The economic crisis induced by COVID-19 is taking a massive toll on the economic and social spheres in Bangladesh. Forecasts by different international organisations suggest that the crisis is likely to drastically reduce the country’s Gross Domestic Product (GDP) growth rate. Since the onset of the crisis in March 2020, all major economic activities in the country have been badly hit. With the global economy going into a deep recession, exports from Bangladesh have fallen down in an unprecedented manner. The remittances, despite some temporary surges, are also feared to be badly hit in the coming days. On the social front, poverty and employment situations in the country have become grave. The crisis is feared to have a long-lasting dent on the development trajectory of the country.
To combat the economic and social crises and to ensure recovery of the economy, the government has announced 19 stimulus packages accounting for around 3.7% of the country’s GDP. The major stimulus measures, taken so far, are as follows: (i) BDT 50 billion for export-oriented industries to pay the wage bill for three months. This comes as 2-year loans to factory owners at 2% interest. (ii) BDT 300 billion for banks to provide working capital loan facilities to the affected industries. While, these loans are at an interest rate of 9%, half of it to be borne by the borrower and half by the government as a subsidy. (iii) BDT 200 billion for banks to provide working capital loan facilities to Small (cottage industries) and medium enterprises. While, these loans are at an interest rate of 9%, 4% to be borne by the borrower and 5% by the government as a subsidy. (iv) A refinance scheme of BDT 50 billion for the agriculture sector. The Bangladesh Bank will charge interest 1% from banks and banks will charge 4% from customers. The loan will be repayable within 18 months including 6 months grace period. (v) Under Back-to-Back LC arrangement, the Export Development Fund of the Bangladesh Bank is increased from USD 3.5 billion to USD 5 billion to facilitate further import of raw materials. The interest rate is fixed at 2%. (vi) BDT 50 billion pre-shipment credit refinance scheme by the Bangladesh Bank for local products and the export sector, under which the Bangladesh Bank will charge interest 3% from banks and banks will charge 6% from customers. In addition, there have been some policy measures by the Bangladesh bank to increase cash flow in the economy. Also, the budget 2020-21 provides some support measures for returnee migrants. There have been some social safety net programmes to address the growing poverty and vulnerability of the population.
In the context of the developing countries from Asia, Bangladesh’s stimulus package, in proportion to GDP, is much higher than those of South Asian and Southeast Asian countries. It should, however, be noted that large stimulus packages are likely to be ineffective if they are associated with poor execution, unplanned allocation of funds, and weak accountability. All these three issues are extremely important for the effective implementation of the stimulus packages in Bangladesh.
The financing of large stimulus packages in Bangladesh may appear to be a big challenge. The major part of the stimulus package in Bangladesh is credit-based where the government is providing interest rate subsidy. A rough calculation suggests that the amount of this interest rate subsidy will be in the range of 0.2-0.4% of the GDP. Therefore, the burden of the government in financing the stimulus package is expected to be much lower than the total face value (3.7% of GDP) of the stimulus package.
The operationalisation of the stimulus package, however, seems to remain as a big problem. The operationalisation procedure involves identification and selection of the affected firms, disbursing credit through the banking channel, and monitoring of the overall process. All these steps, no doubt, suffer from serious institutional challenges in Bangladesh.
Identification and selection of the affected firms have been problematic in Bangladesh. While firms are self-selecting themselves for seeking the benefit of the stimulus package, there has been no formal or systematic process through which any rapid assessment can be made on the needs of the affected firms. In the absence of any kind of assessment process, many eligible firms may be denied the support. In contrast, powerful firms, with strong lobbying and useful political links, despite that many of them may not need of the stimulus package, may dominate the scenario. In this case, the whole objective of the stimulus package will be lost.
The next challenge is the disbursement of the credit to the selected firms through the banking channel in the form of subsidised loans. The banking sector is already under tremendous pressure due to the high non-performing loans and poor governance. The formal procedural issues in the banking sector may also discourage many eligible firms to avail the benefit. This is true for the firms from the non-readymade garment sectors and in particular for the micro, small and medium enterprises (MSMEs). MSMEs are facing numerous challenges in accessing the stimulus package. There is a need for a dedicated window of facilities for the MSMEs sector.
Experiences so far indicate that while many RMG firms have been successful to avail the benefit of the stimulus packages many non-RMG firms have not been. That is why disbursing the BDT 300 billion stimulus package to affected industries, apart from the RMG, and BDT 200 billion for MSMEs has been very slow. While the RMG sector has been efficient in exhausting the BDT 50 billion stimulus package allocated for them, the RMG lobby has also been successful in convincing the policymakers to allocate more funds for them from the BDT 300 billion stimulus package (which is meant for the non-export sectors). This lobbying pressure is likely to escalate in the future as progress in the disbursement of funds for other affected industries and MSMEs continues to be limited. This scenario reflects the RMG-bias in the policymaking process. Therefore, there is a need for a re-orientation of the policies to reflect the challenges faced by many other sectors in the economy.
Selim Raihan 