The IMF World Economic Outlook report has projected that India's per capita GDP is going to shrink to $1,877. In contrast Bangladesh's per capita GDP is expected to surpass India and rise to $1,888. Even as countries around the world are seeing their economies shrinking, Bangladesh economy is projected to expand. Despite clothing lines in Europe and North America witnessing declining sales, Bangladesh has managed to to return to pre-COVID-19 levels in garment exports.
Garment exports coupled with a robust macro economy has largely helped Bangladesh's economy from shrinking. Even so, Dr. Ahsan H. Mansur believes that the country can witness further growth if it can build on their solid economic foundation. Dr Mansur is the chairperson of BRAC Bank which caters to Bangladesh's numerous Small and Medium Enterprises.
What has sustained Bangladesh's economy in the last year and through the pandemic given that the numbers seem to suggest that the economy will continue to expand whereas in most parts of the world, economies are contracting?
Dr Ahsan Mansur: I think Bangladesh has been doing remarkably steadily, quite well, in terms of macroeconomic performance. It didn't have any balance of payment shocks in the last 20 years or more than 30 years ago. So, the macroeconomic stability has been one of his founding cornerstone, and that has helped the growth process to be sustained, and it also maintains exchange rate stability related to Indian currency. That's why dollar terms that is an acceleration of growth in Bangladesh compared with India, because of the change of stability factor, which is underpinned by solid macro foundation. Bangladesh's macroeconomic performance is also a reflection of its very prudent fiscal management, the fiscal deficit is very much under control between three and a half to four, four and a half percent. Generally, despite the fiscal targets being set at five percent, the outturn is less than the fiscal target. So that's a very strong performance and that anchors the economic performance in terms of inflationary performance in terms of exchange of stability. And also, it is underpinned by good solid external sector developments like exports historically has done very well; double digit growth on average for the last 30 years.
Remittances have done very well. And also, remittances have worked as a counter cyclical factor, even during this pandemic, the remittance is at an all-time high. And not only simply high, it is about 20%+ compared with last year, same time. So, it's acting as a very much of a solid shock absorber for our economic system and for the rural economy. So, these factors add up. And the result is that although Bangladesh has not done too well in terms of economic reforms in the fundamental sense of it, which we always complain about, but its export performance, remittance performance, and the resilience of the private sector, in the domestic economy in a competitive behaviour has made this growth very much an impressive outcome that we can see. And it is not a phenomenon of this year or last year, this year, we have done much worse than any of the recent years, but that we understand it is because of COVID. Thankfully, we are not in the negative territory, as projected by World Bank, IMF and any other organisation. So, in that sense, there is some degree of comfort, but it is not as good as one would have expected without the COVID-19 situation, which was in the range of 7-8% level.
What is the consensus GDP estimate for 2021?
Dr Mansur: You see the government is gung-ho and very much on the unrealistic side, they're still saying that the country may be growing 7-8% that I don't believe. Our fiscal year runs from July to June. So, in that sense, we just finished fiscal year 2019-20. And we are in the first quarter of fiscal year 2021. And in the 2021 fiscal year, the government is very much bullish. We probably will end up getting what IMF is projecting. The World Bank is projecting a little less.
How is the pandemic affected exports particularly in the last six months? And what are the numbers or the early numbers showing? Is there a reduction or contraction and what does it also tell you about how global demand is right now working to your advantage?
Dr Mansur: You see, the initial shock was very severe, because of the lockdown, like any other country. So, when the lockdown started in the late March, but April figure was very bad. May figure was also extremely bad. But then the recovery started. By July and August, actually, the export level for the month of July and month of August, was more than corresponding period 2019, July and 2019 August. So, in that sense, recovered is quite strong. But if you look at the whole period, from April, May, June, July, August, then of course, we are still about, I would say, about 80% getting of the corresponding six-month period of last year. It is an impressive recovery, I would say.
How are exports doing, because we've seen demand contraction. For example garment exports, which is a strength for Bangladesh. There has been demand contraction from most buyers in Europe and North America for sure, including stores and chains of stores, which were shut for many months. So, how is it that are you still seeing demand growth? Is it because are you pulling manufacturing capacity from somewhere else? Or is it some other tariff related reason?
