Covid-19 is a global crisis and it affected many countries where the Bangladeshi diaspora lives and works. Even if there was never a single case of coronavirus inside Bangladesh, we would still feel the effects of this shock
Ahmed Mushfiq Mobarak is a Professor of Economics at Yale University. He is the founder and faculty director of the Yale Research Initiative on Innovation and Scale (Y-RISE). A Bangladeshi-origin economist, Ahmed Mushfiq Mobarak is co-chair of the Abdul Latif Jameel Poverty Action Lab's Urban Services Initiative and its Environment and Energy sector, as well as the lead academic for Bangladesh at the International Growth Centre.
The Business Standard has recently interviewed this distinguished economist about the economic challenges faced by Bangladesh in light of the global economic recession.
The Business Standard (TBS): Given our GDP growth over the last two decades, how strong is Bangladeshi economy in sustaining the economic shock of Covid-19 for a prolonged period? What are your views on the road to recovery of the global economy? What is the probability of a V-shaped recovery of the global and Bangladeshi economy?
Ahmed Mushfiq Mobarak (AMM): To understand an economy's ability to withstand a shock like this, we need to first identify the ways in which this (hopefully temporary) public health crisis can cause long-term damage to the economy. The greatest danger is that an economic crisis continues even after the virus disappears. I would start by analysing and understanding those vulnerabilities:
People facing economic deprivation now may do things out of that desperation, which will lead to long-term persistent adverse effects on the economy. For example, people facing food insecurity today may be unable to invest in things that will affect their productivity later. Examples are reductions in investments in fertiliser or other technologies that would pay off during the next growing season. Or poor people are forced to dis-save, or liquidate/sell/slaughter productive assets like cows and goats. Or, if the extreme poor cutting back on meals and nutrition during this period of food insecurity, which adversely affects their children's health and productivity in the future.
If some "real" parts of the economy fail and disappear during this shock. For example, a restaurant business is no longer viable and shuts down. Or small informal sector enterprises are forced to pack up and leave because the migrant worker who was providing that service in the city is forced to return home. Any business that provides a "service" consumed by the rich is at risk, and many of them are forced to exit from the market. Some of those activities may be easier to reinstate (e.g. a rickshaw-puller later returns to the city to provide transportation services) than others.
Some real connections in the market, such as job connections between employers and employees disappear. As one example, when migrant laborers are deported back, there is a detachment from the employer that can persist beyond the crisis period. If a construction project in the city stops, and the foreman let's all the workers go, the workers will find it risky to pay the transport cost again to travel back in search of the same employer. A large body of research in labour economics have documented the persistent effects of labour market attachments and detachments.
This crisis, and specifically, our handling of this crisis may change investors' long-term perceptions about the country changes relative to its competitors. This could be an opportunity, if we can manage the health crisis better than competitor countries. But it has already become clear that global perceptions of Vietnam's ability to manage this crisis will far exceed that of Bangladesh's (and even many other middle and high income countries' abilities for that matter). This adds an extra component of risk in investors' minds when they consider their future business destinations.
If the Covid crisis leads to impediments to healthcare access (for other non-covid conditions), children do not get their vaccinations on time, that can lead to adverse health and economic outcomes in the long run. Data we have collected in a few African countries suggest that 5-15 percent of households in Sierra Leone, Rwanda, Kenya report delays in healthcare access. Gavi, The Vaccine Alliance has projected that up to 13.5 million people will miss their vaccinations due to delays in routine vaccination campaigns. School interruptions could also impede human capital accumulation. Global shutdowns have pushed 1.5 billion students out of school since March, and a recent report by the Malala Fund estimates that it could end or delay the education of twenty million secondary school aged girls. In addition, to the direct economic consequences of Covid-19, resurgence of disease outbreaks that had previously been combatted in LMICs and/or an increase in out-of-school kids could further hinder recovery and growth in the long run.
Given all these concerns, it now becomes possible to analyse – within this framework - how our GDP growth in the last decade might protect us, whether V-shaped recoveries are possible, and what type of social protection should be offered to the poor in order to protect our economy's long-term prospects.
In a nutshell, we need to protect the economy from these "real" damages to fundamentals that might otherwise affect us in the long-run. Some ideas for policy:
Social protection policies are sometimes designed to help poor households gradually build sustainable sources of income over time. Given the immediate desperation that the Covid crisis creates, that approach may not be the most suitable in the current economic environment. Rather, current circumstances might call for social protection programs that prioritise addressing immediate poverty and under-nutrition before tackling deeper underlying causes.
