Published in ICE Business Times on Monday 6 July 2020
In a conversation, Dr Fahmida Khatun, Executive Director, Centre for Policy Dialogue (CPD) elaborates how the Bangladesh economy can get back on its feet through the proper utilisation of allocated funds and the importance of eliminating corruption to improve public services.
How much do you believe the government announced stimulus packages will help to revive the economy? Do you have any suggestions regarding its implementation?
The government has announced stimulus packages to revive the economy. These packages will certainly help to revive the economy from the slump the pandemic has forced upon us. The stimulus and the relief package in the aggregate are now equivalent to 4% of our GDP. Interestingly, more than 80% of the fund will be provided through liquidity support from the banks. They will be responsible for providing liquidity support to industries, big businesses and SME(s). The banking sector has already provided support to our major export-oriented industries including RMG and Pharma sector. An amount of Tk 5,000 crore each has been provided to the sector (RMG and Pharma) to the sectors to pay off salaries of their workers. Similarly, Tk 20,000 crore has been allocated for SME(s) whereas Tk 30,000 crore for large industries in the package.
Therefore, a substantial amount of money has been allocated for the affected businesses and it certainly helps them in their quest for survival from the pandemic and provides a pathway for revival. However, the money has to go to the entities who have been hit by the crisis and have genuine concerns for sustainability. Implementation of the allocation of the money is going to be the biggest challenge and will dictate its effectiveness in reviving the economy.
Firstly, Banks must have adequate liquidity to provide support to the ailing industries, to ensure that the central bank has taken some measures to create liquidity through money instruments. It has reduced the CRR (Cash Reserve Ratio), Repo and increased ADR (Advanced Deposit Ratio) to create fiscal space for the banks. However, the banks will need more money because of the sheer amount of funds they have to disperse. At a time when the banking sector is facing a lot of challenges due to the piling up of a large amount of NPL (Non-Performing Loans), wilful defaulters and general weakness in the banking system, they are going to need more support from the central bank to materialise the dispersion of the funding. Getting back the money from different sectors is also going to be a challenge for the banks.
The Bangladesh Bank has directed the banks to disburse loans from the stimulus package based on the bank-client relationship. Therefore, the entire responsibility has been put on the banks themselves. This arrangement has put doubts on the chances of stimulus loans going to the SME(s). Most small and medium enterprises in Bangladesh get their capital from savings or family members, they do not have the credentials to qualify for a loan based on bank-client relationship. Thankfully, the government has instructed that a portion of this package must go to the SME(s). Some of the organisations like the Federation of Bangladesh Chambers of Commerce & Industries (FBCCI), SME Foundation and Palli Karma-Sahayak Foundation (PKSF) will assist the banks in identifying and facilitating the SMEs who qualify for the loan support.
I feel that banks have to be extra cautious in terms of dispersing the loans. They must identify the entities that qualify and respect the terms of the loans and ensure that they can get the money back from large businesses.
There have been calls to introduce a universal basic income for the poor who have been the hardest hit due to the pandemic. How much will it help to ease the hardships of the impoverished people of our country? Is the idea sustainable given our constraints (resource and corruption)?
As a nation, we never really emphasised on universal schemes, however, these are extraordinary times. The crisis is threatening to snowball into the greatest economic disaster of our lifetime. It will alter the very fabric of our socio-economic structure. It is the ideal time to introduce universal schemes for the most vulnerable population of our country.
Currently, we do not have any such program in place. We have resource constraints and competing priorities across sectors. Our country is emphasising on infrastructural development which is pivotal for growth. Our economy was in growth momentum and a lot of credit for that has to go to the rapid infrastructural development. However, soft infrastructure development in our county has always been neglected. It includes health, education and social safety net. These sectors have always been neglected in national budgets over decades, it is a perennial issue that has been negatively affecting the living standard of our country. Therefore, despite having an allocation of Tk 95,000 crore in the latest budget with over a hundred programs, which includes support for widows, destitute population and school stipend, the support is inadequate considering the number of poor and vulnerable people who need immediate assistance.
When it comes to supporting people through a universal scheme, it is always better to provide a direct cash transfer. Currently, social safety nets programs only pay a monthly benefit of Tk 500-750 which is negligible when compared to their needs. Post COVID-19 the government has announced to provide Tk 2500 a month among fifty thousand households. Unfortunately, the amount of people covered in the scheme is negligible compared to the amount that has been pushed below the poverty line by the pandemic. Some reports suggest that the number of people that are living in extreme poverty has doubled since the crisis began.
