By Lamia Saiyara Mela
Amidst the plethora of global issues the on-going pandemic has caused, one large worry remains prevalent. As the time ticks by, the prominent question echoes; will the global and local economies experience a heavy consequence as a result of the COVID-19 pandemic, and to what extent? Particularly, the question of what Bangladesh’s scenario stands as warrants an important mention. The answer is, in fact, a reassuring and positive one, as Bangladesh is predicted to be on a somewhat safe side.
To understand why at first it is necessary to address the issues that Bangladesh seemingly has in the way it is and has been dealing with the COVID-19. As of March, due to back to back government-imposed general holidays in Bangladesh or a version of ‘lockdowns’ in other parts of the world, many businesses were forced to remain shut, naturally interrupting the usual economic flow. This has taken a substantial toll on countries economically, not to mention how it has been stressing out the world’s healthcare systems. The WHO declared pandemic has had its large scale effects, on lives and on economies.
As a nation, Bangladesh has seen a spike in the total number of infections and the rate at which it spread makes it vulnerable to its future challenges. While the health system tries to mitigate and treat the maximum numbers of patients, the abrupt influx of infections acts as a wake-up call. As the months roll in into the pandemic, slowly local businesses open to some degrees, and usual life shows a different pattern. To say the least, health remains the biggest priority for many who go back to work and resume a not-so-normal life consumed in fear and anxiety of the COVID-19 virus. It becomes more difficult with a population that overcrowds the roads and traffic lines on the daily. Given the drawbacks that Bangladesh remains in terms of how it is dealing with the pandemic, an important note to take is the way its previous debt management impacts the future economic possibilities.
For Bangladesh, as much as the infection numbers have risen significantly over the past few months, the economic effects it may be faced with possibly might depict a different story. Especially from the standpoint of debt management. The question of how a least developed country like Bangladesh could have good news in terms of economic impacts is rightfully a curious case. As many parts of the world face major tolls on its day to day functioning with some nations having to pay a tough price, how is it that Bangladesh is spared? The answer to which is that Bangladesh may be less vulnerable to adverse economic backlashes as it generally is faced with low debt distress. This accords to a better functioning economic system in relation to debt management, which aids the future unseen issues the economy could face due to the pandemic.
As many parts of the world face major tolls on its day to day functioning with some nations having to pay a tough price, how is it that Bangladesh is spared? The answer to which is that Bangladesh may be less vulnerable to adverse economic backlashes as it generally is faced with low debt distress.
The IIF, which was founded in 1983 in response to the rising international debt crisis, has found out evidence that rank Bangladesh’s economy as less susceptible to loan suspensions for its post- COVID-19 impacts. The Washington based Institute of International Finance (IIF) which had analyzed 73 low-income nations in search of the countries who may need loan-suspensions to finance their economies found an interesting hypothesis; Bangladesh is less risk-prone from a crash and burns effect for several of its strategic factors that have been efficiently at play.
The IIF did so by assessing categories under a G-20 scheme for an initiative that suspends need-based loan repayment service to economies who may seek it. The G-20 scheme is able to free suspending US$20 billion to the economies that may be affected by the pandemic. The categories align in green, yellow and red zones to better understand where each of those ‘poor’ nations lay. Out of those 73 nations, it was found that Bangladesh seems to be in the green zone for 6 out of 11 total categories. That fairly shows Bangladesh has mechanisms that have been working well to secure those respective spots in the green zones.
To illustrate this strikingly interesting scenario for Bangladesh, we can consider delving into the aspects that were looked into by the IIF. The zones which they categorized were segmented on percentiles. The green zones signified being above the 75th percentile, which meant securing a higher percentile. While the yellow signified being in the 25th to 75th percentile and red zones signified the lowest percentile. Many of the aspects analyzed about-the Bangladesh economy sees that much of them reside in the higher percentile. The key indicators that land Bangladesh on the safe spot can be explored by looking at the current scenario of its economy, in relation to its strengths and weaknesses.
