Little breather ups economic stress

It is now clear to all that the coronavirus outbreak in 139 countries has disrupted the global supply chain by reducing production and demand across the world.

The trend clearly indicates that Bangladesh's exports and imports – as well as revenue collection – will fall. The revenue board's data showed that tax collection fell short of its half-yearly target by over Tk31,000 crore. The figure later widened by another Tk6,000 crore a month – due to less taxes from negative growth in imports and exports.

This massive revenue shortfall has pushed the government to borrow from the banking system – Tk52,137 crore in just eight months –  to meet its development expenditures.  

The more worrisome issue is that coronavirus' impacts on the economy will further widen the gap between revenue collection targets and receipts in the wake of low trade and less demand in Bangladesh's major export markets – Europe, America, Japan, and Canada.

But that is not the end of the woes. 

Falling stock markets have worried investors and the government. Even a bundle package – including allowing banks to form a fund of Tk200 crore each under a relaxed policy – was not able to prop up the market.

The latest development in oil prices on the world market may be another potential threat for the stability of Bangladesh's economy as nearly two-thirds of the country's $20 billion remittance last year came from oil-rich Middle Eastern countries. Already hundreds of migrant workers are coming back losing their jobs in Saudi Arabia.

The coronavirus has not spared the travel and tourism industry in many countries, which has isolated them in the virus-affected countries. Local hotels are losing thousands of room and event bookings every day.

The impact on micro, small and medium enterprises (MSMEs) is likely to be greater as they have small amounts of working capital. Any shocks that diminish demand leave MSMEs with a pile of stocks, but they have to pay their employees. In this situation, lenders also shy away from issuing loans to small enterprises – and factories may end up defaulting on their loans.

The declining health of the financial sector is already felt by the economy. The lending rate cap at nine percent from April 1 may create further chaos as banks have been complaining that they cannot lend to SMEs and the retail sector at that prescribed interest rate and remain profitable. 

The crucial question now is how the government deals with the growing economic anxieties, especially after the pandemic of the virus in 139 countries, including Bangladesh, as of Saturday. 

Different countries have already offered fiscal support to overcome the impacts of coronavirus on their economies. The International Monetary Fund (IMF) and the World Bank have announced $50 billion and $12 billion financial supports respectively to the virus-affected countries so that they can overcome any big humanitarian and economic crisis. 

Italy has extended tax deadlines for companies in affected areas and broadened the wage supplementation fund to provide income support to laid-off workers, Korea has introduced wage subsidies for small merchants and increased allowances for homecare and job seekers, and China has temporarily waived social security contributions for businesses.

"The government's present fiscal space to support affected industries is very limited. The stagnant foreign exchange reserve has also tightened Bangladesh Bank's capacity," said Ahsan H Mansur, executive director of Policy Research Institute of Bangladesh.

He said Bangladesh was immune from the impacts of the global financial crisis in 2008 because of prudent macroeconomic management and resilience of the export sector. Even exports and imports at that year grew by double digit rates. 

The government's expenditures on all fronts – be it salary payments, interest burden and development projects – have now gone up significantly. On the other hand, Mansur said revenue earnings are dwindling, limiting the government's capacity to extend support to the affected businesses.

"Factories that will be hit hard by the coronavirus may need low-cost liquidity support, especially during the Eid festival, to avert political and social problems," said Mansur, also a former senior official of the International Monetary Fund.

Khandker Golam Moazzem, research director of Centre for Policy Dialogue (CPD), is also doubtful about the government's ability to stimulate growth and demand.

"The government is struggling to implement the budget in the wake of declining revenue collection. The impact of coronavirus worldwide will further affect trade and slow the growth of tax receipts," Moazzem told The Business Standard.

However, he thinks the industrial sector has to be given low-cost funds so that they can continue production, pay workers and avert job cuts, he said.
 
"The government should start talks with the World Bank and the IMF to get low-cost funds immediately," he suggested.
 
Gita Gopinath, economic counsellor and director of the research department at the IMF, in a blog post on March 9, said, "Considering that the economic fallout reflects particularly acute shocks in specific sectors, policymakers will need to implement substantial targeted fiscal, monetary and financial market measures to help affected households and businesses."