Covid-19 has spread all over the world in a very unprecedented manner. Like most of the affected countries, Bangladesh has been compelled to impose a lockdown, resulting in people staying at home and restraining economic activities. This is likely to lead to a huge distressing impact on the economy. Furthermore, as the advanced economies are projected to fall into prolonged recession, and the middle-eastern countries are already suffering from plummeted oil prices, all these will have serious negative implications for our export and remittance earnings. There are debates over the economic impact of Covid-19 in Bangladesh. While both the World Bank and the IMF have projected a drastic fall in GDP growth rate, the Bangladesh government’s projection seems to be rather optimistic. However, the exact magnitude of the impact of Covid-19 on Bangladesh economy will depend on the length and spread of the crisis along with the mitigation measures taken by the government.
In my view, Bangladesh needs a 2-year Recovery Plan. The 200-21 national budget and the budgets in the following years should be consistent with the Recovery Plan:
This 2-year Recovery Plan will aim at taking the economy back to the pre-crisis level.
Delay the beginning of the 8th Five Year Plan by 2 years to 2022. The 8th Plan needs to be re-written. A large part of it seems to be irrelevant at this stage.
Devise fiscal stimulus packages and monetary policies to support the RMG, other export-oriented and domestic-market oriented industries and SMEs.
Devise and extend social protection programs for a vast number of marginalised, near-marginalised and a large section of the suddenly vulnerable population.
Undertake some ‘politically feasible’ policy reforms in the areas of trade, tax, banking sectors. The tax-management and banking sectors need some much-needed and urgent reforms, which has long been neglected, to effectively arrange the money announced in this financial package. Now is the time to take some ‘politically feasible’ reforms and act against the vested interests in these two sectors.
Explore ways for generating resources (domestic and external) to support the fiscal stimulus and eased monetary policy measures.
Suspend the LDC graduation target by at least 3 more years.
Raise the voice at the global level to push the SDG target year from 2030 to 2035.
The upcoming budget should be a “COVID-19 Response Budget” for all the ministries so that the ministries can give attention to anti-pandemic measures as well while continuing their development efforts and routine work. The “COVID-19 Response Budget” must be designed to prioritize a few priority issues and act as a supporting measure for the national fight against the COVID-19 Pandemic.
The government might have to increase the deficit in the upcoming budget. The policymakers must act boldly as there is no place for conventional thinking now. Now there is no alternative to expansionary fiscal policy, although we might have to concede budgetary deficit. The budget deficit may go up from the current 4-5% to 8-10% which should be acceptable under the current scenario.
Bangladesh has an appalling tax to GDP ratio of only 9%, making it very difficult to increase government spending on vital economic and social areas. The government should consider cutting down unnecessary expenditure to support the increased expenditure in the priority areas such as in Social Safety Net and Health Sector. The government may re-visit the spending and implementation plans of the on-going mega-projects in the context of the current crisis.
Policymakers must consider austerity measures in national level. Bonus and other benefits for high-level employees can be cut off in this regard and the money saved from such austerity measures can be reallocated for emergency and relief programs and financial schemes. The private sector can also take some austerity measures in terms of canceling unnecessary costs and channeling resources for the welfare of the workers. To tackle the upcoming economic recession such austerity measures will be helpful.
There should be a few priority areas of the budget 2020-21. These are the proper implementation of the stimulus package, higher allocation for health, agriculture and social protection, normalization of the economy, addressing the problems of youth, addressing the problems of falling remittance and returnee migrants, and improving institutions.
Stimulus package
In the wake of the COVID-19 crisis, the Government of Bangladesh has announced a stimulus package, which is around 3.5% of GDP. The success of this stimulus package depends on a few things. It is important to note that Bangladesh does not have any experience of implementing such a huge amount of stimulus packages. The type of crisis we are observing now due to COVID-19 is very different from the crises Bangladesh faced in the past, like cyclones or floods, and handled effectively. Most countries in the world also do not have this kind of experience, and Bangladesh certainly did not have this kind of past experience. Therefore, in this kind of crisis, when such a huge amount of money is being injected into the economy, the success of the stimulus package will depend largely on three areas: financing, management and monitoring.