Dr Mansur: Well, we have preferential access to European Union market and that is still there and that was there all along. So, that is not a change factor. As I said, we are still overall, in six months, we are still probably down by about 20% or so. So, we are down but we are not as much down like India or China, in the RMG (ready-made garment) sector in the US market, for example. So, we are much, much better in that sense. In European market, we're probably the least contracted in that sense for the six-month period. But for the last two three months, we are very much at the normal level. So, some of the orders which were postponed or cancelled has come back again. And then the factories are working. And even some factories are hiring not only the old staff, but they're hiring new staff. So, there's some So, good news in certain factories. But it's not uniformly that everybody has reached hundred percent levels. No, I would think on average they're operating at 80%-85% level,
What's the elasticity, if one may call it that, of garment exports to overall GDP?
Dr Mansur: I would say that's why garment is the single largest important export factor accounting for more than 80% of our exports, but it is still about 15-16% of our GDP. So, to that extent, it plays an important role in the manufacturing sector, it is the largest component in the manufacturing sector of the country. And it has a very important role for secondary impact on the economy through the worker salaries. And the government also played a very proactive role. They helped the garment industry to pay their workers even when they are out of work. By giving them cheap credit of 8000 crore only for garment workers to be paid directly to their bank account or cash account. So that was a supportive measure on the part of the government.
If you're saying that the economy is going to expand for this fiscal year, now garments obviously is going to play a significant role. But are there other parts of the economy that are also growing net positive. And equally under other paths that are dragging it down?
Dr Mansur: It is uneven, it's going to be uneven. Certain sectors like electronics are doing very well. Certain sectors are suffering, like services in general. You can say that hotels, or travel, those are traditional, across the globe, those sectors are down, and they're also down in Bangladesh. But still, our restaurants are doing very brisk business now and people are going. So, there's a lot less fear factor, than, in many other countries. We have COVID-19. The intensity is probably underestimated by the government. But nevertheless, I think the severity of the disease, of the impact of the disease, death rate is quite minimal. And that's why people are not too much concerned about the disease factor other than people like us who are older.
You mentioned remittances going up 20% Dr. Mansur. That's a very interesting figure. Because even in India, for instance, remittances are expected to be down and are down, because let's say workers in Middle East have other seen a dip in their own incomes. So how is it that in Bangladesh, the trend is a little different?
Dr Mansur: This was a puzzle for us also and still remains, I would say unexplained. All we can say is what could be the possible factors. One factor that we think of is that some people are coming back from Gulf and they may be bringing their own savings along with their departures. So that's not a very good news, that's not a sustainable thing, which will impact us down the line. Second factor is that which may also be very important factor, is that a lot of people who are staying outside Bangladesh, are not impacted by the COVID or by the job cuts like in Europe, America and also partly in the Gulf, there sending more money to their relatives to support those who have lost their jobs or have been impacted by the flood. So, the amount of inflow to their kin and kith there has increased quite significantly.
There is also a third factor. The third factor possibly is that there's some portfolio shift as well, some people who are working or living in the US, North American and in Europe and also Middle East, they may be shifting their savings part of it because the return on their financial savings is marginal and nothing in those countries. Bangladesh is still having a good rate of return on savings instruments of various types. So, these three factors probably explain and there is a third factor, which means the electronic transfer mechanism through BKash and other arrangements, mobile financial system networks are working quite well and increasing very rapidly. So, some money may be moving away from hundi and coming to the formal channel. These are our explanations but this is a hypothesis
It's interesting that you say that people would be moving savings, because obviously interest rates are higher there is an interest rate differential at this time. And people feel comfortable to bring their money back into Bangladesh and then take it out again if they want to. Is there a sufficient free flow?
Dr Mansur: It is not legally always free flow sufficient but you can put a premium of one taka and take it out.
As we look ahead, what's the one challenge and the one opportunity that you see for Bangladesh's economy?
Dr Mansur: There are opportunities as well in middle of this. I think our garment sector is very resilient, and they need to transform themselves also. And if they can do it successfully, the sector has the potential to prosper. Second, trade opportunities that companies are moving away from China. And if you can get part of it, India is also in that game. India, Indonesia. Vietnam is a big winner of that, of course. If you can attract some of those things, that would be a good opportunity to bring and diversify the economy as well. And I think finally, we need a lot of efforts are going on to improve the doing business indicator and an infrastructure development which if happens, including the special economic zones, etc., we may be able to turn around on the FDI front, which is not a very bright thing for Bangladesh until now.
Challenge is that if the world is not doing well, we cannot do well. We will be impacted by the global development, that we cannot do anything about it. We have to live with it. But within that we applaud it. So that is the biggest challenge. And secondly, we have to also manage COVID-19 better, particularly coming vaccination programs, readiness to that. That's an area that concerns me. I would like to see government much more prepared than what I am hearing so far.