The risk of persistent damages get larger the longer that the virus is not controlled. The "lives vs livelihoods" debate is a false dichotomy and the wrong framing. The virus needs to be controlled even if we ultimately only cared about long-term economic growth. But for that, we cannot impose harsh costs on poor people that make them desperate.
We need to get money in the hands of people quickly and efficiently. Disease containment and immediate economic relief are fundamentally linked to each other. Households facing acute food shortages may be less willing to adhere to social distancing rules, and could instead seek out income generating opportunities even in crowded and epidemiologically risky markets.
We need to prioritise the types of enterprises and firms and sectors (like those providing services that the rich are now hesitant to consume) that would otherwise disappear and die without support.
People losing jobs and connections to employers need support to re-enter the labour force and re-attach to their employers. To the extent possible, government policy should be aimed at helping the worker go back to their old employer or sector, so that we minimise the loss of human capital from this detachment. As a simple example, if a Bangladeshi labourer was working in the Middle East or Italy, we need to figure out how to create conditions (e.g. reliable testing, quarantining?) that is most likely to allow that person to go back to work at that destination.
TBS: Should that government have reached the poorer population directly with cash aid during the shutdowns? How far is systematic corruption and lack of effective distribution mechanism a hindrance to such an initiative?
AMM: Effective and efficient cash distribution is a huge challenge. It requires first identifying the poor, or in other words, figuring out who is most deserving of support. And then in a second step, you have to send them money. Neither the targeting nor the distribution step is trivial. Especially during the Covid period, dealing with the economic fallout will require the technological infrastructure to reach poor populations in remote areas with minimal face-to-face contact. Moreover, there is a growing number of "new poor" who have lost their source of income as a result of Covid. Even if the government had infrastructure that identified those in poverty pre-covid, identifying the new poor is a non-trivial challenge the government is faced with. At this time, economic relief programs should also be carefully designed to avoid unintended adverse public health consequences—such as increased face-to-face market transactions in areas with high likelihood of viral spread. To this end, new innovations to quickly and safely identify the poor using mobile phones or satellite data and deliver funds remotely through mobile money transfers hold promise. Such strategies could help us identify the poor quickly, and reduce exclusion errors. Implementing these strategies will require the government to partner with the private sector.
TBS: What are your thoughts on the size, distribution and implementation strategy of the stimulus package introduced by the Bangladesh government? How does it compare with other countries, including the SA neighbours?
AMM: Both the World Bank and IMF have published reports comparing policy responses in different countries, so I won't reiterate that here. The reports are published online. I will only add that India has a huge advantage because it built a digital universal ID system over the past decade called Aadhar. Bank accounts are now linked to the Aadhar system, as are other components of a diverse cash and in-kind benefits system, including the massive Public Distribution System for food rations. During the current crisis, India can reap the benefits of investing in that infrastructure. Existing research by economists at UC-San Diego (Muralidharan, Niehaus, Sukhtankar) shows that there are reductions in leakage after the digital system was implemented. This is a good model for Bangladesh and other developing countries to emulate, and our recent moves towards a digitised national ID systems are necessary first steps. We'll need to link benefits transfer systems, remittance flows to that infrastructure, which will require various ministries (Finance, Welfare), agencies (e.g. BMET), Central Bank, and some private sector entities to cooperate.
TBS: Both the RMG and manpower export will seemingly suffer more in the coming days as a result of the pandemic. How real are these fears and what can Bangladesh do to diversify its export earnings?
AMM: The international migration sector looks like it is already badly hit, and this will remain an important source of concern. Covid-19 is a global crisis and it affected many countries where the Bangladeshi diaspora lives and works. Even if there was never a single case of coronavirus inside Bangladesh, we would still feel the effects of this shock. The shock reverberates in any country related to a Covid affected country through trade, tourism or migration links. In the remittance-dependent economies of South and South-East Asia, those migration links are critical.
We have already observed in our data that families with migrants in Bangladesh are experiencing a deeper crisis compared to other families. As one example, families of winners of a 2013 visa lottery for temporary work permits in Malaysia organised by BMET under a Bangladesh-Malaysia G2G migration agreement are now reporting much sharper decreases in remittance income, total income, and employment compared to unlucky losers of that visa lottery. Even though the lottery winners have earned a lot more since 2013, the situation reversed in April 2020, after COVID hit. Moreover, migrants now face additional stigma because there is a widespread perception that they imported coronavirus into the country. That perception will make it more difficult to reintegrate them into the local economy.
