A welcome step, but implementation matters

A promising initiative needing greater clarity on help for the poor

Zahid Hussain

Covid-19 is a shock of seismic proportion unprecedented in living memory. It is a combination of a health pandemic and an economic crisis that threatens to reach heights and depths never seen before. Its devastating impact at both the human and economic levels is mutually reinforcing with rising ferocity. It is both a demand and supply shock. The world has never seen the two at the same time. The design of a policy response in such an uncharted territory is a challenge that has little experience to draw from.

Such lack of tested policy packages notwithstanding, we know what needs to be dealt with.

The human suffering first. This is manifest in the loss of life and deterioration of health, loss of jobs and livelihoods. To help limit the spread of the virus, the country's citizens are under restrictions and are advised not to leave their homes. If the economic suffering is protracted, this will further hurt all, the poor most disproportionately, including through impact on nutrition, education, and indebtedness. There is no need for providing concrete evidence on the extent of human suffering. All you need is open eyes to see it and a heart soft enough to do something about it.

The second adverse impact is on production and commerce. It is now a foregone conclusion that the global economy will slip into a recession in 2020. The only question is how deep and for how long? If the virus continues to rampage longer than what is currently expected (6 months), the recession will be much deeper. The financial and corporate sectors are facing large-scale economic disruption. Unlike the GFC when the crisis propagated from the financial sector, this time it is the real economy that is the epicentre of the financial distress. Banks are likely to see huge pressures on their balance sheets as debtors default and new borrowers and depositors disappear. Businesses – big and small, formal and informal – are being hurt by the collapse in domestic and foreign demand and disruption in supply chains. With a large drop of consumer demand and impediments to transporting inputs and goods, production losses and large-scale bankruptcies are increasingly likely.

In this context, an urgent and sizable policy response was immediately needed not just to alleviate human sufferings, mitigate financial distress and keep businesses afloat but also to nourish public confidence. The Tk72,750 crore package announced by the prime minister is undoubtedly a step in the right direction. It promises to provide adequate support to small and large businesses in industry and services to tide over the disruptive stage of the pandemic with specific allocations, terms of assistance and a general indication of the modes of delivery.

There is Tk30,000 crore allocation presumably for large enterprises in industry and services and Tk20,000 crore for micro, small and medium enterprises. All these monies will be channelled through banks in the form of working capital loans at 9 percent interest rate, of which 4.5 percent and 5 percent will be borne by the government for large and MSMEs respectively. There is an additional Tk12,750 crore infusion into the Export Development Fund for pre-shipment credit finance to facilitate the production of exports prior to shipment and hopefully to promote backward linkages to benefit the deemed exporters. This will complement the Tk5,000 crore support for the directly export oriented industries announced earlier.

Since banks will deliver the first two packages from their own funds, the default risk will be on them. It will therefore be critical to make sure the known wilful defaulters do not prey on these crisis supports. As the Bangladesh Bank works out the details of the implementation modalities, special attention must be given to making sure that the subsidised loans are used to support employment and payroll.

The package lacks specifics on supporting the poor (daily wage workers, self-employed in the informal sector, migrant labour, the floating population and the poor in urban slums) directly. Targeted cash transfers, free food and OMS rice at Tk10 per kg is mentioned. In addition, housing for the homeless will be provided using funds originally collected for Mujib Borsho celebrations.  These are indeed the right steps and ideas. Supporting the poorest is essential because this crisis cannot be defeated for any of us if it is not defeated for all. The size and form of the assistance and the modes of delivery need to be worked out the soonest so that we do not lose to hunger the lives we save from Covid-19.

The immediate priority is to ensure that the government has the hard currency it needs for the scaled-up health response, essential imports, and cash transfers to those unable to work, supplemented by other mechanisms for families these cannot reach. We do not yet know exactly how much all of this will cost, but we can make reasonable provisions based on the needs that are already self-evident. These point to a fiscal need of about 4-5 percent of GDP which could rise with the unfolding of the pandemic.

The total package announced already supporting largely businesses and workers employed in the same businesses constitutes 2.5 percent of GDP. Can we hope at least an equal amount, if not more, will be allocated to fund the cash and food transfers to the deprived poor in the urban and rural areas? Delivering the assistance will require beefing up the government's existing cash and food transfer programmes to include additional beneficiaries and partnering with parastatals such as, for instance, the PKSF and NGOs such as Brac who know how to reach the targeted groups.

Highest transparency, accountability a must for proper utilisation of incentives

Dr Fahmida Khatun

The government must ensure maximum transparency and accountability for proper utilisation of the incentive package offered by the prime minister. Given the context of the country, transparency is very important in spending any sum of money.

