Can Bangladesh’s Stimulus Package Stand against the impending Covid-19 Tsunami?

Bangladesh PM’s speech on the 25^th was widely anticipated, owing to the onslaught of the Covid-19 induced health crisis and the resulting economic maelstrom. Citizens were keen on gauging the nature of the stimulus plan, expected to be unveiled during her speech. As a resource strapped emerging economy, the government has its fiscal limitations in implementing major interventions, but the unprecedented nature of the crisis requires sweeping responses. Unfortunately, the government announced measures, to some extent, have fallen short of expectations, and implementation of some of these policies remain a practical challenge.

Before delving further into Bangladesh’s stimulus plan, it’s imperative to look into the policies announced by some other countries in the context of the global pandemic.

India

The Indian government has earmarked USD 19.6 billion as stimulus package for supporting those affected by the pandemic.  The primary focus has been to back workers in the informal sectors who have experienced a steep decline in income or have lost jobs. The government plans on providing cash stipend directly to 100 million people from the low income strata, amid the 21-day lock-down initiated from this week. Alongside, the central bank is buying back treasury bills for increasing overall liquidity, popularly known as quantitative easing. The main goal remains to contain interest rates and maintain access to credit for SMEs and large corporates. India’s FM, Nirmala Sitharam, will formally announce the details of the stimulus package on 31^st March.

Italy

Guiseppe Conte, Italian Prime Minister, has initiated a Euro 25 billion (USD 28 billion) stimulus package for supporting those severely impacted by the spread of the pandemic and resulting lock-down. Following measures have been undertaken:

• In order to prevent the self-employed and seasonal workers such as tour guides from struggling financially, the government will be allocating each of them a payment of 600 Euro for the month of March.
• For the next two months, companies are prohibited from laying off workers without “justified objective reasons”
• For lower paid employees, the government will cover 100 Euro bonuses which are to be paid by the employers directly along with their regular wages in April.
• Self-employed and freelancers who have mortgages can ask to have their payments suspended considering they can prove that their incomes dropped by a third from what it was before.
• In order to compensate shop owners for forced closures, the government is offering tax credits to cover 60 percent of their rent payment for the month of March.

Canada

As a response to the COVID-19 pandemic, the federal government of Canada has announced several economic measures in order to support employers and their employees. A total of CAD 82 billion in financial aid was announced including CAD 27 billion in direct payments to Canadians who require support and CAD 55 billion in tax deferrals available to all taxpayers. Some other benefits include:

• The government will cover up to 10 percent of an employers’ remuneration costs for three months
• For people who do not qualify for EI sickness and also do not have access to paid sick leave, the emergency care benefit will provide up to 900 CAD for up to 15 weeks.
• Emergency support benefit will provide support for up to 14 weeks for people who do not qualify for EI and are unemployed.
• The government is providing a GST credit top -up, a one-time payment to be made in early May: CAD 400 for single individuals and CAD 600 for couples.
• Canada Child Benefit top-up is allocating CAD 300 per child, which is also a one-time payment.
• A six-month moratorium is provided on student loan payments which is also interest free.
• The British Columbia is providing a one-time CAD 1000 payment to people who have lost their income due to the outbreak.

USA

In response to the COVID-19 outbreak, the US federal government has recently passed (26^th March) a slew of legislation and executive orders. A few of them are mentioned below:

• The president announced a waiver on interest payments on student loans during the crisis.
• The government is initiating a payroll tax cut. However, this tax cut will only help people who are still receiving a pay check.
• The Families First Coronavirus Response Act provides USD 500 million in food assistance for low-income pregnant women and mothers with young children.
• The Families First Coronavirus Response Act is putting USD 400 million into food banks and USD 250 million into a senior nutrition program in order to address some food insecurity issues.
• The Families First Coronavirus Response Act is suspending work requirements for the Supplemental Nutrition Assistance Program (SNAP) for the duration of the crisis.
• The U.S. Department of Labor announced that they can provide unemployment benefits for temporary unemployment situations, however, the individual needs to qualify for this benefit after the verification of the cause of unemployment by the state.

