Pandemic has created the groundwork to usher in much-needed reforms

The global community is currently undergoing twin crises: the public health crisis brought on by coronavirus and the economic shock stemming from the unprecedented public health measures governments have been forced to adopt to douse the rogue pathogen.

All economies are impacted, culminating in lower growth, higher unemployment, rising poverty, and a deteriorating fiscal position as governments are forced to fund significant public interventions, at a time when government revenue will fall.

A significant economic slowdown is expected with the International Monetary Fund projecting global growth to fall to -4.9 per cent in 2020, while Asia's growth is likely to be zero for the first time in 60 years.

Although different countries' experiences of coronavirus have varied significantly, public responses have been largely similar. Most countries have adopted social distancing measures, and in many instances, implemented stringent lockdowns.

While potentially an effective tool for stopping coronavirus, lockdowns have a disastrous impact on economic output and livelihoods, thus requiring governments to also implement massive stimulus packages.

Protecting jobs, enterprises and livelihoods in the short-run and funding economic re-construction programmes in the medium-term have created significant policy challenges for governments around the globe.

Foremost of these challenges is a sharp rise in fiscal pressure, arising from a combination of the need to use public resources to offset the consequences of the economic recessions while governments face dwindling tax revenue.

Such challenges will have implications on the overall macroeconomic management of economies, including on the complementary aspects of monetary policy, exchange rate management and public or sovereign debt management.

In Bangladesh, coronavirus arrived at a time when its economy was poised to graduate from the least-developed country (LDC) bracket in the coming four years, building on an impressive development track record in recent decades.

It transitioned to a lower middle-income country in 2015, just four decades after having the second-lowest per capita income in the world.

Over the past decades, economic growth has largely been driven by industry, which created millions of jobs, and private consumption driven by remittances.

The robust economic progress was also underpinned by strong macroeconomic management, major economic reforms and deregulation in the 80s and 90s, increasing participation in global markets and significant remittance flows.

Fiscal management has been prudent, inflation has generally been in single digits, and public debt is considered low (34 per cent of GDP in 2019).

But challenges persist, including the tax-GDP ratio has been one of the lowest in the world, while the management of state-owned enterprises (SOEs) including financial institutions has created fiscal and financial risks.

There are significant weaknesses in public financial management systems.

As with other nations, Bangladesh's economy has been hit by the direct consequences of COVID-19 mitigation measures with lockdown slowing domestic economic activity, as it faces an external shock of reducing exports and remittances.

The Bangladesh government was quick and bold in announcing a massive $11 billion economic stimulus programme, which is equivalent to more than 3 per cent of the country's GDP.

While more than three-quarters of the total stimulus comes from bank credits, the fiscal cost is significant: about 1 per cent of GDP.

Besides, with imports, exports and domestic demand in decline, the government revenues will be strained.

This is likely to further exacerbate the prevailing institutional and governance challenges that further raise risks of a decline in the quality of macroeconomic management and significantly decelerate the recovery process.

So, it is imperative for policymakers to also examine the medium-term macroeconomic adjustments and reforms required to ensure a stable, inclusive and quick economic recovery.

Further public and private investment from domestic and international sources to offset the direct impact of this crisis will be necessary.

How to secure these resources in a fiscally sustainable way, and how to manage them wisely are key policy questions for the government to address.

The central bank's next monetary policy statement and strategy will have to be bold and clear -- the Bangladesh Bank has no alternative but to expand its balance sheet to roll out an expansionary monetary policy.

The crisis and the resultant slowdown will require a significant liquidity injection to fund investments critical for supporting a rebound in output, employment and consumption.

Efficient and continuous monitoring of credit needs to enterprises, particularly small and medium enterprises, will be important.

A similar approach is also required to ensure scarce resources are not diverted away from potential credit to the private sector, towards funding ailing state-owned enterprises.

This, in turn, requires major improvements in public financial management, particularly in ensuring quality in public expenditure.

Bangladesh's development partners also have a role by providing funding and technical assistance for the government's adjustment efforts and through concessionary assistance to provide additional fiscal space to the government as it makes the necessary adjustments.

Finally, the dual health and economic crises have also underscored some key areas for reform; notably, the need to strengthen the state's capacity to collect tax revenue to ensure a sustainable debt position and to scale funding to essential public services such as health and social protection.

This may seem like an inauspicious time to contemplate significant reform, but large shocks tend to weaken political resistance to significant change, thus opening new reform opportunities.

In addition to responding to the crises to mitigate its impact on the people of Bangladesh, this may be an opportunity to lay the groundwork to build back better.

Josh Chipman is the country manager of Oxford Policy Management and M Masrur Reaz is the chairman of Policy Exchange