Prioritisation, selection and distribution of the stimulus package
On 5 April, the honourable prime minister has announced the next stimulus package in view of addressing the adversity of coronavirus on our economy.
This financial package combined with the first one total be Tk 72,500 crore ($8.54 billion), which is the same as 2.52 % of Bangladesh's gross domestic product.
The head of the federal government has rightly acknowledged the multidimensional challenges on the economy such as the slowing down of exports and imports, slow progress of major development works and specially the mega projects, adverse effect on service sectors including travel and tourism and small- and medium-sized enterprises, wide gap in revenue mobilisation, fall in inward flow of remittance, weak domestic demand and weak macroeconomic stability and so on.
Taking those into consideration, the package has targeted four-pronged activities: a) increase public expenditure (for employment generation); b) introduce fiscal packages; c) expand social back-up programmes; and d) increase money supply.
Given the different degrees of adversity to different sectors in addition to their different degrees of risk coping capacities, it is important to attempt important activities before disbursement of the stimulus package.
These activities include: a) setting priorities in conditions of demand for different target groups; b) selecting target groups by maintaining transparency, efficiency and inclusivity; and c) distributing the support to the target groups by ensuring accountability at all levels.
The package-related activities will be implemented in three phases: immediate, short and long terms.
Hence, it is vital to identify which activities should be carried out at which periods and under which mechanism priority groups will be identified, target groups will be selected and the package support will be distributed.
IMMEDIATE ACTIONS
The immediate actions under the package must be to make sure food security of the marginalised and low-income people.
As per plan, this would be achieved through expanding the back-up programmes by including persons who live below the poverty line, day labourers and personnel mixed up in informal sector.
Ensuring maximum coverage of the target groups without leaving anyone behind is very important.
Hence, the selection procedure for target people beneath the safety net programmes ought to be transparent and clear of political influence.
There is a list already available under the safety programmes. But that should be made more comprehensive now.
This list should be prepared immediately and really should be produced public at all levels, particularly through social welfare offices, in order that people who meet the criteria will get assistance.
A significant mode of support will be providing subsidised food such as rice at Tk 10 per kilogram and other essentials such as lentil, soybean oil, potato and onion etc at fair price.
Because of rising demand for rice and other essential foods for open market sales, vulnerable group development and vulnerable group feeding of the safety net programmes, it is crucial to increase the domestic food stock for another four months.
If required, the stock could possibly be increased by importing part of essential food products from other countries immediately.
There is another important target group who could be missed right out of the current approach of identification and selection of needy people: those that do not earn significantly less than the poverty line ($1.9 each day) but live by a daily earning of $1.9 to $3.8.
These fixed income earners should be determined as a sub-group beneath the social safety net programmes and may be partially supported in cash payment from there.
A large section of personnel who work in formal and informal sectors need immediate support.
However, these staff often work with or without formal contracts -- usually on a daily or contractual basis.
These workers are in big trouble without the wage or payment since shutting down of factories or businesses.
There is little opportunity for these workers to make contact with their work until factories or businesses commence operations.
Part of the package for working capital financing for SMEs, cottage and other industries and services could possibly be used for providing workers' wages.
Since workers' wage can be an component of working capital, particularly for domestic industries, the finance ministry may consider allocating part of the working capital for meeting wage related costs.
The interest of such working capital will be 2 per cent, like this in export-oriented enterprises, as the remaining the main working capital could possibly be credited at the rate of 4-4.5 per cent.
The selected employers should apply through their respective associations with necessary documents, such as workers' employment record, earnings sheet, bank-account or mobile financial service account of workers and mobile number of employees etc to the finance ministry.
After obtaining the approval from the ministry, the banks may disburse working capital to be used for workers' wages on an instantaneous basis.
SHORT-TERM ACTIONS
In this rapidly dynamic situation of outbreak of coronavirus, the short-term period is assumed to be for next 90 days, that's until June.
A significant prioritisation in this period should be identification of priority groups in businesses and industries and procedure for selecting them.
Given the nature of quick outbreak up to now and possible rise in the foreseeable future, it would be problematic for most of the firms to start their operation in forseeable future beyond limited scale.
Hence, both demand for credit from the businesses/industries/SMEs and possible way to obtain credit in the sort of working capital by the commercial banks would not be even at 'sub-optimal' level.
In the event of identification of enterprises, the broader distinction made between large scale and service-oriented enterprises in one group and SMEs, cottage and other small-scale enterprises in another group is suitable.
However, further categorisation of the two sets of enterprises will be needed so that you can ensure transparency in the choice process.
The Federation of Bangladesh Chambers of Commerce and Industry, the country's apex trade body, is going for detailed consultation (online) with each one of the business bodies (big and small) seeking lists of afflicted enterprises and the quantity of working capital support necessary for each.
Since small, medium and sub-contracting enterprises have limited contingency plan to cope up with the risks, these enterprises should get priority in obtaining the support.
Often, the big groups of companies and influential trade bodies make an effort to take the major part of such benefits -- depriving the neediest ones.
It really is expected that after primary selection, the FBCCI should disclose information of the selected enterprises through their website. The lists would be vetted and approved by the finance ministry.
Afterwards, the commercial banks will be permitted to disburse credit beneath the package support programme.
It is crucial to make certain that no commercial bank is permitted to disburse loan under the stimulus package apart from the approved set of enterprises.
Regardless of the announcement of such broad-based stimulus package, a portion of entrepreneurs would find it difficult to access low-cost credit facility.
These are enterprises that are not mostly unbanked and operate informally with no formal legal documents, such as for example retail traders, street vendors, fruit sellers, fish traders, small tea shops, small restaurants, petty traders etc.
These enterprises comprise a large section of financial establishments that contain no formal trade licences. They have to be prioritised for supporting under working capital financing.
However, it might be difficult to cover them under the stimulus package that are mainly geared to formal sector enterprises.
Hence, a particular package should be developed for these informal small-scale enterprises.
These enterprises could be supported through the non-governmental enterprises and other specialised financing institutions who have information and data about them.
Selecting these enterprises could possibly be done through the use of various information open to different public and private agencies such as membership records of varied associations, cooperatives, welfare associations, personal business records at union, thana and district level administrations, database of micro-enterprises of different NGOs, census data for different target groups open to Bangladesh Bureau of Statistics (BBS), database of different specialised commercial banks working with SMEs.
MEDIUM TO LONG TERM ACTIONS
The medium to long term period indicates between your months of June and December and beyond.
During this period, the major actions will give attention to disbursement of working capital for the most-affected enterprises of different sectors.
It really is expected that enterprises should be able to repay their loan in a brief grace period (three months) and complete their dues in nine months.
An early on repayment of loans can help enterprises to get loans again out of this refinancing scheme.
Given the weak state of loanable fund in a big portion of commercial banks, it really is expected that the federal government or the central bank will facilitate injecting fund from other sources.
Since the government is negotiating with multilateral agencies and bilateral development partners about possible future support, part of the funds will be offered by June, that could be used for providing working capital to the damaged enterprises.
As the national cover another fiscal year is approaching, it is expected that the federal government will announce some fiscal stimulus package targeting both individuals, private sector and agriculture sectors in the forms of value-added tax waiver, deferred payment of advance income tax, payment of corporate tax by instalments, raising the tax-free income for low-income people and raising tax-free limit for SMEs.
Overall, it is expected a transparent, efficient and inclusive mechanism along the way of identification and collection of target groups and distribution of support from the stimulus package would address the demands of the very most affected & most needy parts of the society in this severe economic crisis.
