Bangladesh’s stimulus package second highest among peer countries

15 Jun 2020 11:35 AM
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Bangladesh's stimulus packages targeted at mitigating the effect of the coronavirus pandemic are among the highest among a selective band of countries in Asia, according to a good government paper.

The federal government has announced 19 stimulus packages amounting to Tk 103,117 crore because it reported the country's maiden cases of coronavirus infections on March 8.

The combined support accounted for 3.7 % of the country's gross household product (GDP), in line with the mid-term macroeconomic policy statement of the finance ministry.

Among the select group of countries, Bangladesh only lags behind Indonesia regarding stimulus packages in comparison to GDP.

The Southeast Asian country has announced stimulus packages worth 4 % of GDP.

Vietnam has declared stimulus plans amounting to 3.4 % of GDP, Pakistan 3.1 per cent, Malaysia 2.8 %, the Maldives 2.8 %, China 2.5 per cent, Afghanistan 2 per cent, India 1.1 per cent and Sri Lanka 0.2 per cent.

Bangladesh's stimulus packages have been provided found in the form of low-expense loans to afflicted micro, small, channel and large industries and services, food security, social protection, particular allowances and incentives while the pandemic-induced shutdown paralysed the market, destroyed millions of jobs and created new poor.  

"The fiscal and fiscal package is the largest in the Southern Asia region," said Finance Minister AHM Mustafa Kamal in his finances speech on Thursday.

Amidst this unprecedented global crisis, the primary minister has announced several stimulus deals to stand by the poor and helpless people, keep carefully the momentum in monetary activities and bring back the trend in progress and advancement, he said. 

"These are comparable to the bold guidelines she took to save lots of the country through the Asian Financial Crisis found in 1997 and the Global Recession in 2009 2009."

Of the stimulus packages, Tk 5,000 crore went to the export industry, Tk 20,000crore to the micro, small and moderate enterprises, Tk 30,000 crore to large industries and services, and Tk 5,000 crore to the agriculture sector.

Granted the huge demand from enterprises, such allocation isn't likely to be adequate.

Enterprises with shortages of performing capital, which, subsequently, could pressure them to choose downward adjustment and operate with fewer persons, said the Center for Insurance policy Dialogue on Friday. 

Timely disbursement of credit among the damaged farmers, vegetable producers, tiny dairy and livestock farmers, fruit-growers and shrimp farmers are urgently necessary, the think-tank said.

Altogether, Bangladesh needs to put in place a support measure amounting to 6 % of GDP, said SR Osmani, professor of expansion economics in Ulster University, throughout a virtual discussion recently.

The real challenges lie in implementing the stimulus packages, according to experts.

Of the stimulus packages, only Tk 3,000 crore would come from the government's coffer, as the rest would come from the central bank or lenders themselves, said Ahsan H Mansur, executive director of the Policy Research Institute of Bangladesh.

It is the banks that would take the chance, lend money and put into action the packages, he said.

In line with the economist, it would not be possible for the targeted beneficiaries to receive the funds as a result of various challenges. It could be troublesome to lend funds to the SMEs at 9 % interest, a cap the bank has applied since April.

"How do banks implement the bundle for the SMEs if indeed they mobilise funds at 6 % interest rate?" said Mansur, as well the chairman of Brac Bank.

The default rate is saturated in the SME segment and the rate will be even higher in the current circumstances, he said.

The central bank has stepped directly into provide insurance for funds going to the SMEs but banks need to pay 2 per cent for the insurance, he said. The means, banking institutions would get only one 1 per cent if indeed they lend to the SMEs.

"Banks would not be interested unless a change is manufactured."

Another Tk 3,000 crore has been reserve for micro and tiny industries and service which will be distributed through microfinance institutes (MFIs).

Under the package, professional banks would lend to MFIs at 5 per cent. MFIs normally charge 20 to 25 %, so if they must lend this fund at 9 %, they are unlikely to come onward, said the ex - economist of the International Monetary Fund.

"We need to revisit these issues," he said. The costs must be reasonably market-based; in any other case, the packages would not be implemented.

The stimulus package for the large industries can be implemented at 9 % interest rate, however the concern is that the loan defaulters are very powerful and some of them are also directors of banking institutions and they may consume the package, while true businesses would get nothing, according to Mansur. 

Banking institutions would only lend if they think that the loans would be repaid.

He suggested the federal government constitute an operating committee immediately to oversee the implementation of the plans.

The committee should contain representatives from banks, the central bank and the finance ministry and would identify problems in the implementation process.

The committee would gather info from banks on loans and beneficiaries each day, analyse them and publish a weekly report in order that the government and the general public will come to know what is happening, he said. 

"Close monitoring of the committee is crucial and the funds must be disbursed transparently."

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