HPM Sheikh Hasina announces stimulus packages worth Tk 72,750 Crore to overcome COVID-19 impact

Prime Minister Sheikh Hasina today unveiled the government work plan to overcome the possible COVID-19 impact on the country’s economy, declaring an allocation of Taka 72,750 crore under a set of stimulus packages.

“Earlier I declared a Tk 5,000 crore (emergency) incentive package for paying salaries and allowances of export-oriented industries workers and employees and today I am announcing four fresh financial stimulus packages of Tk 67,750 crore,” she said.

In a nationwide televised address from her official Ganabhaban residence this morning, the premier said with the fresh allocations, the total amount of financial assistance would stand at Tk 72,750 crore, which is nearly 2.52 percent of GDP.

“I hope our economy will rebound and we could reach near the desired economic growth, if the stimulus packages, the previous and the fresh ones, could be quickly implemented,” she said.

The premier said the government simultaneously took four programmes under the work plan to be implemented in phases categorized as “immediate, short and long”.

“The four programmes are: increasing public expenditure, formulating a stimulus package, widening social safety net coverage and increasing monetary supply,” she said.

Highlighting the key aspects of the four new packages, the premier said the first of the four packages involved Taka 30,000 crore, to be provided to affected industries and service sector organizations as working capital through banks as low-interest loan.

She said the commercial banks would provide the amount as loans from their own funds to concerned industries and enterprises on the basis of bank-client relations.

“The interest rate of this lending facility will be 9 percent, and the concerned industries and business organisations will pay 4.50 percent interest, meaning half of the interest of that loan, while the government would pay remaining half to banks as subsidy,” she said.

Sheikh Hasina said under the second package, small and medium enterprises (SMEs) including cottage industries would get Taka 20,000 crore as working capital.

She said a mechanism would be devised to reach the amount to the SMEs as low-interest loans through banks which identically will disburse amounts to the SMEs on the basis of bank-client relations while the government in this case would bear the greater share of the interest amount.

“The interest rate of this lending facility will be 9 percent and the concerned industries and business organisations will pay 4 percent interest of that loan, while the government will provide the remaining 5 percent as subsidy,” the premier said.

The fourth package, she said, was meant for enhancing Bangladesh Bank’s Export Development Fund or EDF size from US$3.5 billion to $5billion to facilitate raw materials imports under back-to-back LC.

The prime minister said this last package would result in adding an amount of additional Tk 12,750 crore equivalent to $1.5 billion to the EDF while its interest rate would simultaneously 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 Taka 5,000 crore as “Pre-shipment Credit Refinance Scheme” and its interest would be 7 percent.

Sheikh Hasina said local products alongside the export sector would deserve special attentions and supports 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 raise their use,” she said.

The prime minister said as a nation the people of Bangladesh have a wonderful strength of patience and capability to rebound fast by enduring blows of any type.

“Nothing could suppress us as a nation which snatched the independence in 1971 in only nine months responding to the call of Father of the Nation Bangabandhu Sheikh Mujibur Rahman and may Allah protect the world people from this pandemic,” she said.

Finance Minister A H M Mustafa Kamal, Senior Secretary of Finance Ministry Abdur Rouf Talukder, Bangladesh Bank (BB) Governor Fazle Kabir also spoke at the press conference, moderated by PM’s Press Secretary Ihsanul Karim.

PM’s Principal Secretary Dr Ahmad Kaikaus and Prime Minister’s Office (PMO) Secretary Md Tofazzel Hossain Miah were also present, among others.

Sheikh Hasina elaborated the four programmes taken to cope with the possible economic impact on the country due to the coronavirus outbreak.

A) Increasing public expenditure: Generating employment will be basically given priority in public expenditure while foreign tours and lavish expenditure will be discouraged. Since the debt to GDP ratio of Bangladesh is much less (34%), so the higher public expenditure would not create any pressure on the macroeconomy of the country.

B) Formulating a stimulus package: Some low interest credit facilities will be launched through the banking system mainly to rejuvenate the economic activities, keeping the job of the workers and employees as well as the competitive edge of the entrepreneurs intact.

C) Widening the coverage of the social safety net: The coverage of our existing social safety net would be further widened to fulfill the basic needs of people living below the poverty line, day labourers and people who are engaged in non-formal works.

Under the third operation, she said, the notable programmes are distributing food materials free of cost, selling rice at Taka 10 per KG, distributing cash among targeted communities, widening the coverage of the old-age allowance, widow allowance and allowance for the women oppressed by husbands to cent percent at 100 most poverty-prone upazilas of the country.

Other undertaken operations include speedy implementation of the programme to build houses for the homeless marking the birth centenary celebration of Father of the Nation Bangabandhu Sheikh Mujibur Rahman.

D) Increasing Monetary Supply: It is very much necessary to increase the monetary supply to overcome the adverse impact on the economy.

Sheikh Hasina mentioned that the Bangladesh Bank has already reduced the CRR and REPO rate to boost the monetary supply which will continue in the future as per the necessity. “But, in this regard, our goal is that there will be no increase in inflation due to monetary supply,” she said.

The prime minister said the fast spread of the coronavirus, huge pressure on the health services, unprecedented lockdown and stagnant communication to curb the pandemic have already started putting negative impact on the global economy.

“The sectors and areas which are being affected are: industries production, export trade, services sectors, especially tourism, aviation, and hospitality sector, small and medium enterprises and employments and these are experiencing a landslide fall,” she said.

Not only the supply side, she mentioned, the consumption and investment in demand are also witnessing downward.

Sheikh Hasina said the IMF has already declared that the global economic recession has started while the 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 growth could come down at 1.5 percent if the recession persists long while a huge workforce across the globe is feared to lose their work.

Sheikh Hasina said if the recession persists long, it is also apprehended that the world is likely to face a great economic recession for the first time after the World War II.

She said time has not yet come to specifically mention what type of negative impact or what would be the impact of the novel coronavirus pandemic on the country’s economy.

The prime minister also listed some of the impacts of the COVID-19 on the country’s economy which are as follows:

A) 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, and this fall could further stretch at the end of the current fiscal year.

B) 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 implementation of the decision to reduce the bank interest rates.

C) The novel coronavirus will have a negative impact on the services sector, especially hotel-restaurants, transport and the aviation sectors.

D) Like other countries of the world, it will also have an adverse impact on the country’s capital market.

E) Due to the decline in global demand, the world fuel oil price has been reduced by over 50 percent for which the inward remittance flow is also being affected.

F) The Asian Development Bank (ADB) in their estimation said the economic loss of Bangladesh could extend up to $3.2 billion due to the impact of this deadly virus, but under the present circumstances, it is assumed that the extent of loss could be much more.

G) The purchasing capacity of the low-income people could be reduced as well as there could be disruption in the supply chain due to the long general holidays affecting the production of the SMEs and hindrance in the transport services.

H) The overall revenue collection in the current fiscal year (FY20) is less compared to the budgetary target, and this could further increase the budget deficit at the end of the current fiscal year.

The driving forces for attaining over 7 percent growth on an average for three years and lastly 8.15 percent growth in FY19 were the strong domestic demand and supporting revenue and monetary policy. As a result, the GDP growth could be declined due to the negative trend of the macroeconomic indicators.