A crucial requirement of the government is to fund the currently suffering informal sectors, which houses around 80 percent of the employment in the country
Earth is no stranger to plagues and pandemics. From recorded history, as early as the prehistoric era of 3000 BC, there have been outbreaks that have resulted in the deaths of millions.
So why is the Covid-19 such a major threat to mankind when pandemics are not a new phenomenon?
Firstly, the virus Covid-19 is the first of its kind, a virus whose deadliest trait is that it is able to mutate which makes it hard to come up with a cure or vaccine to fight it. And secondly, closely linked to the first, is its super contagiousness.
The first case of the Covid-19 surfaced in December 2019 in the Wuhan Province of China, and in less than five months 3.58 million people were infected. So far, there are around 250,000 deaths worldwide, with more cases surfacing each day, and surprisingly some of the countries hit hardest are members of the G20, namely China, Italy and America.
And lastly, this new crisis is a mixture of health and economic issues, since it is affecting both simultaneously. It has already claimed countless jobs in various industries with more to follow as a recessionary pressure looms large over the world. So, where does a small but fast growing economy like Bangladesh stand?
Bangladesh, a country which has seen rapid growth in the last decade, is now facing an unprecedented threat. The Covid-19 pandemic, along with claiming lives every day, is also destabilising the economy.
On March 7, 2020, Bangladesh recorded its first case of coronavirus, and in April the number of new cases saw a surge. Currently, more than 18000 cases have been recorded. As the country relies heavily on cheap labour for its GDP growth, Bangladesh will have to buckle down for the impact of a global economic shrinkage.
The two biggest contributors to the GDP of Bangladesh are RMG (Ready Made Garments) and remittance. In 2018, these two sectors contributed 11 percent and 5.8 percent of the GDP. The number of people employed in the RMG sector was about four million in 2018.
The pandemic resulted in the loss of around one million jobs in the sector, since the overseas orders have plummeted as a result of reduced discretionary spending. Orders worth of nearly $3 billion have been quashed since the outbreak, reports BGMEA, with about 1.5 billion dollars worth of RMG exports on hold and the rest cancelled. As a result the sustainability of RMG factories are looking extremely dire.
Similar case can be seen in the remittance industry. Nearly 10 million Bangladeshi workers were employed in foreign countries, mostly in the Gulf and Western Countries; not to mention Bangladesh happens to be the 3rd largest remittance recipient in South Asia.
Since the host countries are suffering from disruptions in economic activities, most of the Bangladeshis working abroad are forced to return home or their income has become severely low. As a result their foreign income they would normally send back home to their families are now in jeopardy, their livelihoods threatened.
Another industry hit hard by the pandemic is the frozen food exporting industry. According to Bangladesh Frozen Foods Exporters Association, orders worth of $4.6 billion have been cancelled and there is also $9.99 billion unsold frozen fish.
More worrisome still is the case of people employed in the informal sectors. Around 50 million Bangladeshis are employed in the informal sectors. With the lockdown in place, most employees of this sector are finding it hard to earn their daily bread as they rely heavily on daily wages. This will lead to a huge chunk of the country's population facing starvation.
One of the most glaring cases in the onslaught of the Covid-19 pandemic is the loss of business with China, a country on which Bangladesh and some other countries rely heavily for raw materials. The epicenter of the Covid-19 stems from the Wuhan Province of China, and as a result, trading with them has become extremely risky.
The trade relation Bangladesh held with China prior to the virus outbreak was worth $12.38 billion in 2018. A valuable asset to the growth process of Bangladesh has now been cut off indefinitely.
One of the biggest sales events that takes place in Bangladesh is during the month of Ramadan followed by Eid-ul-Fitr, resulting in large scale shopping for clothes and food. This would be forgone as a direct result of the lockdown and result in declining money multiplier effect. A month where businesses across the country would otherwise boom is now under threat.
The Bangladeshi Government has announced a stimulus package of Tk727 billion on April 5, which initially was Tk50 billion, as a measure to safeguard against the negative shocks Bangladeshi industries are currently undergoing. The first package of Tk300 billion is for the big industries and service sectors, which will be distributed by the commercial banks as working capital loan with subsidised interest rate of 4.5 percent.
The second one, amounting to Tk200 billion, is for the SMEs, with an interest rate of 4 percent.
Thirdly, an amount of Tk127.5 billion will be for the Export Development Fund (EDF), at an interest rate of 2 percent. And lastly, Tk50 billion has been allocated for pre-shipment refinancing schemes at an interest rate of 7 percent. The lion's share of responsibility of mobilising the funds falls on the banks.
A crucial requirement of the government is to fund the currently suffering informal sectors, which houses around 80 percent of the employment in the country. If this sector falters, a huge backlash on the economy is imminent. Next, the government should also be very rigorous regarding the stimulus package being distributed to the right places, given Bangladesh's past incidents relating to corruption and influential persons exerting their powers to siphon money from the financial institutions.
From the current scenario, one may surmise the following. If the pandemic continues on for longer than a year the loss of jobs and subsequent business closures will have multiple
harsh impacts on the economy. One the biggest will be the reduced tax income for the government, in the form of income and corporate tax.
Economic growth will be hampered. Rate of crime from the unemployed will surge, as robbery and theft may increase manyfold. Not to mention the mass starvation that would result from a shrinking economy. Furthermore, it will be a mammoth task to jumpstart the economy once it has reached a critical point.
The author has completed his BBA from the IUB and is currently working at a buying house.