Managing the health and economic crisis caused by COVID-19 requires some inevitable trade-offs. By presenting a conceptual framework, this study, however, argues that the severity of the trade-off can be reduced by adopting a combination of three types of policy instrument: (a) physical distancing through economic shutdown; (b) bold measures of economic support; and (c) a powerful system of public health support. Such instruments will have to be calibrated on the basis of a two-phase approach in regard to the pandemic. During these two phases, it is estimated that the entitlement support program will cost 960,000 million BDT—about 3.8% of the gross domestic product (GDP).
Researcher: Dr Siddiqur Rahman Osmani
Partner: International Growth Centre (IGC)
Timeline: March-June 2020
Status: Completed
Contact: Imran Matin; imran.matin@bracu.ac.bd
Publication
Context
With the Eighth Five Year Plan (8FYP) scheduled to go into effect from July 2020, an unprecedented crisis stemming from the outbreak of COVID-19 has taken over the world. Its economic effects are felt no less acutely in Bangladesh.
The country is currently in the middle of a general closure that has resulted in over one crore of people being displaced from their locations of employment and sources of livelihood. Many people are likely to slip into poverty. The plight is especially critical for roughly 85% of the labour force that works in the informal sector. The pandemic crisis has to lead to a cruel dilemma: the economy must be shut down to ensure effective physical distancing, otherwise, too many lives will be lost; and yet shutting down the economy has its own dire consequences. It is imperative on the part of the government to safeguard the lives and livelihoods of this large section of the labour force. These unforeseen, grave economic realities call for an urgent rethinking of the priorities and resource allocation proposed in the Plan.
This study is relevant to SDG 1 (No Poverty), particularly to ending poverty in all its forms everywhere.
Research Questions
Understanding how the existing social safety net system can be expanded and adapted so as to best protect the lives and livelihoods of the most vulnerable segments of the population.
Methodology
The proposed work is intended to systematically analyze GoB’s existing social safety net programs and to assess the manner in which the existing system can be expanded and adapted so as to best protect the lives and livelihoods of the most vulnerable segments of the population. BIGD is already conducting rapid surveys of rural and urban respondents across Bangladesh to assess the adverse effects of COVID-19 in the country. Frequent rounds of the survey are planned, and their findings will complement the stocktaking exercise that Professor Osmani will be leading with support from the IGC.
Findings and Recommendations
The report presented an integrated policy framework to deal with this dilemma in Bangladesh, that consists of a judicious combination of three types of policy instrument: (a) physical distancing through the economic shutdown, as a means of containing the spread of infection, (b) bold measures of economic support, especially entitlement support to households, who are facing the spectre of hunger as a consequence of economic shutdown, and (c) a powerful system of public health support, as a means of ensuring that the economy can be reopened ‘safely’. The contents of the policy instruments will have to be calibrated on the basis of a two-phase approach – a first phase consisting of at least three months during which distancing will have to be imposed very strictly resulting in large-scale economic shutdown, and a second phase lasting for at least another six months during which it should be possible to re-open the economy gradually by relaxing the shutdown. For this transition to be possible in the shortest possible time, the government will have to embark upon a bold program of revamping the public health system on a priority basis, as this will be the foundation on which the economic support program will be built. The pandemic will inevitably impose an economic cost; the only way to minimize this cost is to put in place a strong system of public health support, which will permit quick reopening of the economy ‘safely’. The paper estimates that at least half of the population has become food insecure in the wake of the economic shutdown. This means that some 20 million households will need entitlement support in the first phase. The amount of support needed is estimated conservatively at BDT 8,000 per household per month. In the second phase, when the economy begins to re-open, the number of households needing support will gradually decline. Taking the two phases together, it is estimated that the entitlement support program will cost BDT 960,000 million – about 3.8% of GDP.
The Government of Bangladesh (GoB) has been quick to respond with various measures. But the government also realizes that much more needs to be done and would like to do so in a thoughtful and timely manner.
While reformulating the 8FYP, the Planning Commission would like to incorporate contingency measures to counter the adverse impacts of a global economic slowdown that this pandemic is inevitably going to bring about for the people of Bangladesh. The Prime Minister has a dedicated fund that has been mobilized for this purpose. It needs to be looked into whether external (overseas) support will be required; and, if so, to what extent. The government is committed to making the fullest effort to keep the supply side working with as little disruption as possible. The National Budget will also have to be recast, although the GoB is keen to keep investment levels steady by maintaining both recurring and development expenditures. Bangladesh Bank is also likely to play its part by reducing the interest rate to the extent feasible.
These measures, together, will have deep repercussions on the macroeconomic framework that the GoB’s GED, Finance Division, and their respective ministries jointly develop while implementing the 8FYP. BIGD intends to assist the government in this effort, drawing upon the expertise of Professor S. R. Osmani. The analysis will help the government to decide what nature, scope and implementation mechanisms of the new support programs would need to be. This, in turn, will determine necessary sectoral reallocation, leading finally to adjustments in the overall macroeconomic framework of the plan.
