Covid-19 impact and dichotomy of rural-urban economy in Bangladesh

Updated on 06/12/2021 - By InM - No Comments

 MUSTAFA K. MUJERI | Published:  December 06, 2021 20:07:43

File photo used for representation purpose (Collected)

Unexpected challenges to the prospects of growth and the economy are quite common in Bangladesh; and the country is widely known as a land of natural and manmade disasters. At present, the coronavirus disease (Covid-19)--declared as a global pandemic in January 2020 by the WHO--has strained the humanitarian and socioeconomic system of the entire country. Furthermore, the havoc of the pandemic is still ongoing along with recurrent variation in intensity which has severely affected all aspects of life and economy across the country. The damages are unprecedented in the country's history threatening all dimensions of development outcomes. Since the virus has grown exponentially, the deadly and highly contagious disease has turned from a moderate to a strong category in Bangladesh within a period of three months. Further, as one of the most densely populated country in the world, Bangladesh's healthcare facilities have proved to be too limited to serve more than 165 million people of the country.

The sudden onset of the Covid-19 pandemic has brought about deep changes in the Bangladesh economy. During the initial periods, the rural economy displayed an extraordinary resilience to the effects of the pandemic, in sharp contrast to the experience of the country's urban economy. In reality, the performance of the rural and urban economy after the onset of the pandemic has progressed along two different lines-the rural economy flourishing at close to the normal vigour while the urban economy struggled to keep up.

Since most of the rural economic activities (including farming) remained relatively unaffected from the Covid-19 restrictions, farming and allied activities continued without much hindrances; thus allowing the rural economy to move forward. According to the BBS, GDP growth edged down to a 30-year-low of 3.51% in 2019-20 due to the Covid-19 fallout, while GDP growth has been estimated at 5.43 per cent in 2020-21. The growth in industrial production in 2019-20 dropped to 3.25 per cent and rose to 6.12 per cent in 2020-21 although the rate had been more than 12 per cent for the last couple of years. The manufacturing sector logged more than 14 per cent growth in the fiscal 2018-19 that slipped to 1.8 per cent  in 2019-20. The growth turned around to 5.77 per cent in the last fiscal year. For the service sector, growth was 4.16 per cent in 2019-20 which slightly increased to 5.61 per cent  in 2020-21. On the other hand, the growth rate in agriculture edged up in 2019-20 to 4.59 per cent which fell in 2020-21 to 3.45 per cent. In fact, the agriculture sector was able to retain a relatively healthy performance in the post-pandemic period mostly on the back of increased rural consumption, relatively stable weather conditions, little disruption in the supply chains, as well as increased government spending on rural support programmes and varied measures to strengthen agricultural and allied sectors in the rural areas.

Traditionally, the rural economy is the driver of the country's economic growth, given that around two-thirds of the population and 77 per cent of the workforce reside in the rural areas and the rural economy generates nearly half of the total income. Further, agriculture and allied sectors absorbed the labourers who lost their jobs and migrated to the rural areas due to the Covid-19 pandemic. However, things have now started to take a turn in recent months with the continuation of the pandemic. The sector's labour absorbing capacity seems to have been overstretched giving way to rising un- and underemployment in the rural areas as well as causing significant changes in the expenditure pattern of the rural households due to increased out-of-pocket expenses on precautionary measures and healthcare services. This has also been vastly compounded by the disruptions in remittances sent by migrant family members.

One important aspect of the continuing Covid-19 crisis is that even the rural informal economy (comprising of both small businesses and individual workers) has been encountering major disruptions and finds it extremely challenging to sustain survival in the face of the current pandemic. A range of workers, including salaried cottage, micro, small and medium enterprise (CMSME) workers, small/daily wage earners, home-based (including gig) workers, and migrant labourers are undergoing serious hardships.

In the rural areas, direct cash/food transfers under the government's safety net programmes typically and predominantly target the extreme-poor populations. Due to exclusion errors, informal workers are mostly left out. Further, an adverse income shock is distinct from their baseline wealth/asset scores often employed to determine enrolment into existing social protection programmes. In the absence of any coping mechanism to counter economic shocks, the migrant workers residing in big cities (like Dhaka and Chottogram) were left with no choice after the implementation of the lockdown but to rush back to their villages. In the face of limited access to savings and contingency funds, these households had mostly resorted to negative coping strategies, such as selling assets, borrowing from informal moneylenders, or engaging in child labour.

