Can Bangladesh’s stimulus package withstand the impending Covid-19 tsunami?

Bangladesh Prime Minister Sheikh Hasina's speech on March 25 was widely anticipated, owing to the onslaught of the Covid-19-induced health crisis and the resulting economic maelstrom. Citizens were keen to gauge 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's 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 is 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 for a stimulus package to support 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 a cash stipend directly to 100 million people from the low income strata, amid the 21-day lock-down initiated this week. Alongside this, the central bank is buying back treasury bills to increase overall liquidity – popularly known as quantitative easing. The main goal remains to contain interest rates and maintain access to credit for SMEs and large corporations. India's FM, Nirmala Sitharam, will formally announce the details of the stimulus package on March 31. 

Italy

Guiseppe Conte, Italy's prime minister, has initiated a Euro 25 billion (USD 28 billion) stimulus package to support those severely impacted by the pandemic's spread and resulting lock-down. The following measures have been undertaken: 

●    In order to prevent 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 individuals and freelancers who have mortgages can ask to have their payments suspended considering they can prove that their incomes dropped by a third.
●    In order to compensate shop owners for forced closures, the government is offering tax credits to cover 60 percent of their rent payments 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 Employment Insurance (EI) sickness and also do not have access to paid sick leave, emergency care benefits will provide up to 900 CAD for up to 15 weeks. 
●    Emergency support benefits will provide support for up to 14 weeks for people who do not qualify for EI and are unemployed. 
●    The government is providing a goods and services tax (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. 
●    British Columbia is providing a one-time CAD 1,000 payment to people who have lost their income due to the outbreak.

USA

In response to the COVID-19 outbreak, the US federal government, March 26, passed a slew of legislation and executive orders. Some are detailed 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 paycheck. 
●    The Families First Coronavirus Response Act (FFCRA) provides USD 500 million in food assistance for low-income pregnant women and mothers with young children.
●    The FFCRA 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 FFCRA 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, individuals must qualify for this benefit after their cause of unemployment is verified 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) have been approved. 
●    Thailand is introducing measures, including a support fund worth 70 billion to 100 billion baht, to reduce coronavirus outbreak risk on the debt market. 
●    For six months, from April to September, Thailand's cabinet approved cutting  income withholding tax from three percent to 1.5 percent. 

Philippines

The central bank of the 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?

The government's announcement it is supporting export-driven sectors, to the tune of BDT 5000 crore, is a timely move. However, the modality of disbursement must 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. The government can initiate a government-to-person process using mobile financial services providers to directly disburse wages to impacted workers. Alongside this, a mechanism must be in place to select factories eligible for government support. Commercial banks, which are closely engaged in serving exporters, and the National Board of Revenue, can provide necessary information pertaining to the financial health of individual companies. 

Informal sector workers are the hardest hit by the pandemic. The government has rightly identified this challenge, and the prime minister has pledged to distribute food supplies, for up to six months, for the economically-vulnerable. The government will also start selling rice at BDT 10 per kilogramme through Viability Gap Funding (VGF) schemes. The government claims to have an adequate food stock (17 lakh 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 to stem 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. The government can consider engaging reliable development agencies (e.g. BRAC) to distribute food items nationwide to the low income population. 

Bangladeshi small and medium-sized enterprises (SMEs) play a pivotal role in contributing to economic growth and employment generation. While large export driven sectors have received their commitment of support from the government, SMEs have yet to receive firm policy backing. Access to cheap credit and direct cash support to make 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 allocations 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 to treat coronavirus patients and other necessary resources – like personal protective equipment and ventilators. 

Lastly, the government needs to chalk out a firm strategy to finance the stimulus package without causing too much disruption to the economy. The Indian government is planning on increasing excise duties on petrol and diesel, as well as imposing income taxes on a section of non-resident Indians to finance the stimulus plan. Our government must also find avenues to raise revenue without depending too much on our banking system. Corporate social responsibility funding from the private sector and soft loans from multilateral agencies can also be harnessed to partially finance the plan. 

At the end of the day, a strategy is only as good as its implementation. The government should collectively engage as many stakeholders as possible, including development agencies and private sector organizations, to tackle the ramifications of this healthcare and economic tsunami. 

Zahedul Amin, co-founder & director and Dipa Sultana, business analyst, LightCastle Partners