Impact of Corona Virus in Bangladesh

General information

According to the World Health Organization, Bangladesh has 12425 confirmed infections to date
and 186 people have died from the coronavirus.

On 26 March, the government first introduced a 10-days shutdown until 4 April. On 1 April, the
government announced that the shutdown would be extended until 11 April. On 5 April 2020,
the government again extended the ongoing ‘general holiday’ for another three days, until April
14. On 10 April, the government again extended the ongoing closure of all public and private
offices until 25 April to contain the spread of the coronavirus in the country. In line with this, on
11 April, it was communicated that all public transport services will be suspended until 25 April.
Again the lockdown will extend on 6 may. Now it will extend on 16 may. [ CITATION htt201 \l
1033 ]

The government has repeatedly been asking people to stay home in efforts to contain the spread
of the virus. Soon after the 24 March announcement, people started leaving the capital for their
village homes in droves. Several local media outlets reported that hundreds of city dwellers
boarded buses and trains to head back home, fueling fears of further spread of the virus
throughout the country.

Many workers came back to the capital under the assumption that they would return to work on 5
April, only to find out that the closure would continue until 12 April. This has caused a lot of
frustration. One worker asked, ‘What will we eat now? We cannot go back to home again.’

Garment workers of at least 11 factories in Savar took to the streets on 12 April demanding their
wages from the previous month, as some of them had not been paid last month’s wages, which is
supposed to be paid by 10th day of each month.

On 7 April, Commerce Minister Tipu Munshi urged factory owners to pay salaries for the month
of March to their workers by April 16. ‘You (owners) can’t fire any workers even though the
factories are remaining closed due to the Covid-19 pandemic in the country,’ he stated.

On 10 April, The Bangladesh Garment Manufacturers and Exporters Association (BGMEA) and
Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA) announced in a joint
statement that the readymade garment (RMG) factories would remain closed until 25 April. The
statement added, ‘If any factory office remains open to disburse wages and other payments
during the period, the factory authorities will have to inform the respective trade bodies and
industrial police about this.’

On 1 April, the government cancelled all public programmed marking Pahela Baishakh, the
Bengali New Year, to avoid mass gatherings as part of its efforts to contain the spread of the
novel coronavirus. The Bengali New Year 1427 will begin on April 14.

The situation with factory production

Following the government decision to close all public and private offices and public transport
until 25 April, on 10 April the Bangladesh Garment Manufacturers and Exporters Association
(BGMEA) and Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA)
announced in a joint statement that ready-made garment (RMG) factories would remain closed
until 25 April.

A Research Brief from the Center for Global Workers’ Rights of Pennstate University, in
Association with the Worker Rights Consortium, drawing from responses from an online survey
of Bangladesh employers, reported that more than half of Bangladesh suppliers have had the
bulk of their in process, or already completed, production cancelled. Several media outlets also
reported this.

Many factories announced layoffs at their units according to the provisions of 12 and 16 under
labour law (see also below). Workers will get half of their basic payment and house rent during
the layoff period, according to the law. On 25 March, Prime Minister Sheikh Hasina announced a
bailout/stimulus package of Tk 5,000 crore (equivalent of EUR 5.3 billion) for export-oriented
industries to mitigate the impact of the coronavirus on the country’s economy. The premier
indicated that the money from the package could only be disbursed in the form of salaries and
wages for employees and workers of those industries.

On 5 April, the Prime Minister announced four fresh financial stimulus packages of Tk 67,750
crore. The PM said the government simultaneously developed four programmes under the plan,
to be implemented in phases categorised as Immediate, Short and Long. The four programmes
are: increasing public expenditure, formulating a stimulus package, widening social safety net
coverage and increasing monetary supply.

On 1 April 2020, the finance ministry unveiled the guidelines for disbursement of the Tk 5,000
crore-stimulus package. Businesses can avail of funds from the package at 2% interest to pay
their workers’ salaries for up to three months. The salaries must be paid to either a bank or
mobile financial service account. Management of export-oriented companies or factories have to
provide salary sheets, workers’ lists and their mobile banking accounts to banks so that salaries
for April can be directly disbursed. The banks, afterwards, will forward the same documents to
Bangladesh Bank for reimbursement. The borrowers will get a six-month grace period, meaning
that they will start paying back the borrowed money in instalments to the government from the
seventh month of receiving the money. [ CITATION htt20 \l 1033 ]

HSBC Bangladesh announced a set of measures to help its textile and garments clients tide over
the economic fallout from the coronavirus pandemic. The bank will provide special short-term
loans of up to one year, with principal moratorium for four months, which can be used for
supporting payroll bills and utility payments. The bank will also allow three months’ moratorium
against the existing term loans enjoyed by businesses belonging to the textile and garments
sector, according to a press release issued by HSBC Bangladesh. During the moratorium period,
clients will not be required to pay any instalments, and the lender will also not seek any amount
of repayment from them. The Bangladesh Bank has asked banks to extend similar support to
businesses.

