The celerity with which the stimulus package was announced and its wide ranging scope surprised many. Even in developed countries like America, it took weeks before finalising the stimulus package, hogged as it was in political wrangling. Compared to global record, the performance of Bangladesh has been nothing short of stellar, even exemplary.
But no sooner had admiration for the quick response to the economic impact of Covid-19 become effusive, than questions came flying, thick and fast. Among these were: (a) how were the sectors from which the recipients of the stimulus would come selected? (b) are the coverages of the stimulus packages comprehensive? (c) are the total amount allocated to each sector adequate? (d) where is the money for the stimulus packages to come from?
As regards the first three questions it is now apparent that both the selection of the sectors and the allocation of fund for each were based on quick guesswork. Thus the element of arbitrariness in the decisions is prominent. This in itself would not be a cause of worry but for the fact that this disconnect from reality runs the risk of defeating, or at least compromising the objectives of the policy behind the stimulus packages. Granted, the unprecedented emergency presented by the pandemic did not allow time for a thorough survey or study of the damages caused, particularly in the immediate aftermath of the pandemic outbreak and the first lockdown on March 25. But between these dates and the announcement of the stimulus packages about a month was available which was long enough for what is known in development administration as `quick and dirty' survey or study that uses secondary data from currently available sources. A task force could be formed for each sector with members from the public administration, banking sector, and the chambers of commerce and industries. The number of task force would be as many as the sectors identified by the chambers. For the task forces constituted with a cross section of the stakeholders it would not have been difficult to prepare reports within a month. The report could identify the sectors affected, the extent of damages caused by Covid-19 in the sector, the requirement of assistance by people and the monetary value of damages, the requirements of funds as stimulus. Prof. Rehman Sobhan, as an advisor in the caretaker government in 1995, got such reports prepared on various sectors by a number of task forces who were given a month's time. Similar task forces could be constituted and mandated to prepare reports on the sectors impacted by Covid-19 on the basis of which the government could make informed decisions. Being the product of guesswork the stimulus package unveiled in April has become open to criticism about the comprehensiveness of the coverage and arbitrary nature of determining the financial need for the sectors. More seriously, it is being questioned whether or not some of the allocations were made because of lobbying by particular interest groups. There is also speculations about some sectors getting away with funds too soon and on very generous terms. All these rumors and speculations could be pre-empted if the assessment of the needs and the selections of the sectors were based on reports by task forces constituted for the purpose. Since the stimulus packages are in the initial stages of implementation there is still time and need for task forces and commissioning them to prepare reports for modifications or fine tuning of the policies made in this regard.
The economic impact of pandemic following the lockdown on March, 24 can be roughly categorised into the following:
(a) Loss of daily income by rickshaw-pullers, hawkers, day labourers and others
(b) Loss of monthly income by people employed in business shops, restaurants, hair cutting saloon and others who are in low income groups and has no saving.
(c) Loss of income by owners of shops and industrial establishments of small, medium to large scale, who may have some saving for subsistence but will need working capital to restart operation.
(d) Stoppage of services and production by shops and industries.
The first category of people affected by the pandemic, who have no saving, required assistance for daily meals starting from day one of the lockdown. They were in need of relief, either in cash or in kind, to make both ends meet. The stimulus package announced in April provided Tk. 2,500 for each covering a total of 5 lakh families. Leaving aside the question of whether 5 Lakh families are more or less than the deserving number and whether Tk. 2,500 for a family having a minimum of 4 members is adequate, the procedure of distribution has been such that as of July 9, only one-third of the intended beneficiaries are reported to have received the cash assistance. The procedure of preparing the list at the district level and scrutinising it at the level of Ministry of Finance has not only been cumbersome but time consuming also. Unless the current system is revised to make it simple, expeditious delivery of the cash assistance will not be possible. Since people in this group live from hand to mouth time is of the essence.
Among other stimulus packages that have been directly financed by the government are the open market sales of consumer goods, particularly edible items, through TCB and sale of rice at Tk. 10 per kg which have been implemented as per the targets fixed. Occasional incidents of pilferage of these items for private profiteering by corrupt individuals have, however, marred the well intentioned food assistance programme of the government. The first of the major financial stimulus that was announced and delivered even before the omnibus stimulus package was announced is the Tk. 50.0 billion interest free loan given to export-oriented industries, particularly garments. However deserving that sector may be, the manner and haste with which it was given invited criticism about discriminatory preference.
