Economic recovery: hopes and trepidations

Although the budget for fiscal year 2020-21 projected a GDP growth of 8.2 per cent for the year, the Planning Commission has recently revised the projection down to 7.4 per cent.

From this, it seems that the Planning Commission is taking into account the difficult environment that the economy is having to chart. And yet, even this may be rather optimistic, especially given the current situation of the global economy.

Apart from the rise in stock values and the prospect of growth resumption in China, there is not much good news about the global economy as we end the year of the Covid pandemic. The disjunct between Wall Street and the main street seems to be persisting.

With the pandemic continuing to rage and the fear of the third wave gripping many parts of the world, the prospect of economic recovery starting from the first quarter of 2021 looks rather dim.

Even though anti-Covid vaccines are being rolled out in various countries, completion of the process is going to take time – thus delaying the resumption of growth.

If the global economy boat does not have much wind in its sail, it will not be sufficiently powerful to tow the smaller boats like Bangladesh. So, the start of real recovery of the country's economy is likely to be delayed too.

It is in the above context, that even the revised growth projection of the Planning Commission appears optimistic. Of course, one has to hope for good days to come, because it is hope that keeps one alive and going. But it is important to remain alert about lurking dangers and take appropriate steps to overcome them.

Also, in order to transform hopes and aspirations into reality, it would be necessary to identify areas where one can pin one's hopes.

Let's first talk about why there is trepidation about the timing, speed and type of recovery that can be expected for the economy of Bangladesh.

As a significant part of the country's economy is now linked to export, GDP growth of the order mentioned above may be difficult to attain unless the export market recovers fully.

And that is where the first reason for trepidation lies. The second wave of the pandemic in several countries of the developed world has already created new uncertainties about the prospects of turnaround of exports of the country's major export item, ready-made garments.

Given the fluctuations already experienced and the new uncertainties, what the overall growth of the sector will be in 2020-21 and when (if at all) it will be able to return to its pre-pandemic growth path is anybody's guess.

What about other export items? In the current situation, there is so much focus on RMG industry that hardly any attention is given to other items and to the issue of export diversification which has been talked about for some years now. I do realize that the time of an economic crisis may not be the perfect timing for adopting measures for structural changes in the economy.

But if one were to convert challenges into opportunities, it would be necessary to simultaneously look at strategies for promoting other export items. In that context, what is happening to existing export items like jute goods, frozen food, etc. and potential of other items have to be looked at.

There are other reasons for being concerned about the speed and type of economic recovery. And that relates to what is happening to non-RMG manufacturing industries and domestic market-oriented sectors.

It is by now well-known that larger enterprises have been able to make good use of the government's economic recovery support programme and the others, especially the very small ones have remained way behind.

Whatever the reasons are for such lopsided performance of the support programme, its implications for recovery are obvious. The current recovery seems to be taking the shape of the letter K - with one segment recovering and another segment continuing to decline.

But if the economy has to recover more on the basis of the domestic market, it is the smaller enterprises – especially those in the informal segment of the economy that have to grow.

Another cause for trepidation is that the delay in the global economic recovery would also imply a delay in the resumption of overseas employment for workers seeking such jobs. Loss of a major source of jobs means further pressure on the labour market in the country which is likely to continue in 2021 – at least during the early part of the year.

That can also have implications for the flow of remittances which, of course, has remained strong despite apprehensions to the contrary. But it would be important to closely monitor the flow in the coming year.

An issue of serious concern is the rise in the incidence of poverty.

This is the first time in several decades that such a reversal has occurred. Inequality in income was already rising and must be rising further in the pandemic-affected economy.

This seems inevitable in view of two developments. One has already been mentioned above: smaller and micro enterprises lagging behind in recovery. And the second is the adverse effect on the labour market – both in terms of job loss and fall in real wages of workers. While millions of jobs were lost during the height of the pandemic, it is not clear how many of them have been restored.

In addition, real wages have been falling in recent months, and the trend is likely to continue. Recently, owners of the RMG industry enterprises have requested for permission to skip annual wage increments for their workers. If that comes on top of the existing pressure on the labour market, the consequence can be dire for workers.

Thus, the experience of the pandemic year shows that neither economic growth nor achievements in social development were sustainable.

Hence, the focus of the debate on recovery has to move from a single-minded pursuit of growth to broad-based and inclusive recovery. Effort needs to be made to reverse the north-east move of the incidence of poverty and the decline in real wages.

Where can one pin hopes for attaining a healthy economic growth? One obvious answer is good old agriculture. That sector is now much more diversified than before; and it is possible to talk about not only grain crops, but also vegetables, fruits, poultry, livestock, etc. While it would be crucial to have a good boro crop next year, the other sub-sectors can also provide some boost to the economy.

Outside agriculture, there is good potential in non-farm activities in rural and semi-urban areas. But their health and potential are linked to the health of the other segments of the economy. So, if agriculture performs well and if the flow of remittances holds, the environment would be conducive to the growth of those segments.

However, whether all of that can add up to the kind of growth that has been projected remains an open question.

The author, an economist, is a former special adviser for employment sector at the International Labour Office.