Stimulus package: No panacea for all economic ills
Tuesday, 21 April 2009
THE Finance Minister announced on Sunday an interim stimulus package for a few specific export sectors hit hard by the current global recession, in addition to an increase in subsidy to agriculture and power sectors and further expansion of the safety net programmes for the poor and the disadvantaged in the society. There were lots of talks and demands from the businesses seeking fiscal as well as policy supports prior to the announcement of the package that is designed to be implemented in two phases-the first phase costing the government exchequer over Tk. 34.24 billion will be implemented during the last quarter of the current fiscal and the second one in the next fiscal and beyond. Though there has been no financial commitment for the second phase, the Finance Minister made it amply clear that allocations would be made in the second phase in the light of experiences gained from the interim phase and recommendations from the taskforce constituted earlier to assess the effects of the recession on the domestic economy.
It seems that the government while formulating the interim stimulus package has taken into consideration its own capacity to pay in excess of the allocations made in the original budget, the sectors that are taking the main brunt of the recession and the need to help the poor who usually suffer most in a depressed economic environment. There is no denying that jute, leather and frozen foods have been affected seriously by the global recession with substantial erosion in their export earnings in recent months. Notwithstanding the fact that a 2.5 per cent increase in cash incentive is not enough if seen in the context of their business losses, the government has tried to help these export-oriented sectors within its limited means. Obviously, there would be resentment among exporters from some other sectors, including the ones from the readymade garments (RMG), who expected some fiscal incentives from the government. Actually, the associations of woven and knit garments manufacturers and exporters, while giving their reaction to the media immediately after the unveiling of the package, have vented their frustration.
However, the Finance Minister has claimed that the sectors that have not come under the fiscal stimulus would be benefited from the policy supports such as expeditious release of the existing fiscal incentives, relaxation of loan rescheduling rules for exporters and yarn manufacturers and refinancing of export loans by the central bank. While making attempts to help, though on a limited scale, the affected exporters, the government has tried to boost demand in the economy and help the rural poor through increased flow of funds to agriculture and expansion of the safety net programmes. However, many would question the wisdom behind inclusion of recapitalization funds for state-owned banks engaged in agricultural loan distribution and enhanced subsidy to the power sector in the stimulus package.
In sum, the government's stimulus is unlikely to have any ripple effect on the economy because of a host of reasons, including the lack of interest among entrepreneurs in making new investments in productive sectors. The power and gas crises continue to be the major obstacles to investments. Despite the fact that the government is not in a position to improve the power and energy situations overnight, it should try hard to generate more power within the shortest possible time. Another area that deserves attention of the government is proper execution of the already downsized annual development programme (ADP) for the current fiscal year. The implementation of the public sector development projects has the potential to generate substantial number of jobs both in urban and rural areas, which might prove helpful in creating demand in the economy.
It seems that the government while formulating the interim stimulus package has taken into consideration its own capacity to pay in excess of the allocations made in the original budget, the sectors that are taking the main brunt of the recession and the need to help the poor who usually suffer most in a depressed economic environment. There is no denying that jute, leather and frozen foods have been affected seriously by the global recession with substantial erosion in their export earnings in recent months. Notwithstanding the fact that a 2.5 per cent increase in cash incentive is not enough if seen in the context of their business losses, the government has tried to help these export-oriented sectors within its limited means. Obviously, there would be resentment among exporters from some other sectors, including the ones from the readymade garments (RMG), who expected some fiscal incentives from the government. Actually, the associations of woven and knit garments manufacturers and exporters, while giving their reaction to the media immediately after the unveiling of the package, have vented their frustration.
However, the Finance Minister has claimed that the sectors that have not come under the fiscal stimulus would be benefited from the policy supports such as expeditious release of the existing fiscal incentives, relaxation of loan rescheduling rules for exporters and yarn manufacturers and refinancing of export loans by the central bank. While making attempts to help, though on a limited scale, the affected exporters, the government has tried to boost demand in the economy and help the rural poor through increased flow of funds to agriculture and expansion of the safety net programmes. However, many would question the wisdom behind inclusion of recapitalization funds for state-owned banks engaged in agricultural loan distribution and enhanced subsidy to the power sector in the stimulus package.
In sum, the government's stimulus is unlikely to have any ripple effect on the economy because of a host of reasons, including the lack of interest among entrepreneurs in making new investments in productive sectors. The power and gas crises continue to be the major obstacles to investments. Despite the fact that the government is not in a position to improve the power and energy situations overnight, it should try hard to generate more power within the shortest possible time. Another area that deserves attention of the government is proper execution of the already downsized annual development programme (ADP) for the current fiscal year. The implementation of the public sector development projects has the potential to generate substantial number of jobs both in urban and rural areas, which might prove helpful in creating demand in the economy.