The International Monetary Fund (IMF) released its second World Economic Outlook (WEO) report on October 6, 2020. It deals with the economic forecast on certain indicators up to 2025. Though the data provided is not final, India’s post Covid-19 economic trajectory may be compared to that of other South-Asian countries like Afghanistan, Bangladesh, Bhutan, China, and Pakistan. The report consists of three chapters, viz., Global Prospects and Policies, Dissecting the Economic Effects, and Mitigating Climate Change.
Near-term Outlook
As per the report, the global economy is heading towards improvement after the great lockdown in April. However, there are some countries, which are still in trouble due to Covid-19; so, they are slowly reopening. Some others are reinstating partial lockdowns to protect susceptible populations. But China recovered faster than expected. The global economy’s long ascent to pre-pandemic levels are prone to setbacks.
The global growth has been projected at ?4.4 per cent in 2020, a less severe contraction than forecast in the June 2020 edition of this report. This edition reflects better-than-anticipated second quarter GDP outturns, mostly in advanced countries, which began economic activities sooner than expected in May and June, when lockdowns were scaled back.
In 2021, global growth is projected at 5.2 per cent, which reflects the more moderate downturn projected for 2020 and is consistent with expectations of persistent social distancing. The level of global GDP in 2021 is expected to be a modest 0.6 per cent more, compared to that of 2019 because of the contraction in 2020 and recovery in 2021. As for the growth, projections imply wide negative output gaps and high unemployment rates both this and next year, the world over.
Medium-term Outlook
The global growth is projected to gradually slow to about 3.5 per cent into the medium term after the rebound in 2021, implying only limited progress for both developed and developing markets to catch up to the projections, made for 2020-25 before the pandemic, which will reverse the progress made since the 1990s with regards to global poverty reduction and will lead to more inequality. Nearly 90 million people could fall below the US$ 1.90 a day income threshold of extreme deprivation this year. School closures, a significant projected increase in the stock of sovereign debt, downward revisions to potential output or a smaller tax base, compounding difficulties in servicing debt obligations, etc. are some of the significant factors of increase in inequality. Social distancing is expected to continue into 2021 but will subsequently fade over time, local transmission is assumed to come down everywhere by the end of 2022. Economies will experience scarring from the depth of the recession and the need for structural change, with persistent effects on potential output. Similarly, the scarring is expected to compound forces which lowered productivity growth across many countries like relatively slow investment growth, more modest improvements in human capital, and slower efficiency gains in combining technology with factors of production.
Risks and Uncertainties
With unusually large uncertainties, there are so many risks. The forecasts rest on public health and economic factors that are inherently difficult to predict. Path of the pandemic, the needed public health response, the associated domestic activity disruptions, especially for contact-intensive sectors, the extent of global spill overs from soft demand, weaker tourism, lower remittances, financial market sentiment and its implications for global capital flows, etc. are to name a few factors of uncertainty. The risk of worse growth outcomes than projected remains sizable if the virus resurges, progress on treatments and vaccines remains slower than anticipated, countries are unable to access them on equal basis, renewed social distancing and tighter lockdowns are imposed. The severity of the recession and the possible withdrawal of emergency support in some countries, and rising bankruptcies could compound job and income losses. If financial sentiment deteriorates, it could lead to a sudden stop in new lending (or failure to roll over existing debt) to vulnerable economies. Apart from that, cross-border spill-overs from weaker external demand could intensify the impact of country-specific shocks. With regard to mitigating climate change, the report says that the planet is on the way to reach temperatures not seen in millions of years, with potentially catastrophic implications as there is no further action to reduce greenhouse gas emissions. It has been suggested that an initial green investment push combined with steadily rising carbon prices would deliver the needed emission reductions at reasonable transitional global output effects, and put the global economy on a stronger and more sustainable footing over the medium term.
Bangladesh vs India
The latest report presents an interesting analysis of Bangladesh’s growth in terms of GDP and human development indicators and shows Bangladesh’s better performance in comparision to its neighbours.
The updated report estimates that the growth of India’s GDP in 2020 will witness a contraction of over 10.3 per cent, compared to 5.5 per cent projected earlier. Investment as a share of GDP had been falling in India even before the pandemic, from 39.6 per cent in 2011 to 29.7 per cent in 2019. It may further go down to 27.8 per cent in 2020, and is not expected to cross 31.7 per cent until 2025. Moreover, Bangladesh is shining, and may overtake India on the economic front as well besides doing better than both India and Pakistan on social and human development indicators. India’s GDP has been over 10 times the size of Bangladesh and has grown faster on annual basis. India’s per capita income also involves another variable, i.e., overall population. Per capita income is arrived at by dividing the total DP by the total population.
