Embarking Towards Revival

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In an effort to revive the economy, the Bangladesh government has announced stimulus packages
worth Tk 72,750 crores to be directed at the ailing sectors

As the nationwide lockdown prolongs, the impacts of the pandemic on our economy are becoming more vivid. The economy has already lost roughly TK 100,2300 crore, a study suggests. The loss will double if the lockdown prolongs throughout May. It amounts to TK 217,800 crore which is 9% of our GDP last year. According to the World Bank, our GDP growth will fall to a range between 1.2 and 2.29 per cent in 2021 and between 2.8 and 3.9 per cent in 2022. The fallout from the pandemic will be multidimensional and will alter the very fabric of our socio-economic dynamics.

Exports will Slump
Bangladesh’s aggregate export was already experiencing a slow growth rate even before the pandemic was widespread. The RMG sector was experiencing a downturn due to lower demands in Europe and Asia. The COVID 19 crisis may cause unimaginable damage to the sector. Factories across Bangladesh have started reporting declining orders. Current trends indicate the demands in major markets will continue to shrink which will jeopardise the future of Bangladeshi RMG factories and the millions employed in them.

Remittance will Decline
In the first eight months of the current financial year, remittances sent home have grown by 10 per cent compared to last year. In the post-COVID 19 worlds, inward remittance is expected to experience a major slump. Due to the falling oil price, economies in the middle east are expected to go into a deep recession. It will have serious consequences on our expatriate income as an overwhelming number of Bangladeshi workers are employed in this region. Bangladeshi workers who are mostly employed in construction and logistics may lose employment and stop sending money. The situation may prompt many of them to return home in search of employment, exacerbating the problem by increasing the demand for services in an already strapped economy.

Recession Ahead
Export and remittance are the primary drivers of the Bangladesh economy. The declining export earnings will put the livelihoods of millions of factory workers at stake. Concurrently, lower remittance would lead to reduced consumption by expatriate families which will slow the local economy. Inward remittance is the second largest financial inflow to our country. A slower growth rate will lead numerous businesses to close down which will increase unemployment. The vicious loop of lower consumption and unemployment will cause the economy to plunge into a deep recession.
In an effort to revive the economy, the Bangladesh government has announced stimulus packages to be directed at the ailing sectors. The overall size of the stimulus packages now stands at Tk 72,750 crores, nearly 2.52 per cent of our GDP. Prime Minister Sheikh Hasina stated that the country’s economy would rebound if the stimulus packages could be implemented quickly. Sector Wise, they can be categorised into five distinct sub-categories.

Service and Industrial Sector
The Bangladesh government has allocated an amount of TK 30,000 crore to help businesses affected by the pandemic in the service and industry sector. The money will be provided as working capital loans to the affected entities at 9 per cent interest. The government will be liable to pay half (4.5 per cent) of the interest payments as subsidy and the rest (4.5 per cent) will be paid by the beneficiary. The commercial banks would provide the amount as loans from their funds to concerned industries and enterprises based on bank-client relations.

Current trends indicate the demands in major markets will continue to shrink which will jeopardise the future of Bangladeshi RMG factories and the millions employed in them.

SME and Cottage Industries
The small and medium enterprises (SME) including cottage industries will be provided working capital loans through a package of Tk 20,000 crore at 9 per cent interest rate. Interestingly, the government will subsidise 5 per cent of the interest rate and rest will be borne by the entity enjoying the loan. A mechanism would be devised to reach the amount to the SMEs as low-interest loans through banks, which identically will disburse amounts to the SMEs based on bank-client relations, while the government, in this case, would bear the greater share of the interest amount.

Enhancing the EDF
The third package is aimed at enhancing Bangladesh Bank’s Export Development Fund or EDF size from US$3.5 billion to $ 5billion to facilitate raw materials imports under back-to-back LC. The prime minister said this last package would result in adding an amount of additional Tk12,750 crore, equivalent to $1.5 billion, to the EDF while its interest rate would simultaneously be brought down to 2%.

