Bigger relief package needed to make up for lost economic activities

Bangladesh has announced one of the lowest stimulus packages among South Asian and Asian peers in terms of gross domestic product (GDP) to counteract the impact of the coronavirus pandemic that is on course to bringing about an economic recession.

Last week, Prime Minister Sheikh Hasina announced a Tk 5,000 crore stimulus package, which is equivalent to 0.2 per cent of fiscal 2018-19's GDP, to extend wage support to workers in the export-oriented industries.

If compared with a set of countries, Bangladesh is only ahead of Vietnam, Sri Lanka and Afghanistan, lags behind India, Pakistan, the Maldives, Thailand, Singapore and Malaysia and is at par with Cambodia and Indonesia.

The stimulus package came after Bangladesh reported its maiden cases of coronavirus infections on March 8.

Since then, the deadly virus has infected 51 people and was linked to death of five, according to the Institute of Epidemiology, Disease Control and Research.

In order to face expected increased demand for healthcare spending, the finance division of Bangladesh is preparing a revised budget for the fiscal year, the International Monetary Fund (IMF) said on its website. It already allocated an additional Tk 250 crore to the health services division.

The government is also considering measures to cushion the impact of the crisis on the economy, including the expansion of existing transfer programmes that benefit the more vulnerable households, as well as mechanisms to support exporting industries.

Increased allocation has been made to the Open Market Sale (OMS) programme to ensure adequate food supply for lower-income class households, particularly those dependent on daily wages.

The National Board of Revenue has suspended temporarily duties and taxes on imports of medical supplies, including protective equipment and test kits.

"The recent announced fiscal response in Bangladesh is in the right direction, though far from adequate," said Zahid Hussain, a former lead economist of the World Bank's Dhaka office.

The most significant in terms of the amount of financial resources is the Tk 5,000 crore -- which is equivalent to 0.2 per cent of fiscal 2018-19's GDP -- wage support to workers in the export-oriented industries.

Now, the Bangladesh Garment Manufacturers and Exporters Association claims that it pays Tk 4,000 crore in wages every month. The Bangladesh Knitwear Manufacturers and Exporters Association probably pays an amount very similar.

Then there are the others: leather, footwear, furniture, ceramics and so on. Most are demanding more than a months' basic pay. Rationing is inevitable since the total is well short of the wage bill in the exports sector, the economist said in a write up.

In order to pool resources, the government is seeking $750 million from the IMF.

The government wrote to the crisis lender on Sunday asking for the fund, said a finance ministry official. 

The IMF has made available about $50 billion through its rapid-disbursing emergency financing facilities for low-income and emerging market countries that could potentially seek support.

Initially, officials had said that the government was seeking $200 million from the World Bank: $100 million for the health sector and $100 million in budget support.

Now, the government would like to get $500 million from the Washington-based development lender, said one official of the finance ministry.

The Asian Development Bank may provide $500 million to Bangladesh initially as budget support in order to help the country improve its health system and assist the vulnerable groups. It has already provided $300,000.

The coronavirus may wipe 1.1 per cent off the GDP of Bangladesh as per a projection of the ADB.

"Many people have lost jobs because of the coronavirus. We have to stand by them," said Prime Minister Sheikh Hasina in her address to the nation on March 25.

Assistance would be extended to the low-income people in their respective villages under the Ghore Fera Kormosuchi, a programme of the government. Homeless and landless people would be given homes, food for six months and cash, she said.

The Vulnerable Group Development (VGD), one of the largest safety net programmes, the Vulnerable Group Feeding (VGF) programme, which provides food transfers to the poor during disasters and major religious festivals, and the initiative to sell rice at Tk 10 a kg would continue, she said.

On March 23, the government declared a general holiday from March 26 to April 4. The holidays were extended to April 11.

Government offices, private offices and courts have been closed. Commercial banks are operating shorter hours. Individuals have been requested not to leave their homes except to collect daily necessities and emergency supplies.

Beyond the domestic impact of the health crisis, the two main channels through which the Bangladesh economy will be impacted are remittances and exports of garments, said the IMF on its website.

Remittances represent more than 5 per cent of GDP (close to $17 billion in fiscal 2018-19), and a majority of the migrant workers are based in Gulf countries that are affected by the abrupt decline in oil prices.

Close to half a million migrant workers have returned since the outbreak of the pandemic.

The garment sector accounts for more than 80 per cent of the country's exports. The industry has been hit by the cancellation of $2.90 billion in garment orders from major retailers in advanced countries, affecting 1,059 factories and 21 lakh workers, according to data compiled by the BGMEA.

Almost all garment factories were closed yesterday. The sector employs about 41 lakh workers.

In a recent interview with The Daily Star, Finance Minister AHM Mustafa Kamal, however, said more measures, short-term, mid-term and long-term, would be taken to support all the industries that have been affected by the virus pandemic.

"Once the crisis is over, we will take whatever steps we need to take so that the affected businesses and businesses can return to their pre-crisis level. No sector would be left out."