2020: Bangladesh looks to turn the tide after pandemic batters economy

For Bangladesh, 2020 began with plenty of cause for optimism against the backdrop of political stability coupled with a burgeoning economy. But a deadly virus, almost unheard of before the start of the year, quickly intensified into a full-blown pandemic that upended daily life in unprecedented ways.

The coronavirus pandemic brought the economy to its knees even before the first quarter of the fiscal year ended with numerous shutdowns and job losses painting a grim short-term outlook.

Although there have since been signs of a recovery in the final quarter, a second wave of the outbreak, which has already been trampling the country’s most important markets such as the US and Europe, still poses a grave threat. Bangladesh, therefore, is set to ring in the New Year with many of the same concerns from 2020.

A series of timely initiatives taken by the government of Prime Minister Sheikh Hasina has helped the country cushion the economy from ill-effects of the pandemic. Incentive packages worth Tk 1.25 trillion played a major role in keeping the economy rolling.  

The main structure of the ‘dream’ Padma Bridge, the largest infrastructure being built with the country’s own funds, came into full view at the end of the year. Record surges in remittances have also been a source of encouragement for the government.

Taking the adverse circumstance into account, the economy of Bangladesh “is in a much better position in comparison with any other country”, Finance Minister AHM Mustafa Kamal opined while reviewing the country’s economic performance throughout the year.

“To everyone’s astonishment, our expatriate brothers and sisters have sent more and more remittances despite the pandemic, pushing the (foreign exchange) reserves past the $42-billion milestone. Export earnings have still been in the positive zone and inflation has remained tolerable,” he said.

“The completion of the main structure of our dream Padma Bridge has given us (government) courage, just as it has done to the people. We will stand up with our heads held high by confronting the COVID-19 pandemic with this courage. We’ll build a ‘golden Bangladesh’ as envisaged by the Father of the Nation Bangabandhu Sheikh Mujibur Rahman.”

The business community, as well as economists, see a ray of hope in the news that the newly-developed coronavirus vaccine doses are arriving in the country soon while the US and Europe have begun inoculating their people. It is, however, still difficult to say when the situation will go back to normal, but they are sure about one thing – the main focus in 2021 will be on ways to bring the country’s economy back on track.

And for this, the government should pay attention to different kinds of economic reforms, according to Ahsan H Mansur, executive director of Policy Research Institute.

“We need to give the necessary medication to the economy in order to keep it healthy. I mean economic reforms are a must. Especially, large-scale reforms are needed to ensure greater revenue collection. Strong measures are needed to bring back discipline in the banking sector,” he said.

GDP FALTERS

Bangladesh has targeted an 8.2 percent GDP growth in fiscal 2019-20 after smooth progress to 8.15 percent in 2018-19. The economy, however, suffered a huge setback due to a stagnant global market and a two-month nationwide lockdown in a bid to prevent the spread of the coronavirus.

Bangladesh has reported 5.24 percent GDP growth in FY20 with the coronavirus pandemic ravaging the economy for at least a third of the financial year, according to the Bureau of Statistics. Many analysts believe that the figure was much lower.

With the economy almost fully reopened, the government has stuck by its annual GDP growth target of 8.2 percent in FY21.

International agencies are not so optimistic. The World Bank in a forecast in October said the pandemic may push the country’s economic growth down to as low as 1.6 percent in 2020-21 and 3.4 percent in 2021-22.

An official taking temperature of workers at the entrance of Snowtex Group's readymade garment factory in Dhaka's Mouchak as the plants continue production after reopening amid the coronavirus outbreak. Photo: Mahmud Zaman Ovi

Bangladesh's gross domestic product would grow by 6.8 percent in FY21 as its economy has begun to turn around, the Asian Development Bank predicts.

Finance Minister Kamal dismissed the World Bank forecast as “unrealistic”. “Bangladesh's economy has made a turnaround. All indicators are positive now. I believe the GDP growth will remain over 8 percent,” the minister said.

The first six months of the fiscal year were "okay,” said analyst Mansur. But Bangladesh “can never” achieve an 8.2 percent GDP growth unless some big development is made, he said.

“I can say it clearly that it will be a great achievement if Bangladesh can post 5 percent growth amid this tough time. Many countries will fail to achieve even this much growth.”

