The document summarizes the economic impacts of the Covid-19 pandemic, including a potential global recession. It discusses indicators that a recession may occur, such as stock market declines and yield curve inversions. The pandemic has reduced global production and exports while increasing unemployment. For Bangladesh specifically, exports and remittances declined sharply, threatening employment and government revenue. The economic challenges for Bangladesh recovering are substantial in the face of an uncertain global economic outlook.

1. Covid-19 Pandemic: Looming Global Recession and Impact on
Bangladesh
- Published in Keystone Quarterly Review (Volume-30), written by Md. Tanzirul Amin [July 30, 2020]1
The Covid-19 Pandemic: By the end of 2019, the world entered a new decade with great
expectations; however, 2020 has been no less than a steep, downhill drive for the human
civilization. The first case of Covid-19 was identified and acknowledged by WHO on January 7 at
Wuhan, China, within four days the first death was accounted and by ten days the corona-virus
has made its global presence across Asia and Europe. The severity increased exponentially
thanks to a globalized, easier to travel and trade, and socially interactive world we live in. By
the end of June 2020, around 10 million people are infected by Covid-19, half a million are dead
and several millions are in mild-critical conditions; many countries have reported cases of
corona-virus infection in animals as well. This led to series of shocks on the health-care systems
across the globe, with trials of medicinal drugs to find a cure and a worldwide race to discover
1
This article was published in the Economic Trends section of the Keystone Quarterly Review (Volume-30) on July 30, 2020:
https://keystone-bsc.com/kqr-economic-trends.html

2. an effective Covid-19 vaccine. On the other, with government interventions such as: herd
immunity or group isolation, to save the citizens and health-care expenses, nation/state-wide
lockdown was found to be the most viable option. Subsequently, months of lockdown from the
beginning of this year till the end of the second quarter, have resulted in economic downturn
and unemployment.
Source: Financial Times, Coronavirus tracked: the latest figures as countries reopen
What is Recession and how a Global Recession may occur:
With the existence of both obvious and uncertain nature and causes, recessions are witnessed
to be a cluster of business failures being realized simultaneously. During recessions,
factories/organizations are prone to resources reallocation, production cut, loss control, and
employees. Along with the corona-virus pandemic, business failures are happening due to
negative economic shock, real resource or credit crunches brought about by previously over-
expansionary monetary policy, and a negative shift in consumer or business mood. And, as the

3. recession spreads, even more businesses decline activities or fail and lay-off their employees.
Thus, the lock-downs have helped (for the time being) to save our lives to some extent, but
have fastened the upcoming economic crisis. While, many businesses are waiting for a full uplift
of the lockdown, others are in distress with the thought of their post-pandemic recovery and
survival. With attempts of little success to contain the severity and spread of the virus, the
world is in no state to anticipate for another big economic crisis, as we have already witnessed
stock index crashes far greater than the 2007-08 Financial Crisis, and economic downturn with
greater impacts than the Great Depression. We are, at present, living through “another Great
Recession of the human civilization”.
Indicators of Global recession:
If we look closely into any economy we will come across a handful of indicators, analyzing
which with time can provide valuable insight on whether the economy is anticipating a
recession in the coming years.
1. Stock market- Stock market performance is often considered a strong indicator of overall
economic health. And historically, stock market peaks have preceded economic
downturns by an average of seven to eight months (the actual range is a lot wider). During
March 2020, the stock market experienced the worst since the Great Depression and 2007-
08 Financial Crisis. Late Nobel Prize-winning economist Paul Samuelson once said, “the
stock market has predicted nine of the last five recessions.”
2. Yield curve- More reliable indicator is the yield curve on U.S. Treasury securities.
Historically when the yield curve inverts the interest rate on shorter-term treasury bonds is
higher than the interest rate on longer-term Treasury bonds, and this may gradually be
followed by a recessionary period. Surprisingly, prior to the past seven recessions the curve
was inverted.
3. Job market and unemployment rate- Growing unemployment could point to an
imminent recession. And counter-intuitively, it is a low unemployment rate in the past

