Covid-19 pandemic and poverty dynamics in Bangladesh

Bangladesh has witnessed remarkable economic growth and development in the last three decades. However, the Covid-19 pandemic, followed by the Russia-Ukraine war and the global energy crisis, has put Bangladesh to the test on several frontiers. There is a growing need to understand the impact of the Covid-19 pandemic and the post-pandemic challenges on poverty, inequality, employment, education, healthcare, and food security in Bangladesh.

Against the backdrop, The South Asian Network on Economic Modeling (SANEM) and the Global Development Institute at the University of Manchester jointly conducted a research titled “COVID-19 Pandemic, Post-pandemic Challenges, and Poverty Dynamics in Bangladesh: Evidence from a Longitudinal Household Survey.” The study aims to provide insights into these parameters based on a nationally representative household survey. This study is a part of the Covid-19 Learning, Evidence and Research Programme (CLEAR) in Bangladesh, managed by the IDS, University of Sussex and funded by the FCDO.

The baseline study for this study is the SANEM-GED household survey convened in 2018 across Bangladesh with 10,500 households from 500 Primary Sampling Units (PSUs). Between October and November 2023, the survey team tried to reach the same households across Bangladesh through physical visits. The team was successful in covering 9,065 households from 492 PSUs across Bangladesh. Among the remaining PSUs, 4 PSUs were not visited due to political uncertainties, and the other 4 PSUs were used for piloting. The 2023 survey questionnaire included questions pertinent to households’ basic characteristics, education, employment, assets, Covid-19-led major challenges and coping strategies, social protection, health, vaccination scenario of coronavirus vaccine, migration, and remittances, along with pre-Covid, during-Covid and post-Covid household income and expenditure information.

Changes in poverty and inequality: In this study, poverty is measured following two approaches: conventional consumption expenditure-based poverty and multidimensional poverty based on (i) education and (ii) health and standard of living indicators. The poverty line for the consumption expenditure-based approach is measured following the Cost of Basic Needs (CBN) method for each of the 20 strata (eight rural, eight urban, and four metropolitan areas). Using the upper poverty line, the incidence of poverty is estimated at 20.7 per cent at the national level, 21.6 per cent in rural areas, and 18.7 per cent in urban areas. Using the lower poverty line, the incidence of extreme poverty is estimated at 7.9 per cent at the national level, 8.9 per cent in rural areas, and 5.4 per cent in urban areas. At the divisional level, the highest poverty rate was estimated in Rangpur and Barisal, 42.9 per cent and 32.5 per cent, respectively. Notably, while the rural poverty in Bangladesh has decreased from 24.5 per cent in 2018 to 21.6 per cent in 2023, the urban poverty rate has increased from 16.3 per cent to 18.7 per cent.

A similar trend is observed in multidimensional poverty. The rural multidimensional poverty rate has fallen from 30.4 per cent to 27.6 per cent, while in the urban area, it has increased from 16.8 per cent in 2018 to 18 per cent in 2023. The reasons behind the rise in urban poverty, both in terms of the CBN poverty line and the multidimensional approach, are twofold. (i) Urban areas constitute a large proportion of the vulnerable poor who migrated to the cities out of poverty or due to climate shock, etc. Significant shocks, such as the recent price hike, would make these vulnerable people fall below the poverty line. And (ii) the existing social security programmes do not cover urban areas extensively – making many urban households more vulnerable to shocks.

Along with a rising poverty rate, this study also finds rising inequality in the country. Regarding consumption Gini, inequality at the national level grew slightly from 0.31 in 2018 to 0.32 in 2023. However, when observed from the point of the income share of the rich and the poor, i.e. the share of income of the richest 5 per cent of the households compared to the poorest 20 per cent, the ratio has increased from 2.1 in 2018 to 5.4 in 2023. Correspondingly, the ratio of expenditure shares of the richest 5 per cent to that of the poorest 20 per cent has increased from 1.3 in 2020 to 2.1 in 2023. One critical point to remember is that since most ultra-rich households could not be included in the survey, particularly from the urban areas, the real impact on inequality could be much larger than these findings.

