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Despite stellar economic growth over the past decade, many Bangladeshis have no safety nets and economic survival outweighs COVID-19 concerns.    © Nikkei montage/Source photos by Getty Images, Reuters
Asia Insight

Coronavirus risks pushing millions of Bangladeshis back into poverty

Prime Minister Sheikh Hasina's leadership severely tested by food and income setbacks

A.Z.M. ANAS, Contributing writer, and YUJI KURONUMA, Nikkei Asian Review assistant politics & economy news editor | Bangladesh

DHAKA/TOKYO -- Shahidul Islam, a poor farmer in Bangladesh's western district of Natore, called a hotline last month for a food handout. The request went down very badly when a senior local official -- who also belongs to the ruling Awami League -- took it as a personal smear. His response was to assault the peasant -- a by no means isolated incident.

Bangladesh has not escaped the economically disruptive COVID-19 pandemic that has upended health care systems around the world and claimed over 280,000 lives. The South Asian country has had nearly 15,691 confirmed cases and 239 known deaths since the first case was reported there on Mar. 8.

On Mar. 26, Bangladeshi authorities locked down 75% of the country in a bid to contain COVID-19. This immediately threw some 13 million people out of work with no fallbacks. The government relief program has provided rice at just $0.12 per kilogram, but desperately hungry people have been attacking the relief convoys.

Others who asked for food handouts also suffered misfortunes, and some journalists who covered the misappropriation of food aid were attacked. Law enforcement agencies meanwhile went after hundreds of elected officials, ruling party members and suppliers for pilfering the cheap rice meant for the poor. By late April, the Press Infomation Department said that 35 million people had received food relief, and that cash transfers to 15 million were coming.

In an already threadbare environment, frontline health workers are battling the disease with insufficient supplies and equipment. The exceptionally densely populated country is home to 170 million people, the vast majority Muslim, many of whom live in poverty. Bangladesh is also ranked the 14th most corrupt among 180 nations surveyed by Transparency International. In this setting, food security and income management have become more pressing issues than the spread of COVID-19.

Cheap rice provided by the government during the COVID-19 pandemic has not always reached the increasing number of impoverished people.    © Reuters

Vexed by the extent of the irregularities even by members of her own party, Prime Minister Sheikh Hasina sidelined ministers and members of parliament, and assigned top civil servants to remedy issues in all the country's 64 districts. The Dhaka Tribune newspaper praised her as "a lone warrior in the fight against coronavirus."

Hasina's misgivings were fully justified in the view of Ahsan H. Mansur, executive director of the Policy Research Institute of Bangladesh, a think tank in Dhaka. Others are less convinced, including Ali Riaz, a professor of political science at Illinois State University in the U.S. He doubts the prime minister's admonishments and interventions can "completely stop the theft."

Economic damage

Bangladesh's problems go beyond poor governance, and include the uneven distribution of industry. The country's $300 billion-plus economy depends precariously on garments and textiles, which account for almost 12% of gross domestic product and 84% of exported merchandise. The apparel sector, second in size only to China's, is now deeply troubled.

"The impact of the pandemic has been apocalyptic," Rubana Huq, president of the Bangladesh Garment Manufacturers and Exporters Association, told the Nikkei Asian Review. "We are looking at six months of business being dwarfed by this pandemic to unimaginably reduced scales, job losses, and an inflated burden on the shoulders of the entrepreneurs," she said. Garment exports saw a drastic decline in April, falling to $0.38 billion from $2.26 billion month on month.

Mostly women work in Bangladesh's essential garment factories that were reopened in late April despite fears of COVID-19 contagion.     © Reuters

The industry employs 4.1 million workers, mostly female, and was forced to cease operations during the government-ordered lockdown. Pushed by various garment industry lobbyists who feared orders could be diverted to Vietnam, thousands of clothing factories reopened on Apr. 26, flouting concerns about transmission of the virus.

Most western high-street retailers selling Bangladeshi apparel demand deferred payment of up to 180 days, while factories carry a raw material liability of nearly $2 billion. "With no clear visibility of orders to come, goods stuck in foreign ports, and buyers canceling finished goods, we have no assurances that we can depend on," Huq told Nikkei. The sector that has long been the largest manufacturing employer in Bangladesh is teetering on the edge of a crisis.

Foreign remittances, the second largest driver of the economy, are also threatened. Last year, over 10 million Bangladeshis working overseas sent home more than $18 billion -- about 6% of GDP. With the virus and collapsing oil prices, the World Bank expects remittances to fall back over 20% to about $14 billion this year. The International Monetary Fund has forecast that Bangladesh's GDP growth will plunge to 2% this fiscal year, its deepest dive in decades.