The first thing that matters is how the money in this stimulus package will be financed. There are four options. The first is that all the unnecessary expenditures of the government, for example, various unnecessary development plans and unnecessary projects in the budget need to be suspended or cancelled immediately. The money saved from it must be utilized for the stimulus package. The second is to borrow from international organizations like the World Bank and the IMF. We know that Bangladesh, as per World Bank’s classification, has graduated from the low income to lower-middle income country status, and due to this Bangladesh has lost the privilege of accessing loans from the World Bank and IMF at a lower interest rate. But in such a crisis time, Bangladesh must try to negotiate with the World Bank and the IMF to find out how to get loans at low interest and easy terms. We do not want any stringent conditions from the World Bank and the IMF now. The third way may not be very pleasant. However, the government will still borrow from the banking sector. We know that despite the current fragile state of the banking sector the government has already borrowed money more than what was planned for the whole financial year. However, if the government borrows further from the banking sector, I think it should be done judiciously with sufficient caution. If the above mentioned three options are exhausted, then the fourth option will be to print money. But I think it should be the last resort.
Now the question is, how will the use of the money from the stimulus package be managed? There are two aspects to the stimulus package. One is to provide support for the disadvantaged industries and the other is to deal with food shortages and other problems of the poor and vulnerable people. Who will get the money and how the money will be distributed under these two cases will have to be effectively managed. It is important to note that there are many shortcomings of our bureaucracy, and especially the lack of the efficiency of government management. We can’t avoid these problems now. It is important to note that when there is a question of disbursement of a huge amount of money of the stimulus package, there will be people to take unfair advantages of it. We have already seen some of the signs of this kind of unfair practices. So it is important to ensure transparency and accountability in the implementation of the stimulus package.
There is a need for setting up a monitoring unit to monitor the entire process. Because if the government spends itself, monitors itself, it will have no check and balance. I appeal that a national monitoring committee should be formed immediately where representatives of government organizations, NGOs, civil societies, business organizations, and labour organizations will be included. It is very important to establish such a monitoring system as soon as possible.
Health
The crisis caused by Covid-19 has shown us that there is no alternative to public spending and government initiatives in the health sector. Surprisingly, in the last two decades, public expenditure on health as a proportion of GDP in Bangladesh has remained at 0.5%, which has declined over time. It is necessary to increase the allocation in the health sector significantly in the budget by at least three-fold to 1.5%.
The ongoing crisis shows the dilapidated state of government hospitals and public health services. At the same time, it shows a lack of accountability in private hospitals and private health services. This needs to be fixed. It is also important to keep in mind that with the significant increase in public expenditure in the health sector, transparency and accountability in spending must be ensured.
Agriculture
Several steps need to be taken to implement the government’s stimulus package for farmers. As the domestic supply chain of agricultural materials has collapsed, the current crisis in the agricultural sector cannot be solved by just giving loans to farmers. It is necessary to take measures on how to re-initiate the supply-chain of agricultural materials at the field level, in compliance with the health regulations. In this case, the Ministry of Agriculture, the Ministry of Health, the Ministry of Transport and the Ministry of the Home Affairs must work jointly with the local administration and businessmen.
Agricultural workers, who travel from different parts of the Northern region to work in paddy and other agricultural activities across the country, are unable to travel during this crisis time. Due to this, the critical shortage of agricultural workers is occurring in different places of the country. In this case, the Ministries of Agriculture, Health, Transport and Home need to work jointly with the local administration to ensure safe passage for agricultural workers, in compliance with health regulations.
The government should rethink about the 4% interest rate. At this particular crisis, I recommend going for interest-free loans under this particular stimulus package. It must also be ensured that only genuine farmers, those who need it have access to the loan. It is important to remember that in the coming days, food security will be a major challenge for the vast number of population. For this, the highest importance should be given to the agricultural sector and every effort should be made to ensure that agricultural production is not disrupted.
For years, we have been seeing that the farmers are not getting the fair price for their crops, and middlemen are depriving farmers of their rightful share. Even in the case of a price hike of paddy and rice, mill owners become the beneficiary, not the farmers. In the context of the current crisis, we believe, this problem must be addressed. Since the local administration is now very active at the grassroots level, during the ongoing crisis, in collaboration with the local administration it is necessary to increase substantially the amount of government procurement of paddy directly from the farmers at a fair price. In this regard, we suggest, the government warehouses are utilized to the maximum. If the government warehouses fall short, then private warehouses should be rented by the government.
Social protection
There is no denying that the worst victims of the slowing down of economic activities are the poor people, many of whom are dependent on daily earnings and live hand to mouth. Also, this crisis is feared to have a disastrous impact on the low-income people who are otherwise considered “non-poor” but are very vulnerable to fall into poverty due to any negative income shock. A large segment of these low-income people is engaged in informal activities with high volatility in earnings. SANEM’s estimates suggest that another 20.4% of the population will fall into poverty and the poverty rate may go up to as high as 40.9% from 20.5% in 2019.
