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The impact on the economy and the way forward
Mostafa Abid Khan
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Coronavirus, which initially started in China, has now spread all over the world. It is now affecting 203 countries and territories around the world.
As of yesterday, more than 1.4 million people have been affected by coronavirus and more than 67,000 people have lost their lives.
Bangladesh is ahead of many countries in declaring an isolation policy.
Evidence available on the spread of coronavirus shows that the contagion is most rapid 30-50 days after first case is reported.
But the government declared general holidays well ahead for ensuring social isolation: 18 days from the date of announcement of the first confirmed cases on 8 March.
However, social isolation has an economic cost by cutting economic activities.
For this reason, many countries, perhaps, have hesitated to adopt this policy. Nevertheless, most countries had no option but to adopt it in order to save their citizens.
But the cost is enormous.
The United Nations Conference on Trade and Development predicts that the novel virus is likely to cost the global economy $1 trillion.
The spread of coronavirus in all major export destinations and import sourcing countries of Bangladesh has put the trade sector under threat.
This threat has been further aggravated by the social isolation policy in force since 26 March.
Halt of economic activities in the country and declining trend of export and import, especially intermediate inputs necessary for manufacturing sector, due to spread of coronavirus in other countries will negatively affect every sector of Bangladesh economy.
The situation is likely to worsen further for contraction of job market for Bangladeshi migrant workers and a sharp decline in foreign direct investment in the coming days.
Reportedly, around 300,000 Bangladeshi expatriates have returned home in the last three months and some have been asked to leave their jobs.
Certainly, the future job market will also be squeezed.
UNCTAD projects that global FDI inflows will decline by 30 per cent to 40 per cent.
Economic slowdown and declining import will adversely impact revenue collection and the decline of export, remittance inflow and FDI will put pressure on foreign exchange reserve and balance of payment at the same time.
In addition, food security might be at stake if the major import sources of essential commodities put export restriction on commodity exports, although UNCTAD estimates that the prices of some essential commodities such as sugar and soybeans are declining.
It is obvious that Bangladesh will face economic recession in the coming days like many other countries.
However, drastic oil price decline in recent times is likely to lessen the pressure on foreign exchange reserve.
At present, countries all over the world are coming up with economic recovery packages -- and Bangladesh is not lagging behind.
The Bangladesh Bank has come up with a number of policies, and all the initiatives are in the right direction. However, more policy options and coordinated actions may be explored.
Recently, the prime minister has called every citizen to prepare for economic pain. This call is a good direction to all citizens to take a common and differentiated responsibility.
This might be the best possible option to get out of the anticipated social unrest due to halt of all economic activities during the isolation period and possible recession in coming days.
Seemingly, actions and policy initiatives may be taken in two phases: mitigation phase and recovery phase.
During the mitigation phase, while combating the spread of coronavirus, actions are required to support workers and staffs, both permanent and day labourers as well as self-employed.
Support by the government through Vulnerable Group Feeding and sale of rice at Tk 10 per kg and initiative by affluent citizens and various organisations will be very useful to help day labourers and self-employed, who are basically jobless during the isolation period.
However, these initiatives should be taken in a coordinated way so that support reach all.
In addition, the non-governmental organisations, which are lending to self-employed, should announce a moratorium on loan recovery for the next 2-3 months depending on the duration of isolation policy.
For supporting the permanent employees working in any establishment, one possible option is to declare a moratorium of repayment of loans (equal monthly instalments) with the extension of total repayment period to enable borrowers, specially the small- and medium-sized enterprises (SMEs) to pay wages and salaries to their permanent employees.
In fact, at the time of writing this article, many countries including India, Sri Lanka, Switzerland and Canada have adopted this policy.
During this phase, all establishments including the government may consider budget cuts in non-essential heads in order to mobilise the fund required at this stage.
In addition, it is to be ensured that banks should be encouraged to open letters of credit of the existing customers.
In this context, adoption of the LC guarantee scheme may be considered by taking into account the fact that Bangladesh is heavily dependent on imports for carrying out manufacturing activities as well as for meeting the demand of essential commodities.
Upholding the agriculture production is also crucial to ensure food security.
The recovery phase is more challenging.
In this phase, while it is important to uphold demand, it is equally essential to ensure supply.
All establishments may be provided loans at reduced interest rates in order to ensure supply of goods and services.
It is important to note that the export-GDP ratio of Bangladesh is only about 13 per cent.
Therefore, if Bangladesh manages to uphold the domestic demand through ensuring smooth supply in the domestic market, external shocks will not be difficult to absorb.
Options for mobilising the fund may be waivers of interest payment on foreign debt by bilateral and multilateral lending partners during the recovery phase, support from multilateral and bilateral development partners and transfer of undisbursed loan of already committed loans to recovery fund.
It is also important to strictly prevent illicit financial flow during the recovery period.
The writer works in the Bangladesh Trade and Tariff Commission
Rashed shumon