WB forecasts 1.6pc economic growth in FY21 for Bangladesh, informal workers hit hardest in pandemic

Bangladesh's GDP growth is projected to decelerate to 1.6 percent in fiscal year 2020-21 as it grapples with the economic fallout from the COVID-19 pandemic, the World Bank said on Thursday.

The pandemic is set to plunge South Asia into its worst-ever recession as the devastating impacts of COVID-19 on the region’s economies linger on, taking a disproportionate toll on informal workers and pushing millions of people into extreme poverty, the global lender said in its South Asia Economic Focus report.

The latest South Asia Economic Focus forecasts a sharper than expected economic slump across the region, with regional growth expected to contract by 7.7 percent in 2020, after topping 6 percent annually in the past five years.

In Bangladesh, which had been one of the fastest-growing economies in the world, private consumption growth is likely to remain subdued amid a projected decline in remittances and depressed wage income in manufacturing and construction, according to the study.

Investment and exports are likely to suffer amid major uncertainty over the resumption of demand for ready-made garments and while demand in Europe and the United States is stabilising, the recovery is fragile.

While remittance inflows have surged over the past three months, this may be the result of repatriated savings by returning overseas workers, the World Bank noted in its twice-a-year-regional update.

Remittances are forecast to decline in FY21 with weaker demand from migrant-receiving countries such as the oil-producing Gulf states.

Meanwhile, poverty is expected to increase substantially in the short term, with the highest impact on daily and self-employed workers in the non-agricultural sector and salaried workers in the manufacturing sector.

Urban areas will continue to be disproportionately affected, with an estimated 68 percent of directly affected workers located in Dhaka and Chattogram, according to the report.

“The global economic downturn will impact Bangladesh’s economy. However, the policies that the government has undertaken to mitigate the impacts are in the right direction” said Mercy Tembon, World Bank Country Director for Bangladesh and Bhutan.

“For a resilient recovery, the government needs to continue to safeguard its fiscal and debt positions, build financial sector health, protect the poor and vulnerable and create a conducive environment for private sector development and job creation.”

India’s economy, the region’s largest, is expected to contract by 9.6 percent in the fiscal year that started in March 2020. Regional growth is projected to rebound to 4.5 percent in 2021.

Factoring in population growth, however, income-per-capita in the region will remain 6 percent below 2019 estimates, indicating that the expected rebound will not offset the lasting economic damage caused by the pandemic.

In previous recessions, falling investment and exports led the downturn. This time is different as private consumption, traditionally the backbone of demand in South Asia and a core indicator of economic welfare, will decline by more than 10 percent, further spiking poverty rates.

A decline in remittances is also expected to accelerate the loss of livelihoods for the poorest in some countries.

“The collapse of South Asian economies during COVID-19 has been more brutal than anticipated, worst of all for small businesses and informal workers who suffer sudden job losses and vanishing wages,” said Hartwig Schafer, World Bank Vice President for the South Asia Region.

“Immediate relief has dulled the impacts of the pandemic, but governments need to address the deep-seated vulnerabilities of their informal sectors through smart policies and allocate their scarce resources wisely.”

Three-quarters of all workers in South Asia depend on informal employment, especially in hospitality, retail trade, and transport—sectors most affected by containment measures.

The report warns that informal workers and firms have little room to cope with unexpected shocks of the magnitude of COVID-19. While the poor have faced rising food prices and suffered severely, the COVID-19 crisis has dealt a further blow to many informal workers in the middle of the income distribution who experienced sharp drops in earnings.

Few informal workers are covered by social insurance, have savings or access to finance.

The report urges governments to design universal social protection as well as policies that support greater productivity, skills development, and human capital. In that effort, securing international and domestic financing will help governments fund crucial programs to speed up recovery.

In the long-term, digital technologies can play an essential role in creating new opportunities for informal workers, making South Asia more competitive and better integrated into markets—if countries improve digital access and support workers to take advantage of online platforms.

“COVID-19 will profoundly transform South Asia for years to come and leave lasting scars in its economies. But there is a silver lining toward resilient recovery: the pandemic could spur innovations that improve South Asia’s future participation in global value chains, as its comparative advantage in tech services and niche tourism will likely be in higher demand as the global economy becomes more digital,” said Hans Timmer, World Bank Chief Economist for the South Asia Region.