Will COVID-19 worsen inequality in Bangladesh?

Like the rest of the world, Bangladesh is facing an economic crisis due to the COVID-19 pandemic. Lower income groups tend to be more affected by such economic crises than those in the upper income. With growing levels of inequality in the country, the economic crisis due to the pandemic can harm the poor more and expose them to greater risks. This has the possibility of further worsening the inequality in the country.

Job cuts, unequal access to technology, and falling remittance can also exacerbate the problem during the crisis. As a result, Bangladesh might come out from the crisis as a more unequal society. 

Rising inequality in Bangladesh

According to the last Household Income and Expenditure Survey (HIES) of the Bangladesh Bureau of Statistics (BBS), the Gini coefficient- a measure of inequality, was 0.458 in 2010 which rose to 0.482 in 2016.^[1] The measure of the Gini coefficient ranges from 0 to 1 where figures closer to 1 indicate greater inequality. The rise of the Gini coefficient in Bangladesh over the years suggests the inequality situation is worsening over the years.

The effect of the rise in inequality is felt more by the lower-income groups than others. Over the years, the top 10% have taken a greater share of the country’s wealth while that of the bottom 10% has fallen. Moreover, a 2019 report by the New York-based research firm Wealth-X showed that Bangladesh will record the third-quickest growth in the number of high-net-worth individuals in the world in the next five years.^[2] As a result, the wealth gap between the rich and the poor will continue to increase.

Although poverty and extreme poverty levels are declining, a lot of people in Bangladesh are still living below the poverty line. Poverty rates have fallen from 31.5% to 20.5% and extreme poverty levels have fallen from 17.6% to 10.5%.^[3] However, millions of people in the country remain in poverty. According to the World Bank’s Poverty and Shared Prosperity 2018 report,  Bangladesh is home to 24.1 million extremely poor people (out of more than 160 million) who earn less than US$1.90 a day, the international poverty threshold.^[4]

The high incidence of poverty and the growing wealth of the rich shows that inequality in Bangladesh is worsening over the years. The situation is only likely to be exacerbated by the current COVID-19 pandemic.

How can the COVID-19 pandemic worsen inequality in Bangladesh?

Until the last week of May 2020, the whole of Bangladesh was in a two months government-enforced public holiday. Due to the shut down, most businesses and institutions were closed. The mobility of people was also reduced. Even those businesses that were open (like groceries, pharmacies, and banks) had to have their operations limited. 

Worldwide economic activities have also lessened due to the pandemic. Due to such economic disruptions both in the country and globally, the International Monetary Fund (IMF) predicted the GDP growth for Bangladesh in FY 2019-20 will fall to 2%.^[5] 

The uneven threat of job loss among sectors 

The decrease in economic activities due to the implementation of the two-month public holiday and lowered global trade means reduced revenues for most of the businesses in the country. As a result, businesses will adopt cost-cutting measures including wage reductions and job cuts. These will lead to decreased incomes, especially for those in the lower-income strata. One study found one million RMG workers had been fired or furloughed in March due to the order cancellations by foreign buyers.^[6]

Workers in export-oriented industries, small and medium enterprises (SME), transport, tourism, and other non-essential services will bear the brunt of such salary cuts and work terminations the most. It can lead to a wealth difference between workers in essential industries and those in the non-essential industries as the former have more chances to retain their employment. 

In fact, a study by BRAC studied this difference using the Khichuri Index- the average cost of a bowl of the popular meal. The study showed both agriculture labourers and rickshaw pullers could afford the same portion of Khichuri back in February. However, the purchase ability of the rickshaw puller, a non-essential worker, reduced drastically since the announcement of the two-month public holiday in March.^[7]

Informal sector to be affected the most

Workers in the informal sectors will also suffer more than those in the formal sector. The last Bangladesh Labour Force Survey, conducted for the years 2016-17, found that 85.1% of the total employment in Bangladesh belongs to the informal sector.^[8] The percentage translates to 50 million informal workers.^[9] This sector lacks social protection measures that are otherwise available in the formal sector. The lack of social protection means that workers in the informal sector are more at risk of going into poverty than those in the formal sector.