A major constraint in rolling out targeted assistance programmes for these rural informal workers has been the lack of information. While technology can be used to fill critical information gaps, one needs to be realistic in expectations regarding reliance on spatial data and mobile phones to gather geo-tagged data. Using digital technology to make mobile payments may not be as effective in places where access to such technologies is limited. The government had already adopted stimulus packages to provide support to the most economically vulnerable, including emergency funding/relief for businesses and individuals. But these packages were relatively modest and reflected the country's limited financial resources. However, they did include some form of relief to the needy, mostly in the form of rations and/or cash transfers. But although these economic support packages were probably well-designed, but these were not large enough to address the urgent challenges of all the informal workers.

However, recognising the contribution of the rural informal workers to the national economy, the government will have to work with what already exists along with working out new and better options. The key will be to devise mechanisms to extend the coverage of existing social protection programmes to all informal workers mainly to enable them to survive the immediate impact of the pandemic. Where existing registries or databases exist, quick assessments can be made on their relevance for the scale-up of social protection interventions. The government also needs to introduce reforms to stabilise the long-term impacts of the economic shocks on informal workers and find innovative and sustainable ways to identify and reach those who need assistance. Restoring disruptions in the food supply chain and strengthening market linkages for local producers can benefit these informal workers and ensure the provision of essential services and products.

While the steps taken to push rural recovery are essential, in order to reduce income disparity and regional inequity in the long run, localisation of industries and employment are critical. Apart from providing enhanced access to credit and support services to agriculture and CMSMEs, there is also a need to work on institutional factors and a robust governance framework for effective implementation of these programmes. A renewed focus on the use of technology in agriculture, promoting fintech, creating opportunities for self-employment and entrepreneurship, as well as building resilient value chains in both rural and urban markets will go a long way in making the economy disaster-resilient for the future.

In order to be comprehensive, the government's response strategy with regard to Covid-19 should be guided by three major objectives: minimise loss of human casualties; reduce the loss of livelihoods especially of the low income populations; and contain adverse growth and employment impact due to Covid-19 related measures. However, since there are complex trade-offs between these objectives, the key for the government would be to ensure a proper balancing among them to minimise the overall adverse impact of the pandemic.

While the official estimates of Covid-19 casualty cases are relatively low, the economic costs are already deep in Bangladesh. The country has rising levels of domestic and external debt and can attract a generally low level FDI. The economy is highly dependent on external sources of income, such as RMGs exports and remittance incomes. It has also experienced severe impacts on tourism, although not very important, but it is a rapidly rising source of foreign exchange earnings and job creation. For the global community, Bangladesh presents an excellent opportunity to extend the benefits of development and invest in supply chains and increased connectivity for goods and services with its rapid development. Further, ensuring rapid progress of the country is essential to consolidate its nascent democracy which is still susceptible to authoritarianism. Moreover, as the Covid-19 pandemic still continues to wreak havoc on public health and the socioeconomic developments in the country, the global community has an added responsibility to maintain its commitment to demonstrate the superiority of the emerging economic cooperation model in this new era of globalisation and technological advancement.

There is no doubt that the pandemic has pushed the rural economy further towards a massive technology upgradation phase with e-commerce channels developing, low ticket electronic items becoming essential commodities, and mobile phones becoming household necessities for education and other purposes. However, the long term compulsion for Bangladesh would be to adopt an integrated disaster and development paradigm, particularly with respect to its ongoing development process. The current paradigm needs to evolve and integrate practical ways to deal with such future crisis for the sake of survivability and sustainability. The experience of Covid-19 has no doubt contributed to some progress in the policy environment; but the reality is that such progress in policy making can only be effective only if the capacity to respond to the complex intersections of economic, social, environmental and other impacts especially on the most vulnerable population increases commensurately.


Dr. Mustafa K. Mujeri is Executive Director, Institute for Inclusive Finance and Development (InM).

The Institute for Inclusive Finance and Development (InM) is registered as an independent non-profit institution under the Societies Registration Act 1860.
The Institute works for developing the overall capacity of the financial sector and strengthening the links between the financial and real sectors through undertaking research, training, education, knowledge management and other programmes in priority areas including inclusive finance, microfinance, poverty and development.

Contact Us
+880 1729 072 881 /
Chetona Tower, 274/4 (8th Floor)
Monipur (60 Feet Road) Mirpur -2, Dhaka-1216, Bangladesh
© 2024 InM
Design by
crossmenu linkedin facebook pinterest youtube rss twitter instagram facebook-blank rss-blank linkedin-blank pinterest youtube twitter instagram