New Credit Facility
The central bank will introduce a new credit facility of Tk5,000 crore as “Pre-shipment Credit Refinance Scheme” and its interest would be 7%.

Allowance for Wages
This total package includes previously announced Tk 5,000 crores for paying salaries and allowances of export-oriented industry workers and employees.

The stimulus package announced by the government is substantial but its success in weathering the storm depends on proper management of the fund. The funds should be disbursed in a manner that would benefit the aggregate economy. There needs to be a robust action plan with substantial supervision. Greater emphasis should be given in identifying the entities that require financial assistance. Finally, all efforts must be made to ensure that the fund is disbursed based on need without any political consideration or any other unwanted influence.



Dr Salehuddin Ahmed
BRAC Business School, BRAC University
Former Governor of the Bangladesh Bank

The government has announced stimulus packages to revive the economy. The overall size of the stimulus packages now stands at Tk 72,750 crores, nearly 2.52 per cent of our GDP. The packages are intended to act as a catalyst to resuscitate sustainable growth.

However, the implementation of stimulus packages would be very challenging since most of them are loan schemes and to be distributed by commercial banks under the supervision of the Bangladesh Bank. The supervision capacity of the central bank over commercial banks became weak in recent years.

Only dedication and higher capacity of the banks could ensure the much-needed higher credit growth in the private sector. Bangladesh Bank is yet to use the statutory liquidity ratio to increase the supply of money and offer anything to the expatriate Bangladeshis returning home from foreign lands.

I urge the government to increase diplomatic efforts so that the countries in the Middle East did not send the Bangladeshi workers, known as ‘unsung heroes’ back home.
I believe the cash assistance of Tk 760 crore announced by the government for the jobless informal sector workers insufficient and the process of identifying the beneficiaries and distribution process would be more difficult a task than the cash transfer itself.

Time has come for the engagement of all political parties and non- government organisations to prepare a nongame-partisan list of beneficiaries. Otherwise, chances were high that corruption would infect the cash distribution scheme like what happened to the food distribution programme.

Since April 14, the government has suspended the open market sale of rice, only a week after the operation began targeting the poor, citing its inability to control crowds and the theft of rice.
Besides, the government has been struggling to maintain the health system which is a cause for concern.

Hopefully, this will be a watershed moment and as a nation, we have realised the importance of decentralising health services in rural areas and investing resources in the system.
There is no scope for the government to neglect the health sector any more amid criticism that Tk 25,732 crore accounted for 4.92 per cent of the total budget of Tk 5,23,190 crore or 0.89 per cent of the gross domestic product, one of the lowest in South Asia.

I am hoping that the new budget should be utilized to begin the process of meeting the World Health Organization standard of 15 per cent of total budget or five per cent of the GDP for the health sector.



Dr Rashed Al Mahmud Titumir
Professor, Department of Development Studies, Dhaka University
Chairperson, Unnayan Onneshan

The authorities need to embark on a three-year recovery plan, with the next budget being announced under this medium-term macroeconomic framework. The government announced stimulus packages are loan-based and will subsidise at most around TK 3,000 crore if the entirety of the fund is used. The announced package hardly mentions fiscal policy measures as regards social security, real sectors and social development.

Money should go to people who need it most — the daily wagers such as house help, rickshaw pullers, roadside vendors, transport workers. They are bearing the brunt having no savings due to their reliance on the cash flow that has now been cut off due to the shutdown. The government should provide a universal basic income grant of BDT 15000 per month for six months through banking channels to low-income earning citizens, not limited to people who are living below the poverty line, as they are being hit hard and facing an uphill battle to survive.

