After the outbreak of the Covid-19, different countries, based on their capabilities, have announced stimulus packages. Bangladesh has opted for credit expansion policy and Prime Minister Sheikh Hasina announced four new stimulus packages on April 05, 2020. In all, the packages, including an earlier one, amount to Tk 727.50 billion, which is equivalent to 2.5 per cent of the country's gross domestic product (GDP).
Package-1 worth Tk 300 billion is meant for industries and services sectors and they would be given credit as working capital at a subsidised rate of interest from banks. The banks will provide these loans on a bank-client relationship basis. So, the industries that the banks would consider dependable would get the money.
Package-2, amounting to Tk 200 billion, will be implemented for small and medium enterprises (SMEs) for providing working capital at a 4.0 per cent interest rate. Cash flow is one of the perennial problems of SMEs, the situation has aggravated for them. So, how they will create confidence in the banks and financial institutions about them will remain a problem as usual. Package-3, amounting to Tk127.5 billion, is extension of Export Development Fund (EDF); interest rate will be 2.0 per cent which is presently 2.73 per cent. In that respect, the Bangladesh Bank will get 1.0 per cent and the respective banks the remaining 1.0 per cent. Considering the case as emergency the central bank's proportion may be reduced further to 0.50 per cent. Package-4 is a special fund of Tk50 billion, namely pre-shipment refinancing scheme for which interest rate will be 7.0 per cent. Refinancing scheme would work well if some stringent conditions imposed on the banks can be reviewed.
Earlier on March 25, in an address to the nation, the Prime Minister announced a stimulus package of Tk 50 billion for export-oriented industries. This money should be used only for providing salaries and allowances of workers and employees of those industries. The Bangladesh Bank has already announced detailed guidelines for providing the money so that it reaches the workers and employees engaged in the export-oriented industries. It is one of the examples of social safety package for marginal labourers so that they can maintain their livelihoods.
The circular has though mentioned the recipients as export-oriented industrial units, the money is meant for readymade garment sector since for securing the money, certificates should be obtained from concerned associations, namely the Bangladesh Garment Manufacturers and Exporters Association (BGMEA) and the Bangladesh Knit Manufacturers and Exporters Association (BKMEA). The stimulus package is a respite for the export-oriented industrial units. However, the guidelines have not said anything specifically about the fates of the non-RMG export industries.
Bangladesh Frozen Foods Exporters Association reported that a total of 290 export orders of frozen fish worth Tk4.60 billion have been cancelled recently and the sector has unsold fishes worth Tk9.99 billion. Leather and leather goods are another sector that earns foreign currency. Workers of this sector also deserve similar treatment.
In the meantime, small entrepreneurs have expressed their concerns about fund crisis and a halt in production due to market crisis at the moment. These small enterprises are working very closely as indirect exporters or deemed exporters and supporting direct exports.
Deemed exporters are contributing to creating employment and domestic value addition of this sector is much higher than what are financially visible. Comparison of two census reports on manufacturing industries (CMI) ,carried out in 2012 and 2019, shows that small industries increased about 50 per cent while employment increased by 52.65 per cent in this sector. In case of large industries, however, the number declined by 16.70 per cent while employment increased by 35.85 per cent. So, in order to avoid possible job loss under the impact of the Covid-19, which is a key objective of the stimulus packages, proper attention should be given to sectoral demands.
The announcement of the stimulus packages has created a ray of hope among the business community who instantly hailed the move. The Bangladesh Bank is going to announce details of the plan and duration of the loan amount. The businesses are waiting with some apprehensions.
While aggregate amount of non-performing loans (NPLs) is close to Tk 1.0 trillion, as of January 2020. It has already been announced that the process of considering new NPL would remain suspended till June 2020, but practically the volume of NPL will increase further. Under such circumstances, how the banks will implement the packages remains a question. Are the banks ready to provide working capital as loan at a lower rate maintaining their cost of funds?
Even before the Covid-19 pandemic, the NPLs in the small and medium-scale industries were on the rise - between 13 per cent and 14 per cent. Since banks will provide funding based on relationship with clients, they will definitely take full consideration into cash flow of the enterprises before providing loan as working capital. On the other hand, because of the lockdown, demand for consumer goods is decreasing. So, small and micro industries and those who were operating in the informal sector may face a difficult time.
During the announcement of these packages, the Governor of the Bangladesh Bank announced that Cash-Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR) will also be lowered so that an amount Tk60 billion could be added to liquidity of the banks and financial institutions.
The government has announced support to low-income people by providing food during the next six months and selling rice at Tk10 a kilogram. Management of this support programme is gigantic task.
In a recent announcement, the government has announced some additional remuneration and insurance for doctors and nurses and similar other service providers. This is definitely a good initiative.
Announcement of the stimulus packages is the first step, no less if not more, important is its proper implementation in a transparent manner.
Ferdaus Ara Begum is Chief Executive Officer at the Business Initiative Leading Development (BUILD).