How to accelerate the pace of implementation of the stimulus packages?

It is still too early to say exactly how the global economy will unfold in the near future. Many loops of its highly complicated interconnections have been torn apart due to the sudden onslaught of Covid-19. Bangladesh's economy is coming out of the slump despite the gloom of the global economy.

The three months of "shutdown" from April to June 2020 created havoc in the Bangladesh economy. Both lives and livelihoods were badly affected.

A recent survey of the PPRC and the BIGD claims that about 35.6 million people who were slightly above the poverty line have fallen into the poverty trap. These are called "new poor". Along with the "conventional poor" this additional poor will take the number of poor to as high as 43 percent. The number of extreme poor has also increased proportionately.

The survey further says that the rickshaw-pullers have experienced a loss of their income by 53 percent. More than half of the house-workers are still struggling to get back to their work. Finding it extremely difficult to survive in an urban setting as many as 16 percent of the respondents had to leave Dhaka. The small and medium enterprises have reported to have lost half of their earlier incomes. Many of them are still struggling to revive their normal businesses. It may be noted that 85 percent of the people are employed in the informal sector who have been most hurt by this pandemic.

The government had to take a difficult decision to allow the businesses to reopen despite ongoing infections. However, the health workers now know better to manage the Covid-19.

Yet, the number of daily deaths remain quite high. The people in general are anxious for the availability of a safe vaccine that may take months, if not years to come. But the economy cannot sleep that long. So, the government had to take this calculated risk to allow the economy to open up gradually.

The Government along with the central Bank went 'out of the box' and announced a handful of bold stimulus packages for the economy to recover. It also announced a budget with clear indications of priority for this recovery. Obviously, the health sector got the maximum support followed by agriculture, social protection and education plus skill development.

A number of tax concessions have been allowed. The central bank complemented these steps by staggering the loan recovery schedules with adequate policy support like reduction of provisioning for the CMSMEs. The financial sector has been helped with liquidity by reducing bank rate, basic rates (REPO and Reverse REPO), cash reserve ratio, statutory liquidity ratio and providing longer term REPO support and expanding Advance to Deposit Ratio.

It has also been providing quantitative easing support to the government selectively. The central bank went for such monetary policy knowing that the risk of inflationary uptake was not in sight in the context of sluggish demand and lower fuel price, in addition, a number of refinance facilities as high as Tk51,000 crore plus along with high subsidy in interest rate for both large industrial units and SMEs have been taken.

The agriculture and micro plus small enterprises have also been provided with enough stimulus support. A few other fiscal supports have been provided from the budget itself for social protection and as well as entrepreneurship development for the returnee migrants from the Middle-East and other countries.

All these prompt measures have helped business confidence among the economic actors. The government has also removed some bureaucratic rigidities particularly for foreign direct investors in the newly built Special Economic zones. The decision to provide 20 percent cash incentive to agro-processing industries in such zones has been a smart move. Similarly, the Bangladesh Security Exchange Commission has brought some discipline in the capital market to attract both local and foreign investment. In particular, its extra push for revamping the bond market has been well taken by the stakeholders.

The Presidents of important chambers including FBCCI, BCI and DCCI recently spoke about an early recovery of the economy with some caveats in the media. They all said that the pace of recovery could certainly accelerate if the financial sector comes forward to implement the stimulus packages. I shall add one more thing with their expectations, the central bank should as well come up with a results-based monitoring system using digital technology which will be overseen jointly by the related stakeholders like the central bank, the Ministry of Finance, MRA, the representatives of Association of Bankers (ABB), Association of the Financial Institutions representing non-banks and the relevant chambers. This committee may first concentrate on the off-take and use of loans taken by cottage, micro, small and medium enterprises. This committee may be given the needed secretarial support by the central bank in terms of updated performance indicators, results of quick digital surveys on the beneficiaries and sharing with it the day to day challenges faced by the implementers. This will be a 'trouble shooting' body to streamline the process of implementation of the packages. In particular the Terms of References (TOR) of the Committee may include:

• The amount of credit to be disbursed in a given time-frame by individual banks, financial institutions and MFIs which have signed MOUs with BB.
• The sectoral and regional distribution of the loan to be provided.
• Developing a database for these customers (e.g. SME clusters prepared by SME Foundation, special loan products already prepared by banks and FIs).
• How to ensure adequate loans to women entrepreneurs as desired by the stimulus package.
• Clear indication of what will be money used for (working capital, salary support, marketing etc).
• Projection of demand for the products to be supported based on real-time data.
• Identification of sources of data ( the stakeholder reporting, BBS data, third party market analysis by think tanks, both public and private, which may have to depend on new digital surveys particularly for the new entrepreneurs).
• A special monitoring focus on those who may have been doubly affected by both Covid-19 and the flood.
• Coordination between the stakeholders to orchestrate the desired recovery.

Of course, the recovery will depend to a large extent by the creation of demand in the economy. It is the fiscal support which will be crucial to uphold the level of consumption of those who have lost their sources of income fully or partly. The banking sector must be helped reach the farmers for loan applications. Here, their NID, Mobile Financial Account and Farmers cards along with an introduction from the local Agricultural Extension Official may be good enough to be eligible for such loan applications.

A partnership between banks and MFIs may also be devised to reach the farmers and on-farm rural entrepreneurs by moderate revision of the circulars given by the central bank.  While the components of working capital should be reorganized after talking to the bankers, the share of the trader entrepreneurs should be immediately fixed at 50 percent as most affected actors are from this part of the economy.

Bangladesh Bank has been pushing the banks and financial institutions to disburse the stimulus packages faster. However, the bankers have their own problems as well. They are genuinely worried about the risks involved in providing MSME loans. The proposed credit guarantee scheme, therefore, ought to be implemented. In fact, it will be wiser for the central bank to provide the entire CMSME package as a refinancing program. In particular, the FIs need full refinancing support.

The central bank has already asked banks to reduce paper work for these small borrowers. The loan classification process has also been eased to a great extent.

The subsidisation of the rate of interest has been provided across the board right from agriculture to industrial credit. And even the RMG factories were given credit only at 2 percent interest rate.

Given this more than a trillion Taka robust stimulus packages, the economy of the country has stirred into action. In addition to buoyant agriculture and remittances, the prospect of the export sector, particularly the RMGs, has also been giving some positive signals.  The US and European buyers are now trying to move to the Vietnamese factories. However, there is a limit to the capacity of Vietnam and Bangladesh with its economies of scale that they will be the likely candidate as credible suppliers of garments.

The real estate entrepreneurs are equally hopeful about the growing demand of the flats in the context of the tax facilities provided in this year's budget.

As the economy reopens and both domestic and external demand situations improve, the challenge remains as how these stimulus packages are actually implemented on the ground fast and coherently. And finally, the effort must be on to make this recovery as green as possible.

The author is Bangabandhu Chair Professor, Dhaka University and a former Governor, Bangladesh Bank. He can be reached at [email protected].