Pandemic has generated the groundwork to usher on much-needed reforms
The global community is currently undergoing twin crises: the public health crisis due to coronavirus and the monetary shock stemming from the unprecedented public health measures governments have already been forced to look at to douse the rogue pathogen.
All economies are impacted, culminating in lower growth, larger unemployment, growing poverty, and a deteriorating fiscal position as governments are forced to fund significant open public interventions, at the same time when government earnings will fall.
A significant monetary slowdown is expected with the International Monetary Fund projecting global expansion to fall to -4.9 % in 2020, while Asia's growth may very well be zero for the first time in 60 years.
Although different countries' experiences of coronavirus have different substantially, public responses have already been largely similar. Most countries have adopted public distancing steps, and in most cases, implemented stringent lockdowns.
While potentially an efficient tool for stopping coronavirus, lockdowns have a disastrous effect on monetary output and livelihoods, hence requiring governments to also implement massive stimulus packages.
Protecting careers, enterprises and livelihoods in the short-run and funding economic re-construction programmes in the medium-term have produced significant policy issues for governments around the world.
Foremost of these issues is a sharp rise in fiscal pressure, due to a combination of the necessity to use public resources to offset the results of the financial recessions while governments face dwindling tax revenue.
Such challenges will have implications on the overall macroeconomic management of economies, including in the complementary areas of financial policy, exchange rate management and general public or sovereign debt management.
In Bangladesh, coronavirus attained a period when its economy was poised to graduate from the least-developed country (LDC) bracket in the coming four years, building on an impressive development background in recent decades.
It transitioned to a lesser middle-income country in 2015, just four years after having the second-lowest per capita money in the world.
Over the past decades, economical growth has generally been driven by industry, which created an incredible number of jobs, and personal consumption driven by remittances.
The robust financial progress was also underpinned by strong macroeconomic administration, major financial reforms and deregulation in the 80s and 90s, increasing participation in global marketplaces and significant remittance flows.
Fiscal management has been prudent, inflation has generally experienced single digits, and open public debt is known as low (34 per cent of GDP in 2019).
But challenges persist, including the tax-GDP ratio has been among the lowest on earth, while the administration of state-owned enterprises (SOEs) including financial institutions has generated fiscal and financial risks.
There are significant weaknesses in public areas financial management systems.
Much like other nations, Bangladesh's economy has been reach by the direct effects of COVID-19 mitigation procedures with lockdown slowing domestic economic activity, as it faces an exterior shock of lessening exports and remittances.
The Bangladesh government was quick and bold in announcing an enormous $11 billion economic stimulus programme, which is the same as more than 3 % of the country's GDP.
While over three-quarters of the full total stimulus originates from bank credits, the fiscal price is significant: about 1 per cent of GDP.
Besides, with imports, exports and domestic demand found in decline, the government revenues will get strained.
This is more likely to further exacerbate the prevailing institutional and governance challenges that further raise risks of a decline in the grade of macroeconomic management and drastically decelerate the recovery process.
So, it is essential for policymakers to also examine the medium-term macroeconomic changes and reforms required to ensure a well balanced, inclusive and quick economic recovery.
Further public and private investment from domestic and overseas sources to offset the immediate impact of this crisis will be important.
How exactly to secure these assets in a good fiscally sustainable approach, and how exactly to manage them wisely are fundamental policy inquiries for the federal government to address.
The central bank's up coming financial policy statement and strategy should be bold and clear -- the Bangladesh Bank does not have any alternative but to expand its balance sheet to roll out an expansionary monetary policy.
The crisis and the resultant slowdown will demand a substantial liquidity injection to invest in investments critical for supporting a rebound in output, employment and consumption.
Efficient and constant monitoring of credit must enterprises, particularly small and moderate enterprises, will be important.
A similar approach is also required to ensure scarce methods are not diverted from potential credit rating to the personal sector, towards financing ailing state-owned enterprises.
This, subsequently, requires major advancements in public financial management, specifically in ensuring top quality in public expenditure.
Bangladesh's development partners likewise have a role by giving funding and technical assistance for the government's adjustment work and through concessionary assist with provide additional fiscal space to the federal government as it may make the necessary adjustments.
Finally, the dual health and economic crises also have underscored some key areas for reform; notably, the necessity to strengthen the state's capability to collect tax revenue to make sure a sustainable debt situation and to scale financing to essential public offerings such as health and social protection.
This may seem like an inauspicious time to contemplate significant reform, but large shocks have a tendency to weaken political resistance to significant change, thus opening new reform opportunities.
In addition to responding to the crises to mitigate its effect on the persons of Bangladesh, this can be an possibility to lay the groundwork to build back better.