Firstly, Bangladesh is found to be considered successful in its current position of the global health index, the foreign exchange reserves, current account balance, and it is reported that a change in its budget deficit has also taken place. According to the IIF, this shows that Bangladesh is less susceptible to avail the G-20 package because much of the categories shows it is within the green zones. The position the country has within the Global Health Index particularly is one that experts have found to be impressive. This points towards the country facing lower debt distress.
Secondly, Bangladesh also finds itself in the higher percentile in its contribution towards employment by its tourism, which is an ally that most countries around the world have had to face a substantial hit over during the pandemic. It has also been noted that the lack of tourism and international financial markets have not been hindered all too much. The debt-to-GDP ratio Bangladesh has sustained proves to be beneficial in the post-COVID-19 world, as the disruptions arising from travel restrictions are not excessively felt. Additionally, the share of bilateral creditors in the long term, as well as publicly guaranteed external debt services, also were categorized to be in the green zones for Bangladesh. This means the economic impacts that the pandemic might have caused is in many ways curbed. This yet again shows the country operating on lower debt distress.
However, all that good news still brings to question some grey areas. The aspects where the country fell behind in needs to be addressed as well, to paint a proper picture of how the post-pandemic situation could look like. In the categories of remittance flow, public debt management, and total external debt service, Bangladesh finds itself in the yellow category. This means it ranks in around the 25th to 75th percentile, which may indicate a possible risk coming its way as the mentioned areas are pivotal to the Bangladesh economy. While that is not all, there are major areas where Bangladesh finds itself in the red zone, meaning they are lower than 25th percentiles. Coupled with above areas such as remittance flow, Bangladesh was found to be in the red zone regarding its International Monetary Fund’s share and share in total multilateral creditors in long term public and publicly guaranteed external debt. This goes to show that limitations may pose itself as Bangladesh recovers from this ongoing health crisis.
The final verdict still pronounces Bangladesh as a low-risk country where economic impacts may not be as adverse as it may primarily look, given the weaknesses the country has had in its past.
To further those grey areas, we may try to delve into the local businesses which at micro levels are facing an economic draught. As businesses resume, some face extra challenges as the work naturally shifts to accommodate proper safety protocols, labour cut-backs, low profits and more undesirable outcomes. The wages and employment scenario may not be conducive to an easy transition as the pandemic comes to a halt, which also is yet to be figured out when that may be. Economic slowdowns in major parts of the West is also a reason why the global economic impacts may trigger Bangladesh as a domino effect.
Especially with the way general holidays had been executed and then lifted exposing the mass population to everyday life, it poses as a challenging threat to the health systems in place. The country has been grappling with the ongoing rise in infection numbers, detections measures, reporting, testing services has overall burdened mechanisms to identify proper containment strategies. While those areas are necessary to combat at a time like this, the real question stands as to whether the somewhat good news of Bangladesh finding itself in several green zones be enough to tackle the greater picture.
Regardless of those limitations, the overall situation continues to speak positively of Bangladesh’s post-COVID-19 circumstances as debt-distress seems to be lower than the other 73 nations IIF analyzed. Experts in the respective fields of economics have commented around the IIF’s propositions, that the G-20 loan suspension may not at all be necessary for Bangladesh. This means Bangladesh becomes a country which is given no thought in terms of requiring the additional loans to run its economy as a result of low debt distress. While other countries might need those loan suspensions, Bangladesh is spared from it and this aligns the strategical strengths within its economic system. The positions in which Bangladesh has seen soaring in the green zones outlined by the IIF are far greater than the areas in which they are found yellow or red. In terms of financial fragility, Bangladesh has been ranked exceptionally high by notable international economists. This goes to show, that low debt distress is having a part to play here.
The final verdict still pronounces Bangladesh as a low-risk country where economic impacts may not be as adverse as it may primarily look, given the weaknesses the country has had in its past. Starting from being a least developed country with a high population as a core issue, simple negotiations are not easy. There are allies in which the pandemic is reshaping those negotiations into harder ones. But, when it comes to Bangladesh’s debt management, it seems the country reigns against its odds. Bangladesh seems to have a good grip over its management of low-debt distress. Whether the health crisis goes on for an indefinite period, Bangladesh proceeds with its hopes in terms of transitioning to a better tomorrow.