According to our (CPD) estimates, the upper poverty level which was 24.5%, may have increased to 35%. So, the number of poor people has increased drastically and we do not have an infrastructure in place to provide them with immediate support. If we had a support system in place beforehand, the current situation could easily have been tackled and many people could have been saved from hunger and malnutrition.
Nevertheless, we should take this opportunity and start walking in the right direction. Every crisis throws some challenges in our direction and forces us to rethink our previous strategies. This is the time to think about the most vulnerable communities of our country and devise a sustainable plan to save them from hunger and malnutrition.
In the 2000s there was a program called “The Hundred days employment program” for the poor population. Similar programs are also in place in India like The Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) which is approved by the legislative body of the country and it is legally binding to secure employment for them. If the schemes we undertake are passed in the parliament as obligatory responsibility for the local government bodies, it will be much more efficient and effective in easing the hardships of the vulnerable community of our country.
Regarding the constraints, there are resource constraints but we can start with a smaller project and expand over time. However, the biggest challenges that we are faced with is corruption and mismanagement. A reduction of wastages from corruption and mismanagement will enable us to put more resources in our programs. Elimination of corruption is pivotal for the success of universal schemes. We are advocating for payment of the TK 2500 to the poor digitally so that it goes directly to the beneficiaries income. Also, the selection of beneficiaries is very important because there is a lot of exclusion and inclusion error on our current list of the vulnerable population. There are thousands of people on the list who do not require any support and vice versa. Therefore, it is pivotal to digitalise the list of vulnerable with proper identification. The list should be easily accessible by the authorities to cross-check their actual socio-economic state. Identifying the eligible people and making and listing them in a nationally accessible list is the first step to reduce corruption. It should be followed by the payment of cash benefits through digital financial payments directly to them.
Even with all the measures, some corruption in the system will linger on. As we have seen on the news there have been multiple cases where the relief had been snatched away from the benefactor. The entire issue of transparency and corruption is rooted deep in our governance system, without proper application of the rule of law, this cannot be uprooted entirely.
In previous budgets, the allocation for the health sector has been disappointingly low. How crucial has it become for Bangladesh to meet the World Health Organization standard of 15 percent of the total budget or five per cent of the GDP for the health sector?
The allocation has been miserable for years and this year that has not changed much. There has been a minimal increase in budgetary allocation for the health sector. Even in this budget, the allocation has been 0.92% of the GDP which is far below the government’s own target. In many countries, the allocation is generally 5-8%, in Vietnam it is 8% of the GDP. The pandemic has proven something most of us were already aware of, the desolate condition of our healthcare system. The allocation has been inefficient and inadequate. However, this crisis has also put a pin on the mismanagement in our healthcare system. Our healthcare system has totally collapsed and failed to provide even the essential services to the citizens. Over the years, more emphasis has been put on the physical infrastructure and the money allocated has been used to develop buildings, salaries and allowances. Also, procurement has become one of the major sources of corruption in the Bangladeshi health sector. The corruption is persistent throughout the ladder, from the centre to the village level. Compared to other LDCs, our physical infrastructure is not too bad. However, the resources are so poorly managed that our healthcare system ranks as one of the worst in the world. There is high absenteeism among doctors, nurses and other essential staff, the supply of medicines for the poor patients have been very poorly managed. So there has been a complete lack of oversight in the sector which has contributed to the desolate situation. Until we are able to root the cycle of mismanagement and corruption from the healthcare system, the allocation will not bring any benefit to public healthcare.
Our government has also formulated a health finance strategy which aims to increase the allocation of the health sector to 15% of the budget by 2032. This year it has been 5% of the budget compared to last year which was 4.7%, therefore, a very nominal increase which has left most people disappointed. At this rate, I do not think it is realistic to consider that the allocation can be increased to 15% by 2032. Because the utilisation rate has also been declining over the years which does not encourage more allocation. I feel the health sector of the country is in a vicious cycle of low allocation, low utilisation, high corruption and high mismanagement. With this kind of system, it is very difficult to manage a pandemic situation. In Bangladesh, patients have to spend about 70% of the medical expenditure out of their pocket which is the highest in South Asia and how the system has been managed over the years has a lot to do with it.