Private consumption growth is likely to remain subdued with depressed wage income and a decline in remittance inflows, while anemic private investment is projected due to heightened uncertainty
At a time when most of the South Asian nations have been estimated to post a negative GDP growth, Bangladesh economy performed well in the last fiscal despite being devastated by the impact of Covid-19 in the second half, said the World Bank (WB).
In its latest report on South Asian nations titled -- Beaten or Broken? Informality and Covid-19 -- unveiled on Thursday, the World Bank estimated a 2% GDP growth for Bangladesh in FY20.
In the report, WB said although most of the South Asian nations will see negative GDP growth, but Bangladesh, Nepal and Bhutan will see positive growth in the fiscal year 2019-20 ended in June.
“Real GDP growth fell to an estimated 2% in the FY20 as Covid-19 and the global recession disrupted economic activity in the second half of the year," it added.
However, as per the provisional data of Bangladesh Bureau of Statistics (BBS), Bangladesh recorded 5.24% GDP growth in FY 2019-20, despite the devastating impact of the Covid-19 pandemic.
GDP growth of other South Asian countries
Bhutan’s real GDP growth has been estimated at 1.5% in FY20 reflecting Covid-19 related disruptions, including its tourism sector and industrial production, while Nepal’s economy came to a standstill in FY20 with negligible growth of 0.2%, a deceleration in the service sector and a contraction in industrial activity due to the pandemic, the report stated.
As per the estimation of the global lender, India’s growth is expected to contract sharply in FY21 by 9.6% in a baseline scenario, reflecting the impact of the national lockdown and the income shock experienced by households and firms.
Maldives is expected to face its deepest recession in history and the GDP growth is projected to contract by 19.5% in 2020.
Pakistan’s real GDP growth is estimated to have declined from 1.9% in FY19 to -1.5% in FY20, while Sri Lanka’s economy contracted by 1.6% year-on-year in the first quarter of 2020.
World Bank Chief Economist for the South Asia Region Hans Timmer said: “Covid-19 will profoundly transform South Asia for years to come and leave lasting scars in its economies. But, there is a silver lining toward resilient recovery: the pandemic could spur innovations that improve South Asia’s future participation in global value chains, as its comparative advantage in tech services and niche tourism will likely be in higher demand as the global economy becomes more digital."
Outlook for Bangladesh
Significant uncertainty notwithstanding, the GDP growth for Bangladesh has been projected to decelerate to 1.6% in FY21 assuming that the impact of Covid-19 deepens, said the World Bank.
However, GDP growth is projected to recover to 3.4% in FY22, supported by a rebound in export demand, remittance inflows, and public investment.
“The global economic downturn will impact Bangladesh’s economy. However, the policies that the government has undertaken to mitigate the impacts are in the right direction” said World Bank Country Director for Bangladesh and Bhutan Mercy Tembon.
The report warns that informal workers and firms have little room to cope with unexpected shocks of the magnitude of Covid-19. Three-quarters of all workers in South Asia depend on informal employment, especially in hospitality, retail trade, and transport—sectors most affected by containment measures.
“For a resilient recovery, the government needs to continue to safeguard its fiscal and debt positions, build financial sector health, protect the poor and vulnerable and create a conducive environment for private sector development and job creation.”
While the poor have faced rising food prices and suffered severely, the Covid-19 crisis has dealt a further blow to many informal workers in the middle of the income distribution who experienced sharp drops in earnings.
Private consumption growth is likely to remain subdued with depressed wage income and a decline in remittance inflows, while anaemic private investment is projected due to heightened uncertainty.
Weaker demand and financing constraints may further reduce industrial production, while flooding in early FY21 may hamper agriculture production. Inflation is projected to remain above target due to expansionary monetary and fiscal policies and higher food prices, the report findings showed.
Poverty is expected to increase substantially in the short term, with the highest impact on daily and self-employed workers in the non-agricultural sector and salaried workers in the manufacturing sector, it said.
The report also said that the urban areas will continue to be disproportionately affected, with an estimated 68% of directly affected workers located in Dhaka and Chittagong.
Risks and challenges for Bangladesh
The downside risks to the outlook are substantial where domestic risks, which include additional waves of Covid-19 that may require renewed restrictions.
In the government’s Covid-19 response program, risks include ineffective implementation of infection prevention measures and limited operation of credit programs.
External risks also remain elevated. While external demand for RMG products is stabilizing, the recovery is fragile. Lower oil prices may limit demand for Bangladesh’s overseas workforce in the Gulf region, impairing remittance inflows.
Going forward, the government’s Covid-19 response will remain a paramount priority, including testing, quarantining and treating patients and providing economic relief to the poor and vulnerable.
Other ongoing priorities include strengthening fragile banks, diversifying exports, accelerating reforms in business regulation, and deepening fiscal reform.