Against the rising poverty and inequality in the country, only 37 per cent of the households received at least one social safety net program in the past year of the survey (October 2022- September 2023) compared to 27 per cent in 2018. TCB family card program reached the highest number of households (15.63 per cent), followed by Old Age Allowance (8.9 per cent), Widow/Deserted/Destitute Women Allowances (4.98 per cent), Allowances for the Financially Insolvent Disabled (3.34 per cent), and Food Friendly Programme (FFP) (3.17 per cent), among others.

The COVID-19 Pandemic, Education and Healthcare: The Covid-19 pandemic has greatly impacted the educational sector, leading to great learning loss due to the education institutions’ prolonged closure. During the Coivd-19 pandemic, online class facilities generated inequality in education among children of different socio-economic classes. From the poorest 20 per cent of the households - only 8 per cent participated in online/ distance learning programmes. In the case of the richest 20 per cent of the households, the online participation rate was 40.3 per cent. No available online class activities, not having a device, and unavailability of an internet connection were the most reported reasons for not participating in online classes. In the post-pandemic scenario, this study finds that 15 per cent of children aged 5-15 were not attending schools, compared to 13 per cent in 2018. Moreover, this rate has increased among the poorest income households while decreasing in the richest income cohort. For example, almost one-quarter of the children from the poorest 20 per cent of households are not attending school, compared to 9 per cent of the children from the richest 20 per cent of households. Notably, 43.2 per cent of children could not afford to continue education, followed by 17.9 per cent dropping out during Covid-19 and 14.8 per cent starting to work to support family income, among other things.

One consequence of the Covid-19 pandemic on healthcare could be a large rise in per capita health expenditure between 2018 and 2023. Compared to 2018, the average per capita health expenditure increased more than threefold in 2023 to Tk 1,704 monthly. However, the rise is not symmetrical across all income groups. The rise was just twofold for the poorest 20 per cent of the households, while for the richest 20 per cent of the households, the rise was six-fold. Nevertheless, one of Bangladesh’s successes in tackling the Covid-19 pandemic was rolling out the vaccine on time. Bangladesh started administering the Covid-19 vaccines on 27 January 2021. As can be observed, 77 per cent of the males and 80 per cent of the females (aged five years or more) received more than two dosages of the vaccine. Another important aspect to note is that there is no difference in the distribution of vaccine rates between rural and urban areas.

Economic Activity: Most of the working-age population is employed in the service sector (47 per cent), followed by the agriculture (36 per cent) and industry sector (18 per cent). The unemployment rate is estimated at 3.9 per cent at the national level, 3.6 per cent in rural areas, and 4.6 per cent in urban areas. Unemployment is higher in early age groups (12.4 per cent in the age group 15-24 and 6.1 per cent in the age group 25-34). Among the permanent returnee migrants, 29 per cent are currently unemployed. Most of these permanent returnee migrants reported that they lost their jobs during the pandemic.

When compared to 2018, the overall unemployment rate in Bangladesh slightly increased from 3.2 per cent to 4 per cent in 2023, primarily due to the rise in the male unemployment rate twofold in both rural and urban areas. A similar trend is observed for the youth male unemployment rate, which has increased from 5.4 per cent in 2018 to 11.6 per cent in 2023.

Between March 2020 and December 2020, in the rural setting, almost all males (96.8 per cent) and most of the females (93.2 per cent) experienced a decrease in salary. A similar situation was observed in the urban counterparts. In April –June 2020, the income was at the lowest for both genders and areas. Among all the divisions, the Rangpur division had the lowest average income in the month of lowest-earning in both the rural and urban settings. Moreover, the average income of rural areas was higher in Barishal, Chittagong, and Rajshahi divisions than urban ones. Regarding self-employed (non-agriculture enterprise), the rural counterparts of the Sylhet division remained closed for the longest period during the pandemic. In the rural areas of Barishal and Sylhet division and the urban settings of Rangpur, no businesses were closed for more than six months. Around 19.3 per cent of the urban businesses of the Dhaka division remained closed for more than six months. For the self-employed (non-agriculture non-enterprise), in the rural setting, around 70.1% reported that they had to close business during the pandemic, whereas the percentage was 73.9 in the urban counterparts of the Barishal division. Rangpur division had a notable difference in the closure period in the rural (70 per cent) and urban counterparts (57.1 per cent).