Work from home to benefit mainly white collar jobs while harming others

Some businesses, especially those in white collar jobs, have been able to allow employees to work from home during the holidays. However, the operations of businesses in other job sectors make it impossible to have work from arrangements. As a result, people mainly engaged in the white collar continued to earn income while those in the other sectors, who mainly belong to lower-income groups, had been without income for the past two months.

There is also a digital gap regarding access to the equipment required for remote working. According to the Multiple Indicator Cluster Survey (MICS) 2019 of BBS and UNICEF, only 0.4% and 8.7% of those in the poorest 20% have access to computer and internet connection respectively. The access to computer and internet connection for those in the richest 10% stand at 21% and 75.3% respectively.^[10] The low access to equipment and job nature means that employees in the lower-income groups cannot participate in remote working and/or to supplement their income during the current crisis.

Falling remittance numbers to harm rural households

Remittance- a major source of revenue especially for rural households, has also suffered due to the pandemic. Many foreign workers have lost their jobs. Again, the oil price decline has reduced inflow from Middle Eastern countries- the major source of remittance for Bangladesh. Data from Bangladesh Bank shows that monthly revenue inflow decreased from USD 1434.30 million in December 2019 to USD 1086.40 in April 2020.^[11]

Stimulus packages and financial assistance to combat inequality

The combination of job losses, the digital divide, and remittance reduction will certainly worsen income inequality in Bangladesh. Post-crisis, the lower-income segment will emerge with greater risks to poverty. The government of Bangladesh has rightly identified the impending inequality and has thus taken steps to combat it during the current crisis.

Till May 2020, the government announced stimulus packages worth more than BDT 1.0 trillion, equivalent to 3.6% of the GDP, to save the economy. These packages can be used by the beneficiaries to provide salaries to the workers. The government has also launched a scheme to provide financial assistance to 5 million vulnerable families who will each receive a one-time grant of BDT 2,500 through mobile banking services.^[12] These sorts of payments will help prevent lower-income employees from falling into poverty.

Government making the right move by increasing social safety programs

In addition to the measures mentioned above, the government of Bangladesh can initiate social protection programs like cash transfers, food-for-work programs, and stipends for those who are at the most economic risk due to the pandemic. Such social protection schemes can benefit workers in informal employment the most as their workplaces often do not have these measures.

Fortunately in the proposed FY 2020-21 budget, the government allocated BDT 95,574 crore for various social safety net programs (SSNP). This allocation comprises 3% of the GDP and 17% of the budget. Overall, the allocation for SSNPs has increased and the increase has been allocated to COVID-19 related programmes, loans, interest payments and subsidies. This is indeed a right move taken by the government to mitigate inequality.^[13] 

The way forward: Efficient management and capacity building programs 

The success of the steps taken by the government depends on the management. Recently, the financial assistance scheme through mobile banking services was met with various irregularities. Such irregularities were also observed during the distribution of relief materials by the government in April. If the same scenario prevails with the stimulus packages and the social protection programs as well, the worst affected people will not be helped. As a result, the two initiatives will be wasted. 

In addition, the government can take capacity building programs to re-skill workers whose employment has been terminated due to the disruptions. It is unlikely that most businesses will restart hiring soon. Training workers in new skills under social security programs can help the once-terminated workers to start new businesses or get employed in sectors with new job opportunities like healthcare, ICT, and e-commerce.

Millions of Bangladeshis remained marginalized even before the COVID-19 outbreak. With the highly unequal distribution of income and wealth, the country cannot afford a further widening of the wealth gap. Therefore, the government of Bangladesh must make sure its plans to mitigate inequality are well designed and managed. 

Farhan Uddin, Content Writer at LightCastle Partners, has prepared the write-up. For further clarifications, contact here: [email protected]