2nd wave Covid-19 fallout may slow down Bangladesh recovery, warns BB

The slower global economic recovery amid the second wave of Covid-19 may hinder Bangladesh’s effort to overcome the fallouts from the pandemic’s first hit, according to a latest Bangladesh Bank (BB) report released on Tuesday.

It said the pace of recovery in economic activities in the first quarter (Q1) of this fiscal year (FY2020-21) may continue in the coming quarters, but the uncertainty over the effectiveness of the vaccine would also put a damper on the recovery process.

The growth of gross domestic product (GDP) fell to 5.24 per cent in FY ’20 from a record high of 8.2 per cent in FY ’19.

The central bank suggested continuing the appropriate supports like expansionary monetary and fiscal policies to help sustain the recovery of economic activities.

The Bangladesh Bank Quarterly (BBQ) for July-September 2020 has identified the downside risks of the country’s economic recovery.

It said the severity of Covid second wave, uncertainty of vaccine and slower global economic recovery are the main concerns of the country’s growth outlook in the near and medium terms.

Enhancing implementation of the stimulus packages in a proper way and keeping effective vigilance are required for maintaining the growth momentum and the macroeconomic stability, it suggested.

Mustafa K Mujeri, former director general of the Bangladesh Institute of Development Studies (BIDS), emphasised on the implementation of the government-announced stimulus packages properly to help revamp the economic activities in the face of adversity from the pandemic.

“The risk factors are becoming stronger gradually mainly due to the second wave of Covid-19,” Dr. Mujeri, a former chief economist at the central bank, said while explaining the latest situation.

He also said that exports particularly of readymade garment (RMG) products have faced difficulties because of external risk factors amid the second wave of the pandemic.

Opening letters of credit (LCs) for back-to-back import of textile products dropped further in November last as apparel exporters scaled back purchase of raw materials after deferring shipments by one to two months due to the second wave of coronavirus in the United States and Europe – Bangladesh’s key export destinations.

The import orders for textile products fell by nearly 3.0 per cent to US$ 420.02 million in November from $ 431.43 million in the previous month, the BB data showed.

The senior economist also suggested the policymakers to take effective measures for facing possible challenges even after arrival of the coronavirus vaccine in the country. “It’s not right that the vaccine will bring solutions to all our problems,” he noted.

Talking to the FE, Professor Shah Md. Ahsan Habib, director (training) of the Bangladesh Institute of Bank Management (BIBM), said uncertainty is looming large following the second wave of the pandemic.

He suggested facilitating few sectors particularly the cottage, micro and small enterprises, the ones affected severely by the pandemic, with additional stimulus packages.

“Such financial facilities should be ensured based on lessons from implementation of the ongoing stimulus packages,” Dr. Habib said, replying to a question.

However, the central bank has predicted that the pace of recovery in economic activities in the first quarter (Q1) of this fiscal year (FY2020-21) may continue in the coming quarters subject to appropriate policy supports.

Quoting indicators until September 2020, the BB said the economy is likely to recover in FY ’21, supported by expansionary monetary and fiscal policies.

“A broad-based recovery in economic activities started in Q1of FY ’21 which is reflected in key macroeconomic indicators well supported by fiscal and monetary measures in response to Covid-19 pandemic,” the central bank noted.

About a possible inflationary pressure on the economy due to the expansionary policies, the central bank said the recent upward trend of global food prices in the face of crop losses in many African countries relating to floods and the instability of edible oil prices might be the potential sources of food inflation in Bangladesh.

Besides, the BB’s policy relaxations and low-cost refinancing lines of credit along with the government’s stimulus packages have injected huge liquidity in the economy, causing some upside risks to headline inflation in the medium term, it added.

The central bank stressed on reinforcing the need for implementation of the packages in the priority and productive sectors.

The BB also said that the overall banking sector performance improved during the period under review as reflected in a decline in the ratio of non-performing loans (NPLs) aided by the loan moratorium facility, a rise in capital adequacy, and an enhancement of provision to be maintained against classified loans.

The amount of default loans fell by nearly 2.0 per cent or Tk 16.76 billion to Tk 944.40 billion as on September 30 from Tk 961.17 billion as on June 30 this year as the central bank suspended the routine exercise of classification to help businesses overcome the adverse impact of the Covid-19 pandemic.

“Favored by the expansionary monetary policy and appropriate policy supports, the capital market bounced back during the period under review, which is visible in rising share prices, turnover, and market capitalisation,” the central bank added.

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