Assignment - 01

Course Name: Macroeconomic

Course code: ECO 2114
Section: 1

Submitted To
Md. Shamsuddin Sarkar
Lecturer
Department of Economics
Southeast University

Submitted By

Name ID
Mynur Rahman 2018110000048
 Impact of Covid-19 in Bangladesh

Executive Summary: The Covid-19 pandemic has thus far spread to 208 countries and
regions of the world, significantly affecting the global economy. Since the virus has been
growing exponentially, even the developed countries have been unable to contain its spread. As a
result, people are dying in the affected areas at an alarming rate. Bangladesh is the most densely
populated country in the world. However, to our concern, the healthcare facilities in the country
are too limited to serve its 160 million-plus population. If we look at the sector-wise resource
distribution of operating and development budget for the fiscal year 2019-20, we would see the
health sector has received merely 4.9% of the total allocation. Due to poor investment in
healthcare infrastructure nationwide and scarcity of medical equipment i.e. testing kits, and
doctors to combat Covid-19, the government is passing a very hard time. Also the global
economy is facing the ‘Great lockdown’ recession caused by the COVID-19 pandemic, the
economy of Bangladesh too, has been hit hard. With only 15% of the country’s population
making more than USD 6 per day, Bangladesh stands in a vulnerable position to tackle the
economic impact of COVID-19.

Impact on GDP: The nationwide shutdown has led to shocks for both the formal and
informal sectors. According to the International Monetary Fund, the real GDP growth of
Bangladesh is projected to decelerate to 2.0% in FY 2019-20 driven by falling readymade
garment exports, lower private investment growth and wider disruptions due to COVID-19. The
economic consequences of the Covid-19 outbreak are tough to handle as the entire of the global
supply chain has been interrupted due to worldwide transportation shutdown. Bangladesh
readymade garments (RMG) industry has received work order cancellations of nearly $3 billion.
Around 4 million people are directly engaged with the RMG sector and till now around 2 million
workers in the industry is affected.
The import and export-oriented companies are also at risk. The foreign remittance will come
down and thus it will hit the foreign reserves of the country. Bangladesh will fall into a really
difficult situation if the country remains locked down for a longer period. Here, a huge number
of people live from hand to mouth. Consistent high growth has been unable to create sufficient
jobs in the economy. Due to inequality of income and asset distribution, the advantages of higher
GDP growth is not evident in society. Also, the World Bank estimates that, overall inner
remittances might fall by around 22% in 2020 due to the pandemic.
Impact on Economic Growth: It now appears that Bangladesh is facing a major economic
crisis in the making caused by the Covid-19 pandemic. After a brief reopening of the economy,
the country now has reverted to 'hard' lockdowns in various places to deal with the Covid-19
pandemic amid demands from certain sections of the population to do so. But lockdowns are not
sustainable for the time that will be required to develop a vaccine. Also, lockdowns are not
feasible for a country like Bangladesh if people cannot be provided with the basic necessities of
life. More importantly, it would bring the economy to an almost grinding halt which will cause a
significant blow to the economy having crippling effects on the lives of people, especially
working people and business enterprises across the country. In fact, the economy is now almost
coming to a grinding halt with debilitating effects on all sectors of the economy thus threatening
millions of livelihoods in Bangladesh. While the government is striving to contain the virus,
emphasis should be directed more to augment immunity. Given the resource availability and a
weak and inadequate healthcare system to deal with the pandemic, Bangladesh may default into
building up some kind of ‘herd immunity' so more people become immune to the virus, thus
reducing transmission. This can be done by managing rather than defeating the virus enabling the
country to begin to open up.

In fact, epidemics of the size of Covid-19 have huge economic impacts in terms of managing the
health crisis and containing the virus while trying to keep the economy functioning. According
to the Bangladesh Bureau of Statistics (BBS), 20.5 per cent of the population live below the
poverty line that is about 34 million people and 85.1 per cent of work force are employed in the
informal sector, that is about more than 50 million people. Most of these workers in the informal
sector are also underemployed. Now the pandemic has further worsened their employment
prospects. It is now estimated that the pandemic has rendered 80 per cent workers unemployed in
the informal sector. Only 6 million people are employed in the formal sector, largely in
manufacturing. Over the last decade, the economy has been growing at around 7 per cent per
annum, yet 20 per cent of the population earn less than US$5.00 a day, 9.2 per cent of employed
in the country earn less than US$1.90 a day and only 15 per cent of Bangladeshi workers earn
over US$6.00 a day. This is the pre-pandemic employment and wages situation in the country.
Now the situation has worsened significantly. Nearly 10 million Bangladeshis are working in
foreign countries, mostly in the Gulf countries. Now the depressed oil prices affecting the Gulf
states and lockdowns imposed in Europe since April are already causing serious economic
slowdown in these countries having a negative impact on expatriate Bangladeshi workers abroad.