4. years, often signals matured level of an economic cycle and might soon be followed by a
slowdown.
4. Timing- As we know recessions are a normal part of the economic cycle. Though not a
very technical indicator, a long run of economic expansion can may indicate something as
well. We did not have any recession or bear market since 2008-2009. The economy has
been expanding(sometimes slowly) since then.
Drivers of the current Global Recession:
Since the 2007-08 Global Financial Crisis, the risk proportion of the credit markets have
significantly increased. Apart from raising government debt of most countries in the developed
and emerging economies, there are other related concerns to the increasing big debt crisis:
weakening credit quality of borrowers, discrepancies in underwriting standards and processes,
investment funds’ liquidity risks, and increased interconnections caused by free-market
economies and globalization. Though some research by IMF shows that, use of borrowed funds
to finance the investments in these markets is less prevalent and that banks’ are not as heavily
exposed to leveraged loans and high-yield bonds as in the past; both these were contributing
factors to the decade old global financial crisis. The risk of investor runs have also lessened in
some segments because of a prevalence of long-term, locked-in capital in the private debt and
collateralized loan obligation markets. (IMF, 2019) Recent CFA Institute research indicates that
banks’ financial reporting may affect financial stability through its impact on the following three
channels: the likelihood of capital requirement violations, banks’ internal discipline over risk
management and control systems, and the external discipline of the market and regulators over
banks. (CFAI Research Foundation, 2019).
As prices of most natural resources and financial assets are on the fall, only reversed over the
last few weeks in some countries, there is an increased need for health sector and social
services investments faced by the countries. The Covid-19 Pandemic has reduced production
and efficiency across all industries of the agriculture, services and manufacturing sectors,
though some countries such as: Bangladesh is on the effort to keep the economic production-

5. wheel on the move, yet these countries have failed to understand the severity of the pandemic,
which may greatly eradicate a large portion of the working population if necessary preventive
health measures are not taken by the government. On the flip side, other than in China most of
governments, of the developed countries and emerging nations, are largest lenders from banks
and multilateral agencies, and as the days pass the tendency of these nations to default raises.
Last year, several renowned hedge fund managers and investment such as: Ray Dalio and Jim
Simons, have suggested that we might be in the brink of another global financial crisis in the
coming two to five years, caused mostly due to the Big Debt Crisis of the governments including
that of USA. Besides, several economists have also suggested similar concerns due to another
surprising aspect of the upcoming financial downfall of many nation, due to the Pension Crisis
as a large portion (Baby Boomers and Gen X) of the global working population are going to
retire from their work/government-services in this decade.
At the worst point of the recent sell-off, risky assets suffered half or more of the declines they
experienced in 2008 and 2009. For example, many equity markets—in economies large and
small—have endured declines of 30 percent or more at the trough. Credit spreads have jumped,
especially for lower-rated firms. Signs of stress have also emerged in major short-term funding
markets, including the global market for U.S. dollars. The global spread of COVID-19 may
require the imposition of tougher and longer-lasting containment measures—actions that may
lead to a further tightening of global financial conditions should they result in a more severe
and prolonged downturn. Such a tightening may, in turn, expose financial vulnerabilities that
have built in recent years in the environment of extremely low interest rates. This would
further exacerbate the COVID-19 shock. For example, asset managers facing large outflows may
be forced to sell into falling markets—thus intensifying downward price moves. In addition,
levered investors may face further margin calls and may be forced to unwind their portfolios;
such financial de-leveraging may aggravate selling pressures.
With the spike in volatility, market liquidity has deteriorated significantly, including in markets
traditionally seen as deep, like the U.S. Treasury market, Oil and Commodity markets,
contributing to abrupt asset price fluctuations. The credit markets have expanded rapidly since
the global financial crisis, reaching $9 trillion globally, while borrowers’ credit quality,

6. underwriting standards, and investor protections have weakened. Since early March, high-yield
spreads have skyrocketed notwithstanding recent declines, particularly in the sectors most
affected by the pandemic like air travel and energy. Similarly, leveraged loan prices have fallen
sharply—about half the drop seen during the global financial crisis at one point. As a result,
ratings agencies have revised upward their speculative-grade default forecasts to recessionary
levels, and market-implied defaults have also risen sharply.
Outlook for recovery:
The 2020 stock market crash occurred as a result of the COVID-19 pandemic; rising fears and
global economic shutdown due to the economic impact of the COVID-19 pandemic is believed
to be a main cause of the stock market crash, though many experts have argued that it is an
'accelerant' rather than a sole core reason behind the crash. During 2019, the IMF reported that
the world economy was going through a 'synchronized slowdown', which entered into its
slowest pace since the financial crisis of 2007–08. 'Cracks' were showing in the consumer
market as global markets began to suffer through a 'sharp deterioration' of manufacturing
activity. The IMF blamed 'heightened trade and geopolitical tensions' as the main reason for the
slowdown, citing Brexit and the China – United States trade war as primary reasons for
slowdown in 2019, while other economists blamed liquidity issues. In April 2019, the U.S yield
curve inverted, which sparked fears of a 2020 recession across the world. The inverted yield
curve and trade war fears prompted a sell-off in global stock markets during March 2019, which
prompted more fears that a recession was imminent. Rising debt levels in the European Union
and the United States had always being a concern for economists. However, in 2019, that
concern was heightened during the economic slowdown, and economists began warning of a
'debt bomb' occurring during the next economic crisis. Debt in 2019 was 50% higher than that
during the height of the Great Financial Crisis. On 9 March 2020, most global markets reported
severe contractions, mainly in response to the COVID-19 pandemic and an oil price war
between Russia and the OPEC countries led by Saudi Arabia. This became colloquially known as
Black Monday. At the time, it was the worst drop since the Great Recession in 2008, and during

