Arunima Dutta Tushi :
The complete shutdown in Bangladesh starting formally from 26th march and going on till today has suspended many economic activities both within the public and private organizations. As having much dependency on garments industry, it is clearly evident that Bangladesh is going to face a financial crisis soon. BGMEA (Bangladesh Garment Manufacturers’ and Exporters’ Association) has already declared that $3.11 billion of export is cancelled and 2.23 million workers are affected by this shutdown. More than a million Bangladeshi garment workers were forced to go home after western clothing brand ‘Primark’, ‘Matalan’ & ‘Edinburge’ collectively cancelled £1.4 billion and suspended an additional £1 billion of orders due to this Covid-19 pandemic (Source: The Guardian, Apr 2, 2020).
According to BGMEA, more than one quarter of country’s 4 million garment workers are most likely to lose their jobs. After the outbreak, the impact on our macro-economic environment and on the standard of living of those poor people will ultimately make Bangladesh more vulnerable and the country will need adequate time to recover. Over the time, due to loss of jobs and loss in income, the people who live from hand to mouth, will face a drastic consequence of fall in purchasing power. The inactivity rate of this country is too high, 41.8% in total and out of this 63.7% stands for female. Thus government feels pressure to create millions of new jobs to reduce current unemployment rate of approx. 4.29% (Data of 2019). In Bangladesh, job creation is really a fundamental factor to reduce poverty, improve standard of living, mobilise economic safety, increase government’s income and finally to reach Sustainable Development Goals (SDGs) by 2030. But will this catastrophe of Covid-19 fracture our vision of making Bangladesh a nation of sustainable economic growth and poverty free?
Globally, Covid-19 outbreak is seen as the worst economic collapse ever after the financial crisis of 2008. Back in 2008 over the course of 517 days, the stock market dropped by more than 56% and surprisingly in 2020 we have seen it happening again in just 21 days. Within few months, the global stock market has got panicked and shaken the confidence of investors due to the outbreak of this virus. It has dropped roughly by 20% and analysts have drawn upon the fact that the world just might be in the worst economic trajectory in the history. Along with this, the crude oil war between Saudi Arabia and Russia is adding extra tension to the rising panic, injecting volatility into other assets as for this, commodity and currency markets found to be in turmoil along with equity and debt markets.
The OECD (Organization for Economic Cooperation and Development) has seen forecast growth of just 2.4% in 2020, down from 2.9% in November, 2019 (BBC; 3 April, 2020). If this outbreak gets more severe with increase in uncertainty, it wouldn’t be any surprise if the global growth comes down to 1.5% in the near future. Around the world, more than half a billion people could be pushed into poverty unless urgent action is taken to bail out poor countries affected by the economic fallout, warned by Oxfam, a global movement of people fighting inequality in income.
The central bank, the monetary authority of a country, needs to make sure that in case of any financial collapse, there is a steady supply of money in the economy. So the central banks of many countries have injected millions of dollars in the global financial system. This is to ensure that there is adequate liquidity in the hands of commercial banks and other financial institutions to mobilise the lending-borrowing activities. Also, during crisis it has to make sure that the credit market won’t freeze up. The Federal Reserve System, the central bank of the United States, allows other central banks to borrow enough US dollars for mobilising lending and borrowing transactions. Bangladesh Bank (BB), the central bank of Bangladesh, has already reduced the CRR (Cash Reserve Ratio), the amount of funds commercial banks need to keep mandatorily in the central bank.
In weekly basis, the rate of CRR has been decreased to 4% from 5% and to 3.5% from 4% in daily basis which will be implemented from 15th April. Due to the reduction in CRR, commercial banks will have enough money in their treasury which will help them to lend to the businesses at a low rate of interest. When liquidity position of commercial banks improves, economic entities have more cash on their hands.
Moreover, Bangladesh Bank (BB) has already increased the size of ‘Export Development Fund (EDF)’ to US$5 billion from US$3.5 billion. Exporters will now be able to borrow from the EDF at an interest rate of 2% (Prothom Alo; April 8, 2020). But only the central banks’ initiatives aren’t enough to let the ongoing crisis see a light of hope. That’s why, understanding the discernible impact of Covid-19 towards the global economy, leaders of different nations are taking certain approaches. Governments of different countries provide stimulus package for minimizing the losses of economic entities.
With respect to this, our honourable Prime Minister Sheikh Hasina also announced two stimulus packages for immediate, short and long terms with a view to increase monetary supply, to make social safety coverage widen, to increase the amount of public expenditure and thus to make the economy stable during this outbreak. Now, the overall size of stimulus packages stood at TK 72,750 crore, nearly 2% of country’s GDP. Hope the large allocation will go appropriately in the right hands and will ultimately meet its desired goal of running our economic cycle and thus mobilising our export oriented businesses.
(Arunima Dutta Tushi, MBA Finance, University of Chittagong, Executive, Business Analysis Department, BSRM)
