From lockdown towards opening up the economy
All indications in the past few weeks give an impression that the country is turning around. Economic activities have been picking up fast after a prolonged lockdown of about four months. Couple of quantifiable progress indicators in this respect are: higher export of ready-made garments and increased flow of foreign remittances, in the last three months. We can also observe a sizeable movement of people back to the cities and increased traffic on the roads. Government offices, banks and private offices are almost functioning normally now. In residential neighbourhoods, more and more "To-Lets" are being removed from buildings as owners are finding people to rent out their houses again.
In the midst of a global slowdown, one vital question is, can Bangladesh stand out and ride on a positive growth path over the next nine months? The question is pertinent because South Asia's economy as a whole is predicted to contract by 2.7 percent. It is however promising to note that whereas the government expects GDP growth to be in the vicinity of 5 percent in the current financial year, the Asian Development Bank forecasts a GDP growth rate of 7.5 percent.
What are the economy's drivers at the moment? In the first three months of this financial year, the signs in case of the main growth drivers which are agriculture, RMG exports and remittances are encouraging. But it is still difficult to predict if the same momentum will continue over the next nine months. If it does, that is well and good. The two major export destinations of our garments which are Europe and North America, are set to grow at minus 4.7 percent and minus 3.5 percent, respectively. So there is a big risk there.
The BGMEA claims that garment factories are almost back to operating normally and according to its own survey, at the end of August, only 113 factories laid off 51,500 workers. It is difficult to say due to data constraints how many workers were laid off at the peak of Covid-19 induced shutdowns in March-June period. The figure that was quoted was one million workers lost their jobs but this number was contested by the BGMEA—which thought it was much lower than this number.
In case of foreign remittances which picked up in the month of June, 2020, its sustainability is again to be cautiously observed in the coming months. While remittances rose to USD 1.83 billion in June, USD 2.6 billion in July, it went down to USD 1.96 billion in August. Remittance contributes to 6 percent of Bangladesh's GDP. The crude oil market is down. As of September 28, the global crude oil price was USD 41 per barrel. This has an obvious link with the regularity of salary payment of workers in the oil producing middle-eastern countries where 80 percent of Bangladeshis are working—and are mostly engaged in low-paid jobs. After paying for food and house rent, many workers are left with little to remit back to the country. Historically speaking, there has been a positive correlation between oil prices and per capita remittance flow to Bangladesh.
The health of our local economy, in a big way, is dependent on the three major economic drivers mentioned above. If agricultural production falls, garment workers are laid off due to weak international demand, and remittance flow comes down due to low oil prices, the likely effect is low overall consumer demand, higher poverty level and a cyclical impact on other sectors. As we have seen, the three major growth drivers are showing early signs of recovery, another important sector for the country which is the service sector, is still to show promise of a turnaround. Private sector housing, tourism and hospitality, public construction and maintenance of roads and buildings, are yet to recover from the shocks of the pandemic.
It was generally perceived to be a good decision to lockdown the country from end March to June, 2020. Also, it makes sense now to open up the economy, as has been observed since July that the pandemic has not caused any significant havoc despite widespread economic activities being pursued. For the government, there was no option other than cautious and gradual opening up on all fronts, except in the education sector as yet, to resume the cycle of growth. There is no doubt, however, that there is a cost to bear due to the opening up of the economy.
The total number of confirmed official Covid-19 cases in Bangladesh till September 28 was about 362,000. This translates roughly to one affected person per 460 population. No doubt, the number of affected persons increases every day. The work-days lost by 362,000 persons so far, with an average medically required minimum quarantine period of two weeks, comes to 5.07 million man-days. Although it is difficult to put a monetary value to the lost work-days, taking the average USD 2,064 annual per capita income as a measure of convenience, the total loss of income incurred by these people comes down to USD 29 million. This amount, if a rule of thumb calculation applied, as a percentage of total annual exports in 2019-20, comes to 0.86 percent which is less than one percent. If we do this calculation for the total GDP of the country, the total loss of income will be about 0.08 percent only.
From the above calculation, we can make a strong justification in favour of opening up of the economy in full, which would save us from the scourge of unemployment and poverty, which Bangladesh as a developing country cannot bear for an extended period of time. It is hoped that with more and more sectors fully opening up, the possibility of the economy reaching its full potentials will be achieved in the remaining nine months of the current fiscal year.
Dr Nawshad Ahmed is an economist and urban planner.