7. March 2020, global stocks saw a downturn of at least 25%, and 30% in most G20 nations. Wall
Street experienced its largest single-day percentage drop since Black Monday in 1987. The
Bangladeshi DSEX index hit the record low during late March, following which the government
set lowest price barriers and halt all trading until June 1, 2020 when the two exchanges opened
after around two months no trading. And, in the Q1 of 2020, trillions of dollars have been lost in
the exchanges around the world. (WSJ, 2020) Throughout last few months since late March,
prices in risky credit markets dropped by about two-thirds of the declines experienced during
the entire global financial crisis, though some portion of it has reversed in the past few weeks.
The inter-dependency of the credit markets and the ongoing Covid-19 pandemic have caused
turbulence in the financial markets.
Policymakers shall diligently act to contain the COVID-19 effects on the global economy,
financial markets and banks, and regulators shall act to motivate the asset/fund managers to
act cohesively and take all available liquidity management tools to address the current and
upcoming financial risks. Given that non-bank lenders, borrowers and investors have also taken
substantial roles in these markets, all these could negatively alter the credit provisions and lead
to a longer and more severe recession. Thus, with proper financial planning and constructive
measures at national and international level the severity of the coming global recession can be
reduced.
The COVID-19 pandemic is an enormous human and health crisis, and the relevant
measures/necessities to contain the virus have triggered a global economic downturn. IMF’s
recent Global Financial Stability Report, the impacts on the financial system is huge, with no
certainty about severity and length of this pandemic and periods of lockdown across regions, a
continued intensification of the crisis could affect global financial stability and might result to
another great depression in human history. The crisis in not only about liquidity, but solvency is
major factor now—as it tilted and/or halted large segments of the global economy. Central
banks will remain crucial to safeguarding the stability of global financial markets and
maintaining the flow of credit to the economy. Simultaneously, cohesive and diligent monetary,
fiscal, and financial policies should aim to cushion the impact of the COVID-19 shock and to
ensure a steady, sustainable recovery once the pandemic is under control. Close, continuous

8. international coordination will be essential to support vulnerable countries, to restore market
confidence, and to contain financial stability risks.
Source: IMF, Global Financial Stability Report, April 2020
Implications for Bangladesh
a. Exports and Imports- Amid the pandemic and worldwide lockdown Bangladesh’s biggest
export sectors - RMG and Textile, faced massive downturns in buy-orders, raw material
shipments and many large international fashion-houses deferred their payments. Exports
grew by 7.7 percent in December 2019, and remained positive in by 5.4 percent in January
2020. As COVID-19 began to take effect in major markets, exports fell by 14.8 percent in

9. March, then 55.3 percent in April. The economy and working-class suffered greatly as the
exports declined. With trade and international travel restrictions amid the pandemic the
imports in the country reduced exponentially over Q1 and Q2 of 2020. As 2020 began with
low import growth of 1.4 percent. It fell by increments through March, then by a steep 39.6
percent in April.
Source: Bangladesh Bank Monthly Economic Trends
b. Prospect of Employment and Remittance- The year started off with the news of 26
Bangladeshi workers killed in Libya, followed by nation-wide lockdown in the Middle-East,
South Asia and Europe. Thousands of migrant workers and immigrants returned back to
Bangladesh during from late February to early April, many lost their foreign jobs completely
while others live in despair whether they will be able to return back to the foreign
countries or not. Besides these, a member of the parliament was arrested in Kuwait for his
connections with human trafficking. On the other hand several countries such as-
Singapore, Italy, China and several others canceled flights from Bangladesh, after previous
flights carried Bangladeshis infected with Covid-19, yet having fake negative reports. All
these made the current situation for Bangladesh in the international labor market very
challenging, and it would take time and resources to gain the work opportunities, and
especially the lost trust. Good news is that, after decreasing in Q1, the remittance started
to grow across Q2. Following the onset of the COVID-19 pandemic in 2020, remittance
earnings fell by 11.4 percent in February, another 12.1 percent in March and a further 14.4

