There is no alternative to stimulating domestic demand and consumption to accelerate the revival of Bangladesh’s economy.
Speakers said this while participating in a virtual discussion on Center for Policy Dialogue’s flagship Independent Review of Bangladesh’s Development.
Given the surplus budget, the government should invest more on labour-intensive sectors to create employment as there is little hope of private sector investment in the coming months.
During the discussion, CPD presented proposals for the government to announce fresh stimulus package for the pandemic-hit communities.
To create more employment, the government should increase investment on rural infrastructure development programmes and projects like ‘Amar Gram Amar Shohor’. The investment in return would give domestic economy a boost by generating high employment at rural and small town areas and increase people’s consumption capacity, according to CPD proposals.
CPD found that the stimulus support in the first phase created an unequal turnaround as bigger firms could rebound effectively, while smaller firms were left behind.
Professor Mustafizur Rahman, distinguished fellow of CPD, recommended that the second phase stimulus should be implemented for the small and micro enterprises. He also stressed creation of more employment.
In the backdrop of the COVID-induced slowdown of the economy, the government announced stimulus which was actually based on banking. On the other hand, many countries had facilitated cash support to support their pandemic-hit businesses.
The bank-driven stimulus finally overburdened the banking activities and deprived the small and medium enterprise.
CPD executive director Fahmida Khatun cited weaknesses in the country’s banking sector overburdened with loan defaults. She said Bangladesh Bank relaxed loan repayment. While this had reduced the number of loan defaulters, it put huge pressure on banking sector. Delay of repayment would further worsen the situation, she warned.
CPD’s senior research fellow Towfiqul Islam Khan, in the keynote, presented CPD’s review on the state of the Bangladesh macroeconomy.
He said that only 76.8 per cent of the original annual development programme (ADP) allocation could be spent in the 2020 fiscal. During July-December of the current 2021 fiscal, only 24.3 per cent of the total ADP allocation was spent, he said.
He added that the health services division should have invested more considering the pandemic. But it spent only 14.6 percent of the initially allocated amount. Even in pre-pandemic situations, the ADP implementation rate of this sector was higher than the current state.
The keynote stated that stimulus package of Tk 105 billion (Tk10,500 crore) for the export-oriented industry could be considered most successful. But the stimulus package of Tk 200 billion (Tk20,000 crore) announced for the cottage, micro, small and medium enterprise sector–the most affected one– was found as the least effective support. As of January 2021, only 58 per cent of the funds could be disbursed.
The government’s revenue earning seemed comparatively low. In such a condition, the government would need to borrow money to stimulate public spending. What would be the sources? Professor Mustafizur Rahman suggested that the government might borrow money from external sources at a lower interest rate.
Replying to a question on how there could be a balance when the stimulus packages have increased inflation, he said inflation in the price of essential commodities badly impacts low-income people. However, 'headline' inflation would not hurt them. That’s why, he suggested, measurement of inflation needs to be done on the per capita income and consumer price index separately.
CPD research director Khondaker Golam Moazzem recommended quick implementation of imposing or withdrawal of duties by the commerce ministry to control food price inflation. Delayed steps would have no effect.
*This report appeared in Prothom Alo print and online edition, and has been rewritten in English by Sadiqur Rahman