Global economy is drifting towards a recession because of the coronavirus pandemic. Various forecasts are being predicted, depending on different hypotheses. The economies of the western countries are projected to slow down from one to nine percent.
The American economy will suffer the most and so will Bangladesh. The World Bank has predicted that Bangladesh's Gross Domestic Product (GDP) growth will fall by 3 to 4 percentage points.
The Asian Development Bank (ADB) also downplays the GDP growth forecast in Bangladesh. According to their calculations, GDP will be greatly reduced this financial year. If the 'stay-at-home' or lockdown situation is prolonged, GDP will be lesser, our exports will stop, remittance flow will slow down, service sectors will be closed, domestic production will dwindle and demand will decrease. Production is declining while social spending is increasing.
BRAC, in a survey, has shown that the poverty rate has increased by three percent due to the pandemic, meaning that the poverty rate has risen to five percent.
This is temporary. The survey also found that three percent of the people are starving or half-starved.
Another study found that rickshaw-pullers are becoming increasingly poor, not just them, the working-class too, are becoming economically disadvantaged. Small and medium businesses are affected. As a result, the unemployment rate is most likely to rise. Bangladesh will be in a difficult situation, leaving all its achievements overshadowed.
To overcome the impending crisis, a few key strategies may be adopted:
- Let no human being go to bed hungry;
- Earning source of every person must be protected;
- Losses of businesses, particularly those are involved in informal, small and medium businesses, should be minimised;
- Accelerate the pace of economic activities when normalcy returns.
The first strategy is to expand the social safety net and provide direct food to the people in need. The government of Bangladesh has taken strong action in this regard. But what needs to be confirmed is the proper listing of people in distress and ensuring delivery of services. Every political government has a political goal. Everyone should be included, regardless of opinion or political affiliations.
A few days ago, a man came to me from out of Dhaka and said that he was not included in the list as a person affected by the coronavirus. He, like thousand others, is in a dilemma with his NID card which carries a Dhaka address, which he left a few of years ago, after failing to sustain in the city.
Having the NID is important but it is not necessary to confirm the address on it, as it is more important for the victim to get food because of the economic slowdown caused by the lockdown.
The second strategy is more difficult to implement. Some people have been rendered unemployed in the formal economy. The government should work with employers of big and medium industries so that unemployed people can easily get back their earning sources. However, the policy will not work in an informal economy -- the size of which is 87 percent of the total economy.
To implement the third strategy, the government should work with the economic activities of the sectors like micro-credit institutions, cooperatives, private organisations. In the case of the informal economy, it would be a mammoth task as it will cost a lot and the issue is mainly about financing it.
The fourth will also require financing. Prime Minister Sheikh Hasina announced incentive packages which are part of a monetary policy. The goal is to give loans at an interest rate of about 4.5 percent as the single-digit interest rate policy was implemented quite recently. Now the rates will be reduced by five percent. What concerns me the most is financial repression. Impacts of financial repression policies have been studied and the effects were never good. Banks are the worst affected. The use of debt fails to be logical in most cases. Medium and large industries may need this support like all other areas.
These steps involve a lot of social costs. If we depend on the banking system to finance the programmes, it will mount pressure on it, throw it into risk and ultimately endanger future investment processes.
Therefore, here are some suggestions on mobilising money and what the government of Bangladesh thinks about it.
Formation of ‘National Economic Recovery Fund’
A fund called the 'National Economic Recovery Fund' can be created. Its main purpose will be to finance the coronavirus-hit communities, like the economically disadvantaged groups, small and medium enterprises, agriculture and non-agricultural businesses, and social infrastructure. Now, the question is how will this fund be created? This fund can be mobilised by imposing a mandatory ‘tax or donation’ on companies that have a net profit at the end of their financial year in December or June.
Employees whose net salary are Tk 1 lakh and above will be required to mandatorily give 10 percent of their salary to the fund. But why should they? The nation needs it now.
The capable ones must come forward and submit a portion of their wealth to this state fund with nationalistic consciousness. Well, the wealthy section of the society should not ask: what is in it for me, but consider ‘how’ they will give.
I still believe these donors will enjoy tax benefits, and the percentage will depend on how much was donated and to be defined by the National Board of Revenue (NBR). The government may issue ten-year new securities or bonds aiming at bringing in additional funds. This can be considered as the 'National Economic Recovery Credit Index'.
Both the institutions and individuals can invest in this bond or new securities, on condition that there will be no interest paid, nor can the investment be withdrawn within the first three years.
No questions on the source of investment money should be raised. Black money can be invested in these bonds or securities which will provide a profit of two percent higher than the interest rate. At the moment, all money is white, regardless of its source. There will also be a need to provide tax relief.
'Zakat for State and Social Reconstruction'
Ramadan is ahead. It is time to pay Zakat. Due to the lack of a proper structure, people do not submit Zakat. This time a fund called 'Zakat for State and Social Reconstruction' can be created. The funds will be spent on food, clothes, and income-generating work for the poor. The current structure under the Islamic Foundation is neither right nor transparent. People are unaware of how this money is being used, and it right that people know that their zakat contributions should directly help persons in need.
I think a committee comprising of government and administration representatives, Islamic scholars, representatives of micro-credit institutions and civil society, irrespective political affiliations at every level should operate transparently.
If the programme is implemented keeping politics at bay, its purpose will not fail. Everyone knows that Zakat is a form of alms-giving in Islam which is a religious obligation or tax, given to the poor and has nothing to do with the government. If the prime minister, her cabinet, members of parliament and government officials give zakat, others will also be encouraged to do so.
If all the wealthy people submit their zakat to ‘Zakat for State and Social Reconstruction’, at a rate of 2.5 percent on their surplus money or ornaments at the end of a financial year, around Tk 20.5 crore can be mobilised.
If all of these funds can be created and managed well, it will certainly help social spending greatly, and there would be no necessity of extra money supply or printing of paper money while inflationary pressures with the supply of banknotes to market may be reduced.
A humane Bangladesh
To control the damage that the coronavirus has inflicted on the economy, a humane Bangladesh must emerge. Although the Bangalees do not always coexist peacefully, in times of danger the stretch out a helping hand. The rich and various institutions have shown their generosity during many natural disasters and catastrophes. Those who could not be of much financial help also came forward with what they had.
People are coming forward with the food aid and other assistance but the initiatives lack coordination. The slogan this time should read “All for One” to reconstruct the society and state.
This year marks the centenary of the birth of Bangabandhu Sheikh Mujibur Rahman, and we are supposed to have a year-long celebration. The festival may be redirected to celebrate the year as ‘All for One' or 'Bangladesh for Humanity'.
As far as I understand, the independence of Bangladesh was based on some philosophies including humanity. With this motto in mind, Bangladesh will continue to improve if everyone is accommodated within a common policy frame. It is also possible to create funds for development and a humane Bangladesh may not be beyond imagination and expectations.
The writer is a professor at Business Administration, University of Asia Pacific, and a former professor at University of Dhaka.