10. percent in April. Following this, the steep incline of 37.7 percent is indicative of
unemployed remittance workers sending returning home with their savings from abroad.
Remittance earnings will likely continue rising in subsequent months as more workers
return home, but fall sharply once that exodus slows.
Source: Bangladesh Bank Monthly Economic Trends
c. Economic Activity and Revenue Earnings- As per BRAC’s research, earnings decreased of
around 95% of the working population, 62% of the low-income people have lost their
source of income, and 28% of the population has become jobless. The economy has
seriously been affected by a sharp decline in external demand, shocks in supply due to
disruptions in global and domestic value chains, impact of lockdown and large scale job
losses on domestic demand, stress on consumer and business environments, and
deepening inequality and high incidence of economic and social uncertainties. Bank
reinvestment is declining and debt collection virtually stopped. Over 2 trillion taka is
entangled as investments in only the RMG and Textile sectors. The Government gave
incentives to RMG sector and plans to allow convenient loan facilities for businesses and
corporations to keep the economic wheel rotating. Moreover, the pandemic took the lives
of several business magnets of the nation, a recurring loss over the past few months that

11. might prove to be very hard to recover in the coming years. The Bangladesh government
announced its annual budget of Tk 568,000 crore for the financial year 2020-21, on June 11
amid the Covid-19 pandemic crisis; and allocations for the Health Services Division and
Health Education and Family Welfare Division in the fiscal year also increased to Tk 292.47
billion. The budget document provided a revised GDP growth estimate for the financial
year 2019-20 at 5.2 per cent, a downward shift from the original estimate of 8.2 per cent.
However, it projected 8.2 per cent growth rate for the next financial year (2020-21).
Allocation of a significant amount of fund in the budget for the fiscal year 2020-21 to face
the challenges posed by the Covid-19 pandemic. Tk 100 billion has been allocated under a
stimulus package to fight the deadly virus and re-build the economy and ensure its
sustainability after the damage done by the pandemic. Covid-19 is a tough time for small
and medium level businesses, and most anticipates convenient loan facilities and
government incentives. Salary cut and involuntary job-turnover Many workers remain
unpaid for months, while contractual employees and day-laborers fail to earn their living .
And, the need of technology, cloud-based work, fin-tech and digital marketing skills
becomes crucial factors for tomorrow’s job market. Though NBR introduces 'e-payment' to
pay VAT, and individual taxpayers will also have to submit e-invoices online from the next
financial year. Yet, revenue collections amounted to a 5-year low of USD 19.3 billion in
FY19-20 as economic activity slowed following the onset of the COVID-19 pandemic. In
addition to revenue falling by 6.6 percentage points as a share of GDP, public expenditure
in FY 19-20 fell by 9.8 percentage points, decreasing the deficit from -4.9 percent (of GDP)
to -1.9 percent.

12. Source: Bangladesh Bank Monthly Economic Trends
What Bangladesh could do to blunt the effects of Global Recession:
First priority would be flattening the Covid-19 curve, as number of new infections and deaths
raises sharply since mid-May, the scope of proper recovery of the nation’s economy weakens.
After implementing about two months of nationwide lockdown since March 25, the
government eased the social restrictions. Many offices and manufacturing firms opened, but
that was quickly followed by a jump in the number of new infections within a few days. The
government later imposed area-wise lock-downs, which were not much effective as the people
seemed carelessly towards social safety and obeying the laws. Likewise, most citizen’s social
behavior have started to reflect their loss of trust and hope on the social and legislative system.
Inadequate heal-care facilities, Covid-19 test scams and rampant sales of fake health-care
products, especially hand-sanitizers and masks, are now posing great risk to public health amid
the ongoing Covid-19 pandemic. People in financial difficulty not going for the paid tests and
most people stays home with symptoms as there is little reliability on the health services in the
country. These might result in welcoming a social disaster in Bangladesh, if not contained
diligently and quickly. One group suggests, curfew or “hard-lockdown” for period of two to four
weeks in order to control the spread of corona-virus, while another group hopes that
periodical/multistage re-opening of the economy might be more fruitful. However, most

13. importantly strong and reliable policies, trust and obedience of the people, and standardized
test and health-care facilities might be the cornerstones of flatten the curve and revitalizing the
economic wheel.
No matter how nicely the policymakers presents our economical condition to the people and
international agencies, but the economic system and its stakeholders suffer greatly in reality.
Manufacturing, exports and opportunities for migrant workers plummeted over the past
several months; the pandemic and several shameful incidents have put Bangladesh in
challenging situation in the global job markets; though several economic activities have started
to bloom there is more to be done and implemented to regain the strength in the claws of the
Asian Tiger. The government shall rethink and improvise trade relations and develop new ones,
work cohesively with the multilateral agencies in order to reestablish opportunities in the
international labour market , and pass diligent and intuitive policies in order to regrow as a
sustainable economy. All in all, prior to a strong economy we need to build a nation and social
system of trust, honesty, diligence, adequacy of basic needs and education and proper policy
making and their implementation.
- O -
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