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To stimulate or not to stimulate?

  • Published at 05:04 pm April 15th, 2020
cash hammer

Exploring the constitutionality of the government’s stimulus package

In a very recent conversation, the four-year-old nephew of one of the authors of this article asked about the day when he would go back to school and, most importantly to him, when his mother would resume office. It was obvious that he successfully submitted to the peak of his boredom. He could not even stand his working mother around him anymore. The far-reaching effect of being “locked-down” at home for an indefinite period due to the novel coronavirus was clearly visible. 

This is an unprecedented situation for us. Terms like “globalization” and “social connections” are being replaced with “isolation” and “social distancing.” Covid-19, a tiny microscopic virus, is running havoc all over the globe. No country from the spectrum of the so-called “developed” to the least developed has been spared. All related figures are changing rapidly. Records are being set to be broken within the next day. Keeping up with those numbers has become a challenge too. The statistics we found during our initial research for this article have already become redundant before finalization of the article! 

Bangladesh is no exception in this pandemic. To tackle the inevitable economic collapse, recently, Prime Minister Sheikh Hasina declared a stimulus package of Tk95,619 crore (approximately $11.4 billion), which is about 3.3% of the country’s GDP. Certainly, the declaration came as a “breath of fresh air” for the Bangladeshi business community. But the critical issue is that -- as the saying goes -- “the devil is in the detail” and it is of utmost importance to see how the manner of execution of this stimulus package takes place and the criteria upon which funds are disbursed to the affected persons and entities.

This article explores the factors, which we think the Bangladesh government should be mindful of when setting out the eligibility criteria for availing the benefits under the stimulus package. Failure to set out such eligibility criteria accurately by the Bangladesh government may result in the violation of fundamental rights enshrined in the constitution of Bangladesh and Bangladesh’s international obligations.

Within 50 years of independence, Bangladesh strives to become a “welfare state,” a concept under which the state shall guarantee a minimum level of welfare for the citizens and assume responsibility to provide social security. The constitution of Bangladesh recognizes the importance of welfare of the people because the preamble calls for ensuring rule of law. Fundamental human rights and freedom, equality, and justice -- political, economic, and social -- shall be secured for all citizens. 

In addition, it requires that the state, subject to certain restrictions, permit enjoyment of lawful profession or occupation, and to conduct any lawful business; and the right to enjoy his/her property. Article 27 of the constitution provides that all are equal before the law and are entitled to the equal protection of law. In interpreting Article 27, the Appellate Division of the Supreme Court of Bangladesh has opined in numerous cases that the right under Article 27 does not guarantee absolute equality, but it requires that persons under like circumstances and conditions shall be treated alike and no discrimination shall be made in the conferment of any privileges.

This concept of liberal equality -- often termed formal equality -- has been traditionally paraphrased by the maxim: “Treat like cases alike.” Such equality, it is claimed, is the essence of fair and just treatment, both by the state and by other persons in the society. No individual or class of individuals should be treated worse than others by the state, where they are not in breach of the general law or otherwise threatening the freedom or well-being of others or the society as a whole. Nor should any individual or class of individuals be treated more favourably than others by the state, unless some higher benefit to others or the society as a whole is served in doing so.

A pressing question

Will the Bangladesh government be bound to provide all the businesses and persons with this stimulus package or is there a discretion for the government to pick and choose? This is largely a question of policy.  

Generally, the courts around the world are reluctant to intervene in policy matters of the government covering economic regulation, even if such policy matters sometimes affect the fundamental rights of the citizens. The American Supreme Court repeatedly upheld the statutory classifications concerning the regulation of economic activities. It has been declared by the court that it is not its function to judge matters of economic policy and it must necessarily be left to the expert bodies, and the court will not interfere unless discrimination clearly emerges from the facts of a case. 

In keeping pace with that, the Appellate Division of the Supreme Court of Bangladesh has also held that decisions relating to the social and economic policy must not be interfered with unless it is arbitrary and, the court will not interfere unless discrimination clearly emerges. In the context of stimulus or subsidies, in a recent case, the Karnataka High Court refused to review the government’s decision to grant a subsidy to a particular branch of farmers to the exclusion of others. 

However, the reluctance of the courts should not be misunderstood with lack of power; as described by Lord Bingham of Cornhill, just because judicial tribunals are reluctant to review some issues, it does not mean that the courts cannot decide when a person has a legal right. And when it comes to “legal rights” the concepts of “discrimination” “arbitrariness” and “irrationality” will take centre stage while analyzing the Bangladesh government’s decision to stimulate or not to stimulate a particular business or sector under the stimulus package.