But the issue of transparency and accountability of the funds' distribution channel has not been mentioned in the prime minister's speech.

The big incentive package is a timely and much needed one but the government should formulate specific guidelines for its proper management. Efficient utilisation of the package is very important, because the government has already lagged behind in revenue collection this fiscal year.

The Centre for Policy Dialogue has already made a projection that the revenue shortfall this financial year will be Tk1 lakh crore. In the present context, the gap will widen further. The country's economy is already under pressure due to the coronavirus pandemic.

Meanwhile, the Tk5,000-crore aid for the export-oriented industry is too inadequate for them while all sectors need large incentives.

Besides, many ways to misuse the money may open up if incentive loans are disbursed based on banks' relations with customers. The highest level of transparency should be ensured so that the loans do not go to those hands who are not real entrepreneurs. Commoners have nothing to do here. What is imperative is the government's honest political will to the supreme degree.

To ensure optimum utilisation of the incentive package for the poor's social safety, the money should be sent to the bank accounts of respective beneficiaries. In case of relief distribution too, cash, not commodities, should be given to the poor. This will also promote social distancing.

Besides, the government has also not clarified the source of the money for the incentive package. The Bangladesh Bank has been named as the source. But, I do not support printing Takas at the moment because it may devalue the currency. Inflation may go up, which will create pressure on the people, causing their living standards to fall.

So, the government should look to different international development agencies and donors for sourcing the money quickly and on easy terms. The International Monetary Fund (IMF), World Bank, Asian Development Bank, Asian Infrastructure Investment Bank, Islamic Development Bank and other agencies have already announced big assistance packages. The IMF is announcing assistance every day. We will have to take initiatives soon. And unnecessary spending should also be cut.

Dr Fahmida Khatun is currently The Executive Director of Centre for Policy Dialogue

Keep habitual loan defaulters away from stimulus package

Ahsan H Mansur

Prime Minister Sheikh Hasina has recently announced to reach out to the poor with food and said no one will starve. That is a big part of the government announced support programmes. There is no scope for negligence here.  

The government needs to roll out big initiatives to materialise the mammoth task of implementing the declared incentive package. The level of corruption and irregularities will have to be brought down. Also, different voluntary organisations will have to be involved in this process.

The incentive announced for large industries and service sectors to bring the economic activities back to life is right to a great extent. However, caution should be exercised to make sure that the habitual loan defaulters cannot take advantage of this. 

The habitual defaulters are usually politically influential. They will try to take out loans from this fund. Once they get the chance, they will take it all. So, those who do business following rules and have a genuine business will be in trouble.

To make sure that the true objective of the announced package is achieved, willful defaulters will have to be kept away from the package. Only those who are hardly hit and whose financial transaction record is good should get loans.

Also, there are some loopholes in the banks' relations with their clients. Many subscribers take out loans from banks and instead of paying them back. They reschedule their loans repeatedly. These people will have to be kept outside the purview of the fund.

There is a liquidity crisis in the banking system now which will worsen in future. So, arrangement has to be made for excess liquidity by quantitative easing (by printing banknotes) through the Bangladesh Bank.

As many small businesses lack the cash reserves and credit that is typically available to large companies, they are often highly vulnerable to pandemics like Covid-19. So, only incentives for the small industries will be enough. 

Three types of initiatives will have to be provided to this sector. Firstly, the existing loans for the Small and Medium Enterprises (SMEs) will have to be formalised. Secondly, the SMEs will have to be provided with some working capital too.

And in future, the small investors will face the hardest of the difficulties in paying the rents of factories and office premises. This is because almost all of the small businesses are being operated in rented houses. The rent payments need to be cut by half for the next three months.

The economy will be in trouble if small businesses like salons, shops and small factories are forced to shut down for failing to pay rents. If the prime minister makes an announcement about this, the house owners will surely accept it. They will not suffer big losses by doing this.

The author is the executive director of Policy Research Institute and chairman of Brac Bank.

Incentive package should have been more comprehensive

Dr Salehuddin Ahmed

The government's incentive package is apparently good but not sufficient. Much more could have been done. 

We are facing a world-wide depression and its negative impact is felt in our production and service sectors.

Considering that, the stimulus package announced by the prime minister should have been more comprehensive.

I think much emphasis has been given to the industrial sector, especially the readymade garment sector, in the package. 

But apart from that, there are many sectors that have been seriously affected where workers are being sacked. No attention has been given to those sectors. 

A Tk20,000 crore fund will be formed from the package to provide working capital for the cottage, and small- and medium-scale industrial entrepreneurs. The entrepreneurs can take loans from the fund at four percent interest. 