One of the economic issues in focus in the year was an International Monetary Fund forecast that Bangladesh’s per capita GDP will be higher than India’s.

Citing the IMF’s global economic outlook report in October, the Indian media reported that Bangladesh per capita GDP may grow by 4 percent to $1,888 in 2020 while India’s would drop by 10.5 percent to $1,877 after the contraction due to lockdown restrictions.

But India will post a quick recovery and surpass Bangladesh in per capita GDP again in a year, the IMF said.

Most of the expatriates returning from Kuwait at Shahjalal International Airport in Dhaka on Aug 24, 2020 had their iqamas (work permits) expired. Photo: Mahmud Zaman Ovi

REMITTANCE: A LIGHT IN THE DARKNESS

When the pandemic upended the global economy, scores of Bangladeshi migrant workers lost their jobs in many parts of the world. More than 326,000 of them returned home between Apr 1 and Nov 30.

But unlike exports, a steadily growing flow of inward remittances has helped keep Bangladesh’s economy afloat, defying fears of a slump in the inflow of money.

According to Bangladesh Bank, the country received $21.4 billion from Jan 1 to Dec 24 in remittances this year, which is 17.75 percent more than the amount received in the entirety of 2019.

Bangladeshi expatriates clocked a new record in remittance by sending over $6.71 billion in the July-September period in the midst of the coronavirus crisis.

The amount is 48.57 percent higher than the money received in the same period last year.

In September alone, the expatriates sent back more than $2.15 billion, the second-highest in a month after $2.6 billion in July.

FOREX RESERVES NEAR $43 BILLION

Buoyed by remittances, Bangladesh’s foreign currency reserves have continued to surpass one milestone after another as it nears the $43-billion mark. 

The forex reserves at the Bangladesh Bank stood at an all-time high of $42.8 billion on Dec 27.

The achievement was possible mainly due to the money sent by Bangladeshis working abroad.

The growth in exports and foreign loans, alongside a drop in imports, has also contributed to the swelling of the reserves.

With the current reserves, it is possible to clear the import costs of over 10 months.

1% GROWTH IN EXPORT

Bangladesh’s readymade garment manufacturers hoped exports would boost by December, buoyed by a surge in the demand in the Western world ahead of Christmas, after a huge slump in the early months of the pandemic.  

Their expectations were hit heavily when export earnings slipped back into the negative territory with the second wave of coronavirus infections surging in Europe and the US.

Finally, exports returned to growth on cheap knitwear amid hopes raised by the arrival of coronavirus vaccines in the West.

After the pandemic began in China in late 2019, Bangladesh’s export earnings dipped to as low as $520 million, including $360 million of the apparel industry, in April 2020.

Export earnings rebounded somewhat in May, growing almost three times over the April receipts, as factories began reopening with relaxed restrictions. But it still marked a 61.56 percent year-on-year drop.

Exports bounced back to grow in July and continued the trend steadily in the following two months, beating the targets. A subsequent slump in October was followed by another spell of growth in November.

In the first five months of the current fiscal year, Bangladesh exported goods worth over $15.92 billion with an around 1 percent year-on-year growth.    

As much as 45 percent of the earning in the July-November period came from knitwear export while the contribution of overall readymade garment export, including woven and knitwear, was 81 percent.

Anwar-Ul-Alam Chowdhury Parvez, a former president of Bangladesh Garment Manufacturers and Exporters Association, however, thinks the pandemic crisis will continue to affect exports for several more months as the second wave of the outbreak and subsequent restrictions in Europe and the US continue.

Analyst Mansur, however, believes merely posting a growth is a “big thing” for Bangladesh now amid a raging pandemic.

Cargo containers are being moved at the Chattogram port which remains operational amid the coronavirus pandemic. Photo: Suman Babu

IMPORTS PLUNGE

In fiscal 2019-20, the import cost dropped 8.56 percent than the previous year. It came down further in the first quarter of 2020-21 as the coronavirus pandemic dealt a body blow to the economy. A slump in import means lower public consumption and waning investment in establishing new industries in the country.

According to the central bank, the country has shipped in products worth $ 15.78 billion from July to October in FY20, which was 13 percent less than the imports made in the same period last year.

Import orders dropped across the board except for that of food products. The opening of letters of credit (LC) to import capital machinery dipped 7.67 percent, while LCs for fuel saw a 35 percent decrease.  Raw material imports slid 5.33 percent.

