While there are bright chances of growth during FY21, significant uncertainty surrounds both epidemiology and policy development,” said the “South Asia Economic Focus South Asia Vaccinates” report. “Thus, growth in FY21 could range from 2.6% to 5.6%.
Over the medium term, growth is projected to stabilize within a 5% to 7% range as exports and consumption continues to recover.
The prospects for economic rebound in South Asia are firming up as growth is set to increase by 7.25% in 2021 and 4.4% in 2022, said the report, creating hopes for substantial recovery from historic lows in 2020, putting the region on a path to recovery.
“But the growth is uneven and economic activity remains well below pre-COVID-19 estimates.”
Following a sharp GDP growth deceleration in FY20 due to the pandemic, the economy started recovering in the first half of FY21, as movement restrictions were lifted and international buyers reinstated export orders.
Going forward, a gradual recovery is expected to continue; particularly if the government’s COVID-19 recovery programs are implemented swiftly.
With growth firming up, poverty is projected to decline marginally in FY21.
The pandemic impacted the economy profoundly. A national shutdown from March to May last year resulted in severe supply-side disruptions in all sectors of the economy.
The government’s COVID-19 stimulus provided firms with access to working capital and low-cost loans to sustain operations and maintain employee wages in FY20 and FY21.
From June 2020 onward, movement restrictions have been progressively lifted, and transit and workplace movement patterns returned to pre-pandemic levels by October.
According to the report, the downside risks are likely to persist if new waves of COVID-19 re-emerge in Bangladesh or its trading partner countries.
“This could necessitate additional movement restrictions, dampen demand for readymade garment, and/or limit the outflow of migrant workers.”
Bangladesh is expected to graduate from the UN’s least-developed country status in coming years, which will present opportunities but also challenges, including the eventual loss of preferential access to advanced economy markets, the report said.
Estimated poverty rose sharply in the fiscal year 2019-20 amidst substantial job and income losses.
However, household surveys point to a gradual recovery in employment and earnings and a decline in poverty in the first half of the fiscal year 2020-21.
Food security improved across the country, with the most significant increase in Chattogram.
The report stated that risks to the outlook might persist.
It identified fiscal risks, including weak domestic revenue growth (if tax reforms are delayed) and higher expenditure for COVID-19 vaccination (if external financing is limited) and for supporting the Rohingya refugees (if donor fatigue sets in).
In the financial sector, contingent liabilities from non-performing loans combined with weak capital buffers could necessitate recapitalization (resulting in higher domestic government debt) and depress credit growth.
While external demand for RMG appears to be stabilizing, the recovery is fragile and could be vulnerable to new waves of COVID-19 infections.
Demand for Bangladesh’s overseas workforce in the Gulf region may also be impacted by the ongoing recession in the region, impairing future remittance inflows.
