COVID-19 and economic cost of lockdown

Editorial of ICCB News Bulletin

Bangladesh economy grew by 5.24 per cent in FY20 despite COVID-19 pandemic against 2 per cent growth forecast by World Bank and IMF. The government has set the GDP growth target for FY21 at 8.2 percent, which under present COVID scenario will be difficult to achieve, according to ICC Bangladesh quarterly News Bulletin (April-June 2020) published on Thursday.

The COVID-19 is an unprecedented health and economic crisis, affecting the lives and livelihood of workers, as well as the continued operations of businesses globally. By its nature the disease knows no national borders.

The governments around the world are putting in place measures to address the unprecedented health, social and economic impacts of COVID-19. The G20, along with the WHO, IMF, World Bank Group, United Nations and other international organizations, are mobilized to take active steps to overcome the pandemic, and the International Chamber of Commerce (ICC) is collaborating as a trusted business advisor with many of these engaged stakeholders.

ICC welcomed steps to fight COVID-19 and stem human and economic losses at the conclusion of the virtual G20 Summit held on 26 March, including the G20’s commitment to ease the flow of essential medical equipment and maintain a bold and large scale fiscal stimulus in the global economy. ICC has written to G20 Trade Ministers with a roadmap for G20 countries to use trade policy to fight COVID-19 and rebuild the future. Countries around the world are implementing economic and fiscal policy stimuli, including emergency tax measures to support their economies under the pandemic.

To control the spread of pandemic, government announced countrywide lockdown from 26 March, making the whole economy virtually a standstill. The shutdown has left a huge number of people unemployed as they are dependent on daily income for their livelihood. According to Bangladesh Institute of Development Studies (BIDS) survey, Bangladesh will have 16.4 million new poor in 2020 due to the impact of pandemic.

The Economist Intelligence Unit forecast on 26 March that the global economy is expected to contract by 2.2 per cent in 2020. This is likely to affect its garment exports to major G-20 countries such as Germany, Italy, UK and the US. Due to depressed oil prices Middle East and North Africa region will also face lower growth. For these reasons, Bangladesh’s remittance inflow, export earnings, industrial production and services sector are going to be seriously affected.

However, surprisingly remittance inflow recorded an all-time high of US$ 18.2 billion in FY20 and on the other hand export earnings have registered a sharp decline of nearly 17% at $33.67 billion in FY20 due to cancellation and/or reduced export orders of garments, which accounts for 84 percent of total national exports. Experts consider that country’s export diversification is urgently needed. At the same time FDI dropped by 14 percent to $3.73 billion in the 11 months of the FY 20.

Prime Minister Sheikh Hasina has announced stimulus packages of Tk. 677.5bn (approx. USD8bn) planned to implement in immediate, short and long phases through four programs (increasing public expenditure, formulating a stimulus package, widening social safety net coverage and increasing monetary supply).  The Prime Minister also announced a number of social safety packages including direct cash assistance for informal sector workers; health insurance for health workers and bankers in case of COVID-19 infected, special honorarium for bankers, health workers and others and cash payment in case of death.

Bangladesh Bank announced moratorium on loan payments until 30 September 2020 and that such borrowers will not be in default. Government announced details of its BDT 50bn (approx. USD595m) stimulus package for export-oriented industries. This includes assistance towards salaries and funding of 2 year loans to factory owners at 2% interest.

Like most other emerging economies, Bangladesh has to tackle a number of key issues in order to achieve the desired GDP growth which include healthcare, sustainable export, FDI and remittance flow. Besides, in order to maintain sustainable growth and order to keep the supply chains functional and cost effective, it is very important to save MSMEs (micro, small and medium enterprises).

Therefore, timely implementation and ensuring that the various stimulus packages announced by the Government and the Bangladesh Bank are availed by the most desired will be very crucial.


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