Question

With all of your ideas that you have gathered by studying this course, what economic
policy should you want to suggest Bangladesh government so that it could easily recover
this hard time of pandemic? Explain your ideas as a central banker.

Answer 1

Answer.

Summary

Bangladesh isn't new to screw ups or fundamental humanitarian crises. Sitting astride a river delta at the lowest of the Himalayan variety, the US of a is fighting a longstanding warfare against the effect of climate trade and presently hosts the world’s biggest refugee camp along its southern border. In its forty nine-12 months lifestyles, Bangladesh and its humans have proven super resilience in avoiding no longer simplest natural failures including floods and cyclones but also artifical ones, just like the 1997 Asian economic crisis and 2008 international economic disaster. The COVID-19 pandemic, however, is a crisis of a completely exceptional significance and one as a way to require a reaction of unheard of scale. Bangladesh’s leaders within the public and private quarter have to come together to reply to the instantaneous threats to fitness systems and the lengthy-term effects to the united states of america’s economic system.

Background

The reaction to this point is admirable, yet this pandemic also poses an financial and humanitarian crisis. even as many countries have made top begins in stimulus packages, Bangladesh has been slower to react. The high Minister to start with introduced an emergency stimulus package of $600 million (equal to 0.2% of GDP) on 25 March, which on 4 April was enhanced notably to $eight.5 billion (equivalent to 2.five% of GDP). According to the forecast released through the Economist Intelligence Unit on 26 March, the worldwide economy is anticipated to settlement by -2.2% in 2020. Those consequences are anticipated to be more said in primary G20 economies, inclusive of Germany, Italy, the UK and the usa – all countries which might be important markets for Bangladesh’s maximum critical tradeable good: readymade clothes.

With lockdowns presently imposed throughout Europe and North the us until mid-April, even inside the first-rate-case state of affairs it will take as a minimum till mid-June for market confidence to be restored in those economies. The implication is that almost six million workers in Bangladesh’s formal sector – which is basically manufacturing – may be with out consistent work for an extended duration. The depressed oil charges may even result in a robust reversal of increase in the middle East and North Africa area, which is also home to a huge Bangladeshi diaspora, who send again near $20 billion each yr. in the coming months, there can be no question that there may be a lower in remittances and that these 2d-diploma impacts will also be felt within the USA ., painfully in rural Bangladesh, wherein families depend closely on remittances for his or her subsistence.

The Economic Cure

The enhanced stimulus package deal introduced through the prime minister is commendable and step in the right course. The package deal which has nearly $2.5 billion allocation for bridge financing of the running capital of small and medium sized industries is a bold step to shield the livelihood of human beings employed in that area. Such is the size of this crisis, even a stimulus package deal of this importance have to be considered as a stopgap measure. More worryingly nevertheless, information from the Bangladesh Bureau of records suggests that Bangladesh has extra than 50 million people within the informal quarter. at the same time as there will be a sizable impact at the livelihood of workers within the formal economy, there may be no doubt that the casual area will be hit even more difficult. The prime minister became proper to become aware of this as a challenge and her decision to distribute food aid through Bangladesh’s current social protection applications which includes the inclined institution Feeding and inclined group development for six months should also be welcomed. The government ought to also remember an unconditional coins transfer software for an initial period of 3 months at a charge of $95 per month, which corresponds to the minimum wage for the formal area in Bangladesh. This will price the government more or less $14 billion, or 4% of GDP. Whilst this sort of coins switch software usually suffers from concentrated on troubles, Bangladesh enjoys a fantastically sophisticated cellular economic services network, that could enhance the duvet of the program. A concerted attempt related to the non-governmental businesses operating inside the casual area, mobile financial provider companies, and the government could be developed to supply this urgently wanted social assistance.

Taking such an aggressive step could suggest that Bangladesh could have to forego its usually prudent and disciplined fiscal coverage of keep its finances deficit within five% of GDP. With a low debt-to-GDP ratio, Bangladesh has enough economic headroom to adapt an expansionary technique within the quick run to fight off the financial and humanitarian aspect of this disaster. To finance this growth, Bangladesh have to also look to tap into the concessionary financing available at its disposal thru the multilateral development banks. The stairs at the economic aspect – the stimulus package – should also be complemented via steps on the financial policy side. Bangladesh financial institution has already placed a freeze on mortgage repayments for six months till June 2020 and cozy foreign exchange guidelines for alternate transactions till September 2020. It has additionally extended the transaction limit on mobile economic services in addition to cut the economic coverage price via 25 foundation factors. these are steps within the right course, however they're unlikely to prove aggressive sufficient to fight the economic impact of a international pandemic. With inflation expected to cool internationally, the primary bank have to follow the steps taken via its opposite numbers internationally to inject in addition liquidity by way of lowering the Statutory Liquidity Ratio and further reducing its policy fee. this could now not best assist preserve liquidity in the banking area but also provide small- and medium-sized companies within the usa with access to inexpensive working capital to hold their companies afloat.

Public-private cooperation can be key with the aid of taking early steps at the fitness protection aspect, Bangladesh has been in a position to shop for itself a while to reply to this pandemic. But the USA, cannot find the money for to be blind-sided by the secondary economic risks related to this crisis. The combat against COVID-19 can't be performed by way of the government on my own. It’s going to require an exceptional stage of coordination among the public and private on the neighborhood and worldwide level. The sector monetary discussion board, with a mandate from the arena health employer, has launched the COVID action Platform in reaction to the pandemic. Bangladesh ought to look to tap into this platform to impress help for its non-public zone and proportion some of its very own revel in in preventing COVID-19 and increasing its economic resilience.