Mentioning that the Covid-19 outbreak could cause a slowdown of the country’s economic growth, PM Sheikh Hasina said the government will extend similar funds in future to manage the pandemic impact
Prime Minister Sheikh Hasina yesterday unveiled a set of financial support packages of Tk72,750 crore to shield the economy from the impact of the coronavirus pandemic providing low-cost funds to affected industries.
The entire amount which is nearly 2.52 percent of GDP will come from the banking system and the government will provide interest subsidy under the packages.
The premier made the announcement in a televised speech from her official Ganabhaban residence in the capital yesterday.
"Earlier I declared a Tk5,000 crore (emergency) incentive package for paying salaries and allowances of workers and employees of export-oriented industries and today I am announcing four fresh financial stimulus packages of Tk67,750 crore," she said.
Mentioning that the Covid-19 outbreak could cause a slowdown of the country's economic growth, PM Sheikh Hasina said the government will extend similar funds in future to manage the pandemic impact.
Bangladesh confirmed its first Covid-19 case on March 8. As of Sunday, 88 cases including nine fatalities were reported.
The government has extended the ongoing shutdown of public transport and general holidays to April 14 to stop the spread of the virus. It had earlier declared a 10-day nationwide general holiday and public transport shutdown effective from March 26.
While unveiling her government's work plan to mitigate the economic impact of Covid-19, the premier said the government has taken four programmes which will be implemented in phases categorised as "immediate, short-term and long-term".
"The four programmes are increasing public expenditure, introducing fiscal packages, widening social safety net coverage and increasing money supply," she said.
Highlighting the key aspects of the four new financial packages, the premier said the first of the four packages would be of Tk30,000 crore that will be made available to affected industries and services sector as working capital through banks as low-interest loans.
She said commercial banks would provide the amount as loans from their own funds to industries and enterprises concerned on the basis of bank-client relations.
"The interest rate of this lending facility will be 9 percent, and the industries and business organisations concerned will pay 4.50 percent, while the government would pay the remaining half of the interests to banks as subsidy," she said.
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Sheikh Hasina said under the second package, micro, small and medium enterprises (MSMEs) including cottage industries would get Tk20,000 crore as working capital.
She said a mechanism would be devised to make the amount available to the MSMEs as low-interest loans through banks which identically will disburse amounts to the MSMEs on the basis of bank-client relations. The government in this case would bear the greater share of the interest amount.
"The interest rate for this lending facility will be 9 percent of which 4 percent will be paid by the industries and businesses, while the government will subsidise the remaining 5 percent," the premier said.
The fourth package concerns the Bangladesh Bank's Export Development Fund or EDF, which will be increased to $5 billion from $3.5 billion now to facilitate import of raw materials under back-to-back letters of credit (LC).
The prime minister said this last package would add an additional Tk12,750crore, equivalent to $1.5 billion, to the EDF while its interest rate would be brought down to 2 percent.
The existing EDF interest rate is 2.73 percent in line with current London Interbank Offered Rate-LIBOR + 1.5 percent.
The prime minister said under the fourth package, the central bank will introduce a new credit facility of Tk5,000 crore as "Pre-shipment Credit Refinance Scheme" and its interest rate would be 7 percent.
Sheikh Hasina said local products alongside the export-oriented sectors would deserve special attention and support to cope with the possible global and domestic economic crisis caused by the pandemic.
"In this regard, I call upon all to boost production of local products and increase their consumption," she said.
The premier strictly warned all departments involved with the implementation of the stimulus packages against indulging in any type of corruption, irregularity and misuse.
"I want everybody to work with utmost sincerity and honesty. Taking the opportunity (of the crisis), don't indulge in any type of corruption, irregularity and misuse," Sheikh Hasina said.
"I hope our economy will rebound and we could reach close to the desired economic growth, if the stimulus packages, the previous and the fresh ones, could be quickly implemented," she said.
Finance Minister AHM Mustafa Kamal, the Senior Secretary of Finance Ministry Abdur Rouf Talukder, and the Bangladesh Bank Governor Fazle Kabir also spoke at the press conference moderated by the PM's Press Secretary Ihsanul Karim.
PM's Principal Secretary Dr Ahmad Kaikaus and the Prime Minister's Office (PMO) Secretary Md Tofazzel Hossain Miah, among others, were also present.
In her speech, Prime Minister Sheikh Hasina elaborated the four financial support programmes.
Increasing public expenditure: Generating employment will be mainly given priority in public expenditure while foreign tours and lavish expenditure will be discouraged. Since the debt to GDP ratio of Bangladesh is very low (34%), the higher public expenditure would not create any pressure on the macro economy of the country.
