Bangladesh economy regenerates

Bangladesh continues to surprise the development watchers even during this pandemic. Despite COVID-19 infections persisting, there are visibly ample 'green shoots' in Bangladesh's economic recovery landscape. In many ways, the country appears to be a 'contrarian' even in this world of recovery. The Bangladesh story is yet to be told. It is still unfolding. An incredible story indeed. While the global economy is feared to shrink more than 5 per cent this year, Bangladesh economy is expected to grow 8 per cent-plus this fiscal year. ADB has projected it to be 7.8 per cent for 2020 and 8 per cent for 2021. A number of economic and social indicators indicate that the country may have already passed the worst part of the storm and is on its way to sustainable recovery. Both macro and micro indicators are pointing out that substantial progress has already been made by its economy despite persistence of the corona virus infections and subsequent deaths. There has certainly been a spike in the level of poverty including the extreme poverty. However, the government moved pretty fast in taking a number of fiscal measures to provide enhanced food relief and expanded social protection including temporary cash support. Simultaneously, it worked closely with the central bank in flooding the money market with enough liquidity by taking a number of quantitative and qualitative regulatory easing measures. Besides reducing bank and policy rates it also allowed increase in advance to deposit ratio for the banking sector. Also the central bank bought aggressively the treasury bonds from the secondary market and forced the yield of the six-month Treasury bills to go as low as 4.48 per cent recently from 7.34 per cent in just three months. The yields of other bills and bonds have also been coming down consistently due to central bank intervention. In addition, the inter-bank rate has also been coming down.

All these have forced the banks and financial institutions to go for investing on the private sector entrepreneurs and hence the private credit growth has recorded 9.2 per cent in July'20. This rate of growth is as good as that in January'20. This may have been made possible due to a number of stimulus packages declared by the government in coordination with the central bank. These include low cost loans with rates of interest heavily subsidised for large industrial and service sectors (Taka 33,000 crore), cottage, micro, small and medium enterprises (Taka 20,000 crore , half of which will get refinance from the central bank),  refinances for the farm sector (Taka 5,000 crore), underprivileged businesses and firms through linkage programs with Micro Finance Institutions (Taka 3,000 crore which can be revolved) and pre-shipment credit (Taka 5,000 crore). In addition, the Export Development Fund has been raised by 1.5 billion USD to five billion USD. A number of measures have been taken in easing the rescheduling of loans and extending the tenor of loans, both in foreign exchange and domestic currencies. The dominant export earning sectors including RMGs have been given special stimulus like working capital support from the central bank just at a rate of interest of just two per cent to pay three months' salaries to the workers. The EU has come forward to give wage support to those factories which have been either closed down or laid-off. This package may be announced any time by the government.

The bold initiatives taken strategically by the government and the central bank have already started yielding positive results. As told earlier, the private sector credit growth has already picked up. Public borrowing has increased by 51.35 per cent in July 2020 compared to that in July last year. I must appreciate Bangladesh Bank in coming out of its usual shell and providing this support to the government to keep the boat floating by expanding its own balance sheet in the face of dwindling revenue earning due to economic slowdown. The real economy has also started responding positively. For examples, Balance of Payment (BOP) has already come of red zone riding on healthy growth in remittances (+62.7 per cent year-on-year this July) and falling imports (19.42 per cent in this July year-on-year). The current account balance has also turned positive by a surplus of USD 1.965 billion. Exports rose by 0.84 per ent in this July year-on-year. Most of the RMG enterprises are getting back their sale orders to meet the consumer demand around the Christmas. All this helped reduce the trade gap to USD 86 million this July compared to USD 1.061 billion same time last year. At the end of the day, overall balance has increased by USD 1.1 billion forcing Bangladesh Bank to buy foreign exchange from the market to stabilise the exchange rate leading to substantial increase in our foreign exchange reserve. In the process more liquidity has been injected into the market. A number of other indicators are also signaling that the economy has been making desired turnaround. The financial inclusion indicators have also been very encouraging. The Mobile Financial services have transacted Taka 62,000 crore in last July which was 40.5 per cent higher than that in this June and 68 per cent higher than June last year. The number of MFS active account increased 27.46 per cent to 4.27 crore in July year-on-year. Agent Banking which is mostly catering to the needs of small rural businesses have already registered a 115 per cent year-on-year growth in opening of accounts (a total of 7.4 million) at the end June this year. The last three months up to June alone witnessed 13.25 per ent growth in accounts. Deposits grew by 93.40 per cent to Taka 10,220 crore during the last fiscal year. The Loan disbursement witnessed 203 per cent growth to Taka 720 crore. The Digital Financial Inclusion has been playing a significant role in providing relief and social protection in addition to broad-based financial services to the small businesses for a sustainable recovery in Bangladesh.