Bangladesh is now facing a critical period in its economic history and there is not much space for
exercising fiscal prudence at this critical point in time. Fiscal policy will have to play a far more
decisive and significant role in view of the fact that the scope for using monetary policy to
stimulate the economy has become ineffective despite falling real interest rates. As the economic
recovery process can turn out be a long process, the government must continue with the fiscal
stimulus until recovery is assured.
Impact on Unemployment: The lockdown is attacking all groups of people in the
world either physically or mentally. No employed or unemployed person will come
out better from it. The lockdown may save us from the infection, but the cost will
be a very big loss of livelihood. This has already led us into a global recession. In
many cases, the loss of livelihood may be irretrievable, the loss could increase
vulnerability to health problems far beyond coronavirus.

The World Bank forecasted that South Asia might post 1.80 per cent to 2.80 per
cent GDP growth which is still a better scenario than some other regions. On the
contrary, employment might shrink as the pandemic continues. It may also create a
frail Labour force, which will push the development goals far-off to reach. The
crisis is causing an unprecedented reduction in economic activity and working
time. According to ILO - this crisis is expected to wipe out 7.20 per cent of
working hours or 125 million full-time workers in Asia and the Pacific.
Remittances to South Asia are projected to decline by 22.0 per cent to $109 billion
in 2020, following the growth of 6.1 per cent in 2019. The deceleration in
remittances to the South Asian region in 2020 is driven by the global economic
slowdown due to the coronavirus outbreak as well as oil price declines.

It is predicted that the pandemic will increase the number of less educated
unemployed people. The hardest hit of the impact would involve marginalized
low-income people, many of whom are daily wage-earners and self-employed. The
closure of educational institutions is affecting approximately 37.0 million students
across the country and if it lasts for a longer period it will engender far-reaching
economic and social impacts. While the opportunity for skills development is
already shrunk for the youth, the pandemic has made the whole situation even
more difficult. It will narrow the upcoming employment opportunity for the fresh
graduates. The current massive economic disruption is hurting the 20.0 million
youth Labour force of Bangladesh.

However, Bangladesh, the Prime Minister announced a Tk 50.0 billion stimulus

package for export-oriented industries. This money should be used only for
providing salaries and allowances of workers and employees of those industries.
This stimulus package mostly depends on the use of appropriate financing options,
proper management so that sectors who are affected receive the support. There
should be proper monitoring and accountability to ensure that the money is spent
on the workers. SMEs are characterized as riskier than large firms across the
world. These businesses are in lack of motivation on the part of financial
institutions to priorities credit to SMEs. Another stimulus package of Tk 200
billion, will be implemented for small and medium enterprises (SMEs) for
providing working capital at a 4.0 per cent interest rate. Cash flow is one of the
recurrent problems of SMEs. Government must find a quick way to distribute the
money to the small-scale industries that need an easy access to the loan via banks.
This is not any conventional crisis that will heal from the exact prescriptions from
the previous crisis, but the government must enforce unemployment insurance for
most of the people. Job losses are inevitable and indeed somewhat necessary to
recover the economy. Unemployment will create an unexpected income shock. The
government also could provide short-term income support on a large scale to
secure the jobseekers through unemployment insurance that may serve as public
insurance. The unemployment benefits can help the unemployed to maintain their
consumption level and promote social welfare.

Impact on Remittance: In Bangladesh, the contribution of the remittance sector is

significant particularly for stimulating poverty alleviation, improving the standard of living and
creating productive assets (Islam, 2011; Bangladesh Bank, 2019). The country is the third-largest
recipient of remittances within the South Asian region (Bangladesh Bank, 2019). According to
the Bureau of Manpower, Employment and Training (BMET), Bangladesh has received a total of
$213,178 million as remittances from 1976 to February 2020. Within these years, 13,028,410
expatriates have migrated abroad for employment, although many have returned back.

