What can the government do to soften the blow?
No crisis in recent memory has been more universally felt than the Covid-19. Developing or developed, the disease has not discriminated. However, certain segments of society are more exposed to the crisis than others. For them, the threat to life is dual: The disease threatens their health and livelihoods.
Both fiscal and monetary policies have been deployed in response by the government to combat the coronavirus crisis. Notable among these is the Tk5,000 crore stimulus package which is designed to pay for the wages of employees in export-oriented industries including the RMG industry.
Additionally, Tk67,750cr has been allocated to create synergy in the country’s business and industrial sectors specially SMEs. In order to facilitate increased expenditure in the health sector, the FY20 budget has been revised with an additional 250cr for the Ministry of Health and Family Welfare. Most focus is being put to operationalize the entire health system through better coordination and governance improvement.
On the monetary side, to ensure liquidity, Bangladesh Bank intends to purchase treasury bonds and bills from banks. Circulars have also been issues to delay non-performing loan classification and repo rates have been lowered from 6 to 5.75%. Bangladesh Bank also released Tk6,200cr to the banks by lowering the CRR (Cash Reserve Ratio).
If necessary, they will release more through lowering CRR and SLR (statutory liquidity ratio) requirement or through repurchase (REPO) route where banks have more than Tk100,000cr additionally invested in government-approved securities.
Since everyone is expecting a good boro harvest, and our farming having become a surplus producer, the government didn’t allocate any stimulus to agriculture other than trying to pick up demand through stimulus to buyers or may be increasing the government procurement price at a later stage. The government’s social safety net allocation through the ongoing budget to cover up 880,000 people through Tk74,000cr should work for now, while the preparatory work for next budget is almost at a final stage.
Are these measures enough?
Most countries have announced stimulus packages to soften the economic blow from the outbreak. However, the value of Bangladesh’s package as a percentage of its GDP is low compared to many of its South Asian peers. Furthermore, the package caters to export-oriented industries, chief among them the RMG sector. Even then the amount is unlikely to be enough.
The garments sector alone has a monthly wage bill of Tk4,000cr. In addition, MSMEs (micro, small and medium enterprises) and the informal sector are notably absent from the government’s economic response.
MSMEs provide employment to approximately 8 million people, and are responsible for nearly a quarter of our national GDP. Employment in the informal economy, meanwhile, covers 91% of non-agricultural employment in Bangladesh in 2017.
Workers in the informal sector are particularly sensitive to the economic crisis. Employers here are not beholden to contractual obligations and thus, operate on the “no work, no pay” principle. Many of these workers already live around or below subsistence levels, and that too depending on their daily wages with little to no savings. As commercial operations come to a halt, these workers will inevitably be facing the pitfall of poverty.
Many other emerging nations are appropriately prioritizing protecting the vulnerable as reflected in their policy measures. Philippines, for example, allotted $3.9 billion targeted towards low-income households, and towards workers in the informal sector. Turkey has also been hard-hit by coronavirus.
At the time of writing, its number of cases is almost 14,000 and the death tollis 214. Turkish policy-makers have introduced an Economic Stability Shield Program, dedicating above 14 billion euros. The package allows a six-month postponement of tax and social insurance payments for companies in various industries. The package also focuses a substantial portion of its benefits for the elderly, given that they are the most vulnerable to the outbreak.
Whichever the policies our government may choose to employ in the future, consistent focus should be placed on preventing unemployment.
Germany’s Kurzarbeitergeld or “short-term work money” program highlights the need to prevent dismissals. The program has previously been credited with safeguarding Germany’s labour force from the 2008-09 financial crisis.
Here, the state pays short-term allowances to workers to partially cover for loss of earnings due to the temporary cut in working hours.
The effect of this is two-fold. Firstly, it helps employers withstand the costs of keeping employees on-board, despite the economic downturn.
Secondly, by preventing dismissals, macroeconomic recovery is made much easier. Once the crisis is over, and the lockdowns are lifted, it is simply a matter of people resuming work with their employer, as opposed to scrambling for new jobs in a crisis-torn economy.
This has positive spillover effects on the rest of the economy. Uncertainty is not conducive to consumption and investment, and when workers are in secure jobs, uncertainty is avoided. Simply put, pressing the economic restart button is much easier, when mass unemployment is evaded.
While the stimulus package addresses this to an extent, there is the need for a more comprehensive and holistic strategy which goes beyond export-oriented industries.
The government can consider in-kind social transfers to both protect the vulnerable and to reinforce successful implementation of social distancing measures. For some, self-isolation comes at a cost to their livelihoods. The government can help alleviate these costs by rationing essentials. We have pre-existing social safety net programs which have been under consideration for expansion.
For instance, the Open Market Sale (OMS) program has received increased allocation so that lower-income households receive enough food supply. Funding can be increased for similar programs like the Vulnerable Group Feeding (VGF) program which provides food transfers.
Besides government, the leading NGOs can play a significant role in diverting more aid or even individual contributions to the hungrier streams of the society, including urban slum-dwellers. Individual or small group charity efforts need to be more efficiently managed for effectively reaching out to the people beyond cities and who need it most.
NGOs have an upper hand here due to their countrywide network, especially in rural areas. During Sidr and Aila, which devastated the entire southern districts, financing through six NGOs/MFIs guaranteed by multilateral agencies yielded fantastic results.
Mamun Rashid is a partner at PwC. Views expressed here are his own.