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The Financial Express

Pandemic and the test of economic growth  

Asjadul Kibria   | Published: May 14, 2020 22:39:52 | Updated: May 14, 2020 22:43:46


Pandemic and the test of economic growth   

While it is undisputed that consistent higher economic growth helps countries to reduce poverty and improve lives of the people, it is also well recognised that such progression doesn't happen automatically. Economic growth needs to be geared in a way so that it gradually becomes resilient. It also needs to be distributed as evenly as possible. The intrinsic vigour of economic growth, and for that matter the economy of a country, is thus largely reliant on these two factors.

Growth is generally expressed by the annual rate of expansion of Gross Domestic Product (GDP) which measures the output of goods and services in an economy every year. It may also be expressed in terms of income and spending. Growth rate thus simply indicates the quantitative expansion of economy, not the qualitative aspects of economy and its greater development dimension.

Nevertheless, poor or under-developed countries usually take growth-centric development approach to advance the economy. The idea behind such an approach is that continuous economic growth creates job opportunities and wealth. By absorbing more people in the job market, it is possible to reduce poverty and hunger gradually. In this process, growth brings prosperity in the long-run.

Growth-centric development model, however, does not always bring desired benefits as there are many 'ifs' and 'buts'. From growth generation to growth distribution, there are alternative modes and paths. The right choice of the modes underscores the affect of growth on the economy and the people.

Many countries including Bangladesh adopt growth-centric development model. The successes of some of them including Bangladesh in terms of persistent economic growth are impressive no doubt. Just a decade ago, the annual average growth rate of the country's GDP was below 6.0 per cent. The rate, however, crossed 8.0 per cent benchmark in the last fiscal year (FY19). During the decade, the size of the economy, the GDP to be precise, increased more than three times and crossed $300.0 billion level from around $100.0 billion. Per capita income also increased to $1,909 in FY19 from $928 in FY11. The government projected that GDP growth rate in the current fiscal year (FY20) would be 8.20 per cent and per capita income, in terms of per capita Gross National Income (GNP), would cross $2000.  

The outbreak of the deadly coronavirus, however, has shattered the expectations. It now seems that retaining even 6.0 per cent growth will be difficult as the spread of the virus has forced to cut down a number of major economic activities drastically and also stop other activities in Bangladesh. In fact, the drastic fall in economic growth is now a global phenomenon. Some countries are even going to face negative growth or economic contraction due to the spread of the virus. Projections of the International Monetary Fund (IMF) showed that majority of global economies would contract in the current year and growth in the Asia-Pacific region may hit the lowest since the 1960s.

The IMF and the World Bank also made very pessimistic growth projections for Bangladesh. IMF projected that the economy would finally grow by only 2.0 per cent in the current fiscal year while the World Bank projected it below 3.0 per cent. Country's policymakers, however, strongly differ with such projections. Finance Minister AHM Mustafa Kamal dismissed the World Bank's forecast arguing that the GDP cannot crash-land since the economy is on a strong footing except for export growth during the first eight and a half months to March 15 this year. He also told news media that it is not possible to make growth rate projection without having some data and facts of the negative impact of coronavirus. Acknowledging that the global economy is in bad shape, he further argued that 'it does not mean Bangladesh's economy will crash to the level' projected by the World Bank.

Many economists and experts, however, think that such projections are not very unrealistic. Policy Research Institute of Bangladesh (PRI), in a policy brief on cash transfer last month, said: "Even if the government's claim of 8.0 per cent growth in the first 8 months of FY20 is accepted, a conservative assessment of a negative growth of -9.0 per cent for the remaining period will yield an overall growth 2.25 per cent for the entire fiscal year." Again, some other economists think that overall growth rate may decline by 2.0 to 3.0 percentage points from the government projected 8.20 per cent. Dr Bazlul Haque Khondker, chairman of South Asian Network on Economic Modelling (SANEM), in an analysis showed that 'economic growth may settle somewhere between 5.0 per cent to 6.0 per cent' in FY20.

The vulnerability of the current growth structure in Bangladesh and  many other countries are thus clear from the ongoing crisis. Growth rate in India may fall below 2.0 per cent and even the country may see zero growth, according to different international projections. Once branded as a success story, Indian economy has already been in slower growth path since 2016 when the country achieved record 8.20 per cent GDP growth. India's growth-centric model of development is yet to reduce the poverty, hunger and inequality at an optimal level.   

The vulnerability of growth is also reflected in the weak nature of resilience in Bangladesh. Immediately after the announcement of lockdown in the form of public holidays to contain the spread of virus, it becomes visible that millions of low-paid workers and their families have very little or almost zero savings to survive for a couple of weeks. The growth-obsessed development is yet to provide even one-fourth of the jobs in the formal sector. Currently, 85.0 per cent of the labour force is in informal sector. Even many jobs in the formal sector are also vulnerable. The ready-made garments (RMG) industry is a good example. Despite being the largest export-oriented sector and enjoying a number of government incentives, workers in this industry are facing job cuts. The industry owners are even not ready to pay full wages for the month of April.

To assist millions of poor and marginal people, the government has started providing food relief. It has already faced some setbacks due to weak distribution, inadequate allocations and irregularities.  Economists have also suggested providing direct cash assistance to these people using mobile financial services. PRI recommended that the government should create an unconditional emergency cash allowance programme (ECAP) for the households that are in dire need and give each household Tk 3,000 per month to meet the basic minimum needs. The think-tank also estimated that such a programme, covering 12 million households or about 50 million population, will cost Tk 108 billion or 0.36 per cent of GDP for a three-month period.

The government has, however, decided to provide Tk 2,500 cash assistance on one-time basis to five million households. The money will be transferred through mobile financial services (MFS) and it will cost the government Tk 12.50 billion in total. This assistance will be extended to more people later. 

The necessity of such direct cash transfer by the government to provide minimum support for poor people also shows that 8-plus growth is not adequately distributed to people across the country. Resources generated through the growth are largely concentrated on few hands. That's why, a large number people are also not able to access healthcare services. The pandemic exposes the country's week health and medical infrastructure. The economic growth is yet to make the health services efficient and accessible to all.

Thus the overall socio-economic situation in the current crisis shows that growth is yet to be solidified and inclusive. This lesson may, however, open an opportunity to take a new approach on growth-centric development model, not only in Bangladesh but in many other countries as well. 

 

asjadulk@gmail.com

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