BOP SURPLUS

A surplus in the balance of payment, one of the major indicators of the economy, has been steadily increasing amid the pandemic.

The surplus stood at $4.05 billion in the period of July-October. In the last fiscal year, there was a deficit of $1.52 billion in the same period.

The big surplus was triggered by the rise in remittance inflow and a dip in import costs, according to Mansur.

“A third wave of the COVID-19 has gripped different countries, including in Europe and the Americas. Bangladesh, too, has seen an uptick in infections and deaths. If this continues and the remittance inflow and export incomes ebb, the economic indicators, especially the balance of payment, will not be so comforting.”

Customers queue up at the principal branch of state-owned Sonali Bank in Dhaka’s Motijheel commercial area on Tuesday as the government gradually starts to ease the lockdown rules during the coronavirus crisis.

‘TOLERABLE INFLATION’

The point-to-point general inflation rate dropped to 5.52 percent in November from a 7-year high of 6.44 percent in October, according to the Bangladesh Bureau of Statistics.

Researcher Mansur thinks the arrival of winter vegetables in the market and a drop in prices of potato and onions have helped ease inflation.

GROWTH IN REVENUE COLLECTION

In the fiscal year 2019-20, revenue collection dropped 2.45 percent year-on-year. Economists expected it to dip during the coronavirus crisis ravaging the global economy, but the situation has not been as bad as predicted.

The government collected over Tk 870.92 billion in revenues from July to November, with a 3.19 percent growth, according to the National Board of Revenue.  But it still fell Tk 260 billion short of the target.

PRIVATE SECTOR CREDIT FLOW

The flow of credit into the private sector is one of the main drivers of investment. However, the credit flow, which has been depending on the government’s coronavirus stimulus packages, again hit rock bottom.

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

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. But it dropped to 8.61 percent once again in October.

GOVERNMENT BORROWING DROPS

The government set a borrowing target of Tk 850 billion from banks in the current budget, but it took only Tk 9.45 billion in four months of the ongoing fiscal year.

Experts had thought the government would have to borrow a huge amount from the banks to tackle the pandemic crisis, but their estimations have not materialised.

This has been attributed to the surge in the sale of savings certificates while the international development agencies have also provided enough loans.

SALE OF SAVINGS CERTIFICATES SKYROCKETS

The government’s borrowing from the savings certificates saw an abnormal growth in the pandemic.

In the first four months of the current fiscal year, July to October, the government has secured Tk 156.42 billion from the sale of savings certificates, which was Tk 12.14 billion more than the entire fiscal year of 2019-20.

The sales during that time were three times as much as the same period last year.

Last year the government borrowed Tk 144.28 billion from the sector.

83% INCREASE IN FOREIGN FUNDS

Bangladesh has secured more than $1.65 billion in mid- and long-term foreign funds from July to October in the current fiscal year, an 83.24 percent increase from $901 million in the same period last year.

Hefty amounts in loans from the World Bank, IMF, ADB and others to address the damage caused by the coronavirus pandemic pushed the foreign funds up.

Donors provided $7 billion in loans in the last fiscal year, which was 11.7 percent more than the year before.

NO PROGRESS IN ADP IMPLEMENTATION

Despite the influx of foreign funds, there has not been much progress in the government’s development work amid the coronavirus pandemic.

Only 12.79 percent of the Annual Development Plan was implemented from July to October. The implementation rate was 13.25 percent in the same period last fiscal year.

BOUYANT CAPITAL MARKET

After a long time, Bangladesh’s capital market has 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 capital 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 reached Bangladesh in March. The bourses later reopened on May 31.

The DSEX, the main index of the Dhaka Stock Exchange which had dropped below 4,000 in June in the midst of the epidemic, has since gained momentum in the following months, crossing 5,000.

On Dec 24, the closing day of last week’s trade, the DSEX gained 85 points to 5,218 with a turnover of Tk 14.05 billion.

Craftsmen are spending busy time at the boutique houses ahead of the Eid-ul-Fitr. Photo: Asif Mahmud Ove

BANKS BUSY WITH STIMULUS PACKAGES

Other than the implementation of the stimulus packages, the disbursement of loans for other purposes by banks has almost come to halt. Moreover, the collection of loan instalment has also stalled.