However, we still have many more miles to go. In particular, the uncertainty over fully suppressing the corona virus till a credible vaccine is available is still on. The economy may not be fully operational until we have reached that point of inflexion. The informal sector including the services units will have to cross many more hurdles before reaching the pre-Covid-19 position. So both government and the central bank must remain alert if they were to inject more money to create more demand in the economy. In particular, the rural entrepreneurs including the return migrants deserve more stimulus support. The educational institutions are still not opened. There is no question of senior citizens coming out of their dens in the face of the invisible enemy called COVID-19 virus. However, the quality of health management of COVID-19 patients has significantly improved and our frontline soldiers including health personnel have been showing their courage and resilience in the face of this sudden attack of the unknown virus. While some of the younger population still tend to ignore health prescriptions, most of the office-goers and working population are taking sufficient health measures while coming out of their homes. On the whole, the business confidence is gradually regaining and the disrupted supply chains of agricultural and manufacturing products have already been reframed. As a result, Bangladesh economy has started demonstrating its resilience. And hence the turnaround. One must give well-deserved admiration to the strong leadership provided by the Hon'ble Prime Minister to keep the economic boat floating despite many hurdles including the stubborn presence of infections. This was not an easy choice for her. She took a calculated risk and maintained the fine balance between lives and livelihoods. And this has been paying Bangladesh well compared to her many peers. Thanks to the resilient agriculture which provided the initial strength for the nation to remain hunger-free even during this pandemic. Hats-off to our hard working farmers. The early investment in agriculture by the government made this possible. She was equally mindful of the overwhelming climate challenges and concentrated on desired adaptation plus mitigation wherever needed. Of course, a number of marginal and lower income groups had to struggle hard to adjust to this new normal situation. Even many of the middle and lower middle income groups who were dependent on house rent, incomes from small shops and jobs in the informal sectors had to go through unprecedented ordeals. Indeed, this ordeal is still not over. A huge number of people just above the poverty-line slipped back to the poverty trap. The poor became even poorer. The number of extreme poor increased drastically. However, the bold initiatives taken by the government and the central bank with hefty stimulus packages and social protection related fiscal support at an early stage of the pandemic helped regain the business confidence of many of the entrepreneurs, particularly export-earning manufacturing units. We still have to do a lot for the cottage, micro, small and medium enterprises who are struggling to come back to businesses. Many of them may have already closed down. Others are awaiting the support from the stimulus packages created for them which ought to be implemented as fast as possible. Say for example, only Taka 1.1 crore has been disbursed from the pre-shipment related stimulus package of Taka 5,000 crore. The small entrepreneurs involved in washing, dyeing, printing, labeling and many other backward linkage industry closely related RMGs sector deserve this stimulus. Together these units employ more than five million skilled and semi-skilled workers. But they are now cash-starved and need immediate support to keep the RMG sector moving as well. Similarly, about BDT 4,120 crore has been disbursed among 46,000 CMSME entrepreneurs out of the total package of Taka 20,000 crore. Same is the story with the farm sector which has received only about 20 per cent of the package targeted for them. On the other hand about 73 per cent of the stimulus package meant for the large industrial units have already been disbursed.

The challenge, however, remains how to take advantages of these emerging opportunities and help the small businesses owned mostly by our young entrepreneurs. They need support in terms of skilling, reskilling and, of course, easy access to finances. The financial sector must come out of its 'large-bias' and focus on these small and medium entrepreneurs who still provide bulk of the employment. They must learn how to 'kiss' the base of the pyramid. Indeed, the small enterprises are central to our fast-track recovery of the economy. Also we must encourage our young entrepreneurs and as well as the financial institutions to push for the green recovery so that our commitment for reduced emission of carbon and better adaptation to climate changes remains in the fore-front. And this is all the more necessary in the context of the findings of recently published Social Progress Index by Washington based non-profit think-tank Social Progress Imperative. The Report says despite impressive over-performance of Bangladesh in many crucial indicators like child mortality, maternal mortality, gender parity in secondary attainment, access to online governance, access to essential services, life expectancy at 60, quality weighted universities and years of tertiary schooling etc., those related to environment including air pollution are underperforming. And there is a widespread belief (as indicated by a well done recent research over hundred plus countries by Enamul Haque and his time at the East-West University) that corona virus finds a fertile ground in a place where air pollution is very high. Hence the need for a green recovery. So we need to learn from nature and try to nurture it in our quest for sustainable recovery.

 In order to see if all this are happening or not and if the money is going to the base of the pyramid. There is no alternative to a robust and transparent multi-stakeholder monitoring of the well-intentioned stimulus packages to accelerate their desired implementation. Development of a digital dash-board using better management of data generated and processed by artificial intelligence including block-chain technology could indeed be a smart move to watch the pace of recovery. The money must reach the real economy at any cost.

Dr. Atiur Rahman is Bangabandhu Chair Professor, Dhaka University and

former Governor of Bangladesh Bank. [email protected]