However, my experience tells me the banks are not interested in providing loans to these entrepreneurs. 

In this regard, the Bangladesh Bank will have to intervene and monitor the disbursement so that banks are compelled to follow the government's guidelines.

Besides, big and influential businessmen will reap the benefits of the Tk30,000 crore fund for industries and service sectors, and the Tk12,750 crore export development fund.

There is apprehension that everyone will not be able to take the benefits of this fund. So, the government will have to pay attention to mitigate the sufferings of other businessmen and industrialists.

Another important thing to me is providing social security to workers of the affected factories and those in the informal sector.

There is no database of these workers, but even then, the government should identify them and bring them under the purview of social safety. 

Cash has to be given to all instead of lining them up, and distributing rice, lentil and potatoes. If cash is given to them, their purchasing capacity will increase, which will have a positive impact on the market.  

As a result, demand for various goods will be created. 

The government's stimulus package says nothing about the agriculture sector. Many farmers have been compelled to sell their produce at throw-away prices due to the lockdown.  

Dairy farmers and the poultry industry have also been facing big losses. The country will plunge into big danger if these affected farmers and businessmen are not pulled out and if they stop production. 

Thus, the government must consider this situation. 

Many expats have returned to the country after losing jobs overseas.  There is no guarantee that they can go abroad again and find jobs.  

But the government has not announced any incentive for them. It should have arranged low-interest loans for these people, which they can use for starting small businesses.

If that had happened, the returnees would have thought the government was in their favour and had stood by them.

Besides, monetary policy plays a big role during national financial disasters. The central bank has to give up old and bookish thinking, and take bold steps in such situations.

But the central bank has failed to do so. 

It can lower the statutory liquidity ratio. If it is lowered, cash-flow to commercial banks will increase, and the money can be used to increase investments. 

However, the Bangladesh bank has cut both the repo rate and the cash reserve ratio slightly. In the present economic context, that is not enough. 

The central bank will have to be bolder in this situation.

Dr Salehuddin Ahmed is the former Bangladesh Bank governor. 

With bank deposits falling, how much will the incentive be executed?

Dr AB Mirza Azizul Islam

Time will tell how much the incentive package announced by the prime minister will help in reviving the economy from the onslaught of the coronavirus pandemic.

A big incentive is necessary in the present situation, and so I welcome the package. But the question is where the money will come from.

The incentive money may be disbursed from the banks' own funds. But do banks have that much surplus liquidity?

the former caretaker government advisor and economist AB Mirza Azizul Islam. Sketch: TBS

The growth in bank deposits has been declining for a long time. Because of the impact of coronavirus, there is overall uncertainty and a stagnation in economic activities in the country. There is a risk of deposits falling further due to this.

Banks will not be able to provide loans if they do not get deposits. So, it remains to be seen how far the incentive package can be implemented. However, if everything goes well, the package will help to revive the economy.

The prime minister said actions will be taken if the incentive package is not implemented properly. That means there is some apprehension over the package not being implemented properly. People will have to keep an eye on that.

There are also some risks in disbursing the incentive credit on the basis of the bank's relationship with customers. The big businessmen, who have good relations with the banks, may get a bigger portion of the loans. The money may also go to those who are already defaulters.

In sum, there are a number of challenges in implementing the incentive package. The government must monitor all these issues.

Dr AB Mirza Azizul Islam is former finance adviser to the caretaker government

Banks have capacity to lend due to low loan demand

Syed Mahbubur Rahman

The banking sector has the capacity to lend this amount because loan demand will remain low during the coronavirus outbreak.

However, banks will face a tight liquidity pressure if the government starts borrowing from the banking system.

The Bangladesh Bank must supply more liquidity in the market to enable banks to lend.

The government will have to slow down implementation of projects to reduce borrowing pressure on banks for keeping the banking sector afloat.

Bankers will have to prepare for efficient money management to face the upcoming situation because a certain portion of it will likely not return.

Banking sector will face liquidity pressure

Rahel Ahmed

The banking sector will face liquidity pressure in implementing the financial package because there will be a government borrowing pressure as well.

Without enough liquidity flow, banks will not be able to lend this fund.

In that case, the government has to reduce the cash reserve requirement (CRR). Recently, the central bank reduced CRR by 50 basis points, which has returned Tk6,500 crore to banks. But India reduced CRR by 100 basis points to 3 percent.

So we need the CRR to be reduced by 50 more basis points.

There is another risk: All affected businesses may not get this support as banks will lend on the basis of banker-customer relationship. So banks will lend by assessing the risk.

However, the government's interest subsidy is a positive thing for banks.

Rahel Ahmed is the General Secretary of ABB and Managing Director of Prime Bank