Bangladesh shows signs of economic recovery amid pandemic

At a time when the global economy is in turmoil due to the coronavirus epidemic, most of the major indicators in Bangladesh offer cause for optimism over the country's economic prospects.

The inflow of remittances has defied expectations as it continues to scale new heights during the pandemic. Foreign exchange reserves are also on course to surpass the $40 billion milestone. Meanwhile, the capital market also seems to have sprung back to life after a prolonged slump.

Although household incomes have dropped, the sales of savings certificates, on the other hand, have risen by leaps and bounds. Export earnings are also on the rise, with Bangladesh currently posting a large surplus in its balance of payments. The flow of credit to the private sector is growing as well.

While Finance Minister AHM Mustafa Kamal believes the economy is pulling out of the pandemic-induced slowdown, experts have advised caution in dealing with the situation.

The coronavirus pandemic has roiled the world's big economies as well as that of countries like neighbouring India, which has seen its GDP shrink by about one-fourth.

The International Monetary Fund, meanwhile, predicted in June that the global economy will take a $12 trillion hit from the pandemic.

Earlier in April, the agency said the world economy would shrink by 3 percent in 2020. They have since revised that figure to 4.9 percent.

According to the IMF, it will take another two years for the global economic output to return to the levels of 2019.

No major economy in the world is immune to the effects of the pandemic. The US economy, the largest in the world, is expected to shrink by 6 percent this year. In addition, countries that use only the euro as their currency are likely to see their economies contract by more than 10 percent. The forecast for the British economy is equally grim, with its growth projected to drop by 10.2 percent.

The IMF forecasts 5.4 percent global growth in 2021. Overall, this would leave 2021 GDP some 6.5 percentage points lower than in the pre-COVID-19 projections of January 2020, it noted.

However, the Asian Development Bank has noted an uptick in Bangladesh's economic activities and on that basis, they predict the GDP growth could rise to 6.8 percent in the current fiscal year.

The government has projected 8.2 percent GDP growth for the current fiscal year. Economists derided the 'overly-ambitious' target, but Kamal remains optimistic.

“Bangladesh's economy has made a turnaround. All indicators are positive now,” the minister told bdnews24.com,

"I believe our GDP growth will be between 8.1 percent and 7.2 percent this time. And even that doesn't happen, it still won't a bad thing at all.”

With the July-September quarter of the fiscal year having ended, an analysis of the dynamics of the economy during these three months throws into stark relief the impact of the pandemic in the final quarter of FY2019-20 (April-June). But there has also been a remarkable turn of events during this time.

Apart from imports, the pandemic does not seem to have had too much of a detrimental effect on Bangladesh's economy.

Hundreds of stranded Bangladeshi migrant workers crowded outside the Biman Bangladesh Airlines office in Dhaka's Dilkusha on Sep 27, 2020 for air tickets to their countries of work.

REMITTANCE

With a wave of layoffs and furloughs setting in the world over amid the pandemic, the inflow of remittances was widely expected to drop but instead, it is now on an upward trajectory.

In the first quarter (July-September) of FY21, Bangladeshi expatriates clocked a new record in outward remittance by sending over $6.71 billion amid the pandemic. The amount is 48.57 percent more than the money received in the same period last year.

In September alone, the expatriates remitted more than $2.15 billion, the second-highest in a month after $2.6 billion in July, according to the central bank's data.

Finance Minister Kamal expressed hope that the remittance inflow in 2020-21 fiscal year will total over $24 billion. He thanked the migrant workers, saying that they have helped the government muster the courage to tackle the pandemic crisis.

Kamal credited once again the 2 percent incentives on remittance and ease of rules needing to fill in forms for the milestone.

He pointed out that Bangladesh Bank’s foreign currency reserves have crossed $39 billion for the first time due to the high inflow of remittances.

FOREX RESERVES

Riding on the robust growth in inward remittances, Bangladesh Bank's foreign currency reserves also crossed $39 billion for the first time amid the pandemic.

Bangladesh Bank officials are hopeful that the foreign exchange reserves will surpass the $40-billion mark by mid-October.

According to international standards, a country must have foreign currency reserves equivalent to the import cost of three months.

The government believes the current foreign reserves bear out the country's economic potential to the rest of the world and should also instil more confidence in foreign investors.

STOCK MARKET

After a long time, Bangladesh’s capital market has also returned to a bullish trend. Aside from the gains in the key index, trading in the country’s premier bourse has also seen an upturn, buoyed by renewed optimism among investors.

