The Financial Express

Fiscal stimulus amid Covid-19 pandemic

| Updated: April 06, 2020 21:57:43

-BSS Photo -BSS Photo

Global supply chain is facing disruptions due to coronavirus pandemic. As a part of supply chain, Bangladesh's export sectors are in deadly trouble. The readymade garments (RMG) sector is the leading one, which is mostly affected.

The Prime Minister on  March 25, 2020 announced a fiscal stimulus worth Tk 50 billion for export industries to fight the impact of Covid-19 pandemic on the national economy. The fund is to be used for payment of salaries and wages of workers and employees. Trade bodies including BGMEA (Bangladesh Garment Manufacturers and Exporters Association) appreciated the measure. Accordingly, the BGMEA has recommended all its member factories to keep their units closed until April 04, 2020 amid the coronavirus outbreak. The trade body is reported to have reached the decision a day after the government announced Tk 50 billion fund to be used only for paying wages and allowances to workers and other employees of the export industry. Also the BKMEA (Bangladesh Knitwear Manufacturers and Exporters Association) reportedly took similar moves.

In an interview, the BGMEA president said they are selling goods to global brands at low (affordable) prices. It's true that global brands are sourcing goods that are cheap, from Bangladesh and selling them at dear prices elsewhere. Export industries are termed sweat shops which generate huge employment at low salaries since their goods, if not strategic goods that enjoy monopoly, are sold abroad at lower prices. Some think-tanks regard such selling as under-pricing.

To facilitate employment, the government is extending subsidy/cash support against exports of goods each year for which substantial amount is allocated. The RMG is one of the leading export sectors which enjoys subsidy in different names such as regular incentive in lieu of customs bond/duty drawback facilities, additional facilities for SME (small and medium-sized enterprise) industries, new market exploitation assistance, and incentives for export to euro zone. During the current fiscal year, additional incentive of 1.0 percent has been announced against export of RMG including textile goods.

Neighbouring countries - our trading partners - also extend such facilities in different names, no matter whatever international organisations such as the World Trade Organisation (WTO) prescribe. This works as financial gears to sustain in the market. The export industries create huge employment which boosts local trading activities. In the context of Bangladesh economy, there are three major players -agriculture, wage earning from abroad and the export sector. As one of major players, the export sector needs continued supports and the government is doing the same from its revenue income.

Disruptions in supply chain due to coronavirus pandemic affect our RMG exports to a larger extent. Export orders are being cancelled and finished products struck up. Export payments of earlier shipments are not coming in. Exporters are in problems to clear payments like utilities, wages and salaries. They are facing problems in settlement of import payments including loan from export development fund (EDF). To cope with the situation, the central bank has announced policy supports. This includes extension of time for different cases - export payment realisation time by two months, bill of entry submission time by two months, back-to-back and usance import settlement time by six months, and EDF loan extendable to one year. The policy supports extended by the central bank have been highly appreciated by different trade bodies. Surely policy supports help exporters. Helicopter money needs to be poured down to export industries. Otherwise, it is feared, numerous jobs may be lost.

Light in the tunnel is found in the fiscal supports, especially in the announcement by the Prime Minister of a stimulus package of Tk 50 billion. This will help a lot for sustainability of relevant industries until the situation becomes normal. Fund management during the crisis is a vital point for continuing business operations,regardless of whether the factories have or don't have work orders. As such, associations need to devise procedures to disburse the fund to beneficiaries. A decision is also needed regarding eligibility to have the facilities, considering involvement of different stakeholders in export trade.

Fund disbursements to beneficiaries may not be easy since the government will not disburse money directly to the workers. In this case, the government may, in consultation with stakeholders, issue directives for banks through the central bank. The directives may work as a government guarantee based on which designated banks will extend working capital loans to concerned beneficiaries. While extending loans, banks will take into account recommendations from trade bodies representing the sectors. Banks, upon receipt of application, shall conduct an audit by their nominated audit firms. They will then disburse the funds to the beneficiaries. Afterwards, the banks will seek reimbursement from the government. Accordingly, they will apply to the central bank for reimbursement. The central bank will settle the claims against authorisation from the government, by debit to concerned accounts.

Alternately, decision can be taken to the effect that banks will disburse six-month or one-year working capital loans to exporting entities for salaries of workers and other employees. The government will disburse interest payments at a predefined rate against the loans to the designated banks. This procedure may continue for a longer time, depending on size of the fund allocated for the programme.

As the government has taken the decision in principle to support export industries by way of fiscal stimulus package, immediate operational procedures need to be devised. The beneficiaries will require fund very soon to run the industries. Hence, it is high time to devise operational modalities for making the stimulus package workable. The concerned authorities should think of it for its operationalisation.

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