Recovery in South Asian economies

Published : 15 Jun 2021 08:25 PM | Updated : 16 Jun 2021 12:47 AM

The World Bank has ushered in some positives towards the end of March for the evolving dimensions of the pandemic affected South Asian economies. This has resulted in a degree of optimism with regard to the near future.

In this context, the media has pointed out that Bangladesh's gross domestic product (GDP) may grow by as high as 5.6 per cent in the current fiscal year, subject to three factors- how the ongoing vaccination campaign fares, whether new restrictions to mobility are required, and how quickly the world economy recovers. It has also been suggested that in Bangladesh, GDP could increase by 3.6 per cent in FY21. However, significant uncertainty still surrounds epidemiology and policy development, according to the "South Asia Economic Focus South Asia Vaccinates'' report. 

Consequently, as a result, growth in FY21 could range from 2.6 per cent to 5.6 per cent, it said. It would be pertinent at this point to draw attention to the fact that the lender's projection was 2 per cent in January this year and 1.7 per cent in October last year. Over the medium term, growth is now projected to stabilize within a 5 to 7 per cent range as exports and consumption continues to recover. This analysis has been done with assurances that there will be twice-a-year-regional updates.

South Asia's prospects for an economic rebound is now being seen as a distinct possibility by the World bank- with a potential growth rate where the economy might increase by 7.2 per cent in 2021 and 4.4 per cent in 2022. The denotation of such a possibility means that there will be a climb-up from the historic lows of 2020, and the region is on a path to recovery.

Economists have however also underlined that such a growth possibility might still be uneven in terms of economic activity if there is another wave of mutant Covid-19 attack. That would then mean that many businesses need to make up for lost revenue, and millions of workers, mostly in the informal sector, will continue to suffer from partial unemployment, falling incomes, worsening inequalities and human capital deficits.

India, which comprises the bulk of the region's economy, is expected to grow more than 10 per cent in fiscal 2021-22, a substantial upward revision by 4.7 percentage points from January 2021 forecasts. The outlook for Nepal and Pakistan has also been revised upward, supported by better than expected remittance inflows. Nepal's GDP is projected to grow by 2.7 per cent in fiscal 2021-22 and recover to 5.1 per cent by 2023. Pakistan's economy is expected to expand by 1.3 per cent in 2021, slightly above previous projections. Electricity consumption and mobility data have apparently been used to come to required conclusions. They are being seen as clear indicators of recovering economic activity.

It has however been underlined that such optimism of an improved economic outlook will depend on how South Asian countries keep their Covid-19 caseloads under control and swiftly roll out vaccine campaigns. This has assumed concern given the latest round of increased infection and death rate in some countries like India and Bangladesh.

Nevertheless, strategic analysts have commented that Government decisions for transition from widespread lockdowns- to more targeted interventions, accommodating monetary policies and fiscal stimulus – can be carried out carefully to prop up recovery.

Hartwig Schafer, World Bank South Asia Vice President and a World Bank press release remarked that - "We are encouraged to see clear signs of an economic rebound in South Asia, but the pandemic is not yet under control, and the recovery remains fragile, calling for vigilance." It has been added that- "Going forward, South Asian countries need to ramp up their vaccination programmes and invest their scarce resources wisely to set a foundation for a more inclusive and resilient future."

These suggestions have obviously been given because world economists already know about some weaknesses that exist within South Asia with a total population of nearly one and three quarter billion population. The connotation arises from the fact that this region has deep-seated inequalities and vulnerabilities and the pandemic has now provided this region with an opportunity to chart a path toward a more equitable and robust revival.

As such, the World Bank has also recommended that governments of this region need to develop universal social insurance measures to protect informal workers, increase regional cooperation and lift customs restrictions on key staples to prevent sudden spikes in food prices. One hopes that these factors will receive full attention of the relevant authorities in our South Asian region. It would of course be helpful if all the countries in South Asia get together and create a Council to agree on least common denominators. Such a measure could help in finding partners within the international scene.

