Although Bangladesh has managed the pandemic relatively well, its economic fallout was significant, according to a new World Bank Group report.
The report released on Wednesday said the pandemic has hit RMG exports, the main source of foreign exchange of the country.“More than US$3 billion worth of existing RMG export orders were cancelled during the first months of the pandemic, and new orders in June 2020 were down 45 percent from the previous year,” reads the report.
It said many cancelled orders have been reinstated since then, supporting export recovery. Official remittances also surged in 2020 and were reportedly driven by a shift in flows from informal to formal channels facilitated by tax incentives.
Facing enormous pressure to address the public health crisis and to mitigate the impact on poor and vulnerable people, the government of Bangladesh’s initial COVID-19 economic response programme has cost about US$11.6 billion, equivalent to 3.7 percent of FY20 GDP.
The World Bank projects that, after moderating to estimated 2.4 percent in fiscal year 2020, GDP growth will accelerate to a range between 2.6 and 5.6 percent in FY21 and 5–6 percent in FY 22–23, well below 8 percent per year in FY18 and FY19.1
The pace of the recovery is highly uncertain and depends on the severity of the second wave of the pandemic, which unfolded in April 2021, the country’s vaccination campaign, and the strength of the global economy.
It said the pandemic may destabilise the financial sector, which entered the pandemic with elevated level of stressed assets and low capital buffers. Despite accelerating economic growth, credit provision to the private sector declined to its lowest level in more than a decade even before the COVID-19 crisis began. This resulted, at least partly, from insufficient bank capitalization, unresolved nonperforming loans (NPLs), and the government’s imposition of an interest rate cap.The COVID-19 crisis has exposed even the better-managed private banks to risk, whereas expanding regulatory forbearance and a large increase in subsidized lending exacerbate governance shortfalls, which may contribute to lower profitability and weaker asset quality.
The World Bank said Bangladesh’s post–COVID-19 recovery will force a reimagining of the country’s developmental model, accentuating the importance of the private sector and making the reform agenda even more urgent. In the short term, deficits and government debt are likely to rise from moderate levels, and the government will almost certainly be 5forced to shift its spending priorities.
In the medium term, the COVID-19 crisis will probably hasten structural changes in the manufacturing sector, which may limit the scale of its recovery. With weaker demand from migrant-receiving countries such as the oil-producing Gulf states, remittances growth is expected to be moderate.
Finding new sources of revenue and growth, therefore, will be an urgent priority. In this context, the private sector, which already accounts for more than 70 percent of all investment in Bangladesh, will need to play a central role, the WB report added.
Facilitating rapid economic recovery, returning growth to above 8 percent, and closing the growing infrastructure investment gap will require a financial sector and a macroeconomic and regulatory environment that can support significant further expansion of private investment in infrastructure, in services, and in diversified, competitive sectors.