Strategies to tackle pandemic induced poverty in Bangladesh
The Covid-19 pandemic has resulted in an unprecedented rise in
poverty in Bangladesh in a very short time span. The South Asian Network on
Economic Modeling's (SANEM) household survey in November-December 2020
indicates that the poverty rate in Bangladesh increased from 20 percent in 2019
to 42 percent by the end of 2020. There is no denying that the decade-long
success in poverty reduction in Bangladesh is under threat.
There
are a few reasons behind the sudden and unprecedented rise in poverty in
Bangladesh. First, the lockdown during March-May 2020 and the disruption of
economic activities since the onset of Covid-19 resulted in unmatched havoc in
the economy. This havoc created a large labour market disruption as many people
either lost their jobs or earned less. Although the lockdown has been
discontinued since June 2020, economic activities are yet to return to
normalcy. Two rounds of SANEM's business confidence survey of firms from major
economic sectors in Bangladesh in July and October 2020 showed that the
majority of the firms held the view of a slow economic recovery.
Second,
Covid-19 also registered distressing effects on export-oriented sectors. In
2020, the dominant export sector, the readymade garments (RMG) industry, saw an
unprecedented fall in export earnings by 17 percent. Recent surveys suggest
that a large number of workers in the RMG sector also lost their jobs. Most
other export sectors have also been negatively affected.
Third,
despite that the official remittance inflow surged in 2020, SANEM's household
survey showed that more than 80 percent of remittance-recipient households
reported receiving less remittance during this period. This phenomenon
indicates the possibility that the total amount of inflow of remittances,
channelled through both formal and informal means, might have declined during
most months in 2020. Informal channels of remittances remained clogged during
the pandemic, and the demand for informal remittances also fell due to sluggish
trade and tourism activities. All of these contributed to the sudden rise in
poverty during the early months of the pandemic. Also, a high poverty rate
persisted even by the end of 2020.
There
are two pertinent questions related to the sudden jump in the poverty rate in
Bangladesh. How quickly will the new poor return to the non-poor status, ie,
will the poverty reduction be slow or rapid? And what strategies do we need to
counter the high rise in poverty?
The pace of poverty reduction, whether it will be slow or fast, will depend on
the features of the new poor and the type and speed of economic recovery.
SANEM's recent household survey results show that a large proportion of the new
poor is concentrated in the small and medium sized enterprises (SME) and
services sectors. People employed in urban service sectors were especially
badly hit by the pandemic. As most jobs in the urban services sectors are
informal and job security is virtually absent in these engagements, the
pandemic left these people with no options. Also, the SMEs, despite that they
are among the most affected sectors, haven't been adequately supported through
the government's stimulus packages. A large portion of the stimulus package
announced for SMEs by the government remained unutilised, as most of the SMEs
are outside the formal banking process, and no alternative mechanisms were put
in place for them. SANEM's two rounds of business surveys found that the
economic recovery process for SMEs remained slow.
The
question of the strategies of poverty reduction should involve non-conventional
approaches to poverty reduction. Four major strategies can be followed.
First,
the management of the Covid-19 crisis and economic recovery should be the
priority. Given the extreme uncertainty in global markets, creating
difficulties for export sectors to bounce back, a strong focus should be on the
recovery of the domestic market. In other words, the policies and strategies
for economic recovery should have a high priority for the revival of economic
activities in domestic markets. The SMEs, in particular, should be given the
utmost importance. One important point to ponder is that even if we see
recovery in the export sectors, the positive effects of the recovery in
exports, in terms of generating economic growth and reducing poverty, may
remain weak for a long time due to the broken or suppressed supply chains in
the economy. It should also be noted that due to such re-orientation of
policies and strategies, economic growth is likely to be much lower than the
official target. However, under the current crisis, even a low economic growth
based on the revival of domestic economic activities can be robust, and it can
lead to better distributional impacts during the recovery phase. Nonetheless, for
better management of the Covid-19 crisis and for ensuring a robust path to
economic recovery, there is a need to address institutional and
governance-related challenges urgently.
Second,
social safety net coverage, including direct cash transfers and food assistance
to the poor, should be widely expanded. However, there is a critical political
economy issue related to the management of this expansion, since the country
spends very little on social protection as a percentage of GDP. Also, there are
large loopholes in social protection programmes in the forms of leakage,
corruption, wrong targeting and mismanagement. Therefore, there is a need for
strong efforts, especially in making the social protection programmes more
effective through properly identifying poor and vulnerable populations, and
ensuring that the support actually reaches them.
Third,
as the poor are making intergenerational adjustments by rearranging their
priorities to cope with the crisis, such as spending less on education, health
and entertainment, they are sacrificing the prospects for better health, better
education and a better life. Students from distressed families are likely to
bear a higher burden of this impact, and many of these students may permanently
be out of the education system. Therefore, non-conventional, urgent and
targeted programmes are needed to address the agonies of students from these
families.
Fourth,
the government policy response related to current labour market challenges has
remained weak and inadequate. The new poor, with highly disrupted engagements
in the labour market, are not covered in existing social safety net
programmes. Therefore, the government should introduce new social safety
net programmes targeting the labour market. In this context, the employment
guarantee scheme for a certain period of time for vulnerable populations can be
seriously considered. The government should also form a Labour and Employment
Commission to assess the current unprecedented situation and suggest necessary
measures.