The Financial Express

Unbalanced recovery of economy

Unbalanced recovery of economy

Despite being hit by the second wave of the ongoing pandemic, Bangladesh economy is now rebounding gradually. The reality is reflected in several macroeconomic indicators. National and international organisations have also acknowledged the rebounding of economic growth. Global economic growth is also on the path to recovery significantly. The Trade and Development Report 2021, released by the United Nations Conference on Trade and Development (UNCTAD) on 15 September, said that 2021 will see 5.3 per cent growth in the global economy. It will be the fastest rate in nearly five decades. The key factors are a continuation of radical policy interventions that began in 2020 and a successful, though still incomplete, vaccine roll-out in advanced economies.  The global economy contracted by 3.50 per cent in 2020 due to the outbreak of the pandemic. UNCTAD forecast also showed that the global economy would post a 3.60 per cent growth in 2022.

The optimism in the global landscape is widely reflected in the regional level.  Developing Asia is likely to post 7.10 per cent growth in terms of regional Gross Domestic Product (GDP) in the current year. The region experienced a contraction of 0.10 per cent in 2020. It is also forecasted that regional growth may stand at 5.40 per cent in the next year or 2020. A major driving force of higher growth in the current year is a broad recovery in exports. The economies that have successfully contained the pandemic or are making good progress on vaccination programs will recover at a faster rate, observed ADB.

On country level projection, ADB said that Bangladesh economy is set to grow by 6.80 per cent in the current fiscal year of 2021-22 (FY22).

The pace of Bangladesh economy's growth was disrupted severely in the last fiscal year due to the imposition of restrictive measures to contain the spread of the deadly Covid-19. GDP finally posted 3.51 per cent growth in FY20,  much lower than 8.15 per cent in FY19.  Nevertheless, Bangladesh was one of the few countries that experienced lower but positive economic growths in the past year. The estimated rate of GDP growth is 5.47 per cent in FY21 indicated a rebounding of economic activities.

Meanwhile, Bangladesh Bank released its quarterly economic report last week mentioning that the country's economy has started rebounding from the Covid-19 fallout thanks to timely implementation of the stimulus package and continued fiscal and extraordinary monetary policy supports. It also pointed out that the recovery of the growth momentum was largely evident in the industry and services sectors. "Hefty remittance inflow and low-cost finance propelled the consumption expenditure which helped revitalize the growth momentum, outweighing the supply-side disruptions following the nationwide lockdown and restrictions in the last quarter of FY21 to limit the spread of delta variant of COVID-19," it added.

All these analyses argue that rebounding or recovering economic activities, in general, is evident now. Policymakers may thus feel comfortable and even argue that the negative impact of Covid-19 has already been subdued. 

Nevertheless, all these analyses also make some notes cautioning the unbalanced or discriminatory recovery of the economy at global, regional and national levels. UNCTAD report clearly said: "The recovery, however, is uneven across geographical, income and sectoral lines. Within advanced economies, the rentier class has experienced an explosion in wealth, while low-earners struggle.  Growth deceleration next year could prove sharper than expected if policymakers lose their nerve or heed misguided calls for deregulation and austerity."

ADB underscored that pandemic-rrelated development would set the future path of growth in the region. "Vaccines are gradually changing policy responses to the pandemic. The uneven progress of vaccinations is contributing to the divergence of growth paths in developing Asia," it said in the report.

These notes of caution apply to many countries including Bangladesh. It is already clear that big industries and businesses have gained much from the economic stimulus packages provided by the government. Medium and small units and trades were largely unable to get assistance at the expected level. Medium enterprises have, however, received more than two-thirds of stimulus funds. The result is closure or shutdown of a number of these units. The small ones who have survived are now struggling hard to repay costly borrowing from non-banking sources. Thus, the economic recovery in Bangladesh is mostly backed by big industries with some contribution from medium scale manufacturing units.Again, the continuous rise of price levels has put the fixed and low-income people under pressure. The long queues for purchasing essential commodities from the trucks of Trading Corporation of Bangladesh (TCB) reflect this.  Bangladesh Bank Quarterly pointed out that rice price was on the rise due to higher transportation costs amid the Covid-19 pandemic and weak market monitoring in the last quarter of FY21. Though the government continued its open market sales (OMS) services, selling rice at a reasonable price and, reduced duty on rice import to control the domestic rice price hike, the impact on the retail market is yet to be reflected. Prices of vegetables also spiked substantially during the last quarter of the last fiscal and has been continuing. There is also a rise in edible oils and fats prices. Though the central bank argued that price hikes of these commodities are mainly due to rising prices in the international markets, the cost-push inflation is hurting the people.

There is also a risk of further inflationary pressure due to both  supply shortage and an increase in demand. Taking advantage of weak governance, a series of irregularities in the country's health sector during the pandemic benefited a section of people who accumulated huge wealth within a short period. This also widens the income gap. Cost-cutting measures due to the retrenchment of workers in many factories and wage cuts in other units significantly eroded the income of a large section of people. Now rising inflation is taking its toll on them.

Thus there is also the question of unbalanced recovery of the economy. Policymakers need to pay attention in this regard and devise some prudent strategies to make it short-lived. 

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