Bangladesh experiencing uneven economic recovery: CPD

Bangladesh is experiencing a K-shaped recovery due to the uneven bouncing back of the industries hit hard by the Covid-19 pandemic, says the Centre for Policy Dialogue.

A K-shaped recovery occurs when, following an economic slump, different parts of the economy recover at different rates, times, or magnitudes.

“It seems that the design of the stimulus packages and their distribution are driving a K-shaped economic recovery path for Bangladesh,” said the CPD in its review on ‘State of the Bangladesh Economy in FY2020-21.’

The stimulus packages and liquidity support helped large industries and public organisations recover at a faster pace as they have easy access to loans while the small and medium enterprises (SMEs) lagged, it said.

People belonging to the low-income category and the poor in general have been affected disproportionately and have not received adequate government support, it added.

Given that SMEs are important sources of employment, the slow recovery of this sector could lead to a further rise in inequality, said the local leading think-tank.

“This could jeopardise the sustainability of the recovery,” it said.

Therefore, it suggested that policymakers need to chart out the recovery path in a manner that does not leave out the weaker but critically important sectors of the economy.

The government so far announced 23 stimulus packages worth more than Tk 1,24,000 crore, making up around 4.5 percent of the country’s GDP. The fund is being distributed among the industries affected by the pandemic through the banking channel that always assumes credit risk.

“K-shaped recovery occurs unevenly. Some sectors recover and some do not during the recession,” said Professor Mustafizur Rahman, the CPD distinguished fellow.

“Second round of stimulus packages should be focused on small and medium enterprises and labour-intensive industries using other tools …not through banking channels,” he said.

“The positive things of K-shaped recovery need to be strengthened and its negative things need to be addressed,” said the noted economist.

“The policy response should be arranged in such a way so that K-shaped recovery can be taken to the sustainable recovery.”

In October last year, the World Bank in its latest South Asia Economic Focus predicted that Bangladesh’s economy might make a U-shaped recovery if the government spends proactively and can tap into international resources even though output is set to fall drastically in the next two fiscal years because of the prolonged coronavirus pandemic. U-shaped recovery is an initial drop, followed by sluggish recovery in output.