The world economy is passing through a direful situation for the COVID-19 pandemic. The economy is collapsing. Recession is popping up for the Great Lock-down. Sudden job cuts, rise of inflation, supply-side shock, slump in industrial output, and fall of share prices, altogether made an incomprehensible economic crisis. Government all over the globe are trying to reverse the situation by making proactive efforts.
THE CIVIL INSIGHT here explains economic Stimulus Package in the context of Bangladesh.
What is Stimulus Package?
The term Stimulus Package is derived from Keynesian Economics. Keynesian Economic shows us a different way to think beyond the stiff structure of classic economy and makes us aware to put importance on government policies at the time of crisis. Stimulus package is a shock-absorbing economic measure. If implemented properly this approach will definitely increase aggregate demand, spending, investment, and consumption in the economy.
A stimulus package is an economic measure to revitalize a staggering economy. When economy goes down, government provides incentives to reverse the situation. A stimulus package includes tax rebates, fall of Interest rate, investment facility, financial incentives, loans, and allowances.
In the last week of March 2020, US Government has declared a stimulus package of $2 trillion to resist the possible economic shock. Before that, in 2008 & 2009, US government provided stimulus package to overcome economic crisis.
The present government of Bangladesh announced a stimulus package of BDT 1,00,000 Crore ( around $12 billion) which is equivalent to 3.3% of gross domestic product (GDP) of Bangladesh (Ref: Click here).
How does a state manage this extra expenditure?
A government has usually two types of income. Tax Revenue and Non- tax Revenue. When a government fails to meet up the expenditures from its own sources, it borrows money from many other sources. Poor countries are likely to borrow money from other sources apart from their own sources.
- Commercial banks: Local commercial banks
- International development organizations: World Bank, IMF, ADB, IDB, JAICA, AIIB, etc.
- Other countries: Line of Credit
- Printing Currency
The government of Bangladesh is yet to formalize the facts and policies regarding the said incentive package. There is a little indication for how this huge amount of money will be financed and disbursed.
How Should Bangladesh Finance this Stimulus Package?
- The government must not borrow money from domestic commercial banks.
- The government should ask for getting loans from WB, IMF, ADB, IDB etc. The government should bargain with these organization to minimize the interest rate.
- The government should seek Aid and Grants from donor countries.
- The government should minimize Cash Reserve Ratio (CRR) for the Banks. So that, the extra amount of money can be injected into the economy.
- The government may print some currency if all other sources are not sufficient. But this attempt may trigger higher inflation.
How will Bangladesh disburse this Stimulus Package?
Honorable Prime Minister of Bangladesh Sheikh Hasina herself gives a hint regarding the beneficiary of this stimulus package. Many experts and economists welcomed this announcement. This is really a great step from the government.
If we see the insight then we get the beneficiaries. Maximum amount of the money will be disbursed to small and medium enterprises, textile industry, and other export oriented industry as loans (Working Capital credit, Export Development Fund, Pre-shipment credit). Bangladesh Bank (central bank of Bangladesh) will make the arrangement and Commercial banks will ultimately disburse the funds to eligible business organizations. Government will subsidize a portion of the interest to be charged.
What factors are left untouched?
- There is no direct indication of a new Fiscal Policy during and after the ongoing crisis
- There is no extra measure for improving Public Health
- Food security for the low income and under privileged section of the society is not included. Rationing system should be introduced.
- Nothing mentioned to address the possible Unemployment crisis during & after COVID-19
- No policy has been made yet regarding the Disbursement criteria of the Stimulus Package.
The above mentioned factors are left untouched in the stimulus package. We hope these factors will be addressed soon.
What are in the additional to-do list for Bangladesh?
- Deduction of Income Tax. This will help to increase consumer spending and consumption.
- Increasing technological transactions which will boost up the velocity of the money.
- Forming a watchdog team for monitoring the entire Stimulus Package to stop corruption, misconduct, and misuse,
- As the export earnings will go down, foreign currency reserve will be decreased also. In this regard, the government should minimize the individual travel quota of $12,000 each year for a person who spends foreign currency. The government should provide more incentive to the wage earners for encouraging themselves to send more foreign currency through using mainstream banking channel.