The transmission channels through which the emergent global scenario in the wake of the Covid-19 pandemic are impacting the increasingly globalising economy of Bangladesh are diverse: export outflows are getting disrupted; import inflows are facing delays; outmigration has ground to a halt; tourist arrivals are virtually non-existent; business contacts are getting delinked; investment flows are facing growing uncertainties. The early signs of the adverse effects of the Covid-19-induced external developments are already being seen in the Bangladesh economy, at the levels of financial transactions and the real economy, and on business, commerce and consumers at the levels of enterprises, entrepreneurs and workers.

What is deeply worrying is that the virus-inflicted injuries are hurting the economy at a time when the external sector of Bangladesh is under stress on several fronts. Growth of export earnings over the first eight months of FY 2020 has been negative (-4.8 percent growth over the corresponding period of FY 2019). Bangladesh's flagship export sector, the RMG, posted negative growth over the first eight months of FY 2020 (-5.5 percent) compared to the corresponding period of the previous year. Indeed, barring jute and jute goods, all key items of export have experienced negative growth in the first eight months of FY 2020. It is already evident that the ambitious export growth target of 12 percent for FY 2020 will not be achieved, and the actual export earnings this fiscal year will possibly be less than that of FY 2019 (USD 40.5 billion). Growth in import payments has also been in the negative terrain (-2.2 percent growth in the first seven months of FY 2020). Indeed, the performance of the import sector is indicative of an economy experiencing demand depression, with likely adverse impacts on growth performance in FY 2020. Important import sub-components such as intermediate inputs (-2.1 percent) and capital goods (-8.3 percent) including capital machineries (-22.0 percent) have posted negative growth in terms of import payments in the first half of FY 2020, compared to the corresponding period of FY 2019. A welcome relief is that the remittance sector has registered robust growth (+21.5 percent) in the first eight months of FY 2020. However, growth in the number of workers going abroad has slowed down perceptibly (+4.2 percent growth in the first eight months).

The higher remittance flow has helped to reduce the deficit in the current account balance: the figure at the end of December 2019 was (-) USD 1.4 billion, an improvement over the matched figure of a year back which was (-) USD 3.4 billion. Over the first six months of FY 2020, no discernible change, however, was visible with respect to the flow of foreign direct investment (FDI) to Bangladesh: the net FDI figure was (+) USD 1.36 billion in FY 2020 compared to (+) USD 1.32 billion in FY 2019, a growth of a mere 2.6 percent. The cumulative effect of the movement of various components of the balance of payments (BoP) was that the overall BoP position remained rather weak on the eve of Covid-19: (+) USD 27.0 million in December 2019 as against (-) USD 513.0 million a year earlier.

If the identified transmission channels are examined in conjunction with Bangladesh's overseas partner countries, it will become quite evident that Covid-19 will have important implications for Bangladesh's external sector performance over the coming months of FY 2020, and most likely beyond even. Indeed, some of the repercussions are already becoming increasingly visible. On the export side, Bangladesh's major export destinations are some of the countries hardest hit by Covid-19: USA (accounting for 16.9 percent of Bangladesh's total exports), Germany (15.2 percent), UK (10.2 percent), Spain (6.3 percent). This observation holds true for other export items as well: for raw leather, Hong King and China together account for more than half of the export; for leather goods, USA (25.8 percent) and Japan (24.4 percent) are major markets; for jute and jute goods, Turkey is a key market (22.7 percent of export of the item); for exports of fish, China (16.3 percent) and UK (15.3 percent) are the most important destinations.

Already exporters are experiencing delays in the shipment of goods. RMG entrepreneurs are experiencing deferment of orders and delays in delivery as well as disruption in imports of machineries and equipment, primary and secondary inputs and accessories. Major brands are sending cautionary signals regarding possible cancellation of orders in view of the protracted shutdown of borders in the EU and North America and the likely slowdown of the economies of importing countries. BGMEA has come up with evidence of this happening already.

While shipment from China is expected to pick up in the coming weeks, exporters and producers whose inventory drawdowns have already reached the limits are facing difficulties in keeping their production process going. Diversifying import sources, away from China, can only be a medium-term solution which, however, has tangible cost implications. China's increasing dominance as an import source of Bangladesh originated in the first place from the competitive price it is able to offer to Bangladeshi importers and enterprises.

