Home ›› 06 Nov 2021 ›› Opinion
Since the onset of the Covid-19 pandemic, people have been suffering from lack of work and income. The sufferings of the wage-dependent workers in the country’s informal sectors, as a result of losing their jobs are particularly acute. Employees from private sector have been facing salary reduction and job cuts. A lot of privately-run organizations were obliged to take bitter decisions regarding employees’ fringe benefits. In a nutshell, formal and informal sectors could not continue their usual operations like before due to the presence of Covid-19 in Bangladesh since March 2020. According to macroeconomics characteristics, unemployment situation coupled with increased price level are acting as deterrent to the economic progress.
With the appearance of coronavirus, Bangladesh economy began to suffer from a combination of stagnant growth and rising inflation lead to high unemployment. To combat the situation, the government announced a total of 23 stimulus packages worth around Tk 1.23 trillion which was 4.4 percent of the total GDP. The stimulus packages, which were increased from 23 to 28, now stands at Tk 1.35 trillion which is about 4.9 percent of GDP. In the initial phase of the pandemic, the decision regarding announcement of stimulus packages was taken in the aim of targeting the people who were living without money in hand. The packages came as blessings for big borrowers but as curse for the people involved with small-scale business enterprises. Moreover, during the first wave of Covid-19, a total of 25 million vulnerable people were brought under prime minister’s humanitarian assistance initiative. Even though, efforts were made to hold money circulation in all areas aiming to create demand among people having no income.
It is important to note that a significant portion of of stimulus packages remained unutilised in fiscal year 2020-2021. Nevertheless, expansionary monetary policy stance was taken against the backdrop of Covid-19 situation. In order to inject much- needed liquidity in the market, monetary instruments- cash reserve ratio (CRR), repo, reserve repo and Advance Deposit Ratio (ADR) saw a little reduction of rates. Actually, monetary policy programme for FY 2020-21 came to generate employment opportunities among others. Besides, the bank rate, which was stable for last 17 years, was also cut in the first monetary program shortly after contracting with deadly virus. The monetary program for FY 2020-21 was modernized in view of a few strange situations in the economy such as Covid-19 pandemic, seasonal flood, sluggish economic and volatile price situation.
The planned programmes through monetary policy taken in last fiscal year could not see expected output in economy hit-hard by corona virus. Amidst unusual economic situation, real GDP growth was achieved around 6.1 percent in just concluded FY21. Worrying is also the credit growth in private sector which is in poor state. In my view, the targets set in the FY 2021-22 monetary program may not be achieved. In the monetary policy statement unveiled recently, many previous growth targets remain in force. The second wave of coronavirus is responsible for keeping same growth target in running fiscal year. But, the output, widely known as GDP, growth target has been set at 7.2 percent with keeping inflation rate within 5.30 percent. The inflation was registered at 5.56 percent in FY 21 against 5.40 percent target. In economy, high inflation rate is always viewed negatively. The consumers are now much frustrated in predicting increased price level. Ultimately, they are thinking about food inflation that is observed beyond control. Naturally, the fast-growing economy experiences rising inflation for a brief time while injecting money in an economy to a great extent. When the economy becomes stable, inflation naturally goes down.
The monetary programme was unveiled without thinking about excess liquidity issue now reserved with commercial banks. As of June this year, excess liquidity stood at Tk 2.39 trillion which has become key concern for money market. Later, the central bank was able to pop up excess liquidity with initiating money market policy. The growing trend of foreign remittance inflow in recent months helped the liquidity to increase. To make the monetary policy stance a grand success, there is no alternative to gearing up loan disbursement in private sector. Private sector credit growth dropped due to second wave of coronavirus. A report stated that the growth was 8.79 per cent in March 2021. It was 7.25 percentage points lower than central bank’s target of 14.80 per cent for the second half of FY 2021-21, a daily said in its report. Private sector is expected to play a significant role in creating employment opportunities. Already the central bank made an announcement for giving priority on productive sectors with utilizing remaining allocation under stimulus packages properly. The central bank’s latest move to oversee the disbursed loans from stimulus packages is praiseworthy, no doubt.
The Bangladesh Bank has so far taken responsibility of 12 stimulus packages amounting of Tk one trillion. I think if central bank can launch drive in respect of speedy implementation of announced stimulus packages, the projected targets including GDP target will be achieved. Private sector credit growth needs a push to achieve key macroeconomics targets. In the context of present economic situation, accelerating domestic credit growth has become a timely requirement. If domestic credit growth touches at 20 percent in this fiscal year, there is possibility of achieving desired targets set in the program. Vietnam, now strong competitor of Bangladesh, saw 15.4 percent credit growth in private sector whereas Bangladesh recently experienced 8.4 percent. Sri Lanka, that is now struggling to survive with lowest foreign currency reserve, made it possible to achieve a 10.5 percent growth, better than Bangladesh.
However, Bangladesh’s position is much better than India, Pakistan and Indonesia in this regard. Right now, credit flow has to be scaled up through banks’ narrow-scale outlets known as sub branch. By connecting vast number of unbanked population to financial service providers, the start of offering large-scale credit facilities is a must. Launching of credit guarantee scheme will certainly be helpful for expansion of credit growth. The planned start up fund volume needs to be enhanced for combating the third wave of Covid-19. Monetary policy programme appears to ensure economic stability. If continuation of strong surveillance is ensured by regulator from time to time amidst pandemic, the corona-ravaged economy will assuredly be able to fulfill desired target set in the monetary policy statement.
The writer is an economic affairs analyst. He can be contacted at [email protected]
