In order to stimulate growth and increase the level of investment in the economy, the government of Bangladesh will implement a lending plan on an enormous scale to tackle the economic fallout of the COVID-19 pandemic.
The Finance Ministry, through the Financial Institutions Divisions (FID), has decided to set a Tk80,000 crore loan disbursal mark for the state-owned banks. Besides, FID plans to distribute Tk66,000 crore through various non-government organizations (NGOs) engaged with microfinance and micro-credit activities all across Bangladesh.
The primary sector, specifically the agriculture industry, is being emphasized all throughout the scheme. This particular economic measure promotes agriculture through crop insurance, and addresses natural variables -- rapidly changing environmental conditions. The central bank is thinking of yielding a sum of Tk2,600 crore as loans to the agriculture sector from its very own fund in three separate stages. The scheme aims to curb tariff through a step-by step analysis in order to reduce the cost of production for industries. In many aspects, this action plan has the capability to combat the upcoming global recession.
Financial institutions listed in the capital market will receive credit assistance from Bangladesh Bank to increase their liquidity. At the same time, export-driven sectors such as the food and beverage industries, pharmaceuticals and the crucial textile industry would be given tax weavers. However, these designated industries will have to re-invest in the economy, as mentioned in the terms of condition. The government strongly believes that through the implementation of the recently announced stimulus packages, it would be possible to recover the pace of the overall economic activity of the country.
Many a time, economists have opined that developing countries have the potential to set certain benchmarks for fast economic recovery. In the midst of the worldwide economic fallout triggered by the COVID-19 pandemic, Bangladesh has indeed taken a concrete step to encounter this global crisis.
In the historical context, economic growth in Asia, primarily in Malaysia and Indonesia, was accompanied by a rapid structural transformation of the rural economy. In such countries, the growth was reflected in a diminution in the relative importance of physical aid to agriculture and an increased use of sophisticated capital in the primary sector.Besides, a greater degree of specialization in the economy was observed. Augmented levels of technological prowess were also evident.
Now, the developing countries, which were anticipated to have noticeable levels of economic transition in this decade, will face drawbacks and encounter problems after the pandemic ends. Most of the developing nations work with a strict budget constraint and are resource-strapped emerging economies. Thus, the happening of distinctive changes, which could have created major opportunities for financial markets to flourish, is very vague. It is not a matter of denial that the third world countries will be adversely affected, and their chances of recovering strongly after the pandemic ends is questionable. The pandemic will strongly affect low-income households, especially informal workers in the hospitality, retail trade, and transport sectors. Most of the low-income workers in the third world have limited or no access to healthcare, and are not covered by the social security system. The World Bank believes that the impact of the pandemic is most likely to reinforce income inequality in South Asia, followed by massive levels of marginalization.
The unprecedented nature of the crisis has driven a collective exodus of low income workers travelling from cities to rural areas, as accommodation in urban areas is expensive. This movement on such a large scale is spiking fear that many of them will fall back into absolute poverty, and the numbers of infected cases would rise significantly. In such circumstances, many of the developing countries have eased regulations of the lock-down and directives in the transportation sector have been abated.
The World Bank has warned that the pandemic would threaten food security, especially for the most vulnerable income group. In Bangladesh, one in every five people live below the poverty line, and the average wage is less than $5 a day. According to the
Asian Development Bank (ADB), in India the proportion of employed population below $1.90 purchasing power parity a day in 2019 was 10.7%. Besides, more than 700 million people in Asia and the Pacific live below the global poverty rate of $1.25 per day, comprising two thirds of the world’s poor.
According to certain estimations of the World Bank in 2015, nearly half of the world’s population lived under $5.50 a day, and due to the COVID-19 crisis, the key indicators of poverty can be expected to perform worse in 2020.
The post COVID-19 scenario for most developing countries is highly challenging. Now, governments should work with relief agencies through consensus in order to provide safety nets and secure access to food, medical supplies and necessities for the most vulnerable. At the same time, they need to execute expansionary fiscal policies combined with monetary stimulus, to keep credit flowing in their economies.
Policy frameworks have to be designed through research and survey based evaluations to address and recognize the people worst hit by the freeze on economic activity. Now, core aspects such as economic policy analysis should be given the utmost importance. Governments may also choose to implement stimulus packages to revive the economy.
At this point of time, coordination and mutual understanding between the governments and international financial partners can avoid unsustainable long-term debt levels and fiscal deficits. Amid this crisis, hope can become our biggest strength.
Md Nazmus Sakib Khan is currently an A’ Levels student at Mastermind English Medium School