The concepts of discrimination and classification are both sides of the same coin. As put by one of the finest legal minds of Bangladesh, Mahmudul Islam (former Attorney General of Bangladesh and Senior Advocate) in his book Constitutional Law of Bangladesh, 3rd Edition at page 149-150, to pass the test of constitutionality, the classification must satisfy two requirements: 

(a) The classification must be logically correct, which means it must be founded upon some intelligible differentia which distinguishes the person grouped together from others left out of the group 

(b) The differentia must have a rational relation or nexus to the object sought to be achieved

The concepts of arbitrariness and irrationality are cousins of discrimination. Any government officer charged with taking a decision must be equipped with sufficient legally relevant information to enable him to make an informed judgment. There is a critical distinction between things which are so relevant that they must be taken into account, and matters of relevance which may legitimately be taken into account. If the government office does not take into account the former, the decision becomes arbitrary and may be susceptible to judicial scrutiny. On the other hand, irrationality occurs when the decision, as the famous English judge Lord Diplock put it, is “so outrageous in defiance of logic or of accepted moral standards that no sensible person who had applied his mind to the question to be decided could have arrived at it.”

With the above principles in mind, we have analyzed some of the salient features of the stimulus package.

The first two parts of the package (Tk50,000 crore) are aimed at affected industries, service sectors, and small and medium enterprises to which banks will disburse loans. No definition of “affected” is given either in the stimulus package or the guidelines issued by Bangladesh Bank in this regard. What are the criteria of the term “affected?” Will this be judged on a turn-over basis? Or is there another basis of this determination?

The first two parts talk about disbursement of loans by banks on the basis of “bank-client relation.” According to the guidelines issued by Bangladesh Bank, the commercial banks will decide whether an entity has been affected or not before approving a loan under the package. If banks are the decider of eligibility for this loan, then will the eligibility criteria be uniform amongst banks or will each bank formulate its own criteria? And what happens if banks commit errors in arriving at their conclusions while determining eligibility for the loans? 

Will the aggrieved enterprise or business be able to challenge such decisions by the private banks before the High Court Division of the Supreme Court of Bangladesh by way of a writ under Article 102 of the constitution on the grounds of arbitrariness and irrationality, when the settled principle is that writ generally does not lie against private banks?  

In this context, it may not be out of place to mention the recent track records of a number of banks in conducting (or not conducting) risk assessment of prospective borrowers. Their inability or unwillingness to determine the creditworthiness of borrowers is evidenced by the mounting non-performing loans at 9.3% of the total disbursed loan amounts, which is standing at more than Tk100,000 crore as of December 2019. Even before Covid-19, the banking sector of Bangladesh was struggling with liquidity, which seriously affected the sector’s ability to lend. The absence of proper corporate governance, coupled with operational inefficiency, among other factors, have already hampered depositors’ confidence in the banks, compelling the government to take steps to address the impending explosion by making interest rate cuts. But with the Covid-19 outbreak, all concerns seem to have taken a backseat and the banks have been brought to the forefront of disbursing the stimulus fund. This may look like sending the banking sector and the depositors out of the frying pan into the fire.                  

Another aspect of the stimulus package is Tk760 crore, which has been allocated for the daily wage earners who have lost their jobs or are out of work due to ongoing lockdown. This portion of the stimulus package appears to leave out self-employed persons, such as Facebook-based e-commerce (otherwise known as f-commerce) entrepreneurs, and gig-workers like ride-sharing drivers, riders, delivery men, etc, many of whom are providing for their families through earnings generated solely by these activities. 

It goes without saying that similar to the daily wage earners, this group of self-employed persons is also vulnerable to the effects of economic lock-down caused by Covid-19. It could be argued that the stimulus package does not adequately address these people or their woes. It neither offers incentives to their employers (unless they are included in the definition of “affected” businesses) so as for them to continue with the employment, nor does it offer to provide enough sustenance directly to these income groups.

The objectives of the stimulus package are twofold. Firstly, it is to have the economy operational post-Covid-19 and secondly, to cater to the people who would become part of the redundant workforce due to the unavoidable contraction of the economy. In a post-Covid situation, redundancies would cut across both formal and informal sectors (that is, economic activities which operate beyond the tax and regulatory radar). But the economic stimulus appears to be favouring more towards the formal sector while leaving some categories of the informal sector completely out of its ambit. 

This gives rise to the issue of whether this differentia has any clearly established nexus with the objectives sought to be achieved by the stimulus package. In interpreting the constitutional guarantee of “right to life” enshrined in Article 32 of the Constitution, the High Court Division of the Supreme Court of Bangladesh has declared that the concept of right to life implies that such life has to be a life in a civilized society having the right to food, water, decent environment, education, medical care, and shelter. As such, the nebulous categorization of the informal sector in the stimulus package may interfere or deprive many of the right to food, water, decent environment, shelter, etc, which may well be deemed to be an action in violation of the right to life under the constitution.

