BD needs urgent liquidity to counter virus impact: CPD

FT ONLINE 

The Centre for Policy Dialogue (CPD) said on Saturday that the country urgently needs fresh money into the economy to fight the challenges that have appeared from a disruption in supply and demand, in order to avoid job losses, both in the formal and the informal sectors.

The CPD said the banking sector, which is already in liquidity pressure, can be given additional money by lowering policy rates and government's buying of treasury bills from them.

"If the policy rate is reduced, commercial banks will get low-cost funds and lend it to affected enterprises at lower interest," Dr Fahmida Khatun, executive director of the CPD, said.

The think-tank made the recommendations in its premature quarterly analysis on the state of the Bangladesh economy, especially in the context of the coronavirus pandemic. It was a virtual briefing streamed from its office.

Dr Fahmida presented a keynote paper on the findings of the analysis at a meeting that was attended by senior officials of the organisation.

The think-tank said the government needs to make an early assessment of the immediate, short and medium term impacts on different economic activities, such as nature and extent of adverse impact in production, import, export and employment in different sectors.

The CPD asked the government to create a mitigation fund for lending to coronavirus-affected small and medium enterprises (SMEs) at 5 percent interest.

"We have proposed extending support to SMEs because they will be the hardest hit of the ongoing impact. Other sectors can be given special facilities after assessing the impact," she said.

According to the CPD, employment is under massive threat as micro and small enterprises may feel the pinch the most under the current scenario. Home-coming by expatriates will add further pressure on the job market.

Declining exports, imports and the rising price of essentials have reduced the income of poor people, which will affect the aggregate demand and reduce investment and production, it said.

"Now the government has to work on how it can expand social safety net schemes and arrange cash transfer to the affected informal sectors," Fahmida said.

The think-tank said the export-oriented readymade garment sector also needs low-cost cash to retain workers and pay interest to banks, otherwise the future of workers will be at stake, it said.

Coronavirus has become not only a human killer worldwide, but it is also destroying the global economy, be it in China, the US, Europe or Bangladesh.

According to CPD, the world economy will shrink significantly this year because of the pandemic.

The virus may put pressure on the financial system because shrinking economic activities will reduce revenue collection.

Additional money will be required to tackle the health hazards arising from the coronavirus, said the think-tank as Bangladesh has allocated only one percent of its GDP to the health sector.

The CPD recommended taking lessons from the bail-out packages declared by many countries and international development agencies.

Dr. Fahmida said the World Bank has pledged $12 billion, the IMF $50 billion, the ADB has offered a package of $6.5 billion and the Islamic Development Bank (IsDB) has dedicated $730 million for a special 'Strategic Preparedness and Response Facility.' Bangladesh should apply for an international healthcare relief package.

Prof Mustafizur Rahman, distinguished fellow of the CPD, said Bangladesh has no proper shock absorption capacity despite huge development work in recent years.

"The government should rearrange its priority of spending to face any future economic slowdown," he added.

He also said the government took a long time to take some decisions like lockdowns, isolation and quarantine.

Dr Khandker Golam Moazzem, research director of the CPD, said people engaged in the services sector and the informal sector should be provided essentials at subsidised prices.

Towfiqul Islam Khan, senior research fellow, said the government should intensify efforts to prevent capital flight because the money can be used to fight a situation like the coronavirus pandemic.