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The Financial Express

Financing recovery plan: Economists say banks' liquidity poses challenge

Stimulus sans job guarantee meaningless, they add


JASIM UDDIN HAROON | Published: April 06, 2020 08:25:48 | Updated: April 06, 2020 12:36:30


An illustrative image. — FE Photo An illustrative image. — FE Photo

Banks' liquidity shortage will make it exceedingly challenging for the government to bankroll the stimulus package of Tk 727.50 billion, economists say.

In a televised news conference, Prime Minister Sheikh Hasina on Sunday rolled out the package to help businesses ride out the crisis induced by Covid-19 pandemic.

The economists insisted there should be matching funds with contribution from the owners for the long-term sustainability of the package.

They said there is a huge informal sector in the urban areas, which needs financial support to survive as the coronavirus crisis has started taking toll on the economy.

Dr Mirza Azizul Islam, a former caretaker government adviser, said, "The banks have been facing liquidity shortage for the past few years and given their fragile financial health they will not be able to support large industries and service sectors".

The Prime Minister said that Tk 300 billion of the stimulus package will be in place for the industries and service sectors.

Banks will provide loans from their own resources to the industries and service sectors on the basis of relationship with clients.

The interest rate of the lending facility will be 9.0 per cent, of which borrowers will pay 4.5 per cent and the rest will be provided by the government in the form of subsidy.

Dr. Islam said banks' resources have already dwindled as savers are withdrawing funds to meet their emergency needs.

However, the central bank may take measures, including refinancing schemes, to meet such demand for money by banks.

Dr Islam, who teaches economics at BRAC University, said there is a fairly large informal sector in the urban areas.

"To my mind, they need financing to survive," he said.

He said there is no social safety net programme for the urban people.

Dr. Ahsan H Mansur, executive director at the Policy Research Institute of Bangladesh, said that the amount is substantial and appropriate considering the current needs in a crisis situation.

Dr. Mansur said jobs and workers' wages must be guaranteed, otherwise the stimulus will be meaningless.

"Many workers are not being able to pay house rents, so the government should address this issue," he said.

He argued that defaulters should not get the facility.

"In my opinion, giving the facility to genuine entrepreneurs is another challenge for the package," he commented.

Dr Mansur said the Microcredit Regulatory Authority should be engaged to properly disburse the fund meant for smaller enterprises.

The Prime Minister said small and medium firms will receive Tk 200 billion as working capital.

The interest of the loans will be 9.0 per cent, but 4.0 per cent interest will have to be borne by the borrowers.

Economist Dr Zahid Hussain said that there should be a matching fund to ensure the optimum utilisation of the support in the crisis period.

Matching funds are money to be paid in proportion to financing made available from other sources.

The government alone can't meet the industry's total financing requirement, making it the imperative for the matching fund under the guidance of the Bangladesh Bank, he said.

"If the banks provide 70 per cent of the working capital and the rest should come from the entrepreneurs and it will ensure its sustainability," he added.

"Payroll cannot be supported cent per cent by the government," he noted.

Dr Hussain, a former lead economist of the World Bank's Dhaka office, also said the government must ensure the workers' basic needs, including payment of timely wages and other fringe benefits.

He said the financial needs of the backward linkage industries that support the export-oriented industries by supplying threads, button and other accessories, should also be taken into consideration.

But he said the "Pre-shipment Credit Refinance Scheme" will go to the exporters alone, leaving out such suppliers.

The scheme's loan facility will be Tk 50 billion where the interest rate will be 7.0 percent.

Dr. Hussain also said there is no clear cut direction relating to funding the poor and the marginal people.

The Prime Minister announced four new stimulus packages of Tk 677.50 billion to overcome the possible economic shock from the ongoing shutdown enforced due to the deadly Covid-19 outbreak.

With the Tk 50 billion stimulus package announced earlier, the total amount now stands at Tk 727.5 billion.

jasimharoon@yahoo.com

 

 

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