Regardless of the sector to which the benefits are being offered, the constitutional legitimacy of the stimulus package can be seen through another prism. It could be argued that by leaving the decision of lending under the stimulus package to the banks on the basis of “bank-client relation” or leaving some of the activities under the informal sector out of it, the current stimulus package may encroach upon an employee’s “right to work” which is a concept embodied in the International Covenant on Economic, Social and Cultural Rights (ICESCR). 

Bangladesh ratified ICESCR on October 5, 1998. As per Article 6(1) of ICESCR, Bangladesh must recognize and take appropriate steps to safeguard the right to work, which includes: “The right of everyone to the opportunity to gain his living by work which he freely chooses or accepts.” The steps for safeguarding such a right is further explained in Article 6(2) as including “policies and techniques to achieve steady economic, social, and cultural development and full and productive employment under conditions safeguarding fundamental political and economic freedoms to the individual.” 

The question here is whether the current stimulus package will violate the legitimate expectation of Bangladeshi citizens’ “right to work” when sectors or businesses that are going to be denied by banks of the loans under the stimulus package would shut down due to a lack of finance or funding or when some groups under the informal sectors will not get funding at all. The phrase “legitimate expectation” has been defined by courts as something less than a right which may nevertheless be protected by the principles of natural justice. So the argument is whether the ratification of ICESCR by Bangladesh creates a legitimate expectation to have a “right to work” among the workers or employees of some groups under the informal sectors that would be left out of the stimulus package or employees of formal sectors that are going to be denied by banks of the loans under the stimulus package. Given that Bangladesh is a dualist country which has not yet passed an Act of Parliament to incorporate the Articles of ICESCR as part of its laws, how reasonable will such a demand be?  

In one Australian case, the High Court of Australia held that despite not being part of the national laws, a multi-lateral international treaty signed by Australia can create legitimate expectation amongst the citizens that the Australian government will live up to its solemn undertaking given to the world at large that it would act in accordance with such a treaty. The court further held that the assumption of an obligation to pay heed to an international treaty gave rise to legitimate expectation in the minds of those who were affected by the government’s (or its representative’s) decisions touching upon the rights stipulated in such a treaty. 

Judged from this angle, it seems that Bangladesh’s ratification of ICESCR may give rise to legitimate expectations to have a “right to work” among the workers or employees of formal sectors or enterprises that would be left out of the stimulus package by the banks or employees of some groups under the informal sectors that would not get funding at all. The present stimulus package, without articulating the details of its working, has the potential of denying workers or employees of some sectors or enterprises from that right. 

But as attractive as the arguments above may sound, the fact remains that to stimulate or not to stimulate a business or sector is a matter within the realms of executive policy decisions in which the judiciary generally does not enter. But like any other executive action, policy-making also has its limit and when that limit is crossed, such a decision becomes justiciable by the courts. So any and every policy decision of the government cannot be relegated to the executive realms on the basis of “political choice” or on the ground of “resource allocation” and every policy decision must meet the requirements of the rule of law. 

Furthermore, it is necessary to remind ourselves that doctrines of responsible government and the rule of law are part of the fabric upon which the written words of the constitution are superimposed. The principles of rule of law are not merely a formal concept, but a core value and it may be said to be the foundation of government and the assumptions that underlie the political process that make our government work in peace. From that standpoint, just like the judiciary, the executive power is also limited by the boundaries of the separation of powers and its actions will have to be seen through the lenses of the national court‘s most fundamental constitutional responsibility, which is its duty of declaring what the national law is, and of holding the executive to its terms.

The stimulus package has left all the above and many other questions unanswered. It is one thing to declare a stimulus package, but the real challenge will be putting the package into motion with the uncertainties as described above.    

In conclusion, we implore the Bangladesh government to quickly formulate the criteria based upon which funds under the stimulus package could be disbursed to the affected sectors or industries. The heart of that formulation must involve clearly and specifically spelling out the definition of the word “affected” and drawing up the criteria based upon which one can determine who is or is not to be regarded as “affected.” 

Anything short of precise formulation and appropriate delegation by the Bangladesh government will be catastrophic for our economy, and will seriously derail long-term aspirations of the present government. 

Junayed Chowdhury is an Advocate, Supreme Court and Managing Partner, Vertex Chambers. ASA Bari is an Advocate, Supreme Court and Managing Partner, AS & Associates.

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