Thailand

Thailand’s Deputy Prime Minister, Somkid Jatusripitak approved financial aid to help businesses and individuals affected by the virus. Some of the new measures are:

• Monthly allowances of 5,000 baht (USD 153) for three months for workers who are not covered by the social security system.
• For small and medium enterprises, especially tourism-related businesses, allowances worth 10 billion baht (USD 305 million) is approved.
• Thailand introduces measures including support fund worth 70 billion to 100 billion baht in order to reduce risk in the debt market due to the coronavirus outbreak.
• For six months (April to September), Thailand’s cabinet approved cutting the income withholding tax from 3 percent to 1.5 percent.

Philippines

The central bank of Philippines cut interest rates by 50 basis points in order to mitigate the damage to their economy caused by the lockdown of Luzon due to the pandemic outbreak.

The government is crafting a 173-billion-peso stimulus bill with an estimation that about 65 billion pesos is needed to assist Luzon’s 7 million “no-work no-pay” workers who are out of any livelihood due to the lockdown.

How has Bangladesh’s Stimulus Package Fared?

Government’s announcement of supporting the export driven sectors, to the tune of BDT 5000 crore, is a timely move. However, the modality of disbursement has to be defined, since the primary goal for the stimulus plan is to protect jobs for the workers and not to serve the interest of the owners. Government can initiate a Government to people (G2P) process using MFS providers for directly disbursing wages to the impacted workers. Alongside, a mechanism has to be in place for selecting factories eligible for government support. Commercial banks, which are closely engaged in serving exporters, and NBR can provide necessary information pertaining to the financial health of individual companies.

Informal sector workers are the hardest hit due to the pandemic. The government has rightly identified this challenge, and the PM has pledged to distribute food supplies for up to six months for the economically vulnerable. The government will also initiate selling rice at BDT 10/kg through the VGF schemes. The government claims to have adequate food stock (17 lac MT food grain) available for distribution and market stabilization. While this might sound fantastic in theory, implementation of this plan remains a genuine challenge, especially given the ‘social distancing’ rule being enforced countrywide for stemming the spread of the virus. Finding the right target audience might prove to be a bottleneck and there might be instances of corruption or system loss while disbursing food items to the affected population. Government can consider engaging reliable development agencies (e.g. BRAC) for making nation-wide distribution of food items to the low income population.

Bangladeshi SMEs play a pivotal role in contributing to economic growth and employment generation. While large export driven sectors have received commitment of support from the government, SMEs are yet to receive any firm policy backing. Access to cheap credit, direct cash support for making payroll might be critical for the survival of SMEs. The central bank can also aid the financial system by increasing SME loan refinancing and instructing commercial banks to increase allocation for SME working capital loans on an urgent basis.

The healthcare allocation in our latest budget (FY2019-20) is worth BDT 294 billion, which constitutes 1.02% of GDP and 5.63% of total budget allocations. The covid-19 scenario should ideally cause a paradigm shift in the thought process of policymakers pertaining to healthcare investments. The government should take into account the inadequacy of the current health infrastructure and resources and make hurried investments in hospitals equipped for treating coronavirus patients and other necessary resources like PPEs and ventilators.

Lastly, the government needs to chalk out a firm strategy for financing the stimulus package without causing too much disruption to the economy. The Indian government is planning to increase excise duties on petrol and diesel, as well as imposing incomes taxes on a section of non-resident Indians for financing the stimulus plan. Our government must also find avenues for raising revenues without depending too much on our banking system. CSR funding from the private sector and soft loans from multi-lateral agencies can also be harnessed for partially financing the plan.

At end of the day, all strategies are as good as how these are getting implemented. Government should collectively engage as many stakeholders as possible, including development agencies and private sector organizations, for tackling the ramifications of this healthcare and economic tsunami that we’re currently facing.

Authors: Zahedul Amin, Co-founder & Director and Dipa Sultana, Business Analyst, LightCastle Partners.

The LightCastle team has been analyzing the macro and industry level picture and possible impacts wrought about by the Covid-19 crisis. Over the following days, we’ll be covering the major sectors shedding light on the possible short and long term ramifications of the global pandemic. Read all the articles in the series.