Funding dev projects

SANEM supports borrowing funds from reserves

FE REPORT | Sunday, 12 July 2020

The government can finance its large development projects from foreign exchange reserves instead of borrowing from the country's banking sector, a think-tank suggested on Saturday.
Since foreign exchange reserves are currently in a better position due to increase in remittances and reduction in imports, the government can narrow down its budget deficit by borrowing from reserves to reduce pressure on banks, it said.
Last week, Prime Minister Sheikh Hasina floated the idea of borrowing from reserves to fund development schemes.
SANEM also said apart from banks, microfinance institutions should be included in disbursing low-interest loans to smaller enterprises as soon as possible to generate employment and revive the country's economy.
The suggestions came at a virtual discussion on 'COVID-19 pandemic,' organised by South Asian Network on Economic Modelling.

Moderated by SANEM executive director Dr. Selim Raihan, the event was also addressed by SANEM director  (Research) Dr Sayema Haque Bidisha, its research economist Mahtab Uddin, senior research associate Eshrat Sharmin, and research associate Fabiha Bushra Khan.
In a presentation, Dr Raihan, also a professor of economics at the University of Dhaka, said it is recognised that forex reserve of a country is well enough if it can pay import bills for three months.
"Recently, Bangladesh's foreign exchange reserve hit an all-time high of US$ 36 billion, which is enough to make import payments for seven to eight months," he said.
The extra fund can be used for financing large government projects, he added.
Advocating the issuance of debt instruments like sovereign bond for better use of excess foreign reserves, he said, "Such an initiative was proposed a few years ago, but the discussion didn't progress further."
However, he said, it should be done cautiously as import and other costs may rise in the coming days. Besides, exports, especially apparels, are declining following lower global demand and higher inflow of remittances may not continue in the coming days.
Referring to the recent uptrend in remittances even during the pandemic, the economist said many of the expatriate workers have lost their jobs and now they are sending their savings before returning home.
The stranded Bangladeshi immigrants in many countries may start coming back as soon as the global airlines begin flights with the country, he noted.
Dr Raihan said the government has planned to borrow from banks in large amount to meet the budget deficit for the current fiscal, which may discourage them from providing low-interest loans to the private sector under stimulus packages announced by the Prime Minister.
If the funds under stimulus packages are not disbursed properly, the country's effort to revive the economy may get interrupted, especially hitting the small entrepreneurs hard.
To address this, SANEM suggested engaging microfinance institutions and NGOs with the banks to disburse the Tk 200 billion allocated for small firms under the economic relief packages.
The pandemic should not shift the focus away from utilising the demographic dividend as that window will remain open for only 10-15 years, Dr Raihan said.
Besides, SANEM recommended increasing the coverage of social safety net to provide safeguard to the low-income people, who lost employment because of the pandemic.
However, indicating irregularities and slow pace in disbursing assistance to the poor, he said, "It was observed that direct cash transfer of Tk 2,500 is quite slow and so far only 17,000 families have got the help."
Speaking at the session, Dr Bidisha said the exodus of low-income people from cities to villages due to job losses, inability to pay rent, and cost of living may cause fall in wages in rural economy. The loans to the smaller firms in rural areas can create jobs and help the country in economic decentralisation if the pandemic lasts for a longer period, she added.
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