Fiscal stimulus of Bangladesh amid Covid-19 pandemic

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Global supply chain is facing disruptions because of coronavirus pandemic. As part of supply chain, Bangladesh's export sectors are in deadly trouble. The readymade garments (RMG) sector is the leading one, which is mainly affected.

The Prime Minister on March 25, 2020 announced a fiscal stimulus worth Tk 50 billion for export industries to fight the impact of Covid-19 pandemic on the national economy. The fund is usually to be used for payment of salaries and wages of workers and employees. Trade bodies including BGMEA (Bangladesh Garment Manufacturers and Exporters Association) appreciated the measure. Accordingly, the BGMEA has recommended all its member factories to keep their units closed until April 04, 2020 amid the coronavirus outbreak. The trade body is reported to have reached your choice a day after the government announced Tk 50 billion fund to be used limited to paying wages and allowances to employees and other employees of the export industry. Also the BKMEA (Bangladesh Knitwear Manufacturers and Exporters Association) reportedly took similar moves.

In an interview, the BGMEA president said they are available goods to global brands at low (affordable) prices. It's true that global brands are sourcing goods that are cheap, from Bangladesh and selling them at dear prices elsewhere. Export industries are termed sweat shops which generate huge employment at low salaries since their goods, if not strategic goods that enjoy monopoly, can be purchased abroad at lower prices. Some think-tanks regard such selling as under-pricing.

To facilitate employment, the government is extending subsidy/cash support against exports of goods every year that substantial amount is allocated. The RMG is among the leading export sectors which enjoys subsidy in several names such as for example regular incentive instead of customs bond/duty drawback facilities, additional facilities for SME (small and medium-sized enterprise) industries, new market exploitation assistance, and incentives for export to euro zone. Through the current fiscal year, additional incentive of just one 1.0 percent has been announced against export of RMG including textile goods.

The export industries create huge employment which boosts local trading activities. In the context of Bangladesh economy, there are three major players -agriculture, wage earning from abroad and the export sector. As you of major players, the export sector needs continued supports and the federal government does the same from its income income.

Disruptions in supply chain due to coronavirus pandemic affect our RMG exports to a more substantial extent. Export orders are being cancelled and finished products struck up. Export payments of earlier shipments are not to arrive. Exporters are in problems to clear payments like utilities, wages and salaries. They are facing problems in settlement of import payments including loan from export development fund (EDF). To handle the problem, the central bank has announced policy supports. This consists of extension of time for different cases - export payment realisation time by two months, bill of entry submission time by 8 weeks, back-to-back and usance import settlement time by six months, and EDF loan extendable to 1 year. The policy supports extended by the central bank have already been highly appreciated by different trade bodies. Surely policy supports help exporters. Helicopter money has to be poured right down to export industries. Otherwise, it really is feared, numerous jobs may be lost.

Light in the tunnel is situated in the fiscal supports, especially in the announcement by the Prime Minister of a stimulus package of Tk 50 billion. This can help a whole lot for sustainability of relevant industries until the situation becomes normal. Fund management during the crisis is a vital point for continuing business operations,regardless of whether the factories have or don't possess work orders. As such, associations have to devise procedures to disburse the fund to beneficiaries. A decision can be needed regarding eligibility to have the facilities, considering involvement of different stakeholders in export trade.

Fund disbursements to beneficiaries may well not be easy since the government won't disburse money directly to the workers. In cases like this, the government may, in consultation with stakeholders, issue directives for banks through the central bank. The directives may are a government guarantee based on which designated banks will extend working capital loans to concerned beneficiaries. While extending loans, banks will need into account recommendations from trade bodies representing the sectors. Banks, after receipt of application, shall conduct an audit by their nominated audit firms. They'll then disburse the funds to the beneficiaries. Afterwards, the banks will seek reimbursement from the federal government. Accordingly, they will apply to the central bank for reimbursement. The central bank will settle the claims against authorisation from the federal government, by debit to concerned accounts.

Alternately, decision could be taken to the effect that banks will disburse six-month or one-year working capital loans to exporting entities for salaries of personnel and other employees. The federal government will disburse interest payments at a predefined rate against the loans to the designated banks. This process may continue for a bit longer, depending on size of the fund allocated for the programme.

As the federal government has taken the decision in principle to support export industries by method of fiscal stimulus package, immediate operational procedures have to be devised. The beneficiaries will require fund very soon to perform the industries. Hence, it is high time to devise operational modalities for making the stimulus package workable. The concerned authorities should think of it because of its operationalisation.
Source: https://www.globaltimes.cn

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