SATURDAY, APRIL 11, 2020

Minimising the economic impact of

Coronavirus in Bangladesh
Bangladesh will face an economic shock by declining export and tourism revenue in a large-scale due
to restricted export policies and travel bans

All government and non-government institutions need to set up cloud-based work at home facilities for smooth operation
during such emergencies. Photo: Collected

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Few weeks ago, people of Bangladesh were living peacefully, travelling freely, doing their jobs
perfectly; the economic growth projections were cheery and the financial market were tolerable –
as the world recovered from the global financial crisis of 2007-09. 

But the novel coronavirus or Covid-19 has brought a dramatic slowdown in the overall life style and
economy of the world where Bangladesh became a victim too. The exponential spread of the virus
and its deadly effect made it clear that it has the potential to wreck the economy. 

Initially, economist thought the recession was "V-shaped", where a sharp decline is followed by a
sharp rise back to its previous peak, as it was a Chinese problem and the country was dealing with
it persuasively so the economy will be in full-power after a small shock. As time went by, the
economic impact of Covid-19 has proved to be costlier than expected. 

Though the world has faced several pandemics in the 21st century such as Severe Acute
Respiratory Syndrome (SARS) in 2002, N1H1 (Bird flu) in 2009, Middle East Respiratory Syndrome
(MERS) in 2012 and Ebola in 2013-14, the novel coronavirus or Covid-19 is different due to its
exponential growth and attacking powers. 

Since the attack of this virus in Bangladesh is a very recently identified case with very low scale,
questions may arise whether this will affect us economically. The answer is very simple. When
giant economies like US, China, Japan, Germany, Britain,

France, and Italy are affected, the rest of the world will not be spared from the blow as these
economies carry almost 60% of world supply and demand in terms of GDP, 65% of world
manufacturing and 41% of manufacturing exports, as per a report of the World Trade Organization
published in 2020. 

Global economy is connected through cross-border flows of good, services, people, know-how,
financial capital, foreign direct investment, exchange rates and international banking. As a
consequence, Bangladesh will experience a slow growth in its economy as the USA, UK and
Germany are the main importers of its products specially clothing and leather products and China
is among the main investors for mega development projects. 

Thus, this virus will bring economic shocks. Tangible economic shocks can be categorised into two:
firstly, purely medical shocks – as the affected persons cannot contribute to GDP and secondly, the
economic impact of public and private containment measures – things like school, office and
factory closures, travel restrictions, and quarantines. 
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Hence, Bangladesh will face an economic shock by declining export and tourism revenue in a
large-scale due to restricted export policies and travel bans. 

For example, the Asian Development Bank (ADB) (2020) predicts that in hypothetical worst case
scenario (no tourism receipts and sharp decline in domestic demand in China for six months plus
the outbreak in other Asian economies lasting three months), Bangladesh will lose approximately
$3 billion in its GDP (1.10 per cent decline) and there will be job cuts for around 9 million people.

Specifically, in the sectoral scenarios, the highest GDP loss and job cuts will be in business sector
including financial sector, trade and public services by $ 1.14 billion and 2,01,106 people
respectively followed by agriculture ($637 million, 4,58,000 people), tourism ($510 million, 50,000
people), construction and utilities ($ 400 million, 1.18 million people) and transport service ($334
million, 67,000 people). 

So, the statistics shows the predicted lethal impact of Covid-19 on Bangladesh economy. But the
question is how the virus can slow down the economy of Bangladesh? 

There are mainly three reasons that can hinder the economic activities in Bangladesh such as,
direct impact on production, supply chain and market disruption as well as impact on firms and
financial markets. Financial sector, specifically the banking sector in Bangladesh, can be the most
affected sector. This is because banks were the heart of all crises such as sovereign euro crisis and
the global financial crisis. If banks fail, the Small and Medium Enterprises (SMEs) will be more
affected.

Strategical measures can win over any situation. So, in order to surmount this panic and deadly
situation, the government and policy-makers of the country and the Bangladesh Bank have to
come forward to minimise the economic losses and panic by considering both short-run and long-
run policies as the size and diligence of the economic damage will depend on how government
handles this sudden pandemic.

The government and policymakers should be very careful to send a message of cohesion,
accountability and leadership to prevent fear and panic. In this regards, government can learn
from Singapore's effective handling of the issue since The Chinese New Year. Though the
government has fixed the price of necessary hygiene related items including hand sanitiser and
face masks, however proper enforcement of this decision is a must. 

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The World Health Organization (WHO) already declared the virus as pandemic so the government
should shut down educational institutions and reduce large-scale social interaction like meetings,
conferences, seminars, symposiums immediately.

Bangladesh government and the central bank must make sure that interrupted economies continue
to function amid the virus outbreak. In this regard, government should instruct the financial and
non-financial institutions, educational institutions, and all government and non-government
institutions to set up cloud-based work at home facilities so that they can continue their smooth
operation during such occurrences. 

While cutting interest rates is a possible response for Bangladesh bank, the shock is not simply a
demand management problem but a multi-faceted crisis that will require monetary, fiscal and
health policy responses. 

The increased government spending should be first directed to the health sector for supporting all
essential expenditure on prevention, containment and mitigation of the virus, including higher
overtime pay and better working environment conditions (specially the health care personnel who
are involved in taking care of those infected), as well as research. To stimulate the motivation of
those health care personnel and considering the safety of the people, the government should
declare a health insurance policy.

Supporting vulnerable households and firms is essential as containment measures and the fear of
infection can cause sudden stops in economic activity. 

The increasing liquidity buffers to firms in affected sectors is also necessary to avoid debt default.
In addition, reducing fixed charges and taxes and credit forbearance would also help to ease the
pressure on firms facing an abrupt falloff in demand.

Finally, the government, oppositions, the NGOs, the other social organisations, the business
people, the financial and non-financial institutions, and the people of Bangladesh should come
forward and work together to handle this pandemic and minimise both the economic and non-
economic losses.

The author is Research Fellow, UAC, Faculty of Economics and Administration at university of
Malaya.

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