The Financial Express

A reality check to the buzz of economic success

| Updated: December 29, 2020 22:14:58

A garment worker wearing a protective mask returns from a workplace as factories reopened after the government has eased the restrictions amid concerns over the coronavirus disease (COVID-19) outbreak in Dhaka, Bangladesh, May 4, 2020 — Reuters/Files A garment worker wearing a protective mask returns from a workplace as factories reopened after the government has eased the restrictions amid concerns over the coronavirus disease (COVID-19) outbreak in Dhaka, Bangladesh, May 4, 2020 — Reuters/Files

The world economy is reeling from the Covid-19 pandemic, but by and large, as data shows, Bangladesh is an exception –the pandemic has the least effect on its economy compared to others’. Achieving 5.24 per cent GDP (gross domestic product) growth, surpassing a big economy like India in terms of per capita GDP, topping the list of denim exporters in the US market – all have come in this time of the pandemic.

GDP growth rate

Bangladesh attained 5.24 per cent GDP growth and saw its Gross National Income (GNI) per capita rise from USD $1,909 to $2,064 in the last fiscal year, 2019-2020. While the International Monetary Fund (IMF) and the World Bank (WB) have this fiscal year predicted only 4.4 per cent and 1.6 per cent GDP growth respectively, these numbers are still impressive. But these numbers do not necessarily show the real picture of the country.

A study by Bangladesh Institute of Development Studies (BIDS) reveals a shocking statistics that more than 16 million people slid down below the poverty line. A research by a2i suggests around 20 million people lost jobs across 11 high-impact sectors. Even an additional 5.5 million people will lose their jobs by the end of the year.

SME, transportation, construction, hospitality, furniture, leather all have suffered heavily with the RMG (ready made garments) sector being at the centre. A global lockdown triggered by the pandemic at the earliest hit the RMG sector hardest leading to its USD 3.0 billion worth of work orders being cancelled and thus leaving its nearly 4.1 million workers’ livelihood in disarray.

A report published by the Clean Clothes Campaign has pointed out that despite a stimulus package from the government many workers received 29.5 per cent lesser wages in March to May of this calendar year. This particularly shows a non-inclusive recovery pattern.

So the question may naturally arise how on earth Bangladesh could achieve such GDP growth.

Record-setting remittance

The answer lies in the record-setting remittance sent by Bangladeshi expatriates despite all the odds caused by the pandemic across the world. According to Zaid Bakht, a former research director of Bangladesh Institute of Development Studies (BIDS), Bangladesh is still achieving such high growth, owing to its agro-economy and remittance from abroad.

Outshining India’s per capita GDP

The IMF has forecast India’s GDP per capita lower than that of Bangladesh. In its 2020 world economic outlook report, the global lender projected India’s GDP per capita to reach $1877 and Bangladesh’s to touch $1888 in FY2020. From a numerical standpoint, this does not seem much, but it bears a massive significance for both the countries.

Bangladesh, even as an emerging economy, was always far behind India, its closest neighbour, in terms of per capita income. Even though it was a converging trend, the pandemic provided the final push putting Bangladesh ahead of India. The IMF report suggests that India’s economy will shrink by 10.3 per cent by FY2021 due to intensive Covid lockdown.

Here the metric used for the comparison – GDP per capita valued at average exchange rate – is itself under fire,  as the exchange rate of the respective countries is somewhat managed and the population data from both countries is irregular. Arvind Subrimanian, former chief economic advisor to the government of India, told the Economic Times that GDP per capita measured on purchasing power parity, which takes into account the real cost of consumptions or cost of living in a country, is a better metric, not the one that is buzzing.

The same report from IMF shows that India’s FY2020 GDP per capita adjusted for PPP stands at USD 6,284 while Bangladesh’s is way behind at USD 5,139. That means Indians still enjoy a better living standard than Bangladeshis do. Even at this current measure of GDP per capita measured on the exchange rate, India is set to overcome Bangladesh by USD 41 per person by the next fiscal year of 2021, when their economy is likely to start recovering from the shocks of the pandemic. It is almost safe to say that India should not worry about Bangladesh going above them in terms of per capita GDP income. And Bangladesh should not either bask in the pool of glory through this type of statistics because the reality is different.

RMG tops US market

Recently, Bangladesh has surpassed all to reach the top of the list of denim exporters to the US. According to the US Department of Commerce’s Office of Textile and Apparel (OTEXA), Bangladesh has exported USD 190.14 million worth of denim products to the US market. While we saw the sector witness huge shocks with numerous job losses and work order cancellation, this OTEXA data raised eyebrows.

The underlying explanation is a bit different. Mexico, the previous leader in this particular category, has entered a deal with the USA, which makes their denim export to the US come down almost by a half to USD 184.9 million. A longstanding global leader in export, China too had a production decline and the ongoing trade war disrupted their denim export. On the other hand, Bangladesh’s denim export actually declined from USD 247.82 million during the same period last year.

What do the facts and figures mean?

They all paint a picture of hope – better economic situation and better standard of living for people even in this time of pandemic – but they do not reflect what are implicit in the statistics.

Bangladesh has in the past set an example in reducing poverty. The poverty reduction rate had started to decline even before the pandemic. But the situation became worse during the pandemic when poverty increased by almost 11 per cent from the previous year. According to data from the General Economic Division (GED) of the Planning Ministry, the poverty rate in the country has jumped to 29.4 per cent from an estimated 18.8 per cent pre-pandemic poverty rate. The urban areas were the worst hit with 34.8 per cent poverty. The GED indicated that extreme poverty too has risen from 10.5 per cent in FY2019 to 20.5 per cent in 2020.

So this crisis is no time to glorify the economic growth achieved on the back of loosely imposed lockdowns. It is the time to plan for a post-pandemic world, where every country will desperately fight for their position in the global economy. And you may ask whether Bangladesh can fare well then. Of course Bangladesh can do it, only if there are good policies and their proper implementations.

Sheikh Tausif Ahmed is a third year student of economics at Dhaka University. He can be reached at [email protected]

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