Also, it can be noted that some of the countries most affected by the coronavirus are those where many Bangladeshi citizens live and work. The pandemic is likely to have a dampening impact on the robust remittance flows of the past several months. The already lower number of workers going abroad in recent times could fall further. The Middle East, which accounts for about two-thirds of the remittance flows, is having to deal with the dual challenges of the pandemic and the falling oil prices. Projections are that oil-dependent developing countries could expect their oil and gas revenues to be slashed by up to 85 percent.

There is widespread apprehension that the havoc caused by Covid-19 on the global economy could lead to a global recession of the type seen in 2007-2008 in the aftermath of the economic and financial crises. The stock markets and futures markets, which have seen a significant erosion of market values in the recent past, transmit an ominous sign as regards such a possibility. The coronavirus has destroyed USD 23 trillion in global market value since mid-February, according to the Economist. As a matter of fact, the IMF, UNCTAD and the OECD are all projecting significant economic losses in 2020, the decline being to the tune of about 1.6 percent, 1.7 percent and 2.4 percent of global GDP, respectively. The ILO has warned that the pandemic may trigger a global economic crisis which could destroy up to 25 million jobs worldwide if governments fail to take coordinated efforts. As a consequence, there are likely to be demand-side repercussions for Bangladesh's key export markets.

In view of the emergent and anticipated near-term scenario, Bangladesh's external sector will need to be supported through appropriate policies, targeted measures and incentives and, if the situation demands, by putting in place a comprehensive stimulus package.

While fiscal deficit could exceed 5.5 percent of the GDP in the current FY 2020, this should not deter the policymakers from pursuing an expansionary macroeconomic stance, underpinned by higher public expenditure, quantitative easing, fiscal incentives and sector-specific targeted support measures. The Bangladesh Bank has already asked the commercial banks not to change the classification of loans between January and June 30, 2020 even if a business fails to repay its loan. In another positive move, the central bank has started to buy treasury bills and bonds to add to the liquidity in the banking system. In addition to this, the central bank can ask the dealing banks to reduce L/C margins and extend settlement of L/Cs from three months to six months. The government could also take an initiative to create a fund for on-lending to exporters by the commercial banks at a reduced interest rate, preferably at 5 percent. Export-oriented micro and SME enterprises affected by Covid-19 should get priority in accessing this fund. The interest rate on lendings from the USD-3.5-billion Export Development Fund may be revisited and lowered. Some quantitative easing may be pursued to inject additional money into the system to enable banks to meet the demand for credit at a time of liquidity crunch in the banking system. The policy rates in place and statutory reserves should be reviewed on a regular basis over the coming months.

Duties at the import stage will need to be monitored on a continuing basis so that availability of import items in the domestic market can be ensured at affordable prices, particularly in case of essential items. The NBR, in the meantime, has already taken the right decision to waive import duty, regulatory duty, supplementary duty, VAT, advanced VAT and advanced income tax on 12 medical items under 17 HS codes; this is to remain in force till June 30, 2020. If the situation demands, other essential items and medical equipment and ingredients should be added to this list.

A targeted rationing system may be introduced in the urban areas, particularly for workers and low-income people. The significant food stock at the disposal of the government (of about 1.7 million tons at present), as also the stock maintained by the private traders, should provide comfort to the policymakers in this regard. The government could also think of introducing the open market sale (OMS) programme, perhaps at a further reduced price, to cater to the needs of the low-income people.

A database of visiting migrant workers, who are not being able to join their workplaces, should be created. These people will need support from the government to tide over these uncertain times.

The upshot of the above discussion is that navigating the Covid-19-impacted evolving scenario will call for a dynamic and prudent macroeconomic management on the part of Bangladesh's policymakers. And the government should be ahead of the curve in dealing with the health issues, meaning it will have to be proactive rather than reactive. While Bangladesh can rightly claim success in view of the sustained economic growth of the past decade, the coming days will test whether the economy has also the capacity to absorb shocks without undermining macroeconomic stability and by sustaining the growth momentum.

Professor Mustafizur Rahman is Distinguished Fellow at the Centre for Policy Dialogue (CPD).