The Covid-19 pandemic, which primarily surfaced as a public health concern, has rapidly transformed into a socio-economic-humanitarian catastrophe of unprecedented nature and level around the world. Not a singular facet of modern-day life, be it individual, collective, social, national or international, has been spared from the adverse impacts of this multi-dimensional crisis. Alongside the enormous loss of human lives and suffering, such is the extent of coverage and severity of the pandemic that the possibility of a worldwide economic recession, within about a decade of the global financial crisis (GFC) of 2008-09, cannot be discarded. Indeed, this is the likely scenario that emerges from the various projections and early estimates released by several national statistical agencies as well as international organisations around the world.
The Bangladesh economy was not significantly affected by the detrimental impacts of the GFC. Exports and remittance flows were impacted but not significantly, and the reliance of the large part of the economy on domestic market-oriented activities helped. This time around both the demand side (recession-induced) and supply side (lockdown-induced) disruptions are having adverse implications for Bangladesh's macroeconomic and sectoral performances. A closer inspection of the ongoing Covid-19 induced challenges reveals that the economy is being adversely impacted through a host of transmission channels, both global and national.
Although the ramification of the pandemic for the Bangladesh economy is still unfolding, various projections and estimates by international financial institutions (IFIs), academics and practitioners indicate a downturn in Bangladesh's economic performance, but the degree varies from estimate to estimate. The World Bank forecast that the economic growth of Bangladesh in FY20 will be between 2.0-3.0 per cent; while International Monetary Fund (IMF) projected this to be 3.8 per cent. According to the Asian Development Bank (ADB), the Gross Domestic Product (GDP) growth rate in FY20 would be reduced by 0.2-0.4 percentage points depending upon the extent of demand shock and duration of containment; however, the reduction could additionally increase by 1.6-4.4 percentage points in case of a significant outbreak. The Economist Intelligence Unit (EIU) forecast the GDP growth rate of Bangladesh for FY20 to be 1.60 per cent (EIU, 2020). Thus, the general consensus is that the GDP growth rate will be significantly lower than the planned target of 8.20 per cent.
The provisional estimates of Bangladesh's GDP, produced by Bangladesh Bureau of Statistics (BBS), are usually available by May of any fiscal year. These provisional estimates are carried out based on the data available for the first eight to nine months of a fiscal year, for most of the correlates. However, this year the provisional economic growth figure for FY20 is yet to be published. This delay may be understandable given the fact that data flow was seriously impeded as the country entered into a 'general holiday' (commonly perceived as 'lockdown') since March 25, 2020. Although the estimates may be made available soon in the run up to the national budget, as the 'general holiday' has come to an end on May 30, 2020, to what extent the published estimates will be able to capture the impacts of Covid-19 remains a moot question. This will also have adverse implications for providing proper guidance in preparing budgetary and fiscal proposals for FY21 budget to be placed before the national parliament on June 11, 2020.
In this backdrop, Centre for Policy Dialogue (CPD) has carried out an exercise to understand to what extent the Covid-19 pandemic and associated downturn in economic activities may impact the GDP growth outcome for the ongoing FY2020. To this end, recent trends in proxy indicators as reflected in official data along with anecdotal information from various unofficial sources have been reviewed. It has been taken into consideration that all economic activities were affected, at varying degrees concerning all sectors of the economy. No doubt, this was most prominent during the almost two-month long 'general holiday period' when a significant part of the economy was affected by the lockdown and disruptions, both domestic and global. Sectors such as manufacturing, construction, hotels and restaurants, transport, storage and communication and community, social and personal services are likely to be the hardest hit in this period. Even if the claim of some policymakers is taken to be true that the economy was in course to attain an 8.2 per cent GDP growth in FY20, our estimates of likely adverse impacts of the lockdown indicate a significant decline in GDP growth in FY20. CPD estimates suggest that the GDP growth in FY20 is likely to come down to about 2.5 per cent under the most optimistic scenario if further 'general holidays' are not announced or stricter measures not enforced during the rest of days of the fiscal year.
Given the unprecedented nature of the Covid-19 pandemic, the decline in economic growth should not be perceived as something unexpected and exceptional. Countries across the globe, developed, developing and least developed, have been experiencing lower, and at worst, negative growth rates. Realistic GDP projections only help to understand the direction and range of the adverse impacts at macro-sectoral-household levels and thereby assist policymakers to take necessary measures.
As a matter of fact, CPD, in view of the nature of ramifications of Covid-19 on socio-economic and development outcomes, over the last few months has been stressing that GDP growth rate should not be the anchor outcome variable for economic policies including the national budget in the current context. Indeed, focus should be on saving lives of people and reduce the vulnerabilities of the marginalised groups. An assessment of impact of the ongoing pandemic on poverty, inequality and employment should be the primary area of policy interest and policy focus.
Disruption of economic activities led to loss of employment (in terms of number of jobs or working hours) leading to decline in income for a large section of the population, be it extreme poor, moderate poor, vulnerable non-poor or non-poor households. The coping mechanisms for the households include erosion of savings and assets. And when such options are not available, they have to resort to reduced consumption. Indeed, households have succumbed to negative shocks of varying degrees.
In view of the above, CPD has conducted an analysis to explore implications of Covid-19 in the short-term on poverty and inequality of Bangladesh using the unit-level data of the Household Income and Expenditure Survey (HIES) 2016. The analysis has applied negative shocks on household consumption in the range of 9-25 per cent among various household groups (the shocks are determined based on review of past and recent relevant literature on Bangladesh.) This leads to an increase of national (upper) poverty rate to 35.0 per cent in 2020 from 24.3 per cent in 2016. At the same time, consumption inequality, measured by the gini-coefficient, rose from 0.32 in 2016 to 0.35 in 2020. A similar analysis with a disaggregated income shock results in an increase of the income gini-coefficient from 0.48 in 2016 to 0.52 in 2020.
While the aforementioned CPD estimates paint a somewhat disquieting picture of the outgoing fiscal year, the real challenge perhaps lies ahead. There is a debate on whether the recovery path of the Bangladesh economy after the Covid-19 pandemic will be 'V-shaped' (where an economy experiences a sharp but brief period of decline and then also rises sharply), 'U-shaped' (where an economy suffers a prolonged recession before commencement of recovery) or 'W-shaped' (also known as a 'double-dip recession' where an economy falls into recession, recovers but the period is short lived, then falls back into recession before upturn sets in).
For Bangladesh, the pattern of growth trend will depend not only on the duration and evolution of the ongoing contagion but also on the appropriateness and adequacy of the remedial measures taken to counter the pandemic and subsequently for resumption and recovery of economic activities, effective implementation of measures and enforcement capacity and on ensuring an enabling political economic environment conducive to growth.
Dr Fahmida Khatun, Executive Director, Centre for Policy Dialogue (CPD);
Professor Mustafizur Rahman, Distinguished Fellow, CPD;
Dr Khondaker Golam Moazzem, Research Director, CPD; and Towfiqul Islam Khan, Senior Research Fellow, CPD.
[The article is based on CPD IRBD 2020 (fifth periodic review of FY20). Research support was received from CPD IRBD team members including Md Zafar Sadique, Mostafa Amir Sabbih, Muntaseer Kamal, Md. Al-Hasan, Syed Yusuf Saadat, Abu Saleh Md. Shamim Alam Shibly, Nawshin Nawar, Tamim Ahmed, Md Jahurul Islam, Iqra Labiba Qamari, Fariha Islam Munia and Taslima Taznur]