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50 million workers in Bangladesh need cash transfers to fight the Covid-19 crisis

Workers hit by the Covid-19 crisis in Bangladesh should also be given cash transfers, apart from the food aid that the government is currently providing.

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Bangladesh is not new to disasters or major humanitarian crises. Sitting astride a river delta at the bottom of the Himalayan range, the country is fighting a longstanding battle against the impact of climate change and currently hosts the world’s largest refugee camp along its southern border. In its 49-year existence, Bangladesh and its people have shown tremendous resilience in fending off not only natural disasters such as floods and cyclones but also manmade ones, like the 1997 Asian financial crisis and 2008 global financial crisis.

The COVID-19 pandemic, however, is a crisis of a completely different magnitude and one that will require a response of unprecedented scale. Bangladesh’s leaders in the public and private sector must come together to respond to the immediate threats to health systems and the long-term effects to the country’s economy.

How the government has responded

Bangladesh detected its first confirmed coronavirus case on 8 March. As of this writing, the number of confirmed cases in Bangladesh is more than 620, and the virus has claimed more than 30 lives.

In early February, the government evacuated close to 300 Bangladeshi citizens from China. The government also installed screening devices across its international airports and land-ports, which have so far screened more than 650,000 passengers, of which 37,000 were immediately quarantined.

The government also moved swiftly to transform two religious centers into temporary quarantine facilities. In addition, after the first case was detected, the government closed education institutions and encouraged all non-essential businesses to move their activities online. It initially declared a nationwide public holiday until April 4 which has been subsequently extended to April 14.

Despite the presence of a large Bangladeshi diaspora in Europe, the government also took the bold step of suspending all flights from Europe. Learning from its East Asian neighbors including South Korea and Singapore, the government launched an aggressive awareness campaign through national mobile phone operators. This has been complemented by private-sector cooperation, with the government launching more than 500 telephone hotlines and cross-promoting private service providers on its platform.

In order to ensure that frontline healthcare workers have the necessary personal protective equipment (PPE), the Bangladesh Garment Manufacturers and Exporters Association (BGMEA) are currently coordinating with five of its member companies to convert their production lines to produce 500,000 PPEs.

The economic threat

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).

According to the forecast released by the Economist Intelligence Unit on 26 March, the global economy is expected to contract by -2.2% in 2020. These effects are expected to be more pronounced in major G20 economies, such as Germany, Italy, the United Kingdom and the US – all countries that are major markets for Bangladesh’s most vital tradeable good: readymade garments.

With lockdowns currently imposed across Europe and North America until mid-April, even in the best-case scenario it will take at least until mid-June for market confidence to be restored in these economies. The implication is that nearly six million workers in Bangladesh’s formal sector – which is largely manufacturing – will be without steady work for an extended period.

The depressed oil prices will also lead to a strong reversal of growth in the Middle East and North Africa region, which is also home to a large Bangladeshi diaspora, who send back close to $20 billion every year. In the coming months, there can be no doubt that there will be a decrease in remittances and that these second-degree impacts will also be felt in the country, painfully in rural Bangladesh, where families rely heavily on remittances for their subsistence.


Also read: 50 nations promised cash to fight Covid. Few, like India and Bangladesh, are doing it right


What more needs to be done

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.

More worryingly still, data from the Bangladesh Bureau of Statistics indicates that Bangladesh has more than 50 million workers in the informal sector. While there will be a significant impact on the livelihood of workers in the formal economy, there can be no doubt that the informal sector will be hit even harder. The prime minister was right to identify this as a challenge and her decision to distribute food aid through Bangladesh’s existing social safety programs such as the Vulnerable Group Feeding and Vulnerable Group Development for six months must also be welcomed.

The government should also consider an unconditional cash transfer program for an initial period of three months at a rate of $95 per month, which corresponds to the minimum wage for the formal sector in Bangladesh. This would cost the government roughly $14 billion, or 4% of GDP. While this sort of cash transfer program always suffers from targeting issues, Bangladesh enjoys a highly sophisticated mobile financial services network, which could improve the cover of the program. A concerted effort involving the non-governmental organizations working in the informal sector, mobile financial service providers, and the government could be developed to deliver this urgently needed social assistance.

Taking such an aggressive step would mean that Bangladesh would have to forego its usually prudent and disciplined fiscal policy of maintain its budget deficit within 5% of GDP. With a low debt-to-GDP ratio, Bangladesh has enough fiscal headroom to adapt an expansionary approach in the short run to fight off the economic and humanitarian aspect of this crisis. To finance this expansion, Bangladesh should also look to tap into the concessionary financing available at its disposal through the multilateral development banks.

The steps on the fiscal side – the stimulus package – must also be complemented by steps on the monetary policy side. Bangladesh Bank has already put a freeze on loan repayments for six months until June 2020 and relaxed foreign exchange regulations for trade transactions until September 2020. It has also increased the transaction limit on mobile financial services as well as cut the monetary policy rate by 25 basis points. These are steps in the right direction, but they are unlikely to prove aggressive enough to fight the economic impact of a global pandemic.

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.

Public-private cooperation will be key

By taking early steps on the health security side, Bangladesh has been able to buy itself some time to respond to this pandemic. But the country cannot afford to be blind-sided by the secondary economic risks associated with this crisis.

The fight against COVID-19 cannot be carried out by the government alone. It will require an unprecedented level of coordination between the public and private at the local and international level. The World Economic Forum, with a mandate from the World Health Organization, has launched the COVID Action Platform in response to the pandemic. Bangladesh should look to tap into this platform to galvanize support for its private sector and share some of its own experience in fighting COVID-19 and increasing its economic resilience.

This article was originally published in World Economic Forum.


Also read: Bangladesh is rising while Pakistan is sinking — praise from Modi on Mujibur birth centenary


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