What is the economic cost of Covid-19?


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What is the economic cost of Covid-19?

Although the question seems simple enough, it is really difficult to find an easy answer. Different items of medical supplies and health infrastructure critically needed, things begin to get a little tricky with a raft of assumptions kicking in.

Take the need for more ventilators for the dangerously poised areas. Bangladesh currently has 200 ventilators. The medical fraternity estimates that in the medical fraternity estimates that in the worst-case scenario, Bangladesh needs at least 100 times this number.

Let’s assume that this worst case will be averted and purchase just a quarter of that number (5thousand). Local company Walton offered the government to supply ventilator which will costs Tk4-5 lakh and if it purchase from them at Tk 5 lakh a piece, the bill comes to Tk 250 crore.

Spending on healthcare cannot be restricted to buying ventilators. The need is more testing kits, protective gear for healthcare workers, more hospital beds… While it’s true that GoI does not need to bear the entire cost (states and the private sector will pitch in), it may have to do the heavy lifting. Suddenly, the initial amount of Tk 1,000 crore earmarked for directly managing the disease doesn’t quite seem enough.

What do the experiences of other countries tells? Italy, one of the worst Covid-19-affected, has spent about $28 billion (1.3% of its GDP) just to fight the virus. The US is spending $117 billion (about 0.5%). How much should Bangladesh spend just to ensure that the virus doesn’t kill millions?

Some could argue that since vulnerability to the virus rises with age, Bangladesh’s young population is an asset. 5.5% of Bangladesh’s population is above 65, compared to 23% in Italy and 16% in the US. However, Bangladesh spends just 3% of GDP on health, compared to Italy’s 9% and the US’s 11%. It, thus, has to ramp up quickly from this low base.

Bangladesh also has a large incidence of diabetes, heart ailments and respiratory illnesses such as tuberculosis that is often undetected. These are risk factors that increase vulnerability to the virus.

Then there are the costs of ‘keeping people at home’ — call it ‘adjustment cost’ — that is, ensuring subsistence for casual workers and the self-employed during the lockdown and its aftermath. A number of economists, including, believe that while the relief package of Tk 50,000 to be needed to fight the situation.

How much would be sufficient? Many recommend a semi-universal cash transfer for three months to all accounts, instead of the myriad schemes in the government sponsored package.

Then there’s the business of providing stimulus to sectors likely to be decimated by the virus — aviation, hospitality, SMEs. Bangladesh government has to support cash flows – pay their utility bills, subsidise interest payments on loans, GST dues, etc to enable them to resume operations.

Add the costs under the three different heads and the total economic cost of Covid-19 mitigation could well turn out to be 3.5-4% of GDP –.

This is not the only measure of economic cost. Macroeconomists might measure the cost as the difference (loss) between their estimated GDP growth for 2020-21 under normal circumstances (N) and that estimated under Covid-19 (C). Looking at the swathe of estimates, the most extreme revision seems to be a cut from 3.5% (N), down to 0.5% (C). The most optimistic loss estimate is 1.3% in an N of 4.5%. Thus, loss or economic cost ranges from 3% to 2.0% of potential GDP (N). These forecasts take in large spending by Bangladesh Government to fight the virus, bear adjustment costs and stimulate the economy, as well large cuts in interest rates by Bangladesh Bank.



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