Activities on social and cultural fronts remain suspended due to lockdowns throughout the world but economic activities that support people's livelihoodscannot be deferred. Still general holidaystogether withthe lockdown have stopped most economic activitiesin Bangladesh. The prime minister has already announced stimulus packages worth about Tk 1.0 trillion in order to offset negative effects of the pandemic.
Now, the question is: How long will the economy sustain, especially when there are indications that the impacts of Covid-19 may prolong? Thus, we may have to prepare ourselves to live with a depressed economyfor at least a year.
As the whole world is in trouble due to the crisis, hardly any country, excepting a few, is in a position to come up with assistance for others like Bangladesh. So, in the coming year, the country's economy would need to be managed with more prudence and pragmatic policy measures.
However, the country has the glimpses of hope that a significant contribution to the economy comes from the agriculture sector, which is not that affected in terms of production, compared to other sectors. But a major weakness of the Bangladesh economy is a high level of inequality despite remarkably high growth recorded in the recent decades.The Covid-19 crisis may push up to 40 per cent people below the poverty line, according to apprehensions expressed by researchers.
A potentially weaker area is balance of payments since Bangladesh normally imports more than it exports. The trade deficit is generally cushioned by remittance which too sees a decline and uncertainty in the coming days. In such circumstances, special attention needs to be given to management of commodity supply, foreign currency reserves, fiscal policy and the money market.
First, essential commodities such as foods need to be made available in the country. Despite self-sufficiency in grain production, the country still needs to import some items like pulses, cooking oil, onion and other spices. Supply of farm inputs and soft loan programmes are important for production while marketing chain needs to be kept functional so that the growers can get reasonably fair prices of their produces. Bangladesh can take advantage of price fall of petroleum products for supporting agriculture in a variety of ways.
Secondly, Bangladesh earns 52 per cent and 21 per cent of its foreign exchange from exports and remittance respectively, two main sources that have already slowed down. Earning from other sources such as foreign direct investment has also depleted. Almost 80 per cent (76 per cent to be specific) of the country's foreign currency is spent for importing food items, consumer goods, cotton and cotton goods, petroleum, fertiliser, capital machinery, industrial equipment and materials for implementing development projects. It may now be advised that imports for development projects may be deferred until normalcy is restored.
However, the country may still face crisis in maintaining balance of payments. So, the policymakers need to devise innovative strategies and offer incentives to ensure flow earning from exports and remittances.
Thirdly, it is difficult to predict how much revenue will be collected next year, given uncertainty prevailing at the moment. Revenue earning and expenditures are already affected by the Covid-19 fallouts. Revenue expenditures encompass salary and allowances for public servants, pension and safety net money, subsidies, debt servicing, various procurements, incentive and investments.
While no such expenditure is avoidable, health expenditures and subsidy and incentives need to be raised to overcome the situation. Only development expenditures can be slashed or deferred but such policy may lead to unemployment problem. In view of possibility of fund shortage in the coming year, it is important that authorities allocate and spend money very carefully.
Finally, proper management of money market is extremely important. For ensuring smooth farm production, easy borrowing that depends on the money market, should be made available to farmers. Proper execution of stimulus packages as announced by the government to make up for economic losses caused by the coronavirus-induced lockdown at home and abroad, also depends on smart operation of the money market.
The issue of fiscal deficit can be addressed also through prudent money market operations. It is essential to ensure that wealth is not concentrated within a small group. Proper management of the overall economy during the Covid-19 crisis depends on sufficient supply of essential commodities and sufficient supply of money.
Md. Shahadat Hossain is an FCA
and ex-vice president of ICAB.
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