It is no longer unknown that the outbreak of Covid-19 is posing an unprecedented threat to the
global economy, the Asian Development Bank observed. As a result, the world is witnessing one
of the worst global financial crises in human history. Due to the "Great Lockdown," as described
by the International Monetary Fund (IMF), financial instability may continue to extend and result
in the closure of many economic endeavors plus cause prolonged unemployment. The
International Labour Organization mentioned about 25 million people will be at the risk of being
unemployed, especially expatriates who are residing abroad. Its impacts on the status of
employment for Bangladeshi expatriates, future flows of migration and remittance earnings for
the country is thought to be negative. The Covid-19 pandemic has already caused the suspension
of many construction projects in many Middle-Eastern countries, including the Kingdom of
Saudi Arabia (KSA), which is a prime source of remittances for Bangladesh. The authorities of
KSA have decided to cut wages by about 25 percent to 50 percent due to the global lockdown
because of the stagnation of major economic activities and also a fall in oil prices. To battle such
an economic downturn, the Gulf countries may lay-off their workers, which will exacerbate the
situation by leading to bulk unemployment, The New York Times reported. Before the ongoing
global lockdown, a number of expatriates had to return back to Bangladesh, especially from the
Gulf countries.

Bangladesh received an amount of $16.42 billion as remittances in FY2018-19, while the amount
was $12.5 billion till February for FY2019-20. Under a business as usual scenario without the
impacts of Covid-19 positive growth in the remittance sector of Bangladesh with an estimated
receipt of about $19,174.35 million in FY2019-20 would be possible. This could be 17 percent
growth compared to the previous year. For the next five to 10 years, there would be steady
growth of remittances, about five to six percent, and Bangladesh would receive about $25,337.97
million as remittances in FY2024-25. However, the outbreak of Covid-19 has changed the
overall scenario of the remittance sector for the country. Remittance earning for a country
depends greatly on host countries' economic activities, GDP growth and Labour demands. The
IMF on April 14, 2020 made a comprehensive forecasting of the global GDP change –
considering the spillover effects of the Covid-19 pandemic on major global economic sectors,
including: tourism, entertainment, hospitality, travel, and others. It is expected that due to the
outbreak of Covid-19 pandemic, the remittance sector will face prominent losses incurring from
the negative changes in the per capita GDP of major host countries of Bangladeshi expatriates
like: Qatar, the UK, the KSA, Italy, and others. The WTO also suggests a similar outcome for
remittance inflows for Bangladesh. In the first case, the effects of the pandemic are expected to
diminish relatively quickly, whereas the economy may take six months to revive in case of the
second scenario. The worst case is the third scenario; where the impacts of the pandemic are
expected to be prolonged, and the economy is projected to be in a downturn situation for an
indefinite period of time.

Considering the above-mentioned scenarios, remittance inflows have been forecasted for
Bangladesh for 2020 and 2021. Findings from this projection indicate that if the economy takes
three months to recover – the V-shaped trend – after the end of lockdown, the country may face
an 18 percent and 20 percent loss in remittance earnings in 2020 and 2021, respectively. The loss
of remittances can increase to 22 percent and 21 percent considering the six months recovery
period – U-shaped trend. Lastly, the prolonged duration recovery phase – L-shaped recovery –
might cause a loss of 24 percent and 26 percent of remittance inflows for the country
accordingly.

The estimated loss of remittance earnings for Bangladesh, due to the impacts of the Covid-19
outbreak – based on both the IMF's projections on global GDP loss and the WTO's proposals on
three recovery periods – suggests that the anticipated remittance loss can be more than $ 3-5
billion for 2020 and 2021, while the loss may further increase if the economy takes six months or
more to recover from the impacts of Covid-19. The loss would be about 16-24 percent of the
expected remittance earnings for Bangladesh for 2020 and 2021.

As remittances play a vital role in Bangladesh's socio-economic advancement, maintaining its

balance of payment and strengthening foreign currency reserves, any decrease in remittance
inflow due to the breakout of Covid-19 may jeopardize the country's economic progress and
poverty eradication. Against this backdrop, it is thus important that the country undertakes all
possible immediate and long-term measures to minimize the negative impacts on remittance
inflow and ensure a sustainable future flow of remittance earnings for the country.
 Reference

1. World Economic Forum- https://www.weforum.org/agenda/2020/06/bangladesh-faces-a-

remittances-crisis-amid-covid-19/
2. The Financial Express- https://thefinancialexpress.com.bd/views/covid-19-and-unemployment-
shock-1591112859
3. The World Bank- https://www.worldbank.org/en/news/press-release/2020/04/22/world-bank-
predicts-sharpest-decline-of-remittances-in-recent-history
4. https://www.lightcastlebd.com/insights/2020/04/21/covid-19-implications-on-lic-community