About the stimulus package
Sunday, 3 May 2009
Syed Jamaluddin
Most of the developed and developing countries have rolled out stimulus packages to sustain economic activity and bring back economic recovery in their economies. Bangladesh has also embarked on a limited stimulus package. The govt has recently announced a Tk 34.24 billion (3,424 crore) stimulus package to cushion the impact of global economic meltdown. This fund is intended to be used over the last quarter(April-June) of the current fiscal year. It includes Tk 4.50 billion (450 crore) in cash subsidies for the export industries already hit by the recession. Only selected sectors will receive cash incentives. Those who are not getting the cash benefits will receive a bundle of policy support. Some of the measures will be implemented on an urgent basis. The amount of the stimulus package will be allocated in the revised budget for the current year.
Of the total amount, Tk 4.50 billion (450 crore) will be spent on cash subsidies to exporters, Tk 15 billion (1,500 crore) on agriculture, Tk 6.0 billion (600 crore) on power sector, Tk 5.00 billion (500 crore) on agriculture loans and Tk 3.74 billion (374 crore) on social security. The finance minister said that additional funding for social safety net will translate into a rise in the number of pensioners and the amount of pensions. Tk 15 million (1,500 crore) allocated for the agriculture sector will have to be sub allocated for specific items.
Cash incentives for jute goods will increase from 7.5 to 10 per cent, leather and leather products to 17.5 per cent from 15 per cent, frozen food and fish to 12.5 per cent from 10 per cent. There is no cash incentive for ready made garments (RMG) and ceramic exporters as the projection up to June this year does not show any negative growth for these sectors. According to the finance minister, time is not yet ripe for giving them cash subsidy. Besides giving financial, fiscal and policy support, the government will bring about major administrative reforms.
To boost export, the Bangladesh Bank will expand its credit to all products. It will also stretch the time limit for repayment to 120 days from 90 days at present. It has issued the circular to bring down the lending rate below 13 per cent and allow rescheduling facility without down payment. The civil aviation and tourism ministry has been asked to withdraw the surcharge on carrying fruits and vegetables on international routes.
Readymade garment, knitwear and spinning will not benefit from this stimulus package. The business leaders urged the government to review its decision and include woven and knitwear in the stimulus package. Spinners were claiming bailout package very seriously. The finance minister said that spinning sector has been left out and this will be accommodated. Details will have to be worked out The time is of essence here to reach the benefits to the targeted sectors. The garment and knitwear sector may feel unhappy for being left out of the bail out plan.
The financial recession has so far not affected the remittances. Migration has not slowed down drastically as 1,50,000 workers found overseas jobs during January-March. Some 8,00,000 workers went abroad in each of the last two years .Some have returned. But there is no serious retrenchment and return. Government may announce financial package to stimulate labour migration in order to reduce the risks undertaken by migrants and their families.
Even in a recession there is scope for new market exploration. The market for women domestic workers has not been affected by the recession. We have to identify sectors such as hospitality management and nursing where there is high demand, despite the recession. There is a large scope for local construction workers in African countries.
Although return of the workers is not yet serious, a package has to be developed for them. We have to attend to their problems as and when they return. This appears to have been left out. Government will certainly look into it. There is a welfare fund for the migrant workers. This fund can be utilised to rehabilitate the returning workers.
Former finance adviser has commented that Tk 4.50 billion (450 crore) may not be required for three export items identified for export subsidy. He said that some of the amount will be used to meet past arrear claims as indicated to him. According to him, it was not clarified how the agriculture subsidy would be administered. The government needs to decide whether the subsidy will be given in the form of price support for final product or input subsidy or both. The subsidy for electricity is not a stimulus in any sense. It is not related to global recession. It is not correct to say that the entire allocation is a stimulus. The views of former finance adviser were published in a local daily.
Monitoring implementation of the stimulus package will be extremely important. Normally, there is shortfall in implementation of allocations for a host of reasons. We are not sure if the bail-out money will be spent during the current quarter as envisaged by the government. Implementation of the annual development programme (ADP) is expected to beneficial during the time of slowdown but govt agencies have spent only 41 percent of the total development budget in the first nine months of the current financial year. Inefficiency and procrastination of the administration, lengthy public procurement process, delay in fund release and donor conditionalities are cited as examples of delay. These examples are cited every time. The present government standing on a platform for change may try to change some of the procedures for improving the prevailing situation.
The business leaders called on the finance minister a few days back and proposed a comprehensive economic stimulus package to help the local industries and create employment amid the global recession. They asked for creation of a Financial Crisis Management Fund and ensuring necessary policy support, including low cost credit for local industries and reduction of existing customs duties. They have also proposed for a fund for both rehabilitation and skill development of returnee expatriates and other unemployed people. They called for bringing down interest rate to 10 per cent and reducing the spread between credit and deposit rates. They furthermore demanded disbursement of outstanding cash subsidy by June 30,2009.
The finance minister told the business leaders that the government was giving priority to areas like food, fertilizer and fuel in the next budget. The government will ensure credit flow to the private sector. Foreign investment will be encouraged for telecom, power, education and healthcare. The response from foreign investors may be lukewarm in view of the BDR carnage. They may wait until the matter is finally sorted out. The ministered assured the business leaders about creating a special fund. It is expected that a much bigger bailout package will be announced during the budget.
President Barack Obama is counting on his $787 billion stimulus package to help sustain the economy. Economists hope that at least some of that money will be spent to support economic activity. We are depending on our stimulus package for positive outcome.