Educationists from outside South Asia have also drawn attention to another significant matrix- the need to increase investments in human capital to help the next generation to grow up healthy and become productive skilled workers. The World Bank, in this context has pointed out that the region's public spending on healthcare is the lowest in the world, and proposed that countries further invest in preventive care, finance health research, and scale up their health infrastructure, including for mass and quick production of vaccines. These elements have been termed as essential.

World Bank South Asia Chief Economist Hans Timmer has noted that vaccinations had started within South Asia but the process was not only far from complete but that the danger was also still there. Timmer has also observed that the World Bank has noted that in Bangladesh “we have also seen a rebound of activity in the last two quarters, and that was positive news. But that doesn't mean it will be sustained easily". He has however also acknowledged that” there are also strong forces for recovery," in Bangladesh. He has also added that "we think in the long run the growth potential of Bangladesh is between 5 and 7 per cent, so ultimately the economy will return to that. But before that, you have to also undo the damage that was done. So, there is a tough road ahead."

This sort of difference of opinion on the part of the World Bank with regard to GDP growth has led it to predict for Bangladesh a lower figure than the government's estimate of 7.4 per cent for the current fiscal year. The WB is now estimating growth of 2.4 per cent for the last fiscal year, while the government's provisional estimate showed the GDP had grown by 5.24 per cent. Bangladesh Finance Minister AHM Mustafa Kamal has explained this difference of data as something that will eventually be clear for the Bank. He also observed that the World Bank will subsequently check whether our methodology was correct in terms of reaching our assumption. This format has been on for the last 10 to 12 years.

Nevertheless, one needs to emphasize that any forecast about our economic dynamics in the coming months and the next year will greatly depend on how we tackle the resurgence of the current growing wave of Covid infections in Bangladesh. Our ability to control the situation will definitely help us to move forward on the economic stage.

We must not forget that now we are engaged with the global economy as a rising developing country. However if our buyers are hit economically, it may also harm our economy because our government has little or no control over the global situation. One can only hope that with the rise of vaccinations throughout the world, the impact of Covid-19 will come down.

 In the meantime, it is generally agreed that after the sharp GDP growth deceleration in FY20 (due to the pandemic), our economy has started recovering in the first half of FY21. This is happening because movement restrictions are gradually being lifted and international buyers are reinstating export orders.

One also needs to add that optimism about growth in our national economic dynamics is being facilitated through the gradual growth that has been taking place in the recent past in our arena of receiving remittances from our migrant workers working abroad. Our media has recently reported that money sent home by our workers rose 35 per cent- year on year- in the first nine months in the current fiscal year, hitting US Dollar 18.60 billion, In March alone, this year, migrant workers remitted US Dollar 1.91 billion- up nearly 50 per cent from a year ago- the highest rate of growth since last August. Economists have observed that this inflow rebound trend has continued as hundi, an illegal medium of fund transfer, has declined amid lockdowns. Slapped by States and restrictions put in place on movement. 

Bangladesh's expected graduation from the UN's LDC status in coming years will however present opportunities as well as challenges, including the eventual loss of preferential access to advanced economy markets. Nevertheless, recent household surveys have pointed to a gradual recovery in employment and earnings and a decline in poverty in the first half of the fiscal year 2020-21. With growth firming up, poverty is projected to also decline in Bangladesh marginally in FY21.

Food security has also improved across the country.

However, there is also another aspect that will need to be dealt with carefully and in a dedicated manner- weak domestic revenue growth and higher expenditure for Covid-19 vaccination (if external financing is limited). There is also the question of continued fiscal support for the Rohingya refugees (if donor fatigue sets in). 

In the financial sector, contingent liabilities from non-performing loans combined with weak capital buffers could also require recapitalization (resulting in higher domestic government debt) and depression in credit growth. It has also been noted by economists that demand for Bangladesh's overseas workforce in the Gulf region may be impacted by the ongoing recession in that region, impairing future remittance inflows.   

Muhammad Zamir, a former Ambassador, is an analyst specialized in foreign affairs, right to information and good governance