The World Bank has been an ever-reassuring presence in Bangladesh’s growth narrative, and the multilateral lender will continue to play that role, said its country director. The Washington-based multilateral lender would continue making funds available for Bangladesh to help the country pull out of the devastating impact of the coronavirus pandemic. “We are taking broad, fast action to help strengthen Bangladesh’s pandemic response,” Mercy Meiyang Tembon, its country director for Bangladesh and Bhutan, told The Daily Star in an interview yesterday. Soon after Bangladesh reported the country’s first cases of the coronavirus infections, the development lender approved a fast-track $100 million financing to procure medical equipment and supplies and support public health interventions to respond to the pandemic and strengthen the country’s national systems for public health emergencies. In June, it approved $1.5 billion in four projects, all of which will help create large-scale jobs and quick economic recovery. The projects are expected to create fiscal space while promoting foreign direct investment in economic zones and laying out foundations for a digital economy that will enable the government and businesses to provide critical services during pandemics and similar future crises. “We are working with the government on a robust pipeline for fiscal 2020-21 that will support the government’s effort in overcoming the challenges of the pandemic.” For example, it is collaborating with the Bangladesh Bank to deliver the Tk 103,117-crore stimulus packages. In fiscal 2019-20, the WB delivered $2.3 billion in new financing for Bangladesh. The WB is in talks with the Economic Relations Division on a new development policy operation to support a new set of reforms aimed at countering the impact of the rogue virus. “Besides, we will continue our focus on investing in people through projects in skills development and health services, and providing safety nets to the poorest and the most vulnerable. We will also help Bangladesh build resilience in agriculture and other sectors as well as to adapt to climate change, and other sectors.” Furthermore, the Washington-based multilateral lender will continue the critical path on policy reforms and institution-building necessary to improve the business environment and investment climate to create jobs and keep Bangladesh on a steady growth path, she said. The WB’s support for these reforms has been through a programmatic series of three operations amounting to $750 million, of which $500 financing has already been disbursed. Like other countries, the economy of Bangladesh has been severely impacted. While on the one hand social distancing and movement restrictions have helped limit infections, on the other hand, domestic economic activities have been constrained and the vulnerable workers in the informal service sector have been hit hard as many have lost their sources of income. Exports have declined sharply, as falling demand for apparel in Europe and the US resulted in the cancellation of many orders for garments in Bangladesh. Remittances inflows have also come under pressure, particularly from the Middle East, which is managing the dual impact of coronavirus and lower oil prices. “Consequently, the poverty eradication programme is jeopardised,” said Tembon, who completed her first year as the country head of the development lender on July 1. While the impact of coronavirus is severe, Bangladesh entered this crisis from an enviably robust macroeconomic position in terms of GDP growth, low public debt and substantial international reserves. With the timely implementation of a comprehensive and robust economic response programme, Bangladesh can mitigate the impact of coronavirus on poverty reduction and growth, she said. According to Tembon, the extent of the impact will depend on the duration of the crisis and the mitigation measures taken. The government acted quickly with public health directives, the economic stimulus package and scaled up social protection programmes. The WB also stepped up its support to help address the pandemic. She was encouraged to see that the budget for fiscal 2020-21 acknowledges the substantial impact of the pandemic and the need for a rapid response. “Most importantly, the budget operationalises the health financing and stimulus packages earlier announced to mitigate the impact of coronavirus on households and firms.” Notwithstanding, the growth and revenue assumptions in the budget may be challenging to achieve given the profound impact of coronavirus on the global economy, and additional external and domestic financing may be needed to fully implement the budget. The stimulus package provides an essential starting point for economic recovery, the country director said. Poor and vulnerable households have already benefited from the cash transfer and food programmes, while emergency lending to firms will help sustain employment in key sectors. “However, given the depth of the impact of coronavirus on the economy, a larger response may be needed, particularly if the crisis prolongs. Three reactions come to mind.” First, the health sector may need additional resources to fully respond to the emerging pandemic. Second, vulnerable households will benefit from scaling up targeted social protection programmes, particularly in urban areas that do not have the same coverage as rural areas. Third, close monitoring of the financial sector will support the timely implementation of the lending packages. The stimulus packages rely heavily on domestic bank lending, but bank capital is constrained by high default loans and increased government borrowing to finance the deficit. “So, stronger financial sector monitoring will help ensure that the risks associated with these programmes are managed prudently. This will also help the government rapidly identify and address the implementation challenges,” said Tembon, who joined the WB in 2000. Revenue mobilisation is a longstanding challenge in Bangladesh, which has one of the lowest tax-to-GDP ratios in the world and a high reliance on indirect taxes. Revenues have also been impacted by the temporary decline in trade volumes and domestic economic activity. The pandemic has given new urgency to the reform the revenue mobilisation agenda, including implementing the electronic VAT filing, establishing a national single window to streamline import and export procedures, and a new customs legislation to modernise risk management, Tembon said. These reforms will help close compliance gaps, raise additional revenues, streamline administration and support investment. “The ongoing effort to complete the medium-term revenue strategy is encouraging. This is a multi-year plan to raise additional revenues and sustain strong growth. The World Bank Group looks forward to a continued partnership on this important agenda.” The WB offers development finance, technical knowledge and rich global experience. Its analytical reports — such as the poverty assessment, doing business, development updates, and others — help inform the policymakers, think tanks and civil society on policy options. Since independence, it has committed more than $31 billion to support the country’s development priorities. The WB’s programme in Bangladesh is anchored in the government’s 7th Five-Year Plan and is supporting the government to attain its vision of upper-middle-income status through creating jobs, addressing barriers to growth, including, infrastructure, urbanisation, structural reforms, ease of doing business and climate change while building on the country’s success in human development. “We are tremendously impressed with what Bangladesh has accomplished within close to five decades to come out of the dearth of poverty,” the Cameroonian national said. In the last three years, Bangladesh faced two unprecedented challenges: it saw the world’s largest refugee influx and the generous way Bangladesh responded by opening its doors to them is truly remarkable. And now, the coronavirus pandemic has created an enormous challenge, for which no country was prepared. “In both situations, the World Bank mobilised quick relief support to cope with the respective challenges.” The recovery timeline from the pandemic is uncertain, Tembon said. However, it will be a function of the intensity of the pandemic and the scale of the response programme, both in Bangladesh and in the economies of its trading partners and overseas labour markets. The WB’s global forecasts include a range of projections that depend on these variables, with a baseline forecast for a gradual recovery in 2021 and 2022. To achieve faster recovery, it will take a couple of measures such as a strong and continued reform agenda to diversify export, improve the business climate, develop skills, increase female labour force participation and adapt to climate change. “It will also take close monitoring of the financial sector to support the prudent growth of credit to the private sector will also be important. Lastly, it will depend on the extent to which the population complies with the necessary health and hygienic practices to stop the virus from spreading.”
