A substantial decline in import bills has narrowed the trade deficit and Bangladesh’s international transactions are in a favourable position now
A different phenomenon observed during this pandemic crisis may have helped Bangladesh regain its exports in the first two months of this fiscal year.
Unlike in other crises like the 2008 financial crisis, tradable commodity exports have increased globally during the pandemic although global GDP has shrunk. However, non-tradable service exports have suffered.
Bangladesh's strength in tradable goods helped it stride the hard times of the pandemic. Its small presence on the global market of tradable services has appeared to shield the country from the pandemic's shocks on services requiring close human interaction, such as: mass transport, domestic tourism, restaurants, and recreational activities.
A substantial decline in import bills has narrowed the trade deficit and Bangladesh's international transactions are in a favourable position now.
Though the value of exports dropped in August from July, Bangladesh's export earnings were up by 3% in the first two months of the current fiscal year compared to the same period last year. Apparel, pharmaceuticals, agricultural, and jute products contributed to the export growth in the period.
Not alone in Bangladesh, global trade volumes posted their biggest monthly rise in June, defying fears of a 30% slump as aired by many in 2020.
The resilience of global trade in goods has defied the experience of the financial crisis which saw a 0.1% decline in global GDP in 2009 and 13% drop in world trade. IMF forecasts the pandemic will cut global GDP by 4.9%.
So then, why does the impact on global trade seem to be lower than that of the global financial meltdown?
The Economist, in an article, seeks to give an answer.
After the 2007-08 financial crisis, trade volumes fell much further than GDP mostly because of people's purchasing behavior: they stopped buying durable goods like cars.
However, during the current pandemic, people stopped going to cinemas or restaurants due to lockdown, but did not stop buying imported fridges. This helped tradable goods move across the borders.
Western Union and Oxford Economics, in a report, say pandemic-induced lockdown and travel restrictions will cause a 40% collapse in tourism output, 50% in passenger transport and airfreight by 20% in 2020—raising concerns for giant plane makers like Boeing and Airbus.
However, apparel makers in Bangladesh may stay least affected as not many surveys suggest that people have stopped buying clothes. They might have delayed purchasing their next outfit, as reflected in the trend of restoration of previously postponed orders for apparels.
By early September, brands restored 90% to 100% of their orders. As the festival season nears, new orders are also pouring in.
Bangladesh has little or no stake in the $6tn global trade of services.
Balance in Bangladesh's trade in service is always negative as the country buys more services from abroad then it sells—as travel, transport and education.
This weakness did not do any harm in the pandemic. Rather it proved a saviour as the country saved nearly $178 million in July this year as its purchases of tradable services from abroad were fewer this year due to pandemic.
Faster-than-expected reopening helped?
Lockdowns were lifted more quickly than expected and Asia was faster than other regions to open its supply chains – that helped the global production apparatus robust during pandemic.
When China started reopening its factories on February 10, European countries were facing the intensity of novel coronavirus infections and cancelling or delaying orders.
The faster-than-expected reopening of factories helped export powerhouse China keep global supply chains running and Bangladesh also benefited from it.
Bangladesh had yet to detect any Covid-19 case and factories were getting raw material supplies from China.
The scenario changed after the first case was detected in Bangladesh on March 8; with a subsequent shutdown and suspension of international flights.
The reopening of factories, particularly those in the apparel sector, was faster-than-desired in Bangladesh too. The hasty reopening on April 25, just a month after the shutdown was enforced, raised health risks, but helped factories keep their production continuing at a rate much below the usual.
Requests to cancel orders or delay shipments started flooding in, as major trading partners like Europe and the USA were struggling with the Covid-19 pandemic. The BGMEA calculated the value of postponed or delayed orders at about $3 billion.
The pandemic created demand for some new products and some apparel makers switched to production of PPE and other novel coronavirus protective gear. Some factories operated partially to fulfill pending orders, while others waited to restore cancelled orders. Their long wait ended as global brands responded positively to the appeals from apparel makers and global pro-workers pressure groups.
All these have been reflected in July-August export figures. Trade analysts forecast the export growth will continue for next few months with some fluctuations from month to month.
"Export gains were because of responsible business practices of global apparel brands. They responded to calls for supporting low-income trading partners at the time of pandemic," says Dr Khondaker Golam Moazzem, research director of Centre for Policy Dialogue (CPD), a local think-tank.
There are pressures for more discounts than before, but a decline in raw material prices have helped apparel makers recoup their cost, he pointed out.
Exporters now need to explore online global market platforms while the government should facilitate relocation of foreign investment, particularly those leaving China, in special economic zones to promote high-value diversified products, Moazzem felt, adding that export diversification would not gain pace until foreign investors show the way.
"Local entrepreneurs should instead make best use of the tax holiday offered in seven new export sectors," he added.
As exports made a turnaround and imports dipped, Bangladesh saw a balance of payment (BoP) surplus of $1.12 billion in July, compared to a deficit of $77million a year ago. Imports fell 19% in July, narrowing the trade deficit to only $86 million from over a billion in July last year.
Dr Ahsan H Mansur, executive director of the Policy Research Institute, believes that export growth will continue in next six or seven months, while BoP will stay positive.
"Apparel will continue to lead the show. We cannot expect to come out of single-product dependence in the next 10 years," he said, citing lower-than-expected growth in jute, seafood, leather and software exports.
"Exports and imports are hard numbers in the economy. We need to think about how to boost exports further, then export-related imports will go up automatically," he said, explaining that more imports will mean more domestic activities and more jobs.
Contribution of exports of goods dipped to 15.3% of GDP last year from a peak of 20% in 2012, putting Bangladesh at the 133rd place in a global index of 142 countries. In imports, Bangladesh is 131st.