Introducing fiscal packages: Some low-interest credit facilities will be launched through the banking system. The main objective of this programme is to rejuvenate the economic activities by keeping the jobs of workers and employees as well as the competitive edge of entrepreneurs intact.
Widening social safety net coverage: The existing social safety net programmes of the government would be further widened to support the basic needs of people living below the poverty line.
Increasing Monetary Supply: It is extremely important to increase the monetary supply to overcome the adverse impact of Covid–19 on the economy.
PM Sheikh Hasina mentioned that the Bangladesh Bank has already reduced the CRR and REPO rate to boost the money supply which will continue in the future as necessary. "But, in this regard, our goal would be to see that there is no increase in inflation due to monetary supply," she said.
Impact on global economy
The prime minister said the rapid spread of the novel coronavirus, huge pressure on the health sector, unprecedented lockdown, and disrupted communication to curb the pandemic have already started to affect the global economy.
"Sectors and areas affected include industries and production; export and trade; services sectors, especially tourism, aviation, and hospitality; small and medium enterprises; and employment," she said.
Not only the supply side, she mentioned, the consumption and investment in demand are also witnessing a downward trend.
Sheikh Hasina said the International Monetary Fund (IMF) has already declared that a global economic recession has started while stock markets across the globe have witnessed a fall of 28-34 percent over the last few weeks.
Citing an estimation of the Organisation for Economic Co-operation and Development (OECD), she said the global economic growth could come down to 1.5 percent if the recession persists for a long period. A huge number of workforces across the globe are feared to lose their jobs, she said.
Sheikh Hasina said if the recession persists longer, it is also apprehended that the world will face a great economic depression for the first time after World War II.
She said it was not time yet to identify clearly and definitely the impact of the coronavirus pandemic on the Bangladesh economy.
Impact on domestic economy
The prime minister also listed some of the impacts of the Covid-19 on the country's economy which are as follows:
Fall in import-export: The import cost and export earnings in this fiscal year have witnessed a 5 percent fall compared to the same period of the last fiscal year. This fall could further stretch at the end of the current fiscal year.
Slump in private investment: There is a possibility of not getting private investment at a desired level due to the delay in implementation of the ongoing mega projects, establishment of the economic zones and also delay in implementing the decision to reduce bank interest rates.
Virus-hit service sector: The novel coronavirus will leave a negative impact on the services sector, especially hotel-restaurants, transport and the aviation sectors.
Shock in capital market: Like in other countries of the world, the capital market in Bangladesh will also suffer adverse impacts due to the novel coronavirus.
Impact on remittance inflow: Due to a decline in global demand, oil price in the international market has fallen by over 50 percent for which the inward remittance flow is being affected.
Economic loss: The Asian Development Bank (ADB) in its estimation said the economic loss of Bangladesh due to the Covid-19 pandemic could extend up to $3.2 billion. But under the present circumstances, it is assumed that the extent of loss could be much.
Impact on demand-supply: The purchasing capacity of low-income people could fall and there could be disruption in the supply chain due to long general holidays, which might affect the production of the SMEs and disrupt the transport services.
Shortfall of revenue collection: The overall revenue collection in the current fiscal year (FY20) is less compared to the budgetary target. This could further increase the budget deficit at the end of the current fiscal year.
GDP loss: A strong domestic demand coupled with supportive revenue and monetary policy was the driving force behind the attainment of over 7 percent GDP growth on an average for three years and lastly an 8.15 percent growth in FY19. The GDP growth could decline due to the negative trend of the macroeconomic indicators.
Prime Minister Sheikh Hasina once again urged the people to celebrate Pahela Baishakh (Bangla New Year) on April 14 in their homes. "The cultural programmes can be aired through the media," she said.
Talking about the upcoming Shab-e-Barat falling on April 9, she called upon Muslims to perform their prayers at their homes. "Please seek blessings staying at your homes so that Almighty Allah saves us all, the people of the country could advance socio-economically and the people from home and abroad get rid of this pandemic," she said.
Addressing the Sunday's press conference, Finance Minister AHM Mustafa Kamal said, "If everything goes well and the present situation doesn't linger, our growth will be near 8 percent."
Analysing the pre-Covid-19 pandemic situation, the finance minister said, "Our growth rate was satisfactory. Remittance and revenue collection were also good. We were lagging behind in export earnings. Growth in remittance will cover the shortage in export earnings."
Senior Secretary of the finance ministry Abdur Rouf Talukder said the loan amount in the declared stimulus packages can be used twice as these are short-term loans, which are payable in four to six months. "If we can use the amount effectively the package amount will eventually turn into Tk1.35 lakh crore," he added.
Bangladesh Bank Governor Fazle Kabir highlighted the central bank's initiatives taken up during this period. He said industry workers' wages for April will be disbursed on the last day of the month.