Bangladesh economy was hammered by pandemic. Now it sees green shoots

As the outbreak of COVID-19 turned into a pandemic in 2020, Bangladesh's economy took a nosedive as public health took precedence. Years of growth and expansion were bookended by a spell in the economic doldrums, with the tradeoff between lives and livelihoods posing a big dilemma for the government.

A year on, the green shoots of recovery are emerging rapidly.

New job opportunities are rife as employers look to fill posts that have long lay vacant. Although investments are still short of the expected levels, export and import-oriented businesses are beginning to regain momentum.

Economists and entrepreneurs, therefore, have urged the government to take the necessary measures to reduce risks in trade and commerce to ensure sustainable growth. 

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Fitch Ratings, a leading multinational credit agency, forecasts 7 percent economic growth for Bangladesh in FY22. The outlook for FY22 is similarly rosy with Fitch expecting growth to accelerate to 7.2 percent.

In a report released on Nov 8, Fitch assigned a 'BB-' bond credit rating to Bangladesh with a stable outlook.

According to the recent data published by Bangladesh Bank, import expenditures have increased 47.56 percent in the first quarter (July-September) of the current fiscal year compared to the same period last year, currently standing at $18.73 billion.

Meanwhile, export earnings have seen a 22.62 percent year-on-year growth, according to the Export Promotion Bureau.

Bangladesh has exported goods worth $15.74 billion so far in FY22, which is 13.33 percent higher than the target.

It is evident from the export growth and other indices that the national economy is recovering from the pandemic-induced stagnancy, according to economist Ahsan H Mansur, executive director of the Policy Research Institute.

"We're now in the post-recovery phase. Production has almost reached the pre-pandemic level. This is quite positive and hopefully, we can get over the negative impacts of the COVID-19 pandemic in the first three or four months of the next year," he said.

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The overall deficit in national trade stands at $6.5 billion in the first quarter of fiscal 2021-22, which is three times higher than the same period last year.

However, Ahsan played down concerns over the trade deficit with economic activities picking up speed.

"Import growth puts pressure on the balance of payments. Higher import spending and a decrease in remittances were a big blow to the balance of payments. Migrant workers couldn't go abroad.  But they've started going back now. The government must focus on this. The drop in remittance is temporary. This will be over soon."

Remittances reached a record high of $21.7 billion in 2020 and Fitch attributed it to a shift to more formal remittance channels and Bangladesh Bank's 2 percent cash incentive for inward remittances.

However, the US-based agency believes the large year-on-year increase in 2020 is unlikely to be repeated as some of the factors that drove the big jump in remittances were temporary.

According to Ahsan, mega projects such as the Metro Rail, Dhaka-Chattogram dual gauge, Karnaphuli tunnel and Padma Bridge, will also have a positive impact on economic growth when they are completed.

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Despite the positives, the economist pointed out that foreign investment in the country remains quite low. In future, it will be quite challenging to maintain the balance between the micro-economy and the big industries, according to Ahsan.

However, he believes the issue of affordable housing has not received enough attention. Homeownership remains beyond the purchasing power of the common people and housing has not been guaranteed for the lower-middle-income group.

“There’s no government policy here. A policy could have created a huge demand in the economy. It could have drawn an investment of Tk 4.5 trillion. The government must act on this.”

The revival of the economy has coincided with an ebb in the coronavirus pandemic, according to Sirajul Islam, executive chairman of the Bangladesh Investment Development Authority or BIDA.

But the country has not been able to attract enough new investment from abroad due to the existing pandemic restrictions in developed countries, especially in Europe, he said.     

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“But those foreign companies who have already invested in Bangladesh, have made new investments as needed. Also, the economic zones are drawing foreign investment. We called for investments through virtual conferences with Britain, the US and other countries amid the pandemic.

"Many of them are willing to invest in Bangladesh but it got delayed due to the travel restrictions around the world. That’s why we need more time to shake off the effects of the COVID-19 pandemic in terms of foreign investment,” the BIDA chairman said.

INCREASE IN RAW MATERIAL IMPORT

The first quarter of the current fiscal saw a 54.67 percent jump in the import of raw materials for major industries, with total spending of $4.84 billion so far. The import of raw materials went up 68 percent in the garment sector.

Besides, the import of capital assets saw a 40 percent growth. Capital assets worth $3.69 billion were imported in the first three months of the current fiscal, up from $2.63 billion last year.

Raw materials worth $1.1billion were imported specifically for the Export Processing Zone or EPZ, while the figure was $694 million last year.

EXPORT THRIVING

Export-oriented businesses, another major pillar of the economy, experienced significant growth in the first quarter of the current fiscal year. Bangladesh broke monthly records for exports in September and October as international purchase orders increased with the downturn in coronavirus cases around the world.

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Highlighting the 'significant recovery' of total exports, Fitch Ratings said garment exports rebounded to $31.5 billion in FY21, as demand recovered in the key markets after a period of lower demand in the EU and the US.

Garment exports, which make up 80 percent of total exports and about 8.5 percent of Bangladesh's GDP, declined in FY20 to $27.9 billion.

And analysts believe exports will now go from strength to strength.

Bangladesh shipped goods worth $4.73 billion in October, a monthly record, marking a 60.37 percent year-on-year growth. The figure was $4.16 billion in September, the previous monthly record.

After an 11 percent year-on-year drop in July, export earnings turned around with an almost 14 percent rise to around $3.4 billion in August. But the total earnings in the first two months of the 2021-22 fiscal year missed the target by 7.84 percent.

MORE JOBS

A resurgence of economic activities is having a positive effect on the job sector, analysts said. Educational institutions have reopened and the government has resumed its recruitment drives after a lengthy pause.

Due to the lockdown, a large number of workers were laid off in the garments sector over the past one and a half years. But the tables have now been turned with most of the factories looking to hire new workers.

As the garment factories are receiving new work orders, they are seeking skilled workers, said Syed Nazrul Islam, senior vice president of Bangladesh Garment Manufacturers and Exporters Association.

Most of the big factories need 10 to 15 percent more workers, he said. “It's estimated that the garment factories have around 2.5 million workers, which means another 300,000 people can still be employed.”

Recently, some garment work orders were diverted to Bangladesh from Myanmar, China and Vietnam. With the offices reopening in Europe and the US, the demand for knit and woven garments is on the rise.

However, Nazrul warned that job creation in the apparel sector could be affected by a shortage of raw materials.

"The materials are imported from China. But China is keeping its factories open for 2 to 3 days a week only and this can cause a supply shortage for woven fabric. Future employment in this sector is linked to this issue," he said.

[Written in English by Sabrina Karim Murshed and edited by Turaj Ahmad]