Coronavirus can’t tame Bangladesh’s growth momentum.

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Coronavirus can’t tame Bangladesh’s growth momentum.
« on: February 28, 2020, 08:21:16 PM »
Bangladesh's export and import activities will both be affected by the coronavirus pandemic but the country would not face much difficulty in attaining its GDP growth target of 8.20 per cent for this fiscal year, according to an official document.

The country clocked in 8.15 per cent GDP growth in fiscal 2018-19, the highest in the Asia Pacific region, riding on strong domestic demand and supportive fiscal and monetary policies.

The strong growth in the flow of remittance will contribute to furthering of domestic demand, said the finance ministry document prepared on the potential impact of the virus on the economy. The report was sent to the Prime Minister's Office recently.

Besides, the increased public expenditure under the annual development programme, the implementation of mega projects and increased investment owing to setting up of economic zones will have positive impact on the macroeconomic indicators.

"As a result, the GDP growth rate will maintain the current momentum," the report said.     

The magnitude of the impact of the lethal, pneumonia-like virus, which is sweeping the globe, on Bangladesh's international trade of Bangladesh as well as overall commerce -- cannot be ascertained yet. In fact, the real impact would be clear in March, the document said.

"There is no doubt that there will be at least short-term impact. And if the outbreak persists for a long time, this will have far-reaching impact not only on Bangladesh but also on the global economy."

China is the biggest trading partner of Bangladesh and the biggest source for raw materials. The world's second largest economy accounted for more than a fifth of the country's imports of $56 billion in fiscal 2018-19, Bangladesh Bank data showed.

The barriers to imports from China, the epicentre of the virus, will hurt the export-oriented sectors and disrupt the supply chain. At the same time, it will have a negative impact on inflation.

China supplies 26 per cent of the active pharmaceuticals ingredients (APIs), the raw materials for medicines, of Bangladesh. If the API supply grinds to a halt, the sector's production will be interrupted. This will also impact pharmaceutical exports.

A number of mega infrastructure projects being implemented by Chinese companies will face problems.

The projects include Padma Bridge, the tunnel under the Karnaphuli river, the Bus Rapid Transit from Gazipur to Airport project, and the first and second phases of the Payra 1,320MW thermal power plant.

As a case study, the report stated the Padma bridge project. Two Chinese construction firms are implementing the main bridge construction part and the river dredging part respectively.

The contractor of the main bridge part is China Major Bridge Engineering Co. and its headquarters is located in Wuhan city in Hubei Province, the epicentre of the virus.

The headquarters has been working on a limited scale for a month and this has had some impact on the progress of Bangladesh's largest infrastructure project.

Most of the important construction materials are also sourced from China and a majority of the suppliers are based in Hubei Province.

As a result, the regular flow of imports of construction materials has been interrupted as many Chinese factories have closed their operations and the number of import vessels has dropped.

The top seven items that are imported from China are: yarn, woven textile fabrics, knit textile fabrics, garment accessories, mobile phone parts, apple and garlic.

The top four items are raw materials for the garment industry, which accounts for about 84 per cent of the country's exports.

In the last fiscal year, Bangladesh imported yarn, woven textile fabrics, knit textile fabrics and garment accessories worth $3 billion. Already $2 billion worth of products have been imported in the first seven months of this fiscal year.

Alternative sources for garment raw materials should be actively considered if the coronavirus outbreak disrupts supply, the report said.

However, the import of mobile parts, which soared last year, may suffer as only 27 per cent of last fiscal year's total imports amounting to $505 million came in the last seven months.

Bangladesh has imported a significant quantity of garlic from China so far this fiscal year. Importers are bringing in ginger, garlic and cinnamon from Myanmar, Vietnam, Thailand, Indonesia and Egypt.

The import of garlic and ginger from China will be affected to some extent because of the coronavirus outbreak. But, there is no possibility of a supply shortage of the items in the local markets, the finance ministry report said.

China is not among the main export destinations of Bangladesh but it is an emerging market. Bangladesh's main export items to China are garment, jute and jute products, leather and leather products and crab and eel.

Half of the main exportable items destined for the country were shipped in the first seven months of the fiscal year. Given the trend, there is no big risk to exports to China, the report said.

As inbound ships from China are mandatorily berthed at the outer anchorage of Chattogram port for at least 10 days as part of quarantine, the offloading of imported items are being delayed.

Flights to and from China have been very limited and people's movement has been restricted. As a result, hotel bookings fell significantly.

Bangladesh receives 5-6 lakh tourists every year and of them, a major portion comes from China. Now, their arrival will go down hugely.

The overall trade may be affected to some extent because of the coronavirus.

If the overall export earnings go down in the current fiscal year, Bangladesh's current account deficit is in good shape compared with the previous two fiscal years thanks to increased remittance flow.

Money sent by migrant workers rose 21.49 per cent to $11.05 billion in the July-January period on the back of the 2 per cent cash incentive.

Bangladesh will also benefit from the declining petroleum prices in the international market.

Oil prices have fallen 14 per cent because of the pandemic. This may allow Bangladesh to save up to $450 million this fiscal year, helping the country keep its current account deficit and inflation lower.

The country imported crude oil and finished petroleum products worth about $3.3 billion in fiscal 2018-19.

Source :
Sunjida Khan
Department of Business Administration
Faculty of Business & Economics