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4 years ago

Responding to the Covid-19-induced economic crisis

Need for a bold approach

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The global economic crisis induced by the spread of Covid-19 is getting deeper and deeper. The situation in Bangladesh is no exception. In my earlier post on the subject (FE, March 23, 2020), I had mentioned that the impact of the crisis is not going to be limited to the export-oriented sectors alone although the adverse effect on the ready-made garments (RMG) industry will be seen more prominently. With the country going into a quasi-lockdown mode, the damage being done to the rest of the economy - especially urban micro, small and medium scale enterprises, construction, transport and services of various kinds is only too obvious. The low-income people, especially those dependent on wage labour and petty self-employment are being particularly hit.

How has the government of Bangladesh responded? First, Bangladesh Bank announced a few "policy support" measures to protect exporters and importers. Then, on  March 25, the Prime Minister announced a set of policies that include the following: (i) a package of Tk 50 billion (5,000 crore) for export-oriented industries, with a stipulation that the money be used for providing wages and salaries of workers and employees; (ii) provision of assistance through the "Return-to-Home" programme for the homeless and landless people  under which there would be homes free of cost, six months' food and cash assistance; (iii) continuation of Vulnerable Group Development (VGD), Vulnerable Group Feeding  (VGF) and rice for Tk 10 per kg programmes; and (iv) accommodation in Bhashanchar island to provide shelter and employment for 100,000 people.

Another measure - announced later - is to provide food aid to people who have lost their livelihoods due to the ongoing shutdown. This laudable initiative, though late, is intended to cover beggars, day- labourers, rickshaw-pullers, transport workers, hawkers, tea stall owners, etc.

What do all the above imply - especially if one looks at the overall magnitude of the problem? Let's look at the Tk 50-billion package first. It may be recalled that during the global economic crisis of 2008, fiscal stimulus was provided to export-oriented manufacturing industries with the objective of preventing a major decline in the growth of exports. The assumption perhaps was that if the flow of exports could be maintained, jobs in the industry would be protected. Whether the expectation was met is a question that was never fully evaluated.

This time also, the declared purpose of the package is to provide wages and salaries to the workers and employees of the factories that are in danger of having to close down. Given the timing of the crisis (especially, the advent of Ramadan and Eid), it may appear to be a good idea to provide support to the industries so that they could in turn pay their workers. But it may not be inappropriate to ask why the four-decade-old RMG industry needs assistance from the government every time there is a crisis. Couldn't the industry itself devise some built-in mechanism, e.g., by creating a reserve fund with contributions from members during periods of growth which could be used at times of crisis to tide over the difficult period?

It's true that the RMG industry employs about four million workers and is also the major source of foreign exchange for the country. But consider the following numbers. Outside agriculture and the RMG industry, there are some 5 (five) million more in various manufacturing industries and another 13 million workers in other sectors of whom 85 are in the informal sector. Many of the five million non-RMG industrial workers are also in micro and small-sized enterprises. With all economic activities shut down for nearly two weeks (as of now), workers engaged in them and the self-employed who run many of them must be facing hard time to make ends meet. (And who knows when economic activities will start again?)  Shouldn't there be some measure to extend support to them?

Although agriculture is not mentioned above, there may be indirect fallout - with household members returning from urban areas. For farmers with low incomes and for workers dependent on wage labour, sharing of income may lead to decline in average consumption. An increase in the availability of potential job-seekers may cause pressure on wages.

In the above context, one can look at the other measures mentioned, e.g., the return home programme and VGD, VGF, etc. The former is basically an ongoing programme targeted at the homeless and destitute - not an economic activity-based measure. Could that be expected to accommodate the millions that had to leave the urban areas during the period of shutdown? Also, there are many who couldn't leave and are facing joblessness and precarious situation in the cities.

Likewise, VGF and VGD represent targeted programmes - identified with cards given to the target households. Can those programmes be expanded rapidly with new beneficiaries included for support? And finally, Bhashanchar, where 100,000 people can be accommodated. Are we expecting that those who are facing a jobless and income-less situation in urban or semi-urban areas will apply for relocating to Bhashanchar?

In the absence of real automatic stabilisers like unemployment benefit, measures are needed to provide income support to workers - especially those who are dependent on day labour - the self-employed in petty businesses and owners of micro and small enterprises. Given the plight being faced by the low-income people, the second announcement by the Prime Minister does address a real need. However, rather than announcing such measures in instalments, it would be better to think through the impact on various segments of the economy and adopt a comprehensive package of responses. The following are possible components of such a package (in addition to the one already announced for export-oriented industries):

* Distribution of free (or nominally priced) food for the poor. This could be done in selected locations, e.g., urban slums, upazillas with high incidence of poverty, etc.

* Expansion of the coverage of VGD and VGF programmes to cover the low-income groups returning to rural areas.

* Cash grant - initially for a three-month period, with possibility of extension - to petty enterprises based on self-employment. This could be done by using the administrative/registration records of such enterprises.

* Credit - preferably at low rates of interest for the period of the crisis - to micro and small enterprises to enable them to tide over the period.

* Facility of rescheduling loans to small and medium-sized enterprises (SMEs), provision of new credit and moratorium on repayment for a period (say, three months).

The above list should be taken only as indicative; it can be refined by using expert opinion. A comprehensive package of measures that could simultaneously provide stimulus to economic activities and protection to those who require it needs to be formulated and put into operation on an urgent basis.

What about the cost of the package of measures mentioned above? This has to be worked out by using the planned coverage of the different elements. But some indicative figures are presented below. For ready reference, it may be recalled that during the global economic crisis of 2008-09, the government announced stimulus packages totalling Tk 84.20 billion or 8,420 crores (in two instalments of Tk 34.20 billion or 3,420 crores and Tk 50 bilion or  5,000 crores) which was 1.35 per cent of the GDP (gross domestic product) of that year. According to many analysts, the current global economic crisis is going to be deeper and more severe than the crisis of 2008-09. Many of the developed countries have already come up with much bigger stimulus packages than adopted during the earlier crisis. If Bangladesh were to adopt a package worth 1.5 per cent of the GDP of 2018-19, the amount would be Tk 370 billion (37,000 crores). Even one per cent of GDP would mean Tk 250 billion or 25,000 crores. The government should be bold in its approach and prepare a response package of at least Tk 250 billion or 25,000 crores, with a provision for further increase, if necessary.

The fiscal cost of a stimulus package of the kind mentioned above can be met by a reallocation of the present budget and by tolerating a temporary increase in budget deficit. The rest of the world is doing it that way. 

Rizwanul Islam, an economist, is former Special Adviser, Employment Sector, International Labour Office, Geneva

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