In terms of the impact of the pandemic on wage employment, this study finds that 54 per cent of the males and 44 per cent of the females lost their jobs during the pandemic. Most of these workers remained unemployed for longer than 3-4 months. Almost all these workers faced some cut down in their wages. More than three-quarters of self-employed workers in the non-farm sector reported business closures during the pandemic. More than half of them had to close the business for a period of 1-3 months. In the case of agriculture, livestock, poultry, or fisheries, the households faced challenges related to high input prices, low prices of the produced, shortage of labour, transportation problems, etc., during the pandemic.

Migration and Remittances: This study also observed the impact of the pandemic on migrant households. Since the beginning of the pandemic, many international migrant workers had to return to Bangladesh permanently. As a proportion of the migrant worker stock in 2018, nationally, more than 9 per cent of the international migrant households had a permanent returnee migrant worker during the survey in 2023. The major reasons behind these returnee migrants include losing jobs during the pandemic (33 per cent), contractual issues (20 per cent), disputes with the employer (14.7 per cent), false/visa or victim of fraud (4%), amongst others. Moreover, among these permanent returnee migrant workers, nearly one-third remained unemployed at the time of the survey in October/November 2023. Given the high cost of migration and the households’ financing strategies for international migration, this phenomenon of returnee migrant workers has important policy implications.

Shocks and Coping Strategies: The major shock experienced by the households in both rural and urban areas during the 2022-September 2023 period was the unusually high price level of the essential commodities (78 per cent in the rural and 76 per cent in the urban). Apart from inflationary pressure, other shocks included high prices of agricultural inputs, crop/livestock diseases, reduction in the earnings of the household member, floods, low prices of crops, illnesses of the earning member, etc. In response to the recent shocks, the primary coping strategy undertaken by the households was changing their dietary patterns involuntarily (59 per cent), followed by depleted savings (45 per cent), obtaining credits (40 per cent), unconditional help from friends or relatives (33 per cent), reduced expenditure on health and education (8 per cent), etc. In addition, in rural areas, households sold animal stock (11 per cent), or changed cropping practices (7 per cent). The proportion of households receiving support from the local governments was around 5 per cent in rural and urban areas.

This study focused on the impact of the recent inflationary pressure on households. As observed, between April 2023 and October/November 2023, 70 per cent of households reported that their household expenditure had increased. In addition to the price hike, the incomes of a large proportion of households remained unchanged or fell between April and October 2023. As such, most households’ real income fell sharply during this period.

In response to the price hike, this study finds that 70 per cent of the households changed their food habits, 35 per cent reduced non-food expenditure, 28 per cent resorted to borrowing, and 17 per cent depleted savings, amongst others. Such a large cut down on food consumption habits puts households at risk of food insecurity. This study measures food insecurity following FAO guidelines on the Food Insecurity Experience Scale (FIES). Between April and October/November 2023, the food insecurity experience scale (FIES) has worsened for poor and non-poor households across all regions. Among poor households, moderate food insecurity has increased by five percentage points (from 25 per cent in Apr’23 to 30 per cent in Oct/Nov’23), while severe food insecurity has increased by three percentage points (from 4 per cent to 7 per cent of the poor population). Poor from the urban areas are more food insecure than rural: 29 per cent of the rural poor households and 32 per cent of the urban poor households were categorized as moderately food insecure in October/November 2023. In both rural and urban areas, severe food insecurity was found to be 7 per cent among poor households.