For the poor, extreme poor, and marginalized population and the people who are suddenly vulnerable in the current situation, there is a need to significantly increase the size and coverage of social security programs and the creation of the new type of social security programs. A large part of this abovementioned population is in the informal sector. But there is no emphasis on the informal sector in the announced financial package. According to past experiences, there are many gaps in the existing social security programs so that the fulfillment of the objectives of these programs is often hampered. Therefore, there is a need for a strong stance against corruption, and ensure transparency and accountability in social security programmes.
To ensure food security for the poor and vulnerable people, it is necessary to distribute essential food items at the local level based on the list of the poor that the government has under the social security programme. There is a need to come up with new lists to include the excluded poor and vulnerable people. At the local level, administrations, public representatives, volunteers and NGOs can work together to create and update the lists, distribute food, and prevent irregularities throughout the process. Capable individuals in the private sector and private-sector organisations (such as BGMEA, FBCCI, MCCI, DCCI) need to come forward to ensure food security for their workers and staff.
In combating the Covid-19 crisis, the government of Bangladesh has already announced several stimulus packages and social protection programmes which certainly indicate its positive intention to reduce the negative economic impacts of Covid-19 as well as minimizing the burden on the poor and vulnerable population. However, the success of these initiatives will depend on three factors: 1) effectively identifying the vulnerable people and thereby determining the nature and duration of support; 2) ensuring that the genuinely affected industries and poor and vulnerable people receive support; and 3) introducing a Monitoring and Evaluation (M&E) mechanism to ensure efficiency, transparency and accountability in the distribution mechanism.
Normalization of the economy
Initiatives can be taken to keep the necessary economic sectors open to a limited extent while maintaining the highest level of health safety standards for workers. In this case, the relevant government agencies and factory owners need to come up with appropriate sector-specific and region-specific protocols. At the same time, full transparency and accountability must be ensured in how this protocol will be implemented. But the implementation of such an initiative depends on the level of coronavirus-related health risks in the country, which is changing every day.
The Resumption of economic activities has to be carefully planned. Virologists and epidemiologists must be consulted before lifting the ongoing lockdown. The economy will continue to suffer if the pandemic again takes hold after the resumption of economic activities.
Youth
The effect of the Covid-19 pandemic on the youth of Bangladesh will have multiple dimensions, such as health, education, employment, income, poverty and domestic violence. It said the youths are highly vulnerable to the novel coronavirus. Approximately 26% of the country’s total number of Covid-19 patients is in the age bracket of 21-30 years. Besides, the closure of educational institutions is affecting approximately 37 million students across the country and if it lasts for a longer period it will engender far-reaching economic and societal consequences. While the opportunity for skills development is already narrow for the youth of the country, the pandemic has turned the whole situation all the more difficult. It is apprehended that the pandemic will increase the number of educated unemployed people. The current massive economic disruption is hurting the 20 million youth labour force of Bangladesh. The Covid-19 crisis is affecting the employment of youths adversely as the nation remains in the closure of firms and reduced production. Due to this epidemic, many youths might get unemployed or underemployed. Additionally, with a stay-at-home order in place, there are fears of a possible rise in violence against women and girls at home. The findings mentioned that the stimulus package, announced by the government, neither provides any direct allocation nor gives any specific direction for the youths of the country. Nevertheless, allocations and policy guidelines might benefit the youths.
I recommend a provision of health coverage and engaging most vulnerable youth groups in the healthcare packages, education requiring robust social protection expansions, extending the social safety net to include unemployed youths, creating employment retention schemes, tax relief or interest-free loans to SMEs operated by youths, motivating and engaging youths in skill development programmes.
UGC and the public universities must start working on academic plans which can be implemented once universities open. The plan must focus on smooth and fast completion of the semester. Rearrangement of courses, extra classes and utilization of internet technologies should be included in the plan so that students do not remain behind.
Remittance and returnee migrants
Many immigrant workers have returned to Bangladesh and many who have not returned, have become unemployed. The shock to remittance will affect many households and even push some below the poverty line. Diplomatic negotiation is urgent so that these workers can return to their work after the crisis. It must be ensured that the workers are benefitted from the stimulus packages announced by the government. A strategy on integrating returning immigrant workers in the national economy has become necessary.
Institutions
The COVID-19 crisis is a wake-up call for the strengthening of institutions. Public trust in national institutions has been deteriorating and restoring the people’s trust in institutions is of paramount importance. The government must act now in making the existing institutions more efficient, transparent and accountable.
Dr. Selim Raihan
Professor, Department of Economics, University of Dhaka, Bangladesh.
Executive Director, South Asian Network on Economic Modeling (SANEM)
Email: [email protected]