Three years before we reach pre-Covid growth: Finance

The finance ministry has projected that it will take at least another three years for the economic growth to reach the pre-pandemic level, turning around from Covid-induced losses.

Before Covid-19 made inroads into Bangladesh, the country's Gross Domestic Product (GDP) growth was climbing sharply, having registered over 7% growth in three consecutive years – from FY16-FY18. The country achieved more than 8% growth in the pre-Covid fiscal year.

But in the last three months of the last fiscal year, the GDP growth dropped to 5% under pandemic effects, the lowest in the last two decades. Even though the World Bank and the International Monetary Fund (IMF) estimated it was half of the growth rate.

In the wake of the first coronavirus cases confirmed in March last year, the entire country had gone under a 66-day shutdown. All businesses, factories and shops were shut down. Investment and export-import activities came to a halt. The implementation of Annual Development Programme got paused.

The finance ministry reported  economic loss amounting to around Tk85,000 crore during the shutdown. In reality, the amount was even higher, given the size of the GDP.

Finance ministry officials say, earlier, in the fiscal 2008-2009 during the caretaker government regime, Bangladesh achieved the lowest growth rate of 5.35%, the lowest in a decade.

GDP growth plummeted that year because of political instability as well as devastating damages caused by cyclone Sidr.

In the Medium Term Macroeconomic Policy Statement 2019-20 to 2021-22 formulated in 2019, the finance ministry projected 8.4% GDP growth in the current fiscal year and 8.6% in the next fiscal year.

During the budget announcement in June 2020, the Finance Division had predicted a similar growth target for the current fiscal year like the preceding year, in anticipation of a "V" shaped recovery, with an expectation that the pandemic situation would get back to normal within the next three to four months.

But the growth target was reduced by 2 percentage points to 6.1% because of the prolonged pandemic as well as the ongoing lockdown enforced to rein in the second wave. But, the projections of the World Bank, the IMF and the Asian Development Bank are much lower than this number.

The draft Medium Term Macroeconomic Policy Statement 2021-22 to 2023-24 also estimates slow growth for the next three fiscal years, which will be released during the next budget announcement.

The finance ministry is going to forecast 7.2% growth for the next fiscal year, with assumptions of no further major pandemic blows to the economy, vaccination of all adults in the country in the next one year, and prices of fuel oil in the international market hovering between $50 and 80 per barrel.

The ministry also expects 7.6% economic growth in FY23 and 8% growth in the following year, which is less than the growth rate achieved in the fiscal 2018-19 before the pandemic.

Even if Bangladesh achieves the growth as per the latest projections made by the finance ministry, after the end of FY24, the GDP will be Tk10.45 lakh crore less than what it was supposed to be, the amount is 35 times the construction cost of the Padma Bridge.

Economists and businesses say there is no way out to compensate for the Covid-induced economic losses. The government will have to put an emphasis on vaccination to cope with the pandemic in the coming days and speed up economic activities.

They also emphasised on immediate steps to increase domestic and foreign investment by increasing the use of technology at the public and private levels and ensuring ease of doing business.

Ahsan H Mansur, executive director at the Policy Research Institute, said, "Maybe, we will never get back the size of GDP we had in pre-pandemic times."

The government has disclosed a GDP figure in the last fiscal year without calculating Covid-triggered economic losses. Even towards the end of another fiscal year, the final GDP calculation of the last fiscal year has not been published. No matter what the final calculation will be, the size of GDP as a whole will be less than that of the pre-Covid year. This loss will not be recouped on the GDP base because of not achieving growth  as per the target.

If Covid-19 infections drop or vaccine doses are available, growth may be restored but will take three to five years.

The recovery of future growth depends largely on the Covid management. But the precondition for this is to create an investment-friendly environment.

Shafiul Islam Mohiuddin, former president of the Federation of Bangladesh Chambers of Commerce and Industries, told The Business Standard, "We are lagging far behind. This loss cannot be recovered. The pre-pandemic level growth is possible in the next few years if investment and employment are created by improving the business environment alongside taking necessary preparations to deal with Covid-19."

Regardless of the growth rate, Bangladesh is one of the few countries to achieve growth in the Covid situation. India's growth rate has gone into negative territory. But to protect the economy from the pandemic effects, precautionary measures must be taken to cope with future shocks. The business environment needs to be simplified, Shafiul said.

Dr Fahmida Khatun, executive Director at the Centre for Policy Dialogue, said it will take a long time to recover from Covid-induced financial losses even if the growth rate returns to normal in a few years.

Double the normal growth would have to be ensured to offset the financial losses though it is very difficult given the reality, she added.