How Bangladesh’s leaders should respond to the economic threats of COVID-19

Bangla

Char Kukrimukri, Bangladesh (Adrien Taylor, Unsplash)

This article is brought to you thanks to the collaboration of The European Sting with the World Economic Forum.

Author: Sheikh Tanjeb Islam, Global Leadership Fellow and Community Lead Regional Strategies, World Economic Forum & Yash Nitin Divadkar, Community Lead, Business Engagement, India and South Asia, World Economic Forum


  • The economic disruption caused by COVID-19 threatens millions of livelihoods in Bangladesh.
  • The country has more than 50 million workers in the informal sector.
  • Here are some steps the government should take, including an aggressive cash-transfer program.

Bangladesh is not new to disasters or major humanitarian crises. Sitting astride a river delta at the bottom of the Himalayan range, the country is fighting a longstanding battle against the impact of climate change and currently hosts the world’s largest refugee camp along its southern border. In its 49-year existence, Bangladesh and its people have shown tremendous resilience in fending off not only natural disasters such as floods and cyclones but also manmade ones, like the 1997 Asian financial crisis and 2008 global financial crisis.

The COVID-19 pandemic, however, is a crisis of a completely different magnitude and one that will require a response of unprecedented scale. Bangladesh’s leaders in the public and private sector must come together to respond to the immediate threats to health systems and the long-term effects to the country’s economy.

What is the World Economic Forum doing about the coronavirus outbreak?

A new strain of Coronavirus, COVID 19, is spreading around the world, causing deaths and major disruption to the global economy.

Responding to this crisis requires global cooperation among governments, international organizations and the business community, which is at the centre of the World Economic Forum’s mission as the International Organization for Public-Private Cooperation.

The Forum has created the COVID Action Platform, a global platform to convene the business community for collective action, protect people’s livelihoods and facilitate business continuity, and mobilize support for the COVID-19 response. The platform is created with the support of the World Health Organization and is open to all businesses and industry groups, as well as other stakeholders, aiming to integrate and inform joint action.

As an organization, the Forum has a track record of supporting efforts to contain epidemics. In 2017, at our Annual Meeting, the Coalition for Epidemic Preparedness Innovations (CEPI) was launched – bringing together experts from government, business, health, academia and civil society to accelerate the development of vaccines. CEPI is currently supporting the race to develop a vaccine against this strand of the coronavirus.

How the government has responded

Bangladesh detected its first coronavirus case on 8 March. As of this writing, the number of confirmed cases in Bangladesh is more than 218, and the virus has claimed 20 lives.

In early February, the government evacuated close to 300 Bangladeshi citizens from China. The government also installed screening devices across its international airports and land-ports, which have so far screened more than 650,000 passengers, of which 37,000 were immediately quarantined.

The government also moved swiftly to transform two religious centers into temporary quarantine facilities. In addition, after the first case was detected, the government closed education institutions and encouraged all non-essential businesses to move their activities online. It initially declared a nationwide public holiday until April 4 which has been subsequently extended to April 14.

Despite the presence of a large Bangladeshi diaspora in Europe, the government also took the bold step of suspending all flights from Europe. Learning from its East Asian neighbors including South Korea and Singapore, the government launched an aggressive awareness campaign through national mobile phone operators. This has been complemented by private-sector cooperation, with the government launching more than 500 telephone hotlines and cross-promoting private service providers on its platform.

In order to ensure that frontline healthcare workers have the necessary personal protective equipment (PPE), the Bangladesh Garment Manufacturers and Exporters Association (BGMEA) are currently coordinating with five of its member companies to convert their production lines to produce 500,000 PPEs.

The economic threat

The response so far is admirable, yet this pandemic also poses an economic and humanitarian crisis. While many countries have made good starts in stimulus packages, Bangladesh has been slower to react. The Prime Minister initially announced an emergency stimulus package of $600 million (equivalent to 0.2% of GDP) on 25 March, which on 4 April was enhanced significantly to $8.5 billion (equivalent to 2.5% of GDP).

According to the forecast released by the Economist Intelligence Unit on 26 March, the global economy is expected to contract by -2.2% in 2020. These effects are expected to be more pronounced in major G20 economies, such as Germany, Italy, the United Kingdom and the US – all countries that are major markets for Bangladesh’s most vital tradeable good: readymade garments.

With lockdowns currently imposed across Europe and North America until mid-April, even in the best-case scenario it will take at least until mid-June for market confidence to be restored in these economies. The implication is that nearly six million workers in Bangladesh’s formal sector – which is largely manufacturing – will be without steady work for an extended period.

The depressed oil prices will also lead to a strong reversal of growth in the Middle East and North Africa region, which is also home to a large Bangladeshi diaspora, who send back close to $20 billion every year. In the coming months, there can be no doubt that there will be a decrease in remittances and that these second-degree impacts will also be felt in the country, painfully in rural Bangladesh, where families rely heavily on remittances for their subsistence.

