Policies needed to mitigate emerging challenges affecting economic recovery

Covid-19 has been a massive shock to the global economy, the effects of which have yet to completely normalise due to the emergence of multiple variants. Nonetheless, with most of the economies in the world on the path towards recovery and normalcy – Bangladesh is no different.

While there have been setbacks due to a sudden rise in cases and subsequent lockdowns in the recent past, there has been much progress in terms of distribution of the Covid-19 vaccine and businesses are returning to regular activities. As estimated by research organisation SANEM, firms have been able to recover 56% of their businesses in September 2021 since the pre-pandemic situation (March 2020), and on average 55% of their employees have got at least one dose of vaccine as of September 2021. Despite such progress, some emerging challenges--the declining trend of remittances, the increasing trend of inflation, the new Covid-19 wave in Europe, and the need for wider coverage of vaccines are the major barriers to the path of strong economic recovery in Bangladesh.

Emerging challenges

Remittances, one of the drivers of the economy, are falling in recent months. The World Bank has also projected a slower remittance growth of 4.54% this year which is lower compared to that of India and Pakistan. Slower pace of outmigration, new migration policies in Malaysia and Gulf countries, and new restrictions to contain the spread of the virus in some European countries are the major reasons behind the declining trend of remittances. Inflationary pressures have added some more challenges to the recovery path as higher food prices and the lingering consequences of rising oil prices might keep price pressures in place for some time. The domestic price hike of fuel has also contributed hugely to disruption in all of the sectoral supply chain. The new wave of Covid-19 is warned by the public health experts as they indicated the current trend of falling Covid-19 cases in Bangladesh might well be the calm before a devastating storm. Moreover, more than 50% of people who are still waiting to get at least one dose of vaccine, are in a vulnerable position.

Policies to mitigate emerging challenges

There is no doubt that proper utilisation of remittances is of paramount importance to strengthen the path of economic recovery. The government can therefore increase its incentive percentage on the remittances received through the formal channels (the incentive has been raised from 2% to 2.5% from 1 January 2022). As observed, there is a slow pace in issuance of work visas particularly in Saudi Arabia, Oman, Libya and Gulf countries. The Gulf countries also demand more skilled workers than unskilled ones. It is therefore required to provide skill training to the workers who want to migrate. The problem of undocumented workers in some countries like Malaysia needs to be resolved through discussions with labour receiving countries.

The recent hikes in prices of commodities are mainly because of the fuel price hikes as it is interlinked to the commodities' production and transportation processes. As the economy is struggling to recover from the unprecedented crisis, such a policy change was not timely at all. New policies need to be formulated to lessen the inflationary pressures. Bangladesh should prepare to combat the third wave of Covid-19 as new cases (of Omicron) are rising rapidly in Europe and other countries including India. In this regard, the effort should be continued for procurement of vaccines and mass inoculation programmes across the country.

Md Tuhin Ahmed is a Senior Research Associate at South Asian Network on Economic Modeling (SANEM).