As per Dr Ashikur Rahman, a senior economist at the Policy Research Institute of Bangladesh, this is not a pandemic-induced growth in India (-10%) and Bangladesh (+3.8%), because when each social or economic indicator seeks to capture a certain aspect of human welfare, and when a country consistently does better across many an indicator, an ‘economic catch-up’ is also entirely likely. Most analysts in Bangladesh were seeing this change for quite some time; the pandemic might have simply expedited the process.
It is not for the first time that Bangladesh surged ahead of India. In 1991 also, India underwent a severe crisis and grew by just above 1 per cent. As per the report, India is expected to grow faster again in 2021, but due to Bangladesh’ lower population growth, both of them are likely to be on equal footing in the near future.
Factors of Bangladesh’ Progress
Following are the factors responsible for the economic progress in Bangladesh.
- Prime Minister Sheikh Hasina has demonstrated a strong political will to uproot Islamic terrorism and establish peace, along with a sustained policy commitment to macroeconomic stability through prudent fiscal and international debt management, expansion of the social security net, and execution of mega infrastructure projects from 2009 onwards.
- Balancing successfully the competing interests of India, China, Japan, Russia, and the US, has been one of her most significant achievements, which allowed Bangladesh to protect its national interest and develop a win-win political and economic rapport with major global powers.
- Bangladesh’s average economic growth has steadily increased in each decade since 1980, barring some turbulence in the years after independence due to famine and natural disasters.
- For the past thirty years, average GDP growth for Bangladesh has been higher than the world’s average GDP growth. Since 2010, it has been higher than the average growth rate of South Asia. The country emerged as one of the fastest growing economies in the world in 2018.
- Bangladesh recorded a steady decline in the contribution of agriculture in its GDP. However, manufacturing and services saw an increase. Agriculture accounted for almost a third of the GDP and industry for less than a fifth in 1980. In 2018, however, the share of agriculture in GDP came down to less than 15 per cent, whereas industry now accounts for more than a third. The share of manufacturing sector in GDP has doubled since 1980.
- As for exports, there has been a stupendous rise since the 1990s-from less than US$ 2 billion in FY92 to more than US$ 40 billion in FY19, growth by a factor of (approximately) 20 in 37 years.
- Remittances also rose fast after FY91-from approximately US$ 764 million to over US$ 16.4 billion in FY19, which put Bangladesh among the world’s top 10 remittance receiving countries, irrespective of very large difference in remittance earnings (due to low wage labour) between Bangladesh and countries with far smaller populations like Philippines. Nevertheless, Bangladesh received more than US$18 billion in remittances this year, which helped stabilise the aggregate demand shock from the nation-wide lockdown due to Covid-19.
- Thus, Bangladesh saw transformation both at structural and sectoral levels. Rise in different sectors made the country capable of generating decent foreign exchange earnings, which helped policymakers sustain comfortable macroeconomic fundamentals.
- Bangladesh had been outshining its larger neighbours on indicators like infant mortality, child immunisation, female literacy, access to improved sanitation, and total fertility rate. The average Bangladeshi who could expect to live 46.5 years in 1971 when it came into existence, had more life expectancy up to 72 years in 2018, two years more than India’s. Bangladesh lagged behind India in per capita income-approximately 25 per cent less than India’s in 2015. But now the gap is disappearing, and Bangladesh and India are expected to be neck and neck until 2025, as per the IMF’s latest projections.
- Over the past 15-year period, Bangladesh’ population is under 18 per cent, whereas India’s population grew faster at around 21 per cent.
- And last but not the least, the relative impact Covid-19 on these two nations. India’s GDP is set to reduce by 10 per cent, Bangladesh is expected to grow by almost 4 per cent.
- Bangladesh’ economy increasingly involved women in its labour force as well as in politics. The garments industry has been one of the key drivers of economy to which women gave edge to corner the global export markets after China’s retreat.
- Bangladesh GDP is led by industrial sector rather than services sector. On the other hand, India is still dependent on agriculture.
- Bangladesh has a smaller proportion of dormant bank accounts as compared to India.
- In the latest gender parity rankings, Bangladesh is in the top 50 out of 154 countries, whereas India is at 112. The ranking measures differences in the political and economic opportunities, educational attainment, and health of men and women.
- In the Global Hunger Index also, the same trend holds true.
Challenges Faced by Bangladesh
Despite the trends described above, there are certain challenges in front of Bangladesh. Some of them are as follows.
- Bangladesh’ level of poverty is still much higher than India’s.
- In basic education, it is behind India. Therefore, lower rank in the Human Development Index.
- Engagement of political parties in violent operations of each other, which made daily public life riddled with corruption. A per the Transparency International’s rankings, Bangladesh is at a low 146 out of 198, compared to India.
- And lastly, a massive surge of radical Islam. These factors may arrest Bangladesh’ progressive social reforms.
Courtesy: Indian Express, imf.org