On 25 March, the Bangladesh government sought $1 billion in support from the International
Monetary Fund and the World Bank as the country looks to support its people, businesses and
industries reeling from the pandemic. [ CITATION Byr20 \l 1033 ]

The aforementioned bailout/stimulus package of Tk 5,000 crore (equivalent of EUR 5.3 billion)
for export-oriented industries is to be disbursed in the form of salaries and wages for employees
and workers of the industries.

Impact on Consumer Demand

According to latest reports, scores of RMG factories are shutting down and workers are going
back to the villages. This creates pressure on the rural economy at a time when urban-rural
economic linkages have also been severely disrupted. To speak of the urban economy, malls
have been closed from March 25, as per directive of the Bangladesh Shop Owners Association.
Only kitchen markets, grocers’ shops, shops selling daily essential commodities and pharmacies
have been allowed to stay open. In Bangladesh, footfalls will be minimal in April, which is
usually a time stores do brisk business, because of Pohela Boishakh.

In one interview, a retailer with a relatively high capital investment opined she would focus more
on her online sales. Our research suggests that several large retailers will look to strengthen their
online operations, if effects of COVID lasts until May, which is the month of Eid, which is when
retailers do most of their business. At the time of writing, Bangladesh supermarkets have had
more resilient business, albeit for food items and groceries. Source: Dhaka Tribune

Of course, one of the hardest hit sectors is aviation. In interviews conducted with one of the
largest travel agencies in Bangladesh, there was considerable concern about paying staff salaries
at a time when customers were seeking cancellations, refunds, and holidays were clearly out of
the question. Globally, travel agencies have digitized significant components of their value
chain, especially booking and payments. Certain Bangladeshi travel startups have invested in this
space, and as a result, may fare better than the competition in the wake of the crisis.

However, travel agencies constitute a fragmented sector in Bangladesh, and owing to COVID-
19, many small ones are expected to close shop. Airlines and hotels have also been badly hit. As
of March 1, Mr. Abdus Salam Aref, former Secretary-General of the Association of Travel
Agents of Bangladesh, reported that outbound passengers had fallen by 70-80% and inbound, 35-
40%. By end of March, inbound passengers are expected to fall by 70-80% as well.

Overall, the current economic situation may seriously undermine the livelihood of the
underprivileged cohort of the population. The Center for Policy Dialogue (CPD) has predicted
that the effect of COVID-19 will be worst for people who are dependent on daily wages and low-
income groups. Lack of access to basic healthcare, knowledge of hygiene and social safety net
has always been a challenge for this cohort and the pandemic is likely to increase these
challenges, exponentially.
Challenges for the Financial Sector

COVID-19 catches the Bangladesh financial sector at an inopportune time. Banks were trying to
come to terms with the Ministry of Finance directive of 6% and 9% caps to interest rates on
deposits and loans; vulnerable asset quality; moribund capital markets; and a struggling
microfinance sector as access to donor funds and bank financing become more competitive. It is
worth noting that in the last three months, private sector credit growth was already declining. A
CEO of a leading private commercial bank suggests that banks were taking time to adjust to the
9% directive, as many were reluctant to lend at this rate. As effects of COVID-19 intensify,
given that there have been several large-scale order cancellations for RMG clients, many loans
may go into default, which is worrisome for the sector.

In the coming months, government sector bank borrowing may decline. This is because large
projects such as the Padma Bridge, Padma Rail Link, Karnaphuli Road Tunnel and the Greater
Dhaka Sustainable Urban Transport Project involve financial and technical input from China,
both of which are expected to be adversely affected. However, a temporary slowdown in
government borrowing may assist private sector lending,through a “crowding in” effect. The
significance of these remains to be seen. The Bangladesh Bank has also attempted to pump cash
into the economy. It has cut both repo rate and cash reserve ratio by 25 and 50 basis points,
respectively.

Moreover, the central bank is buying dollars from commercial banks, with the intention of
curbing taka’s appreciation against the dollar, has provided guidance on provisions for
rescheduled loans, and instructed banks to extend tenure to realize export proceeds, while
allowing importers time to make import payments. Once the current risks of infection subside,
the quantitative easing is expected to encourage banks to seek out investment opportunities.
Whenever this happens, some of this liquidity may also find its way into the stock market.

Therefore, while markets are falling, and it is of course, never possible to time a market bottom,
there are fundamentally strong equities trading at historically low prices at present.

Impact on Small Businesses and Startups

At times of economic turmoil, small businesses and startups are usually the worst hit. Raising
funds is difficult as it is, for small businesses and startups. When it comes to SME’s, in an
environment of 6% and 9%, access to finance will become more difficult as banks will be
reluctant to make SME loans at 9%, since SME operations are more expensive for banks. It is
hoped that the Government will offer SMEs some form of reprieve in the stimulus package that
is being designed. For Bangladeshi startups, although the ecosystem is at an early stage, with a
handful of startups responsible for a lion share of funds raised, COVID has had adverse
consequences

Fundraising for startups is difficult even in a healthy economy. At the time of Corona, when
public equities are being deemed risky and even gold prices have been shaky, startup investing
will likely take a considerable hit in the coming months. [ CITATION Ami20 \l 1033 ]

References
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Amit , S. (2020, March 31). Retrieved from https://www.dhakatribune.com/:

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