The Bangladesh Bank had issued a stay order on the classification of loans from January to June after the coronavirus pandemic became rampant. Later, the order was extended to December.

The Federation of Bangladesh Chambers of Commerce and Industry (FBCCI) and other business bodies appealed for an extension of the stay once the second wave of the coronavirus infection hit the country. The authorities will decide on the issue considering every aspect, the central bank said.

SMALL BUSINESSES LEFT IN THE LURCH

The government announced a total of 21 stimulus packages worth Tk 1.25 trillion to mitigate the economic impact of the coronavirus pandemic.

The biggest package of Tk 330 billion was earmarked for the industries and service sectors, while cottage, micro, small and medium enterprises (CMSME) were slated to get a Tk 200-billion stimulus.

The entrepreneurs are receiving the incentives in the form of bank loans, with Bangladesh Bank funding half of these two packages.

The interest rate has been set at 9 percent for both packages. The entrepreneurs need to repay 4 percent interest on their own while the government is subsidising the remaining 5 percent.

Big entrepreneurs have already finished taking out loans from their Tk 330 billion stimulus package announced by the government to help them recover the losses wrought by the pandemic. But the banks could not speed up the loan disbursement process for small businesses despite efforts of the government and the central bank.

The small business owners received Tk 82.18 billion, or less than half the Tk 200 billion stimulus package allotted to them, until Nov 30, according to a recent finance ministry report.

The finance ministry and Bangladesh Bank repeatedly pushed the banks to disburse the loans and also extended the deadline to do so, but the efforts came to no avail.

The government report on creating jobs and revival of the rural economy states that the finance ministry is dissatisfied with the pace of work to disburse loans among CMSMEs.

Although the central bank took on the liabilities of small loans, the banks have failed to provide the funds to the CMSMEs, a fact that Finance Secretary Abdur Rouf Talukder described as “unfortunate” in a report on the implementation of the packages.

FBCCI President Sheikh Fazle Fahim has been left bewildered by the banks’ reluctance to provide loans to small businesses, even though such enterprises tend to default less.

“The banks should stand beside all,” he said.

FOREIGN INVESTMENT PLUMMETS

With the pandemic rattling the global economy, foreign investments nosedived in Bangladesh. The country received foreign direct investment or FDI worth $720 million in the first four months (July-October) of the current fiscal year, which was 31 percent less than the $1.04 billion received in the same period last year.

The net FDI dropped 50.16 percent to only $153 million in this period. The net FDI stood at $307 million in the same period last year.

Mongla Port and Benapole Land Port will get connected to Dhaka and Chattogram Port directly through road once the Tk 301.93 billion project ends.

PADMA BRIDGE: A NEW HOPE

The dream of the people of 21 southern districts to get connected to Dhaka by road nears completion as the installation of the final span has made the entire basic structure of the 6.15-kilometre Padma Bridge visible.

The bridge will open to traffic once the concrete is cast, the roads are laid out and the slabs for the railway are installed. It is expected to be operational within a year.

The Padma Bridge is expected to have an enormous impact on the country’s economy once it is operational, far greater than that of the Bangabandhu Bridge on the Jamuna river, according to Zaid Bakht, a researcher at the Bangladesh Institute of Development Studies.

Dhaka and its surrounding areas, as well as the southern districts, have already started to attract investments in different sectors as the bridge edges closer to completion. Many industrial factories, big and small, are likely to crop up soon.

“Most importantly, it will shave four hours of road and rail communications. People will be travel more easily and new businesses will emerge.”

In its feasibility study, the Bangladesh Institute of Development Studies (BIDS) forecast a 1 percent GDP growth from the construction of the Padma Bridge. But in reality, the growth will outstrip the BIDS’ estimation under the present circumstances, according to Bakht.

“The market will expand, especially the market for farm products. Farmers will be able to send their produces to Dhaka. People in the southern part of the country are expected to have their income doubled.”

The project is also set to establish direct road links for Mongla and Benapole ports to Dhaka and Chattogram Port.

“This is why I believe that the Padma Bridge, the dream project, will entail much more success than we expect,” Bakht said.

Bangladesh’s GDP growth will hit double-digits once the Padma Bridge becomes operational, hopes Finance Minister Kamal.

“When operational, the Padma Bridge will breathe a new life to the economy of Bangladesh. The GDP growth will increase by 1.5 percent. The government research also substantiates it,” he said.