For response to the question of where the money for the stimulus packages will be coming from, one has to look at the packages for the sectors other than those mentioned above. It will be found that deducting the financial assistance to poor families (total of tk. 25.0 billion) and the export-oriented industries (total tk. 50.0 billion) a total of about tk. 950.0 billion has been earmarked for disbursal by commercial banks who are required to extend the loans to borrowers at 9 per cent interest rate. The government will subsidize the interest payment by paying 4-5 per cent out of 9 per cent total. This may be the only contribution of the government from the budget in the stimulus package. It is also possible that Bangladesh Bank will provide the fund from it's own resources (Reserve Money). The commercial banks, already burdened with huge amount of non-performing loans, reportedly did not respond enthusiastically at the beginning. The prospect of giving loans to many borrowers who are not known to them as old clients was another discouraging factor. After discussion with the banks Bangladesh Banks has agreed to provide refinance for the loans in some sectors to the extent of 50 per cent of total loan given. Even this was not enough of an incentive for giving loans to the small and medium scale industries and business firms, because of their alleged default record. In view of the fact that this sector represents 11 million units employing 8.3 million and providing livelihood to 35 million people, Bangladesh Bank agreed on June 24 to provide credit guarantee to commercial banks for loans given to the sector.
As in the case of small and medium scale industries and business, commercial banks do not appear to be very keen to give loan to the agricultural sector for which Tk. 50.0 billion have been allocated under the stimulus package. Though as many as 45 banks signed the agreement with Bangladesh Bank to provide farm loan under the stimulus package, only 16 banks gave loans amounting to total of Tk. 1.72 billion as of July 23, according to newspaper reports. The government, keen on ensuring food security, wants to give all kinds of incentives to farmers. The credit programme for agricultural sector under the stimulus package, in addition to other incentives already given (subsidised fertilizer, electricity etc.), has therefore been given much weightage in the strategy for building food security. In view of the lack of interest by commercial banks to engage in agricultural loan because of cost of administration (numerous small borrowers), either the government has to provide incentive to the banks or the monetary policy should address this problem realistically. From experience it should be apparent to Bangladesh Bank that merely setting targets for financing in some sectors does not lead to desired results. This is the first time in living memory that the central bank is required to oversee and ensure the implementation of a huge amount of credit delivery across a broad spectrum. It is a challenge that has not been faced before and requires the best of managerial skill and innovativeness. What is needed now most of all is thinking out of the box. It remains to be seen whether Bangladesh Bank will rise to the occasion. The MPS just announced, does not give any hint if a new mood of urgency has set in and the mindset has changed from regulation to promotion.
According to newspaper reports, as of end July, about one-fourth of the total amount allocated for stimulus packages in various sectors has been delivered by commercial banks. With the initial inertia left behind and the incentives given in the form of re-finance and credit guarantee, the commercial banks should now accelerate the credit programme under the stimulus package. They should not be reckless and throw cautions to the wind. Nor are they expected to behave like the burnt child. But they should realise that like the Bangladesh Bank they are on the cusp of history. The future of the economy depends now on how they deliver on the stimulus packages. The government and Bangladesh Bank, on their part, have to do the needful to make it easy for the commercial banks to comply. According to latest newspaper report, Bangladesh Bank has fixed end of August for disbursement of all the loans under packages except for the small and medium scale business and industries. For the latter the deadline has been shifted to the end of October.
Bangladesh is not yet through with the corona pandemic, not by a long shot. Its impact on health, welfare of common people, education and all the sectors of the economy are still panning out. The stimulus packages designed to address the consequences of the pandemic, therefore, need to be reviewed at regular intervals to see if these are adequate in scope and whether their implementation mechanism is working satisfactorily. Based on these findings the stimulus packages should be revised and re-structured. The corona pandemic being an unprecedented calamity, the strategy and policy decisions to cope with it cannot be written in stone.