World Bank makes chilling prediction of our coming economic slump, job loss

GDP growth may slump to 2 to 3pc due to the dire situation from Covid-19, which may causejob losses and rise in poverty

In a hard-hitting forecast, the World Bank says that post pandemic Bangladesh's economic growth is going for a drastic decline and massive job losses will worsen inequality, hit hard the poor and the huge informal workforce.

It says the coronavirus pandemic is set to bring down Bangladesh's gross domestic product growth from a high-flying 8.15 percent last year to just 2 percent this year ending on June 30. The highest growth range is also predicted to be a bleak 3 percent only.

If that happens, and there are signs of that becoming true, then Bangladesh will see its growth rate dipping below 3% for the first time in three decades. The country's GDP growth rate was 2.61% in the 1988-89 fiscal year.

Since independence, the country's economy marked a steady growth in every decade—from 2.3% in the decade ending in 1980 to 6.95% in the last decade, with growth reaching a record high of 8.15% in the last fiscal year. The budgetary projection for the current fiscal was 8.2%.  

The predictions of the World Bank were released on Sunday in its twice-a-year-regional update report on South Asian economies.

Before the launching of the report, two senior officials of the WB -- Hartwig Schafer and Hans Timmer -- vice president and chief economist respectively for the South Asia region shared the key findings of their analysis with selected journalists of the region on Friday evening. The Business Standard was one of the two media outlets invited from Bangladesh at the tele-briefing hosted from Washington.

The latest South Asia Economic Focus anticipates a sharp economic slump in each of the region's eight countries, caused by halting economic activity, collapsing trade, and greater stress in the financial and banking sectors due to the Covid-19 pandemic.

The eight-nation South Asian region is likely to show economic growth of 1.8% to 2.8% this year, well below the 6.3% projection made by the World Bank itself six months back.

The region's biggest economy India's growth is forecast to drop 1.5% to 2.8% in the current fiscal year, down from estimated 4.8% to 5% in the just-ended fiscal year.

Sri Lanka, Nepal and Bhutan will also see sharp declines in economic growth, while worse still is waiting for three other countries - Pakistan, Afghanistan and the Maldives; they are forecast to slide into recession.

The Washington-headquartered global lender said many people could potentially lose their jobs in South Asia, including Bangladesh due to a significant decline in private consumption, which will be less than half that of a year ago.

Lockdowns to prevent the spread of the Covid-19 are taking an unprecedented toll on the economies of the region, it says.

If the lockdown were to last 2 months, employment would fall in all countries but more severely--by double-digits--if the lockdown were prolonged for 4 months. For example, for every $1 million in foregone demand for affected services sectors in Bangladesh, 125 people will be less employed.

The report says if a lockdown were to impact all non-agricultural sectors uniformly for 2 to 4 months, using the same methodology, employment losses in South Asia would range between 14 to 19 percent of total 2018 employment.

The unprecedented Covid-19 crisis comes with a dire economic outlook. As a region, South Asia accounts for one fourth of the global population. But coronavirus cases are still lower here than many other parts, with over 13,000 cases recorded so far, which is less than 1 percent of Covid-19 cases detected worldwide.

But the economic toll of the virus is going to be much bigger. The region might well experience its worst economic performance in 40 years, with at least half of the countries falling in a deep recession, the report says. 

The harsh reality of inequality in South Asia is that poor people are more likely to become infected with the coronavirus, as social distancing is difficult to implement for them. They also have less access to health care or even soap, are more likely to have lost their job, and are more vulnerable to spikes in food prices, it reads. 

Poverty to rise

"Growth is expected to decelerate to 3% in FY20 with declining garment exports, lower private investment growth and broader disruption caused by Covid-19," the report said of Bangladesh's economic future.

Lower revenue collection and higher recurrent spending are likely to increase the fiscal deficit to 7.7% of GDP in FY20, it adds.

While growth is expected to recover over the medium term, downside risks remain and poverty is expected to increase significantly, it says.

Exports may show 19.8% and imports 10.9% negative growth in 2020, while private consumption may sink to 2.4% from 11 in 2018.

In the absence of mitigation measures, poverty is expected to increase substantially, the report says. About 1 in 4 households currently living in poverty are engaged in informal activities in non-farm service and construction sectors, which have been significantly affected by closures and disruptions. The negative impact is expected higher in urban centres, while rural areas will see a rise in the number of poor, the report says in its forecast for Bangladesh.       

The rate of extreme poverty could reach 21.8 percent in the current fiscal year, almost twice of 12.8 percent in the last fiscal, said the report.

The rate was 25.1 percent in 2005 and 17.6 percent in 2010.

Lower income poverty rate could jump to 58.3 percent in the current fiscal year, which was 49.3 percent in the last fiscal.

Upper middle income poverty rate also may increase to 91.8 percent in this fiscal from 82.8 percent in the last fiscal.

Remittance loss a worry, may be 7% less

The WB report says there are indications of disruption in flows of remittances to South Asia. One reason might be the money transfer agencies are closed. But migrant workers have also lost their jobs. 

The loss of jobs in the hospitality and transport sector will punch the country hard as workers in these sectors have no social safety nets coverage and at the same time, fiscal and monetary stimulus cannot recreate their jobs because of travel restriction.

Remittance inflow may suffer big because of the fall in oil price. In fact, a $1 drop in oil price leads to 0.28 percent loss in remittance for South Asia. Since oil has already lost $28 a barrel, this would lead to a 7 percent remittance loss for the first quarter of 2020. Moreover, many workers' salaries may get stuck.

Decrease in remittance inflow is expected to have a smaller short-term impact on poverty as migrants are mostly from better-off households, the bank says.  

Moratorium on debt servicing and rent payments may help

As the countries had to go for tough lockdowns, millions of people have been thrown out of jobs overnight, forcing the governments to announce immediate food aid for the poor and bailout for businesses.

Bangladesh, apart from expanding social safety-net coverages, announced Tk72,750 crore stimulus package for businesses. The prime minister on Sunday announced a Tk5,000 crore low-cost loan for farmers.

India unveiled a $23 billion aid package for poor people, while Pakistan announced a $6 billion plan to support the economy hit hard by the lockdown.

The Bank calls for more fiscal and monetary steps to support unemployed migrant workers, as well as debt relief for businesses and individuals.

It recommends adoption of innovative policies to jumpstart the economy.

It says a combination of temporary work programmes and a moratorium on debt servicing and rent payments could help prepare for the restart of the economy.

To maintain their financial credibility reliable with their development partners, the World Bank strongly recommends that the South Asian countries keep their sovereign debt sustainable through fiscal prudence and debt relief initiatives. 

Observing it is better for the South Asian countries to reduce dependency on few international partners, it said in the longer run, South Asia would do well by diversifying its international connections, while there are great opportunities to expand digital technologies for payment systems and distant learning to unlock remote areas in South Asia.