Conclusion and policy recommendations: In modern times, the world economy has never encountered anything like the Covid-19 pandemic. The Covid-19 shock was not unique to Bangladesh, but the effect of the pandemic on Bangladesh differed from its effect in many other countries, because of, for example, the importance of international migrant remittances to Bangladesh. The prolonged countrywide lockdown, the worldwide economic depression, and the ensuing disruption to supply and demand are putting additional pressure on the economy. The pandemic-induced recessions are expected to have long-term effects, including decreased investment; a decline in human capital due to lost wages, education, and employment; higher unemployment; lower interest rates; and the breakdown of international supply chains.

This study provides evidence on poverty and inequality dynamics during the pandemic and the post-pandemic inflationary period, on the livelihoods of different types of household in Bangladesh, and on their coping mechanisms. The study identifies several key findings related to poverty rates, household spending, multidimensional poverty, social safety net distribution, and the pandemic’s effects on other socioeconomic dimensions such as education, and healthcare. The key findings are discussed above.

Based on the findings, we recommend the following:

Modify the National Social Security Strategy (2015) and ensure nationwide implementation. In the face of rising urban poverty and food insecurity, Bangladesh must undertake more policies that reach the urban poor and the new poor. Bangladesh adopted a National Social Security Strategy (NSSS) in 2015, which outlines a life-cycle-based universal social security programme. It acknowledges the lack of social security programmes in the urban areas and envisages the expansion of programmes in urban areas. The pandemic and the post-pandemic challenges have created an even more pressing need for the NSSS to be updated, modified and implemented in a timely manner.

Raise the budgetary allocation for education and implement specific policies for the education sector. Bangladesh’s education sector needs a larger budgetary allocation in the aftermath of the crisis. The government should prioritise the reduction of school dropout rates and mitigate the learning loss caused by the pandemic. One important area of further research for the government of Bangladesh and development partners is to estimate the extent of learning loss and the causes behind children missing in education.

Increase the tax base and restructure the existing tax frame. Increasing budgetary allocations for education and social security programmes will require a larger fiscal space. Bangladesh must expand its existing tax base and restructure the existing tax frame for increased revenue mobilisation. Bangladesh has one of the lowest tax-GDP ratios in the world and relies more on indirect taxes than direct taxes. It is often suggested, as noted during the interviews for this study, that the taxation in Bangladesh covers only a small portion of eligible income earners. Strong revenue mobilisation is a pre-condition for increased spending on education, healthcare and social safety net programmes.

Enhance job market policies to reduce unemployment and engage youth in skill-enhancing sectors. Bangladesh has experienced a long period of ‘jobless economic growth’. The country’s employment market has tightened further in the aftermath of the pandemic. There should be more active labour market policies in response to higher male unemployment rates and youth NEET rates. The government should enhance the existing skill generating training programmes demanded by industry. The industrial sector is adapting to AI and fourth-generation machinery, and training programmes should cater to this change in demand. This could be an area in which the Government of Bangladesh collaborates with development partners.

Provide more training to facilitate the assimilation of returnee migrants into the labour market. There should be more specific policy directives for returnee migrant workers. International migration from Bangladesh is expensive, and nearly three-quarters of the migrants use borrowing or selling assets to migrate abroad. The families of migrant workers who cannot re-enter the labour market after returning are likely to face substantial hardship.

Undertake policies to mitigate the impact of food price inflation on households. Such policies might include monitoring of the market to reduce the number of business cartels in the food chain and reducing import tariffs on food products. Bangladesh is one of the most protected countries in the world, with high tariffs and supplementary duties on almost all food products. Many of the tariffs are prohibitive, reducing imports from abroad and increasing the cost of imported food for consumers. The tariff reduction could be focussed on essential food categories such as poultry, beef, and some vegetables.

Dr David Fielding, Professor of Development Economics, Global Development Institute, University of Manchester; Dr Selim Raihan, Professor of Economics, University of Dhaka, and Executive Director, SANEM, ([email protected]); Dr Katushi Imai, Associate Professor, Department of Economics, University of Manchester; Dr Upasak Das, Presidential Research Fellow, Global Development Institute, University of Manchester; Mr Mahtab Uddin, Assistant Professor, Department of Economics, University of Dhaka, and PhD Candidate, Global Development Institute, University of Manchester.