The packages announced require further working out. During the initial phase of the crisis, the credit flow will be slow to trickle down, given the existence of pre-crisis liquidity shortages. The banks have to be activated, with aggressive measures and continuous surveillance to increase credit to all stakeholders, transcending beyond the current bias in favour of chosen organised sectors, limited in numbers vis-à-vis vast informal agriculture, manufacturing and services. The banks will not be willing to serve the small and medium enterprises (SMEs) due to higher administrative cost vis-à-vis large enterprises, with the same rate of interest, warranting an additional service charge to the banks from the exchequer to incentivise them to reach out to the SMEs. Mere injection of loans may further pressure on the balance sheets as debt is a liability, meriting direct relief from the government for the needy firms. The central bank has to create more specialised windows. For example, microfinance borrowers will default.

To keep them afloat, a further inflow of liquidity and debt relief is desirable. The central bank, in consultation with the microfinance regulatory authorities, has to institute a window for debt relief and availability of liquidity to banks at a lower rate to lend microfinance institutions. For agricultural loans, a facility of debt relief and injection is a cry of the day.

The fiscal measures such as grants, tax breaks, holidays and exemptions need to follow a functional approach like a patient treated in the ICU according to the need. A detailed sector-by-sector potential has to be worked out. The incentives and subsidies to firms must be on outcome-based, focussing criteria such as employment creation, diversification, value addition, greening and import substitution, with emphasis on SMEs.

The prime focus has to be on employment, particularly given erosion of income and unemployment, aggravated by pre-crisis high unemployment and underemployment due to jobless growth and shortages in skills. For this moment, arbitrary government deficit and debt ratios are the inappropriate focus.

As regards agriculture, the emphasis is to be on the maintenance of the production cycle. The government, therefore, needs to make a special scheme to buy agricultural products directly from farmers as the country is proceeding towards harvest, which will signal confidence. The government may encourage farming of foods such as cereals, oilseeds, poultry, cattle, cows and fisheries to ensure food security by providing subsidies, besides debt relief and injection of new loans.

The COVID-19 heralds a sea change in the role of the state. The state cannot be a bye-stander, not a government of yesteryears of enabling, facilitating and regulating, allowing getting ‘price right, leaving everything to the market.’ The capability to transform a crisis into potential eventually rests in the hands of the state and politics, requiring a strong social contract with, and accountability to, people.




Syed Abdul Hamid, PhD
Professor and Director
Institute of Health Economics, University of Dhaka

Bangladesh has been losing at least about BDT 33 billion per day after starting the countrywide lockdown since 26 March 2020 for preventing and controlling corona pandemic. Service including wholesale and retail trading and transport is the worst affected sector. The daily loss of this sector is about BDT 20 billion. The industrial sector is also undergoing a huge loss, which is about 11 billion per day. Agriculture still is the least affected sector, as corona pandemic did not cause any direct loss to agricultural production. However, the price of the agricultural products has a severe fall and hence incurring at least BDT 2 billion loss every day. Our economy is not capable of bearing this huge loss if lockdown further extends.

The economic loss could even be tolerated if the lockdown cloud prevents and controls the pandemic. Actually, given the socioeconomic condition, it is not possible to make the countrywide lockdown successful in Bangladesh. Thus, the country is not gaining its expected benefits in exchange for this economic loss. Not directly following the western policy we need to think endogenously. Unlike western countries the problem here in Bangladesh is multifaceted. Mitigating the hunger of the millions of informal sector workers is a major concern in Bangladesh.

The government is also using huge resources to motivate people to maintain social distancing. The country should now focus on expanding the test facilities and identify the hotspots as quickly as possible. Once the hotspots are selected then we should opt for small area centric hotspot based effective lockdown, instead of ongoing countrywide loose lockdown. The country should also force people to use masks compulsorily while going outside and also in the workplaces. The size of the stimulus package declared by the government is quite large. As it is mainly bank loan based this is hard to meet the application criteria for bank loan for many small and medium scale industries, and farmers. Implementing a stimulus package through a bank loan is not the best solution for overcoming the crisis.



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