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Impact of coronavirus on BD economy

Published : Monday, 18 May, 2020 at 12:00 AM  Count : 2219
Md Faruk Hossain

Impact of coronavirus on BD economy

Impact of coronavirus on BD economy

COVID-19, was first identified in Wuhan, in China in early January. Since then, it has spread to another 225 countries as of Monday, according to the World Health Organization. The magnitude of the impact of the lethal, pneumonia-like virus, which is sweeping the globe, on Bangladesh's international trade of Bangladesh as well as overall commerce, cannot be ascertained yet.  And if the outbreak persists for a long time, this will have far-reaching impact not only on Bangladesh but also on the global economy.

Asia Context :
n    Value of retail sales in Hong Kong in January 2020, provisionally estimated at HKD 37.8 Bn, decreased by 21.4% as compared to the same period in 2019, the Census and Statistics Department indicated. The decline mainly reflected slowdown in inbound tourism and consumption-related activities due to covid-19 outbreak.
n    According to the National Bureau of Statistics of China, the country's Purchasing Managers' Index (PMI) stood at 35.7 percentage points in February 2020, down from 50.0 percentage points in January 2020. The drop is mainly due to outbreak of corona virus.
n    Maldives annual real Gross Domestic Product (GDP) moderated to 4.6% in Q3, 2019 from 7.7% in Q2, 2019 and 4.8% in Q3, 2018 due to contraction in wholesale and retail trade sector.
n    Sri Lanka's headline Colombo Consumer Price Index (CCPI) y-o-y inflation increased to 6.2% in February 2020 from 5.7% recorded in January 2020, the Department of Census and Statistics indicated.
Bad Consequences of Corona Virus on Bangladesh Economy:
Earnings from exports in Bangladesh declined by 4.79% to USD 26.24 Bn during the first eight months (July 2019 - February 2020) of the current fiscal year as compared to USD 27.56 Bn recorded in the same period of the previous fiscal year (source D&B Survey).

Bangladeshi indices continued to end in the negative territory as investors remained cautious due to worries over corona virus outbreak and possible impact of the single-digit interest rate (9%) on the banking sector. The DSEX closed below the 4,400-point mark, dragged down by losses in telecom (3.88%), power (3.36%), engineering (2.50%), food (1.60%) and financial institutions (1.51%) and banking sectors (1.10%) (source D&B Survey).

Bangladesh's gross domestic product may contract by as much as 1.1 per cent in the hypothetical worst-case scenario of a significant outbreak of corona virus in the country. That means, the novel virus, which has already arrived in Bangladesh, could wipe $3.02 billion off the $300 billion-plus economy.

The response so far is admirable, yet this pandemic also poses an economic and humanitarian crisis. While many countries have made good starts in stimulus packages, Bangladesh has been slower to react. The Prime Minister initially announced an emergency stimulus package of $600 million (equivalent to 0.2% of GDP) on 25 March, which on 4 April was enhanced significantly to $8.5 billion (equivalent to 2.5% of GDP).

The ongoing COVID-19 outbreak affects China and other developing Asian economies through numerous channels, including sharp decline in domestic demand, lower tourism and business travel, trade and production linkages, supply disruptions and health effects on Bangladesh.

China is the biggest trading partner of Bangladesh and the biggest source of raw materials. The world's second largest economy accounted for more than a fifth of the country's imports of $56 billion in fiscal 2018-19, Bangladesh Bank data showed. The world's second largest economy is also emerging as an export destination for Bangladesh. Bangladesh receives 5-6 lakh tourists every year and of them, a major portion comes from China.

The barriers to imports from China, the epicenter of the virus, will hurt the export-oriented sectors and disrupt the supply chain, the finance ministry said, adding that the overall trade may be affected to some extent because of the corona virus.
The central bank data said, Bangladesh's total merchandise import payments were $56 billion in 2018-19, of which more 28 percent was from China. Nearly 70 percent of the imports from China were textile raw materials, machinery, boilers and electrical and mechanical appliances.

Disruption in supply chain : Total mobile phone import supply chain might face disruption due to the corona virus epidemic as the mobile phone importers were solely dependent on China for the products.

Tourism will have a significant impact since every year about 6-7 lack Chinese and Fareast Asian People Visit Bangladesh which is severely affected.    

How to overcome the economic turmoil :
The enhanced stimulus package announced by the prime minister is commendable and step in the right direction. The package which has nearly $2.5 billion allocation for bridge financing of the working capital of small and medium sized industries is a bold step to protect the livelihood of people employed in that sector. Such is the scale of this crisis, even a stimulus package of this magnitude should be viewed as a stopgap measure.

Bangladesh would have to go for alternative sourcing destination and it might increase the cost of products.
With inflation expected to cool across the world, the central bank should follow the steps taken by its counterparts across the world to inject further liquidity by reducing the Statutory Liquidity Ratio and further reducing its policy rate. This will not only help maintain liquidity within the banking sector but also provide small- and medium-sized enterprises in the country with access to cheaper working capital to keep their businesses afloat.

Searching more FDI from Middle East and European Countries.
Reduce concentration on China and increase concentration on Europe, Latin America, Africa Countries who are producing the same our dependant products.

Enrich the backward linkage of Bangladesh Export Goods. This is the time to improve the quality of our spinning mills.
Government should attract the more invest from western part of the globe. Middle east countries have huge ideal funds of investment but they have no effective sectors of investment. In the recent conference of Banks and other supply chain managers where I was present and understood that the Middle East and European markets have huge liquidity and they intend to invest in South Asian Market due to increasing trend in GDP. Therefore, it would be the beneficial alternative for getting investment for up wheeling our economic growth rate.

Benefits :   
There is an opportunity for Bangladesh to grab a share of Chinese clothing market, as many foreign buyers will search for alternative sourcing of their products.

The orders destined for China may come to Bangladesh in that case. It may cast off the shadow from our export earnings.
The government has liberalized the country's trading system and reduced the non tariff narriers significantly to attract  foreign investment especially in the economic zones.

This is the time to diversify the export basket to USA through proper planning since in USA Chinese export is about US$ 24.00 billion and Vietnam is about US$ 13.00 billion whereas Bangladesh is about US$ 6.00 billion.

This is the time to improve the quality of our sick spinning mills.

 The Corona virus can help us in negotiation to reduce tariff and non-tariff barriers.  

This helps us to reduce the risk burden on a single country like China.
The writer is a First Vice President, Bank Asia

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