The writer is an economist and columnist.
Most of the developed and developing countries have rolled out stimulus packages to sustain economic activity and bring back economic recovery in their economies. Bangladesh has also embarked on a limited stimulus package. The govt has recently announced a Tk 34.24 billion (3,424 crore) stimulus package to cushion the impact of global economic meltdown. This fund is intended to be used over the last quarter(April-June) of the current fiscal year. It includes Tk 4.50 billion (450 crore) in cash subsidies for the export industries already hit by the recession. Only selected sectors will receive cash incentives. Those who are not getting the cash benefits will receive a bundle of policy support. Some of the measures will be implemented on an urgent basis. The amount of the stimulus package will be allocated in the revised budget for the current year.
Of the total amount, Tk 4.50 billion (450 crore) will be spent on cash subsidies to exporters, Tk 15 billion (1,500 crore) on agriculture, Tk 6.0 billion (600 crore) on power sector, Tk 5.00 billion (500 crore) on agriculture loans and Tk 3.74 billion (374 crore) on social security. The finance minister said that additional funding for social safety net will translate into a rise in the number of pensioners and the amount of pensions. Tk 15 million (1,500 crore) allocated for the agriculture sector will have to be sub allocated for specific items.
Cash incentives for jute goods will increase from 7.5 to 10 per cent, leather and leather products to 17.5 per cent from 15 per cent, frozen food and fish to 12.5 per cent from 10 per cent. There is no cash incentive for ready made garments (RMG) and ceramic exporters as the projection up to June this year does not show any negative growth for these sectors. According to the finance minister, time is not yet ripe for giving them cash subsidy. Besides giving financial, fiscal and policy support, the government will bring about major administrative reforms.
To boost export, the Bangladesh Bank will expand its credit to all products. It will also stretch the time limit for repayment to 120 days from 90 days at present. It has issued the circular to bring down the lending rate below 13 per cent and allow rescheduling facility without down payment. The civil aviation and tourism ministry has been asked to withdraw the surcharge on carrying fruits and vegetables on international routes.
Readymade garment, knitwear and spinning will not benefit from this stimulus package. The business leaders urged the government to review its decision and include woven and knitwear in the stimulus package. Spinners were claiming bailout package very seriously. The finance minister said that spinning sector has been left out and this will be accommodated. Details will have to be worked out The time is of essence here to reach the benefits to the targeted sectors. The garment and knitwear sector may feel unhappy for being left out of the bail out plan.
The financial recession has so far not affected the remittances. Migration has not slowed down drastically as 1,50,000 workers found overseas jobs during January-March. Some 8,00,000 workers went abroad in each of the last two years .Some have returned. But there is no serious retrenchment and return. Government may announce financial package to stimulate labour migration in order to reduce the risks undertaken by migrants and their families.
Even in a recession there is scope for new market exploration. The market for women domestic workers has not been affected by the recession. We have to identify sectors such as hospitality management and nursing where there is high demand, despite the recession. There is a large scope for local construction workers in African countries.
Although return of the workers is not yet serious, a package has to be developed for them. We have to attend to their problems as and when they return. This appears to have been left out. Government will certainly look into it. There is a welfare fund for the migrant workers. This fund can be utilised to rehabilitate the returning workers.
Former finance adviser has commented that Tk 4.50 billion (450 crore) may not be required for three export items identified for export subsidy. He said that some of the amount will be used to meet past arrear claims as indicated to him. According to him, it was not clarified how the agriculture subsidy would be administered. The government needs to decide whether the subsidy will be given in the form of price support for final product or input subsidy or both. The subsidy for electricity is not a stimulus in any sense. It is not related to global recession. It is not correct to say that the entire allocation is a stimulus. The views of former finance adviser were published in a local daily.
Monitoring implementation of the stimulus package will be extremely important. Normally, there is shortfall in implementation of allocations for a host of reasons. We are not sure if the bail-out money will be spent during the current quarter as envisaged by the government. Implementation of the annual development programme (ADP) is expected to beneficial during the time of slowdown but govt agencies have spent only 41 percent of the total development budget in the first nine months of the current financial year. Inefficiency and procrastination of the administration, lengthy public procurement process, delay in fund release and donor conditionalities are cited as examples of delay. These examples are cited every time. The present government standing on a platform for change may try to change some of the procedures for improving the prevailing situation.
The business leaders called on the finance minister a few days back and proposed a comprehensive economic stimulus package to help the local industries and create employment amid the global recession. They asked for creation of a Financial Crisis Management Fund and ensuring necessary policy support, including low cost credit for local industries and reduction of existing customs duties. They have also proposed for a fund for both rehabilitation and skill development of returnee expatriates and other unemployed people. They called for bringing down interest rate to 10 per cent and reducing the spread between credit and deposit rates. They furthermore demanded disbursement of outstanding cash subsidy by June 30,2009.
The finance minister told the business leaders that the government was giving priority to areas like food, fertilizer and fuel in the next budget. The government will ensure credit flow to the private sector. Foreign investment will be encouraged for telecom, power, education and healthcare. The response from foreign investors may be lukewarm in view of the BDR carnage. They may wait until the matter is finally sorted out. The ministered assured the business leaders about creating a special fund. It is expected that a much bigger bailout package will be announced during the budget.
President Barack Obama is counting on his $787 billion stimulus package to help sustain the economy. Economists hope that at least some of that money will be spent to support economic activity. We are depending on our stimulus package for positive outcome.
The writer is an economist and columnist.