The nature of RMG demand has fundamentally changed during this crisis. While demand for our usual products has dropped, there are new opportunities created due to the increased global demand for masks and PPEs. It is important for us to prepare well to take advantage of these opportunities. As a simple example, we need to develop the infrastructure and testing capabilities for the viral filtration efficiency (VFE), bacterial filtration efficiency (BFE) and particle filtration efficiency (PFE) of protective equipment being produced by our garment factories. Recently I was trying to order about 800,000 masks to distribute in rural Bangladesh, and found it difficult to get PFE tests done locally (VFE and BFE tests exist). Indian firms have also ramped up production of similar equipment, and only yesterday lifted the ban on exports. So the environment is competitive.
TBS: The June budget of the Bangladesh government has been described as run-of-the-mill by many economists despite a stronger emphasis on the health sector. Doubts have also been raised about how the budget deficit can be addressed during a recession. On a pandemic and post-pandemic world, what should be Bangladesh's budget priorities?
AMM: I speak above about the need to support the poor and vulnerable during this crisis, to avoid destroying the real parts of the economy. All of that is expensive. But those goals still need to be prioritised at this time over concerns about the budget deficit.
It is also important to remember that Covid-19 is fundamentally a health crisis that has brought with it massive economic devastation. Getting past this crisis therefore requires us to bring the virus under control. This can only be done through a surge in health allocation -- investing more money in the health sector, and in data analytics and innovation required to make smarter, evidence-informed decisions for virus control should therefore be priorities. The budget speech mentioned 23 percent increase in spending on the health ministry, which is a welcome development. We now need to be smart and strategic about spending that money on ideas that (1) have a high return-on-investment (ROI), (2) increase health capacity, and (3) improve awareness on preventative behavior. As one example, evidence is emerging that masks are a very cost-effective way of limiting transmission. But our data suggests that mask-wearing is still very inconsistent in rural Bangladesh. We have stationed enumerators around the country in villages, mosques, markets, and roads that provide the main entry into villages, and learned that over the past month, only 20-40% of people are seen to be wearing masks at any given time. Many people have a mask in their possession, but choose not to wear it. So – in addition to the hardware of mask distribution - we need to develop the software of a behavior communication, monitoring, involving community leaders and imams to enforce consistent mask-wearing norms. That could be a high ROI activity.
TBS: Please tell us a bit about your field of work and the success and failure of development interventions in Bangladesh and how they relate to the present scenario.
AMM: We have working on a large number of field-based projects in Bangladesh since 2005 in partnership with various government agencies, NGOs and development partners. What distinguishes our approach are:
The massive fieldwork infrastructure we have had to create in partnership between the Yale Research Initiative on Innovation and Scale (Y-RISE) and Innovations for Poverty Action (IPA) to reach households around the country. This is required in any low or middle income country setting, because over a quarter of economic activity and half of all workers in Africa, Asia, and Latin America are in the informal sector and therefore are not easily captured in most official statistics. That pre-existing infrastructure allowed us to mobilise data collection during the Covid period very quickly.
Other organisations and the Bangladesh Bureau of Statistics also rely on periodic household or labor force surveys to measure economic activity. However, the low frequency of such surveys makes them insufficient for real-time tracking during a crisis. We were able to mobilise our team in late March to start tracking the effects of the Covid crisis from early April. That required our research team to rapidly adapt existing data collection protocols to deploy phone surveys.
Beyond surveys and data collection, our approach also involves rigorous evaluation of specific interventions, to see what works, and what is the most cost-effective way to address some pressing development challenge. In the past, we have generated such evidence for sanitation programs, internal seasonal migration programs. Currently, we are evaluating the effects of large-scale mask distribution and enforcement of mask-wearing norms in rural areas. We are also evaluating the effects of spreading information about Covid through social networks and through village imams and headmasters. We are also hoping to evaluate a new system for targeting the "new poor" with relief distribution, in partnership with the major telecom service providers in the country. Other than that, we trying to be responsive to any requests that the government has for us. A silver lining during the Covid crisis is that it created opportunities for much more intensive collaboration between decision-makers in government and researchers. Hopefully we can build on those relationships to develop the data and analytics infrastructure that will allow us to deploy more evidence-based innovations in the service of Bangladeshi citizens, even beyond this Covid crisis.