Following the outbreak of COVID-19, the Government of Bangladesh has announced a number of stimulus packages for different sectors and beneficiaries to help industries survive and sustain while also ensuring that the economy is up and running. So far, there are at least seven major stimulus packages declared by the Government and are to be distributed by the banking sector under the guidance of Bangladesh Bank circulars to support the economy through these unprecedented times.
To start with, the Government first rolled out a Taka 5,000 crore stimulus package to help pay wages and salaries of workers by export-oriented industries, which has already been availed by majority of the companies, especially the garment manufacturing sector. Under this scheme, the borrowers can avail loans for payment of wages and salaries of their workers for the months of April, May and June. After a grace period of 6 months, the borrowers will repay the loan in 18 equal monthly instalments from January 2021 till June 2022. The borrowers will not be charged with any interest/profit on this loan; rather, they will be charged a one-off 2 per cent service charge on the loan amount.
In order to provide the market with liquidity to support the scheme, Bangladesh Bank will provide the Taka 5,000 crore funds.
The second package is for working capital loan to industrial and service sector. This will be in the form of medium-term stimulus package as the scheme will operate for 3 years where the loan tenure for each borrower would be maximum one year. While the banks can lend at existing 9 per cent interest rate, the Government will subsidise 4.5 per cent and the borrower has to bear the remaining interest burden of 4.5 per cent. Majority of affected businesses are expected to avail this loan due to the impact of the disruption in the global and local supply chains on their liquidity. Bangladesh Bank has formed a Revolving Refinance Scheme of Taka 15,000 crore to support the banking sector with liquidity to refinance up to 50 per cent of this scheme at 4 per cent interest rate charged to the banks.
The third package is to support the Cottage, Micro, Small, and Medium Enterprises (CMSME), which are the most affected due to this pandemic. The Government has declared a Taka 20,000 crore stimulus fund for this sector. The modus operandi is similar to working capital loans to industrial and service sector, with some minor variations. The Bangladesh Bank has formed a Revolving Refinance Scheme of Taka 10,000 crore to support the banking sector with liquidity to refinance up to 50 per cent of this scheme at 4 per cent interest rate charged to the banks. While, the Government has declared a Taka 20,000 crore financial package to the SME sector at a subsidised rate, loans to SMEs are mostly given against tangible collateral (example – property) since there isn’t a robust cash flow analysis available.
The fourth package of Taka 5,000 crore to support lending to agricultural sector excluding crops and grains (example – horticulture, fisheries, poultry, dairy and livestock) will be provided to avoid any adversity in this sector from the ongoing crisis. The fifth package of Taka 3,000 crore will be used to support low income professionals. The sixth package is the additional Taka 12,750 crore allocated under the Export Development Fund (EDF) of Bangladesh Bank to facilitate raw material imports under back-to-back Letter of Credit. The interest rate was reduced to 2 per cent on 7 April 2020.
The response of the Government in meeting the needs of various sectors of the economy deserves appreciation considering the impact the pandemic has caused to the industries, especially the readymade garment sector of the country, which is biggest foreign currency earner and is considered the backbone of Bangladesh’s economy.
However, economists, experts and business leaders are sceptical about the effective implementation of such packages. They not only expressed doubts about effective implementation of the stimulus packages announced by the Government to revive the country’s economy hit hard by the coronavirus pandemic, but also recommended fiscal measures to support the businesses instead of creating pressure on the banking sector for financing, as around 80 per cent of the stimulus packages were designed to be implemented by the banks.
The stakeholders expressed these views at a recent online discussion organised by the Centre for Policy Dialogue (CPD) on ‘Responding to COVID-19: A Rapid Assessment of Stimulus Packages and Relief Measures’, moderated by Fahmida Khatun, Executive Director of CPD.The discussion had key participants including distinguished fellow Mustafizur Rahman; Ahsan H Mansur, Executive Director of Policy Research Institute; Syed Mahbubur Rahman, Managing Director and CEO of Mutual Trust Bank; Md Fazlul Hoque, former President of Bangladesh Knitwear Manufacturing and Exporters Association (BKMEA); Mirza Nurul Ghani Shovon, President of National Association of Small and Cottage Industries of Bangladesh; and China Rahman, General Secretary of IndustriALL Bangladesh Council, amongst others.
Fahmida, in her presentation, underlined that even though the Government had launched the stimulus packages for the payment of wages of the workers from the export-oriented industries, many workers were still facing termination. Those who were given 60 per cent of their salaries have been facing troubles to meet their cost of living and a section of them was forced to borrow to survive, Fahmida said, while calling upon the Government to ensure effective designing of the stimulus packages.
Unless the effective designing is ensured, the packages would increase disparity and instability, she said.
Speaking about the cash incentives given to the marginal people, Ahsan H. Mansur pointed out a number of irregularities and suggested transparency along with strict measures regarding the irregularities.
Urging for strict handling of the Government-announced packages meant for the businesses, Ahsan said that otherwise sponsor-directors of the banks would exhaust the funds and the packages would hardly bring any benefit to the economy. He also suggested that the banks should be aware about the defaulters.
Considering the high cost of operations for the banks while giving credit to the small and medium entrepreneurs, issuing credit to the SMEs at 9 per cent interest would be difficult and unhealthy for the banks, said Ahsan, who is also the Chairman of BRAC Bank.
As the banks were asked to disburse loans based on bank-customer relationship, the entire risk would be on the banks, said CPD Research Director Khondaker Golam Moazzem. If the defaulters take the opportunity and default again, the non-performing loans in the country’s banking sector would increase further and weaken the financial health of the banks, he said.
Speaking about the Taka 20,000 crore stimulus package announced for the cottage, micro, small and medium entrepreneurs, Khondaker said that the amount would be exhausted by 5 per cent of the country’s CMSMEs if only Taka 5 lakh was disbursed to each of them, leaving a large number of the CMSMEs deprived of the credit facility, while suggesting fiscal measures like loan interest waiver and subsidy in utility bills for the CMSMEs, as a large section of them would not get the loan facility.
The CPD Research Director also mentioned that the branches of banks were reluctant to facilitate such businesses.
Bangladesh Bank Executive Director Lila Rashid, though, agreed that there should be some fiscal measures along with the monetary measures, but added that the problem was not with liquidity, it was with other issues.
Mirza Nurul on his part alleged that the banks were very reluctant to issue credit to the CMSMEs, while adding that if such tendency remains, the disbursement would not exceed even Taka 2,000 crore against the Taka 20,000 crore target.
Taking part in the discussion, Director of Federation of Bangladesh Chambers of Commerce and Industry Md Monir Hossain mentioned the banks’ reluctance to issue credit to the CMSMEs even though the repayment history of such entities were far better than the large industries.
The banks are under an intense pressure and have become vulnerable due to various measures taken by the Government for the interest of the customers amidst the pandemic, said Mahbubur, adding that 80 per cent of the stimulus packages would be implemented through banks, which would put additional pressure on the banking sector.
He said that the banks had already started issuing stimulus credit to the large manufacturers, but were in ‘go slow’ mood regarding the CMSMEs.
Considering the apprehensions expressed by the experts, if the stimulus packages announced by the Government, especially for the smooth running of the garment manufacturing sector, would bring the desired results, remains a big question, the answer to which could only be available once the pandemic is over and things come back to normal.