Higher post-Covid investments to drive demand

As Bangladesh is battling the Covid-19 pandemic as elsewhere in the world, after meeting the immediate needs, the next priority could be measures for economic recovery and revival. With lost income by individuals and businesses alike, the consumption and investments may recover slowly and the government could step up with increased investment to boost the aggregate demand, says Mr Shixin Chen, Vice President (Operations 1) of the Asian Development Bank (ADB), in an interview with The Financial Express (FE) through email. The interview has been taken by the FE's Special Correspondent FHM Humayan Kabir. The full text of the interview is here.

FE: ADB approved $500 million in budgetary support to Bangladesh on May 7. What is the purpose of this assistance?

Shixin Chen: ADB's Board of Directors on May 7 approved $500 million in assistance for Bangladesh under the "Covid-19 Active Response and Expenditure Support (CARES) Program."

The Program, prepared after intensive discussions with the Government of Bangladesh, will support the government's efforts to manage the social and economic impact of the novel coronavirus (Covid-19) pandemic.
The Program is part of ADB's expanded $20 billion assistance package to support developing member countries' emergency Covid-19 response.

FE: What specific activities will be carried out with this assistance?

Shixin Chen: ADB's CARES Program will help the Government of Bangladesh implement its social protection and economic stimulus packages. The ADB assistance will focus on alleviating fiscal strain, expanding social safety net for vulnerable groups, providing increased salary support to export-oriented manufacturing industry workers and low interest loans to industrial sectors and farmers.
Specifically, the program will support the government's pro-poor, gender and socially-inclusive approach by expanding and strengthening social safety nets addressing the needs of poor and vulnerable groups. The program will also support government efforts to protect employment in the key industries, such as the labour-intensive readymade garments sector employing mostly low-skilled female workers.
In addition to the CARES Program, ADB's Covid-19 response support to Bangladesh includes a $1.0 million technical assistance grant to help the government improve its institutional capacity and program implementation, including introducing new tools for service delivery, developing a gender-responsive plan to improve the social safety net, and improving the monitoring and evaluation capacity and data collection.

FE: What are the expected benefits of the assistance?

Shixin Chen: The Program is expected to benefit over 15 million poor and vulnerable people. Around 1.5 million workers, mostly women, in export-oriented industries will receive extended salary support while many government doctors, nurses, and medical workers fighting Covid-19 will receive special honorarium. Government's social protection programs for people of old-age and women in distress will be expanded to cover all eligible senior citizens and women in 100 poorest upazilas in the country. At least 2 million poor families across the country will get BDT 2,000 (around $23) each while one million poor and vulnerable families will receive food support of 20 kilograms per month during the pandemic emergency period. Affected industries and sectors, and micro, small, and medium-sized enterprises will also get loans with subsidized interest rate, so they continue to operate and keep their workers employed.

FE: What are the main challenges of Bangladesh economy following the Covid-19 pandemic?

Shixin Chen: As the Covid-19 pandemic is still unfolding, it is difficult to predict the impact of the pandemic and the extent of the impending losses now. However, the outbreak is seriously disrupting Bangladesh's export and manufacturing supply chains; plaguing micro, small, and medium-sized enterprises; and affecting the livelihood of formal and informal workers.
Bangladesh has taken prompt actions to control the spread of the disease and manage its impact on health, welfare, and the economy. The Government is fully cognizant of the challenges and has rightly announced incentives and stimulus packages worth Tk 956.19 billion or $11.2 billion, which is equivalent to 3.3 per cent of Bangladesh's gross domestic product for widening social safety net coverage, providing salary support to workers at export-oriented industries, extending low-interest loans to affected industries and farmers, and increasing monetary supply.

FE: Would ADB consider more financial assistance to Bangladesh over the pandemic response?

Shixin Chen: The CARES program is a part of ADB's overall engagements with Bangladesh to support the Covid-19 response and recovery process. ADB is committed to support Bangladesh's further needs to deal with and recover from Covid-19 through all possible financial, technical and knowledge solutions.
We are closely coordinating with the government to discuss its future needs in areas that can help expedite the recovery process, including support for micro, small, and medium-sized enterprises (MSMEs); infrastructure development as well as healthcare.
ADB is also intensively engaging with the private sector to explore productive financing needs, including trade finance, supply chain management, financial sector, agribusiness and infrastructure.

FE: Is ADB providing more budgetary support to Bangladesh as the Government has already requested for?

Shixin Chen: ADB is a longstanding trusted development partner of Bangladesh. We have provided over $25 billion in assistance since Bangladesh became an ADB member in 1973. ADB is engaged in dialogues with the Government on its plans for economic recovery as the country manages the impacts of the Covid-19 pandemic. We remain committed to helping Bangladesh in this difficult time when the country needs resources for its social protection and economic recovery programs. We will do the best to respond to the needs of the Government through all possible financial, technical and knowledge solutions.

FE: What fiscal response should Bangladesh adopt to manage Covid-19 crisis?

Shixin Chen: The crisis is still evolving, and it is too early to specify all the fiscal responses that may be needed. The responses can be decided dynamically and sequentially according to the needs of the situation. The government has so far rightly focused on measures to contain further spread of the disease, testing for identifying the infected persons, and treatment of the patients. Simultaneously, the Government has announced comprehensive incentive and stimulus packages of Tk 956.19 billion or $11.2 billion, which is equivalent to 3.3 per cent of Bangladesh's gross domestic product. These are for widening social safety net coverage, salary support to workers at export-oriented industries, low-interest loans to affected industries and farmers, and increasing monetary supply.
After meeting the immediate needs, the next priority could focus on measures for economic recovery and revival. With lost income by individuals and businesses alike, the consumption and investments may recover slowly. The government could step up with increased investment to boost aggregate demands. Employment generation, increased food production, trade and commerce promotion, boosting MSMEs, and supporting the service sector including aviation and hospitality, infrastructure investments, are critical areas that can be focused on through fiscal measures to help expedite economic recovery.

FE: What is your forecast about Bangladesh's economic recovery in the short and medium terms?

Shixin Chen: It is likely that the Covid-19 pandemic may have a second or third wave. However, the possibility and severity of the second or third wave can be controlled by proactive management actions including social distancing, focused lockdowns, and testing, isolating, treating and monitoring patients. Economic activities can continue alongside these measures. These would mean that quick economic recovery depends on the length of the shutdown, and quality of the pandemic management measures. The performance of the global economy is another factor. The expected sluggish recovery in the rest of the world will be another headwind for Bangladesh's economy.
I feel Bangladesh's economy has the strength to recover quickly when the economic activities restart gradually. According to different forecasts, GDP growth in the fiscal year 2019-2020 is likely to plunge, but it is expected to rebound in 2020-21 if the pandemic is managed well.

FE: How the ADB's $20 billion financial packages for the Covid-19 response will be distributed among its member countries? Do you have any country-quota? And how much can Bangladesh receive from it?

Shixin Chen: ADB's budget support, which is provided under its Covid-19 Active Response and Expenditure Support (CARES) Program, is part of a $20 billion package approved by ADB on April to help its developing member countries (DMC) maintain essential spending to boost the economy, provide adequate social protection, and finance the anticipated deficit from the pandemic response as well as the expected decline in revenue collection.
ADB is committed to supporting all of its developing members as they fight and recover from the Covid-19 pandemic.