The reduced growth and businesses damaged by the virus could push millions back into poverty. Since 2000, more than 25 million people have been lifted out of the classification, but a quarter of Bangladeshis remain severely impoverished.

Zahid Hussain, a former lead economist in the World Bank's Dhaka office, estimated that poverty levels spiked up to 40% of the population after the lockdown. "This may be largely temporary if the economy can be restarted in the not-too-distant future," Hussain told Nikkei. But he warned that if the health crisis continues, the poverty rise will last much longer.

Starting from a low base, Bangladesh has long been one of the fastest growing economies in Asia. Since Sheikh Hasina returned as prime minister in 2009, the country has seen average annual GDP growth of nearly 7%, while per capita GDP has risen nearly threefold -- it was expected to pass $2,000 this year.

But the COVID-19 crisis has thrown the macroeconomy into reverse. Seasonal traders in the handicraft and fashion sectors who rely on short-term bank credit have been brought to their knees, according to Shams Mahmud, president of the Dhaka Chamber of Commerce and Industry. These businesses were particularly damaged by the cancellation of Bengali new year celebrations on Apr. 14, and are unlikely to be bailed out by the banks. "They have had to dip into their savings," Mahmud told Nikkei.

There may also be another burden. With foreign aid donors struggling with their own domestic problems, Bangladesh could find itself left to support in large part 1.1 million Rohingya refugees huddled in 34 camps in Cox's Bazar in the country's southeast. The United Nations launched an $877 million relief appeal in March, but past experience compounded by the pandemic crisis make that likely to be underfunded. Most Rohingya refugees poured into Bangladesh from August 2017 to escape persecution by Myanmar's military.

Mitigation measures

To weather the crisis, Hasina has announced rescue packages worth $11.6 billion, equivalent to 3.5% of GDP, that focus mainly on supporting manufactured exports and agriculture, as well as creating some safety nets. But Mansur at the Dhaka think tank was dismayed by the absence of big commitments to food assistance, supporting smaller companies, and bolstering the health care system. He is also concerned by weakened revenue collection, which he said will make the fiscal consolidation needed for economic recovery harder.

Bangladesh's economy expanded 8.15% in the fiscal year up to June 2019, and is one of the least-taxed in Asia. Indeed, taxation as a percentage of GDP was down to 8.5% from 10% in 2016. In the nine months to March, revenue receipts amounted to only $19 billion, well short of the $26 billion targeted.

With normal export revenues and remittances threatened, and weakened government funding capacity, Bangladesh is looking to multilateral lenders to curb balance of payments pressures and facilitate state financing. Officials are hoping for $750 million from the World Bank, $700 million from the International Monetary Fund and $500 million from the Asian Development Bank.

Health care crisis

Foreign assistance will not quickly rectify the country's poor health care system, however. Bangladesh has 0.8 hospital beds per 1,000 people, well below the world average of 2.7 beds, according to the World Bank. The country spends slightly over 2% of GDP on public health, well short of the South Asian average of 3.46% -- a level of government expenditure Hussain calls "cancerous." Medical bills force millions of Bangladeshis into debt each year because they must cover 67% of costs personally and insurance is, in effect, unavailable.

In the early stages of the contagion, some politicians took the optimistic line that Bangladeshis were tough enough to handle it -- perhaps revealing why health investments have not been more prioritized. Such bullishness may soon be tested. Malls, markets and shops were reopened on May 10 ahead of the festival of Eid al-Fitr marking the end of Ramadan and a month of fasting. Mosques had already been reopened, despite outcries on social media about the health risks posed by large congregations and normal retail activities.

Food distribution failures could pose a bigger threat to Bangladesh's stability than the economic mayhem triggered by the COVID-19 outbreak.    © Reuters

Riaz, who is also a senior fellow with the Atlantic Council, a Washington-based think-tank, said a grave food crisis would pose a "serious challenge" to the government. Severe shortages were experienced in 1974, but the country is now much better placed to avoid famine. Bangladesh has tripled rice production since its independence from Pakistan in 1971, making it self-sufficient.

The country has sufficient reserves at present, but Hasina acknowledged in a recent World Economic Forum video conference that "ensuring food security in case of a prolonged [COVID-19] crisis will be a big challenge for all, especially for the South Asian countries."

Adding to the nation's woes, swarms of locust-like insects recently defoliated a subdistrict in Cox's Bazar, stripping trees down to their branches. The ominous pestilence is yet another headache for the Hasina government. On the positive side, however, the current crisis could provide the country's longest-serving prime minister with an opportunity finally to fix shortcomings in the food distribution system.

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