Macroeconomic stability, economic resilience keep growth momentum afloat

Recent International Monetary Fund (IMF) projections on this year's per capita GDP have generated a shockwave in India.

This is because the international organisation has projected that Bangladesh will surpass India in terms of per capita income with a 10.5% negative growth in  India in the current year, while for Bangladesh the growth rate has been forecast at 4%.

However, the reactions given by a section of people in India do not seem right to me. Had they kept watching the economic performances of these two neighbours, they would not have been as much surprised as they are now.

The Indian economy has been tumbling for the last few years, and Covid-19 has only made the situation worse. This points to the fact that India's management of Covid-19 and economic policies were not in the right direction.

For example, demonetisation policy, sales tax issues, other fiscal policy issues etc have added to economic woes with elongated lockdown and the resultant loss in the economy due to its heavy reliance on tourism (along with health tourism), private finance etc.

On the other hand, Bangladesh has been doing consistently well in economic fronts over the whole decade with macroeconomic and political stability coupled with growth-oriented policies.

More so because Bangladesh has made long-term investments in various social sectors, such as health, education etc that provided a base for higher growth trajectories, and also helped Bangladesh remain ahead of India and other neighbouring countries in terms of social indicators.

For example, achieving almost 100% immunisation, sanitation and drinking water facilities, combating cholera and other infectious diseases, and reducing child and maternal mortality rates are some of the notable achievements.

Therefore, Bangladesh's achievement is not a fluke, rather it embarks on some solid macroeconomic and other public policies.

Why the Bangladeshi economy showed resilience during the Covid-19 pandemic warrants further explanations.

I want to highlight a few issues.

First, agriculture, exports, and remittances are largely thought to be the drivers of economic growth in Bangladesh and they remained almost insulated from the crisis. Fortunately, a bold decision from the government to withdraw general holidays from June and with some luck, the Covid-19 pandemic could not affect these three drivers as much as was feared.

During relaxed general holidays in April and May, the rural economy remained almost unaffected and farmers were able to take their Boro produce home.

The government helped migrant day labourers move to the harvesting areas with special arrangements.

Also, credit support was provided to make harvesting machines available in haor and other areas so that farmers could take their paddy home quickly.

Even though RMG factories remained closed in April, the factory owners were allowed to open their factories from May. At the same time, the government provided subsidised credit to pay wages to RMG workers through mobile financial service providers.

As a result, except in case of a few cancelled orders, exports of RMG products gained momentum from mid-June. 

Foreign remittances also started coming from June at a much higher rate than before and the trend still continues. This reflects the empathy of migrant workers towards their families to sustain livelihood in the crisis.

Secondly, apart from RMG and other large industries, the micro, small and medium enterprises (MSMEs) who were hardest-hit in the lockdown period, most of them started their operations in order to maintain their livelihoods from early June as some enterprise surveys have hinted.

Even though many of them could not capitalise the credit-based stimulus package of the government as yet, their return to the almost normal operation perhaps with credit from informal sources saves employment of over 80% of the total employment outside the agriculture sector.

Moreover, deferment of payment of utility bills and credit repayment for three months or so helped many industries and households continue electricity and other energy consumptions.

Thirdly, although some new poor were added to the older group amid the pandemic crisis, these transitional poor are expected to get out of poverty if proper support is given.

A lack of a proper database of the poor and high probability of leakage can be seen as the missing link in the whole support measures.

However, a huge private transfer during the initial lockdown and so forth has made the difference. Many temporary workers such as, homemakers, day labourers, who had lost their job during the lockdown, started to return to their old or new jobs.

With easing transportation services from July this year, internal migration of workers has intensified.

Therefore, the crisis management policies have so far worked well due to the resilience of the economy.

It is to be noted that the Covid-19 crisis is not a fully demand-driven crisis, and therefore Keynesian-type prescriptions to manage the crisis by creating effective demand would not be successful.

Since the demand fall is generated mainly from supply-side constraints, easing such constraints by minimising lockdown-type measures are key to remain vibrant. And this is what Bangladesh has done.

 A sustained growth of over 6% in this decade has helped the country reduce poverty almost by half from the level in 2010.

Bangladesh's per capita income grew by more than 9% over the last five years, which also contributed to poverty reduction at a similar rate, which is consistent with various cross-country research studies as they showed that the income of the bottom 20% of people grows at the rate of GDP per capita growth. 

While non-government organisations (NGOs) played a big role in the 1980s and 1990s, a big transformation took place in the economy in the 2000s onwards with the widespread adoption of technologies, particularly mobile phones, internet, mobile wallet, software applications etc.

These factors increased the efficiency of the capital, household welfare including income, smoothening consumptions during shocks, and women empowerment. In particular, e-commerce took a leap during this crisis period.

Therefore, NGO interventions and technological adoption contributed to the social and private capital formation that has been the key to economic resilience.

There is no denying that the key facilitator of a higher economic growth of the economy is the macroeconomic stability that the country has been enjoying for a long time.

With accommodative monetary policy, a sound fiscal policy with low debt-GDP ratio and budget deficit has given the government space for better crisis management.

Echoing other commentators, in order to maintain growth momentum, I want to reiterate that there is no room for complacence, and therefore we must continue institutional reforms with judicious crisis management policies.

Dr Monzur Hossain is a research director at Bangladesh Institute of Development Studies. He can be reached at [email protected]