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10 May, 2020 10:47:30 AM / LAST MODIFIED: 10 May, 2020 11:05:42 AM
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Bangladesh Bank’s Covid-19 stimulus packages and the way forward

The stimulus package is a timely and much-needed measure. Bu the questions that are echoed all around now are: how this money will be mobilised, and how it will be utilised
Anwar Faruq Talukder
Bangladesh Bank’s Covid-19 stimulus packages and the way forward

While there is no way to tell exactly what the economic loss from the global COVID-19 coronavirus pandemic will be, there is widespread agreement among economists that it will have severe negative impacts on the global economy as well as threat to human life. Early estimates predicated that, should the virus become a global pandemic, most major economies would lose at least 2.4 percent of the value their gross domestic product (GDP) over 2020, leading economists to already reduce their 2020 forecasts of global economic growth down from around 3.9 percent to 2.4 percent.

To tackle the situation Bangladesh government announces a stimulus package around taka one crore. Chronologically, the central bank of Bangladesh has declared the package phase by phase. On March 25, 2020, the government declared the first stimulus package amounting to Tk 5,000 crore for paying salaries and allowances of workers and employees of export-oriented industries.

The second stimulus package amounts to Tk 67,750 crore for the affected sectors on April 5, 2020. Thus, the total size of the stimulus packages stands at Tk 72,750 crore, which is about 2.5 percent of Bangladesh's gross domestic product (GDP). This support is deemed to help both local and export-oriented sectors which are facing the odd of Covid-19.

Within the packages, Tk 30,000 crore is set aside for large industries and the service sector which will be distributed by commercial banks as working capital loan at 9 percent interest rate. Here, the industries and business organizations concerned will pay 4.50 percent, while the rest amount of interest will pay by the government to banks as subsidy. Later under this large business package, the Bangladesh Bank has also introduced a new credit refinance facility for financial institutions of Tk15,000 crore (50% of the package) as “Refinance Scheme for large industry and service sector" and its interest rate would be 4 percent, payable by the financial institutions.

On the other hand, micro, small and medium enterprises (MSMEs), including the cottage industries, will get Tk 20,000 crore as working capital loan at low interest rate, and the interest rate for this lending facility will be 9 percent of which 4 percent will be paid by the concerned industries and businesses, while the government will subsidize the remaining 5 percent. Again, later Bangladesh Bank under this SMEs package has also introduced a new revolving credit refinance facility for financial institutions of Tk10,000 crore (50% of the package) as “Re-finance Scheme for providing working capital loan/investment facilities to CMSME Sector to rescue potential disaster of Corona Virus’" and its interest rate would be 4 percent, payable by financial institutions.

The fourth package concerns the Bangladesh Bank's Export Development Fund or EDF, which will be increased to $5 billion from $3.5 billion now to facilitate import of raw materials under back-to-back letters of credit (LC). An additional amount of Tk 12,750 crore has been allocated under the Export Development Fund (EDF) of Bangladesh Bank to facilitate raw materials imports under back-to-back Letter of Credit. The interest rate here has been reduced to 2 percent from 2.73 percent. The existing EDF interest rate is 2.73 percent in line with current London Interbank Offered Rate-LIBOR + 1.5 percent. Under the fourth package, the central bank has introduced a new credit refinance facility of Tk5,000 crore as "Pre-shipment Credit Refinance Scheme" and its interest rate would be 7 percent. Another is Tk3,000 crore for small professional, marginal businessman etc.

The stimulus package is a timely and much-needed measure. The questions that are echoed all around now are: how this money will be mobilized, and how it will be utilized. Apparently, it seems that the major responsibility will be on the commercial banks. However, the central bank comes forward with her own fund which will be funded as refinance to various financial institutions.  Government also provides interest subsidy to FIs. Bangladesh Bank has undertaken quantitative easing by reducing policy rates. Towards this, the Cash Reserve Ratio (CRR) has been reduced by 0.5 percentage point. This will generate an additional Tk 6,200 crore. If needed, Bangladesh Bank may have to reduce the CRR further and also reduce other rates such as the Statutory Liquidity Ratio (SLR) and REPO given the demand for liquidity during the Covid-19 crisis.

This is actually an unprecedented measure taken by central bank. Also other central banks of other countries are taking some sorts of measure due to corona pandemic. Despite criticism, some economists are in favor of this initiative of central bank. This group said central bank has taken the right steps to rescue the economy. Others are against this, they find some problem in this package. They opined that the lion's share of the package Tk 67,750 crore is repayable loan. In other words, this is a liquidity support. The incentive money may be disbursed from the banks' own funds. But currently banks do not have that much surplus liquidity. However, the ABB chairman assured that liquidity may not be the problem but the main problem is how they get back the money, eventually he wants guarantee that fund will be refunded in due course.

In that case some experts are stating that BB can go for risk sharing method. It means if the money will not come back then BB will subsidized by sharing principal as like interest subsidy. However, the process already started. Banks have been disbursed a large amount to the garments under the stimulus package. Now different FIs are working to formulate their own guidelines in line with central bank’s directives. The entire nation is waiting as to when the corona pandemic will come under control. Nobody can give guarantee when the normalcy will begin. Though the first affected county began their normal economic activities but not as it was in before pandemic. It will take time to go back to previous condition. It may take three to four years to regain the economic condition of 2019. To tackle the spread out of corona pandemic almost all countries sealed their boarder. That means inter boarder trading remain stopped.

The thing is countries have confined their economy to domestic market. Henceforth, political leaders, policy makers are emphasizing on domestic industrialization and want step in agricultural economy which will at least ensure food security. So the prime task now is to accept the reality and take home made measure to rescue the lives and living of the people first. The importer may not take the products because of economic downtrends of all affected country. Who will buy the products? Do they have enough money after fulfilling the basic needs? Answer is maybe not. So why some have become so eager to start their factories, where there is no certainty that the buyer will take their products. Here some pragmatic decision is needed. Firstly, save the people who are the main ingredients behind the machine, then look at the business. Look how Vietnam is tackling the pandemic. See also the examples of successful countries, take good advices from experts and try to implement it so that it can help us to overcome the corona pandemic.  

The writer is an economic analyst. E-mail: anwarfaruq@yahoo.com

 

 

 

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Published by the Editor on behalf of Independent Publications Limited at Media Printers, 446/H, Tejgaon I/A, Dhaka-1215.
Editorial, News & Commercial Offices : Beximco Media Complex, 149-150 Tejgaon I/A, Dhaka-1208, Bangladesh. GPO Box No. 934, Dhaka-1000.

Editor : M. Shamsur Rahman
Published by the Editor on behalf of Independent Publications Limited at Media Printers, 446/H, Tejgaon I/A, Dhaka-1215.
Editorial, News & Commercial Offices : Beximco Media Complex, 149-150 Tejgaon I/A, Dhaka-1208, Bangladesh. GPO Box No. 934, Dhaka-1000.

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