What more needs to be done

The enhanced stimulus package announced by the prime minister is commendable and step in the right direction. The package which has nearly $2.5 billion allocation for bridge financing of the working capital of small and medium sized industries is a bold step to protect the livelihood of people employed in that sector. Such is the scale of this crisis, even a stimulus package of this magnitude should be viewed as a stopgap measure.

More worryingly still, data from the Bangladesh Bureau of Statistics indicates that Bangladesh has more than 50 million workers in the informal sector. While there will be a significant impact on the livelihood of workers in the formal economy, there can be no doubt that the informal sector will be hit even harder. The prime minister was right to identify this as a challenge and her decision to distribute food aid through Bangladesh’s existing social safety programs such as the Vulnerable Group Feeding and Vulnerable Group Development for six months must also be welcomed.

Spread of COVID-19 in Asia
Spread of COVID-19 in Asia
Image: World Economic Forum

The government should also consider an unconditional cash transfer program for an initial period of three months at a rate of $95 per month, which corresponds to the minimum wage for the formal sector in Bangladesh. This would cost the government roughly $14 billion, or 4% of GDP. While this sort of cash transfer program always suffers from targeting issues, Bangladesh enjoys a highly sophisticated mobile financial services network, which could improve the cover of the program. A concerted effort involving the non-governmental organizations working in the informal sector, mobile financial service providers, and the government could be developed to deliver this urgently needed social assistance.

Taking such an aggressive step would mean that Bangladesh would have to forego its usually prudent and disciplined fiscal policy of maintain its budget deficit within 5% of GDP. With a low debt-to-GDP ratio, Bangladesh has enough fiscal headroom to adapt an expansionary approach in the short run to fight off the economic and humanitarian aspect of this crisis. To finance this expansion, Bangladesh should also look to tap into the concessionary financing available at its disposal through the multilateral development banks.

The steps on the fiscal side – the stimulus package – must also be complemented by steps on the monetary policy side. Bangladesh Bank has already put a freeze on loan repayments for six months until June 2020 and relaxed foreign exchange regulations for trade transactions until September 2020. It has also increased the transaction limit on mobile financial services as well as cut the monetary policy rate by 25 basis points. These are steps in the right direction, but they are unlikely to prove aggressive enough to fight the economic impact of a global pandemic.

With inflation expected to cool across the world, the central bank should follow the steps taken by its counterparts across the world to inject further liquidity by reducing the Statutory Liquidity Ratio and further reducing its policy rate. This will not only help maintain liquidity within the banking sector but also provide small- and medium-sized enterprises in the country with access to cheaper working capital to keep their businesses afloat.

Public-private cooperation will be key

By taking early steps on the health security side, Bangladesh has been able to buy itself some time to respond to this pandemic. But the country cannot afford to be blind-sided by the secondary economic risks associated with this crisis.

The fight against COVID-19 cannot be carried out by the government alone. It will require an unprecedented level of coordination between the public and private at the local and international level. The World Economic Forum, with a mandate from the World Health Organization, has launched the COVID Action Platform in response to the pandemic. Bangladesh should look to tap into this platform to galvanize support for its private sector and share some of its own experience in fighting COVID-19 and increasing its economic resilience.

This article was originally published on Ittefaq.

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Comments

  1. Adam Smith says:

    Bangladesh exports a wide range of apparel products in North America, Europe, Asian and countries in many other geographic regions. Generally, the export products can be categorized into two major categories- Woven and Knitwear. These two categories include a wide range of products but the key products which take up the majority of the product mix are denim, shirts, trousers, sweaters etc. Bangladesh is the 2nd largest readymade garments industry exporter in the world after China.

  2. samir sardana says:

    In addition,in the COVID and POST-COVID world,when the USA and the EU govtt and private entities,are looking to relocate their supply chains,to Bangladesh/India and South East Asia, and insulating themselves from supply chain and logistics shocks,in each host nation – what value can the Bangladesh/Indian SEZs provide?
    The Indian SEZ Policy is doomed ! dindooohindoo
    • How can an investor invest in a SEZ in India,unless it is benchmarked with the world and with Indian SEZs, on operations, costs,efficiencies,tax.FDI/FX,Power Cost,Infra facilities,Port Faciliies,DTA Risk,Political Risk,Geo Political Risk (as in Chabhar) etc
    • How can a SEZ be sure that, it is getting the maximum profits,lowest costs, nil fraud and providing the maximum efficiencies to its units – unless there is a comprehensive audit of all aspecrs of operations,as stated in the RTI Application requirement ?
    • If a Pharma exporter in the PRC wishes to relocate to an Indian SEZ – he would want to know the best SEZ for the same and the reasons for the same.
    o Besides benchmarking,if the SEZ or the GOI does not have this basic information – in terms of broad SEZ financials – why will the investors come to India to invest in SEZs
    • If the SEZ has no records of the financial performance of the SEZ units – how will the SEZ and the developers etc., innovate to improve the performance,efficiency and profitability of the SEZs
    • If the SEZ or the GOI has no data on Raids or Criminal Prosecutions of Units – how will an overseas investor be convinced, that he is entering into a safe regulatory environment.In addition,how will the public be satisfied,that sufficient supervision,regulation and control is being exercised,on the SEZ units,by the State ?
    • If the SEZ of the GOI, is not aware of the profits and financials of the developers of the SEZs,and if the developers are making losses – it would mean that the State has no clue of the nature,extent and reasons of the said losses.
    o In such an event – HOW WILL THE GOI ATTRACT FOREIGN DEVELOPERS AND FOREIGN INVESTORS, IN SEZs AND SEZ UNITS ?
    o IF A DEVELOPER IS MAKING LOSSES OR NOT MAKING A FAIR PROFIT – WHAT SERVICE WILL BE PROVIDED TO THE SEZ UNITS – and will an entity invest in any UNIT, in such a SEZ ?
    • Why are there non-Operational SEZ units in a SEZ ? Why does the SEZ not have this data ?
    o How can the SEZ or the State be sure that, it has the right policies and rules and incentives, unless it had the said data, and the reasons for the said units.
    o A Non-Operational unit is a failure of GOI Policy,loss of national resources,loss of bank funds,defaults in EU and violation of indemnities and guarantees by the SEZ units
    • Why does the SEZ or the GOI,not have the data w.r.t SEZ units in terms of service supporters,such as Hotels,Banks and other facilities in a SEZ ?
    o Why will any overseas investor,invest in such facilities – unless he has that data ?
    o If the GOI does not have the said data – how can the GOI be sure,that their policies and incentives are working,as also, to innovate to improve the peformance of these service supporters ?
    • How will India attract investments and COVID SUPPLY CHAIN RELOCATIONS INTO ASIA AND INDIA – if the PRC/Nippon/ Korea/Malaysia/GCC or other EU nations,invest in SEZs as developers in LDCs – which also provide Duty Free Access into USA/EU, from those LDC-SEZs,which will be staffed and operated across the SEZ value chain by Chinese//Nipponese/Koreans/ Malaysians ?
    o Take the example of CPEC by PRC in Pakistan,an LDC,as an example.
    o Why will any supply chain relocate to India, in an export led venture, if such BASIC DATA IS NOT IN THE PUBLIC DOMAIN.
    o NO ONE HAS THE TIME OR MONEY TO WASTE ON CONSULTANTS , OR VISITS TO HOST NATIONS, TO ACCESS THE ABOVESAID INFORMATION.
    o There is not a single link on the Indian SEZ portal,as to why an investment in a SECTOR ,IN A UNIT IN THEIR SEZ , FOR EXPORT TO A PARTICULAR GEOOGRAPHY , IS THE BEST ,IF INVESTED AND EXPORTED, VIA THE SEZ – ALONGWITH SUCCESS STORIES.
    o WHO WILL RISK AN INVESTMENT,IN SUCH A PROJECT OR A NATION
    • IF MAHARASHTRA HAS 10 MILLION CASES,OF COVID BY FEBRUARY 2021 – WHAT IS THE PLAN OF THE GOI FOR THE LOGISTICS RISK FOR SUPPLIES FROM DTA TO THE SEEPZ (IGNORING SUPPLIES FROM SEEPZ TO THE DTA) ?
    • ASSUMING A COAL POWER PLANT FEEDING THE SEEPZ – IF IMPORTED COAL IS STOPPED POST COVID FROM LOAD PORTS – WHAT IS THE ALTERNATIVE TO SUPPLY POWER TO THE PORT AND THE SEZs.
    o If such Risk assessment is STILL not on the SEZ portals – why will any one invest in any Indian SEZ ?
    • IF THE SEZ DOES NOT HAVE THE ABOVESAID INFORMATION,DOES NO ANALYSIS TO IMPROVE THE EFFICIENCY AND PERFORMANCE OF THE SEZ UNITS,DEVELOPERS,SERVICE SUPPORTERS,INFRA FACILITATORS ETC., AND IS ALSO, NOT INVESTED, IN THE VALUE CHAIN – THEN WHAT IS THE STAKE OF THE GOI OR SEZ , IN THE SAID FACILITY,AND WHY WILL ANY FOREIGN ENTITY, INVEST IN SUCH A SEZ ,AND WHY WILL ANY SUPPLY CHAIN, RELOCATE TO SUCH AN SEZ ?

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