrupted during Covid-19. So, remitters are resorting to banks for sending money. Whatever may be the reason, the increased flow of remittances at a critical time such as the pandemic has been a respite for the country.
As for the RMG exports, the pandemic has severely hurt the global demand for clothing. Hence, global apparel buyers either suspended or canceled orders from Bangladesh during April-May 2020. This was equivalent to USD 3.18 billion. RMG exports declined to USD 374 million in April 2020, which was more than 85 percent lower than April 2019.
It is now reported that most of those global brands are returning and reinstating their orders. According to the Bangladesh Garment Manufacturers and Exporters Association (BGMEA), the growth of RMG exports in August 2020 compared to that of August 2019 was 2.58 percent. As economies across the world have started to open up, Bangladesh's total exports also grew in August 2020. This is mainly due to increased apparel exports. It is expected that Christmas will improve the demand further, since around 62 percent of total RMG exports goes to the EU market and about 21 percent goes to Canada and the USA.
The gradual comeback of the Bangladesh economy is reassuring. If this trend continues and sustains, Bangladesh will probably stand out as one of the most resilient countries to bounce back early from the negative consequences of the coronavirus crisis. The pandemic has undoubtedly impacted the country in many ways, as it has impacted the world. It has slowed down the growth momentum that Bangladesh has been experiencing during the last few years. Many people who had graduated from poverty in the last decades have fallen into poverty again. The pace of poverty reduction in the country has been hampered, unemployment has increased and the employment of about 1.5 crore people is at risk. Inequality is also expected to increase due to income and employment loss of the poor in the face of the pandemic.
While the challenges due to the pandemic are multi-pronged, the efforts of the government of Bangladesh to deal with these difficulties are also noticeable. The government has undertaken a number of crucial and timely measures to tackle the negative impacts of the pandemic. The coronavirus outbreak has created pressure on the fiscal framework of Bangladesh, which is still a least developed country (LDC) with an average per capita income of USD 2,064. Health measures needed additional resources. The affected economic sectors also had to be supported through financial resources. This has been difficult, since domestic resource generation could not be accelerated due to subdued economic activities. In this backdrop, a number of factors have helped the government to manage the fiscal stress, to some extent, during the ongoing pandemic.
First, stimulus packages equivalent to over Taka one lakh crore or 3.7 percent of Bangladesh's Gross Domestic Product (GDP) have been provided, mainly as credit support from commercial banks. The central bank of the country created liquidity space for the banks through a few monetary tools. It had reduced the cash reserve ratio (CRR) and increased the advance-deposit ratio (ADR) so that the banks can extend loans to the affected sectors. The government also provided interest subsidies by sharing half of the interests to be charged by the banks. This way, the government entrusted the commercial banks to take care of almost 82 percent of the total stimulus packages.
Second, the government has streamlined public expenditures. In recent years, Bangladesh has been implementing several large infrastructure projects that would help the country advance further. However, keeping the resource stress in mind, relatively less employment generating and less urgent projects have been deferred.
Third, imports saw a decline. Lower import payments have also helped to manage fiscal stress, since total imports declined by 19.4 percent in July 2020 compared to July 2019. A large amount of import payments have been deferred or delayed due to Covid-19. At the same time, lower global prices of petroleum have helped Bangladesh to save expenditures on petroleum imports.
Fourth, agricultural harvests have been very good in Bangladesh, despite the pandemic. The growth of Aman rice production was higher in FY2020 than in FY2019. Bangladeshi farmers have also gifted the country with other agricultural products, which has been a respite for the government.
Fifth, a number of international agencies and development partners have come forward with assistance exclusively to tackle the economic fallout from the coronavirus pandemic. The government has received around USD 2 billion as budgetary support from them. In FY2020, disbursement of foreign assistance increased to USD 7.2 billion, compared to USD 6.5 billion in the previous fiscal year. Budget support was provided by the Asian Development Bank, Asian Infrastructure Investment Bank, International Monetary Fund and World Bank.
Due to the above initiatives and circumstances, Bangladesh has been able to reduce the pressures from the pandemic to some extent. However, the road to recovery from the devastating impacts of the coronavirus will be longer. It is still uncertain how long the pandemic will last and when the vaccine will be available to all.
Besides, Bangladesh's economic revival will also depend on how other countries manage the pandemic and how they recover from their own economic shocks. As the Bangladesh economy is integrated with the global economy, the pace and sustainability of Bangladesh's recovery from the impacts of the pandemic will depend on external factors to a large extent.
Dr Fahmida Khatun is the Executive Director at the Centre for Policy Dialogue.
Views expressed in this article are those of the author and do not necessarily reflect the position of the organisation she works for.