Getting in the corona war, policymakers worldwide are engaged in damage-control of the financial losses right now and finding your way through confronting the upcoming economical crisis. Furthermore, there happen to be evidences and indications that financial and banking industries around the globe might have to face impressive instability in the forthcoming weeks.
Our government has already announced bail-out packages for the restoration. Like, because of cancellation of practically $3 billion worthy of of work-orders, Bangladesh RMG industry got the interest quickly. Around 2 million personnel in the industries could be affected by this and on the other hand, around 4 million persons are directly engaged with the RMG sector e.g. backward linkage industries, accessories and product packaging factories and transport sector.
Now, it is high time for the authorities together with business enterprises to determine the situation and chalk out a long-term intend to control damage. It is noteworthy to state that, we should not start blame-game today and have for assistances from the federal government only as a result of constraints and scarcity of resources of different organizations of government. However the prime position of the government ought to be clear any undesirable obstacles and create opportunities among the economy incidentally of sound and obvious directives like financial & fiscal policies and tax structure to face the catastrophic situation.
The banking sector may be the key player of the monetary activities of any countries. As a producing country-we must be even more watchful with regards to planning to get rid out of the impression of COVID-19 outbreak. We already are suffering heavily because of NPLs and sadly the outbreak may improve the degree of NPLs in arriving days. The NPLs can be split up in two phases: 1. Pre-COVID NPLs & content- COVID NPLs because to stare & understand the actual fact more judiciously. Consequently, a fresh sets of BB rules should be initiated addressing the reality. It really is pivotal to give attention to the early bail-out programs for probable collapse of large loans is vital for sustainability as much backward linkage, SMEs and individuals are immediately and indirectly correlated with these Significant Loan borrowers. Country's overall economic eco-system is standing on it; we are looking for to generate sure that should not collapse. Nonetheless it is also true that, it's the peak time for each bank and different non-banking financial corporation to evaluate and reassess their total financing portfolios and withdraw some of their unnecessary and unnecessary portion wisely.
The banking sector will face liquidity pressure as deposit expansion and loan recovery also declines. Personal sector credit growth might decrease during March 2020 to June 2020. Cutting the cash reserve need (CRR) by 1 per cent would add roughly inject Tk. 130 billion into banking sector liquidity. Apart from this BB has considered some healthy initiatives such as for example: decrease in repo interest, buy-back of government securities, promotion of payment companies, refinance scheme BDT 50bn for agriculture sector at a concessional fee, quarterly repayment for imports under supplier's/buyer's credit rating, refinance scheme of BDT 30bn for low profit pros, farmers, micro businessmen, postponement of charging interest on loans, restriction on dividend repayment by banks, prohibition of personnel lay-off, maximum margin limit for import of kid food, relaxations for having meetings and regulatory reporting. Furthermore, Bangladesh Bank also calm the bar of Advance-Deposit Ratio (ADR) from 83.50 to 87 %. Although the financial industry specifically the banking sector is normally battered heavily due to regulated cap of interest of deposit and advance very before of the pandemic. Many willful debtors may resort to have undue advantage of this regulation and the sector may deal with this in greater scale amid the pandemic. A threshold could be initiated to determine the original sufferers and pass a resolution for safeguarding them just.
But unfortunately if the problem prolongs, at worst, the central lender might consider hefty package to improve money supply but this might have impact on inflation of the united states, and can also announce a stimulating fiscal plan considering universal basic salary (UBI) approach. But the task of distributing UBI to a sizable population is dubious, despite having the option of mobile financial products and services. Therefore a main operational task force may be formed beneath the direct supervision of the central lender.
Now, if we change our eye to the industrial sector-which is also suffering from the deadly contagious disease. As everybody knows that, export diversification is usually always an integral for sustainable progress in earning forex but regrettably we are heavily relying of RMG sector. This sector asserts that, 85 percent of the country's' export revenue arrive through the RMG sector. We didn't diversify our export basket, thus creating an enormous risk in our export portfolios. The response against the outbreak and its own impact on the commercial sector is so far admirable, but this pandemic as well poses an financial and humanitarian crisis. The primary minister was right to determine this as a challenge and announced an emergency stimulus package of $8.5 billion (equal to 2.5 % of GDP) for bridge financing of the working capital of tiny and distribute food aid through Bangladesh's existing social safety courses as only 15 % of the Bangladeshi population earns over $6 a day, and over 90 % of the workforce is one of the informal sector. As Bangladesh Federal government does not have plenty of fiscal space to create large stimulus packages because of low tax-to-GDP ratio, the simply possible option is monetary expansion, which virtually all developed economies have previously deployed.
According to the forecast released by the Economist Intelligence Unit upon 26 March, the global economy is likely to contract by 2.2 % in 2020. These results are expected to be more exposed in main G20 economies, such as for example Germany, Italy, the uk and the US - all countries that are key markets for Bangladesh's virtually all vital tradable great: readymade garments. The depressed oil rates will also lead to a solid reversal of growth in the Middle East and North Africa location, which can be home to a huge Bangladeshi diaspora, who send back near $20 billion each year. In the approaching months, there may be without doubt that there will be a decrease in remittances and these second-degree impacts may also be sensed in the united states, painfully in rural Bangladesh, where family members rely heavily on remittances for their survival.
However, in this critical condition, banks and different NBFIs must take due preparation to accelerate economic restoration in the post-covid-19 situation where the plank and top operations have critical part to play. Crisis preparedness will be a key to bring steadiness. A watch group should be formed for data assessing and make ready the lender & NBFIs for organizing a reliable situational analysis when needed. Strategies should be proclaimed obviously in order that all workforces be sure preparing themselves as effective and efficient at this time for damage-control.