In the wake of the stock market crash in 2010, a number of initiatives were taken to boost the stocks. Despite the occasional upswing, these measures failed to have a lasting impact. The capital market was hit by another setback in January 2020 as most shares hit rock bottom.

Trading in the country's two bourses was later closed for two months after the outbreak of the coronavirus in March. The bourses later reopened on May 31.

The DSEX, the main index of the Dhaka Stock Exchange, dropped below 4,000 points in June in the midst of the epidemic. It has since gained momentum in the following months, closing at 5,000 points on Oct 1.

Asked what sparked the stock market back into life, Dhaka Stock Exchange's Director Shakil Rizvi said: "To be honest, even we are a bit surprised. We did not expect such a positive trend in the capital market amid the pandemic."

“I believe two things are at play here. First, when the market slumped, share prices were dragged down with it. It was a good time to invest in stocks. Investors have taken that opportunity. Secondly, the regulators have become more active and this has redressed the disconnect between the different authorities. The market is reaping the benefits from the lower interest rates.”

Finance Minister Kamal pointed to a third factor behind the resurgence of the capital market.

“A portion of the remittances that expatriates are now sending to the country are being pumped into the capital market.”

BALANCE OF PAYMENTS

Even in the midst of a pandemic, Bangladesh has a large surplus in its current account of the balance of payments (BoP), which shows the difference between a country’s export earnings and import spending.

In the first two months of the FY21 (July-August), the country posted a trade surplus of $3.3 billion, compared to $204 million in the same period last year.

EXPORTS

After plummeting at the start of the pandemic, export earnings have since rebounded in recent months. From July to August, Bangladesh earned $6.87 billion from exports, which is 1 percent higher than the target and marks a 2.17 percent increase year-on-year. Export earnings rose 4.32 percent year-on-year to $2.97 billion in August.

Bangladesh exported goods worth $3.91 billion in July, beating the target by 13.4 percent. The figure is also higher than that of any month in the last fiscal year that ended on Jun 30, according to Export Promotion Bureau data.

After the pandemic began in China in early 2020, Bangladesh’s export earnings dipped to as low as $520 million in April, which was half the remittances received that month and 85.37 percent less than the same month last year.

Export earnings turned around in May, growing almost three times over the April receipts, but with a 61.56 percent year-on-year drop, when the factories began reopening with relaxed restrictions.

The government has set a $48 billion export target for FY21. The target is about 20 percent more than the export earnings but $6 billion less than the target of the last fiscal year.

SAVINGS CERTIFICATES

The government borrowed Tk 74.55 billion, or more than 37 percent of the money it has targeted from the sales of savings certificates in the first two months of FY21.

The net sales in August alone amounted to Tk 75.46 billion, or more than the net sales of July and August last year and the highest for a month in one and a half years.

Net sales of savings certificates are counted by subtracting the money repaid for previously sold certificates from the total sales.

The government had set a target of borrowing Tk 270 billion through sales of savings certificates in fiscal 2019-20, but revised it down to Tk 119.24 billion after sales dropped.

Women work in a garment factory (File Photo)

PRIVATE SECTOR CREDIT FLOW

The flow of credit to Bangladesh's private sector is also on track to recover from a decade-low growth after investments plunged amid the coronavirus pandemic at the end of fiscal 2019-20.

Banks disbursed loans worth Tk 11.16 trillion at the end of August with a 9.36 percent year-on-year growth, according to data from the Bangladesh Bank.

Credit growth stood at Tk 10.95 trillion at the end of July, marking a 9.2 percent increase from the same period last year.

The private sector debt had dropped to the lowest level - 8.61 percent - in June, the last month of the previous fiscal year.

Bangladesh Bank had set a target 14.8 percent credit growth in its monetary policy for 2019-20. The target remains the same for 2020-21.

Researchers and bankers have said that the credit flow is rising because the banks have begun to disburse loans from the government’s coronavirus stimulus packages of more than Tk 1 trillion to cushion the economy from the effects of the pandemic.

However, while most other fields of the economy are beginning to gain positive momentum after the setback from to the pandemic, imports are still lagging behind.

During the first two months of FY21, Bangladesh's import bill stood at $7.43 billion, a 14 percent year-on-year drop.

However, the finance minister said the low prices of fuel oil in the global market were having an impact on imports. “On the import front, low fuel oil prices have kept us in the comfort zone.”