5/24/2020 Will the Pandemic Derail Bangladesh’s Economic Growth?

– The Diplomat

PACIFIC MONEY | ECONOMY | SOUTH ASIA

Will the Pandemic

Derail
Bangladesh’s
Economic
Growth?
Yes, but how bad it gets
depends on what Dhaka
does and how the world
progresses against the
coronavirus.

By Anand Kumar
April 18, 2020

This article is free

The Diplomat has removed paywall restrictions
on our coverage of the COVID–19 crisis.

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5/24/2020 Will the Pandemic Derail Bangladesh’s Economic Growth? – The Diplomat

Credit: Pixabay

Bangladesh has been a major beneficiary of

globalization. The country has benefitted from
the outsourcing of production to places where it
can be done in a more cost-effective way. The
ready-made garments (RMG) industry is labor
intensive and labor is available in Bangladesh in
abundance at a cheap price. The abundance of
labor has also made Bangladesh a major labor
exporting country, bringing valuable foreign
exchange. It also helps in the balance of
payment situation. The political stability in
Bangladesh in the last decade and propitious
circumstances brought on by globalization has
resulted in very fast economic growth in the
country. Bangladesh’s GDP growth in last few
years has averaged around 8 percent. This was
happening at a time when economic growth in
rest of the world was slowing down. However,
this fast economic growth has been disrupted by
the outbreak of the COVID-19 pandemic. 

The RMG industry and remittances from

overseas workers are the two biggest
contributors to Bangladesh’s foreign exchange
reserve. Manufacture and export of RMG
contributes 13 percent to the GDP of the
country. It employs nearly 4 million workers. It

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5/24/2020 Will the Pandemic Derail Bangladesh’s Economic Growth? – The Diplomat

is estimated that out of this 1 million workers

are already unemployed. 

For the RMG industry, major export destinations

include the United States, U.K., Germany,
France, and Italy. However, garment stores in
these countries are now shut. People have
already limited their discretionary spending.
Exporters in Bangladesh are now not getting
their payments on time. Buyers are cancelling
or modifying orders. As a result of this, industry
owners are finding it difficult to pay salaries to
workers. Laid-off workers are returning to
villages, creating additional problems in the
rural economy. The unemployment of these
workers and the shutdown will create further
problems in the realm of food security. 

Remittances are another major source of

foreign exchange. According to World Bank
data, Bangladesh received $15.5 billion in
remittances in 2018, 15 percent higher
compared to the previous year. In 2017,
Bangladeshi migrant workers sent $13.5 billion
back home. Bangladesh was the third highest
recipient of remittances in South Asia in 2018,
after India and Pakistan, and the 11th highest
recipient globally.

Nearly 10 million Bangladeshis are working in

foreign countries. Most of them are in Gulf
countries, Western countries, and some
Southeast Asian countries like Malaysia. A large
number of these workers are now returning
home because of the disruptions in their host
countries. Many host countries now have travel
restrictions and economic slowdowns of their
own. These returnees generate additional
problems, both with regard to possible new
infections and the economy. They also won’t be
able to return to their usual places of work
abroad until the global situation improves.
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5/24/2020 Will the Pandemic Derail Bangladesh’s Economic Growth? – The Diplomat

Pohela Boishakh — the Bangladeshi New Year —

is usually a time when business is brisk in
Bangladesh. This is when people do a lot of
shopping. Unfortunately, because of the
pandemic most people will not be able to do
their shopping or celebrate as they normally
would. This is going to affect the local economy
in Bangladesh. Though some business owners
are trying to shift online, in Bangladesh
especially this won’t be enough to replace
empty marketplaces.

In early March, the Asian Development Bank

(ADB) estimated that in the worst case scenario
the gross domestic product of Bangladesh may
contract by as much as 1.1 percent, wiping $3.02
billion off the $300 billion-plus economy. The
ADB further estimated that in this scenario
894,930 jobs will be lost. Unfortunately, in
Bangladesh the number of unemployed workers
in the garment sector has already exceeded this
figure. 

The impact of the pandemic is also likely to be

greater on Bangladesh because of its
dependence on China. China is Bangladesh’s
biggest trade partner and is the biggest source
of imports including raw materials needed for
its industries. China is now also emerging as an
export destination for Bangladesh. Moreover,
the major portion of tourist traffic in
Bangladesh comes from China. The barriers to
imports from China, the original epicenter of
the virus, will hurt the export-oriented sectors
and disrupt the supply chain. It will also affect
the overall trade.

The Bangladesh government has come out with

a massive stimulus package to check the impact
of the pandemic. The stimulus package, to the
tune of 727 billion Bangladeshi taka ($8 billion)
was announced by Bangladesh Prime Minister
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5/24/2020 Will the Pandemic Derail Bangladesh’s Economic Growth? – The Diplomat

Sheikh Hasina on April 5. The government

initially declared a 50 billion taka ($5.9 million)
emergency incentive package to support the
export-oriented industry. Further packages
were announced aimed at affected industries.
The total stimulus package is worth nearly 2.52
percent of GDP.

Exports of RMG and the return of migrant

workers to their host countries will depend on
how quickly the situation improves in the
world. As of now it is feared that the impact of
the pandemic on the Bangladeshi economy will
be enormous. The Economist Intelligence Unit
(EIU) estimates that the GDP of Bangladesh for
the next year could decline by about 4 percent.
The stimulus package announced by the
Bangladesh government is impressive but it
remains to be seen how effective it will be given
the culture of embezzlement and previous
tendencies to grant loans to cronies and
politically connected people.

Anand Kumar is an associate fellow at the

Manohar Parrikar Institute for Defence Studies
and Analyses, New Delhi, India.

TAGS

Pacific Money Economy South Asia Bangladesh

2020 Coronavirus Bangladesh coronavirus

Bangladesh economic growth Bangladesh economy COVID-19

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