The Financial Express

Covid-19 -- the need to find a turning point

Covid-19 -- the need to find a turning point

There is general agreement that the way of life throughout the world has changed since the advent of the COVID virus. It has evolved to a point where many socio-economists tend to identify this as a present which will be transforming the future in more ways than anticipated.

There is, however, consensus that there is one least common denominator -- that of a sense of being together -- as most people tend to think that they are facing a common challenge. This in turn is releasing within the world population a lot of creative energy. Digitalisation has added to this paradigm and accorded a social facilitation to the process. From this point of view we appear to have become interdependent along with our increasing vulnerability.

This has led Herman Van Rompuy to assert that "the basic function of the State, to protect the life and limb of its citizens, is back to the fore". In most countries they are now trying to formulate monetary and budgetary policies aimed at working together in one direction. This is particularly true in the case of policy formulators who now have to balance between austerity and required investment that will shore up sensitive sectors. One such sector that has correctly drawn everyone's attention in terms of priority is the health sector.

In this regard one needs to remember that the overall impact of national fiscal stimulus measures is much greater when taken in a coordinated manner.

An excellent example of such coordination can be noticed within the European Union-- something which the South Asian countries need to understand. Unfortunately, SAARC does not have a functional Central Bank which could have made a major difference in this current situation.

The European Central Bank (ECB) has been proactively doing all it can. It needs to be mentioned here that this is not the first time that they have taken on this onerous role.  Their new Pandemic Emergency Purchase Programme (PEPP) will have an overall envelope of Euro €750 billion. The central bank will do whatever is necessary, within its mandate. It is trying to increase the size of its asset purchase programmes and to adjust their composition, by as much as necessary and for as long as required-- based on European coordination and solidarity. Such an effort will be bolstered by the fact that the European Union will rely on its three existing new EU safety nets (ECB, EIB, EMS) which all add up to around half a trillion Euros.

The course of action being pursued in the EU only makes one wish that there was such empathy in the context of our region.

It has to be understood by all affected countries around the world that the pandemic is a global phenomenon, which requires most certainly a higher level of international cooperation.

Unfortunately, this has not been very apparent. We have seen how the G20 Finance Ministers could not agree on a joint text a few weeks ago because the current administration in the USA insisted that China should be blamed for the current crisis. Regrettably, the G20, according to many economists, has definitively become an empty box. Many had already downgraded this discussion forum beforehand. Several strategists have also asserted that the current manner in which the G20 is functioning is far removed from the original idea of a global policy centre.

It may be mentioned that the concept of G20 has slowly eroded since 2008. It does not possess today the same flair it had before. The Paris Climate Conference (December 2015) was probably the last brilliant spot in multilateralism.

We all need to understand that in the near future the world will have to deal even more with exogenous developments, such as climate change and pandemics. The devastating fires in Brazil and Australia and the COVID-19 pandemic should teach us that exception is slowly becoming the rule. It should not be difficult to comprehend that crises in principle are not just endogenous, specific to our individual economic, political or societal systems. Disruptions are also not just technological, like the digital revolution. Disruption exists at all levels.

The parameters of our vulnerability are gradually becoming more diverse. However, this does not mean that we will feel more insecure. If we work together inside our countries and also within our sub-region and region, we can definitely overcome the budding challenges. We will need solidarity and the ability to rise above political differences.

We in Bangladesh have been seriously pre-occupied with various facets pertaining to the possible future economic and financial outlook of the country. Earlier this month, the World Bank projected that the economy would grow at just about 1 per cent in fiscal 2020-21, and the International Monetary Fund 5.7 per cent. The Asian Development Bank, on the other hand, appears to be rather certain that Bangladesh's economic recovery from the coronavirus-induced downturn would be V-shaped.

The Manila-based lender in its Asian Development Outlook Supplement (ADOS), which was unveiled recently, has noted that the country would grow at 7.5 per cent next fiscal year that begins on July 1, helped by strong manufacturing. It has, however, been noted that coronavirus has hit export earnings and remittances, and both have fallen sharply in March and April.

Our government, as we all know, has been even more optimistic holding out for an 8.2 per cent growth in the next fiscal year. This fiscal year, the Bangladesh economy would grow at 4.5 per cent, the highest in Asia, according to the ADB, again closely trailing the government's projection of 5.2 per cent. As per the IMF's projection, growth would be 3.8 per cent, and as per the WB's projection, just 1.6 per cent.

It has also been predicted that in fiscal 2020-21, Bangladesh's GDP growth might be the second-highest in the continent, lagging behind only the Maldives, which would grow by 13.7 per cent if the pandemic peters out. Interestingly, it has also been pointed out that as many as 33 economies in Asia would post negative growth in fiscal 2019-20.

It has also been noted by the ADB that India, the largest economy in South Asia, might contract to 4 per cent in fiscal 2019-20 before rebounding to 5 per cent in fiscal 2020-21. It has also been suggested that in Bhutan, GDP growth will be around 2.4 per cent in fiscal 2019-20 before falling to 1.7 per cent in fiscal 2020-2021. In Nepal, the growth in fiscal 2020-21 is projected at 3.1 per cent. The Pakistan economy is projected to contract by 0.4 per cent in fiscal 2019-20 and subsequently grow by 2 per cent in fiscal 2020-21. Afghanistan is expected to contract by 4.5 per cent in 2020. Maldives's economy is expected to contract by 11.3 per cent in 2020. Sri Lanka's forecast for 2020 has been downgraded to contraction by 6.1 per cent. However, it has also been noted that if the pandemic dissipates in 2021, these three economies might rebound in their growth.

In the meantime, it is heartening to have been informed that China has given duty-free access to 5,161 more Bangladeshi products wanting to enter the Chinese market. Bangladesh will enjoy this duty holiday from July 1. Bangladesh will enjoy this facility from China as a member of the Least Developed Country (LDC) grouping. It may also be noted that Bangladesh already enjoys duty free access for 3,095 products under the Asia Pacific Trade Agreement (APTA). The Tariff Commission of State Council of China has apparently already issued a notice in this connection.

One cannot ignore another significant step that has been undertaken only a few days ago by the Bangladesh Bank (BB) which has correctly stepped in to halt a very unfortunate decision taken a few days earlier by the Bangladesh Association of Banks (BAB), a forum of bank sponsors, instructing the banks to cut the salaries of staff who draw a gross salary of more than Tk 40,000 monthly by 15 per cent. The BAB, it is presumed, recommended banks to go for the pay cut for the period of July 1 this year through to December 31, 2021 as well as suspend promotion, increment and incentive bonus and put a freeze on all sorts of hiring including ongoing hiring. The Bangladesh Bank (BB) has stepped in and asked the Chief Executive Officers and Managing Directors of banks to ignore the BAB notice. In another notice issued by the Bangladesh Bank, the BB has asked Banks' Chief Executives to take 'all required measures to regenerate and play a constructive and proactive role in implementing the government-announced Tk 103,000 crore stimulus package for revival of the coronavirus-battered Bangladesh economy.

It is understood that the banks will be expected to use their own funds to provide the required working capital support of Tk 20,000 crore to the affected cottage, micro, small and medium enterprises, and Tk 30,000 crore to industries and service sectors. This will also be supported by the government who will be expected to bear a portion of the interest of the funds.

One can conclude by mentioning that in Bangladesh we are trying to replace fear with hope. One also needs to be confident that we will succeed.

Muhammad Zamir, a former Ambassador, is an analyst specialised in foreign affairs, right to information and good governance.

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