Liquidity crisis must be solved unconventionally: Salehuddin Ahmed
The government has declared a Tk 727.50 billion assistance programme to overcome the economic crisis caused by coronavirus. Former governor of Bangladesh Bank, Salehuddin Ahmed, talks to Prothom Alo about how far this will be effective in reviving the economy, what else the government needs to do to improve the living standards of the marginalised population, and other related issues.
Q: The government has formed a Tk 727.50 billion assistance fund. How far will this be effective in reviving the economy?
Salehuddin Ahmed: The assistance fund announced by the prime minister, overall, is positive. The question is, how will this programme be implemented? Who will implement it? The success or failure of the programme depends much on this. The entire programme is dependent on loans and so the big businessmen will benefit from this the most. And given the present state of our banks, there is also the question as to how efficiently, how speedily and how honestly they will be able to carry out this task.
It is important for the workers of the informal sector to be given cash. Providing them with loans is not enough. They must be given grants. It is imperative to provide help to those who work in restaurants, shops, those who are street vendors and so on, so they may carry on for the next six months.
Q: As it is, the banks were facing a liquidity crisis. Will they be able to arrange such huge funds in such a short span of time?
Salehuddin Ahmed: The central bank must come forward. When I was the Bangladesh Bank governor in 2008-09, a global economic recession had emerged. At the time, the growth rate of broad money had been 25 per cent and so we didn’t face a liquidity crisis. Even now, the SLR (Statutory Liquidity Rate) and CRR (Cash Reserve Ratio) can be decreased and the capital of the commercial banks increased. This must be done in an unconventional way. We can’t simply adhere to IMF conditions all the time. The government can also place focus on recovering default loans.
Q: You say the government stimulus package will benefit the big businessmen more. But there is a Tk 200 billion package for the small and medium entrepreneurs too.
Salehuddin Ahmed: Banks always give priority to big businessmen. They never show much interest to invest in small and medium enterprises. If the central bank provides the banks with loans at 1 or 2 per cent interest rates, they will be able to give loans at 9 per cent interest. To small and medium entrepreneurs, arranging the funds is more important than the interest rate. They need an assured flow of finance to sustain their businesses.
Q: The government is providing incentives to the industrial sector, but there is no separate package for the people who need it the most, that is the poor people who have been hit the hardest.
Salehuddin Ahmed: Around 22 per cent of the people, that is around 40 million, live below the poverty line in the country. The funds which the government is providing under the social safety net programme are not adequate. These people need to be given cash, not rice or wheat. With cash they can purchase other essentials too, outside of food.
Q: What about those who work in the informal sector?
Salehuddin Ahmed: The number of workers in the informal sector is much higher than in the formal sector. They have no job guarantee. They owners will say you will be paid for as many days as you worked. That is why it is important for the workers of the informal sector to be given cash. Providing them with loans is not enough. They must be given grants. It is imperative to provide help to those who work in restaurants, shops, those who are street vendors and so on, so they may carry on for the next six months.
Q: So is this financial programme adequate to overcome the present situation?
Salehuddin Ahmed: I think a two-year action plan should be taken up to revive the economy and keep it running. Random and uncoordinated programmes cannot stimulate the economy.