Published in The Daily Star on Sunday 19 April 2020
Bangladesh has been under lockdown since March 25, 2020 to control the spread of coronavirus. Though officially it has been termed as holidays, in essence it is lockdown. All offices and businesses are closed. Except for emergency services such as buying food and medicines people are not allowed to step out of their houses. Due to the fear of rapid increase in COVID-19 cases in a densely populated country with inadequate medical facilities, this has been the right decision by the government. The other COVID-19 affected countries have emphasised social distancing as the only way to check the fatality of COVID-19. Bangladesh followed suit.
After over 21 days, as the lockdown has put lives in a standstill, the economy has also felt the pressure in various forms. Disruption in supply chain has compelled farmers to either throw their products on the streets or sell those at a throw away price. Like most years, harvest has been good this year too. But before the farmers could cash in their harvest the pandemic hit them hard.
On the demand side, these three weeks have totally stopped sources of income of daily wage earners, even monthly salaried ones in many sectors. As about 85 percent of total employment is in the informal sector, these people are now without an income. With meagre income they do not have any savings too to survive during crisis period. The list is long. Agricultural workers, construction workers, rickshaw- and van-pullers, three-wheeler and taxi drivers, other transport workers, small shopkeepers, street vendors, barbers, workers in beauty parlours, garbage pickers, domestic help, brick kiln workers, workers in small workshops, roadside eatery workers, hotel and restaurant workers, drivers working for individuals, loaders of goods, woodcutters, delivery workers of e-commerce and many more in the informal sector are penniless right now. Then there are people who have no profession, such as beggars, street children, disabled people, poor women abandoned by their husbands, widows and people from the transgender community.
So, these poor people have become more vulnerable during the lockdown period. For them lockdown may be protecting them from being affected by COVID-19, but they are now affected by poverty and hunger. Lockdown was successful in China and some other countries, because the state could maintain the flow of supplies as well as ensure food security to the low-income people.
This situation has now led many to think along the line of choosing between saving lives and ensuring livelihoods. Of course, addressing the health risks comes first. But as the period of lockdown progresses in Bangladesh, we find significant damage being done to the economy and livelihoods of millions of people. It is feared that many lives could be lost due to hunger. Therefore, the existential dilemma needs to be addressed by providing generous economic relief package to the poor. This is the imperative of time.
What should be the modality of support?
COVID-19 has already pushed Bangladesh’s poverty rate to almost 40 percent from 20 percent before the COVID-19 outbreak. So, if we want to keep these people alive there is no other way but to provide large amount of government support. They should indeed be provided with direct cash support for a few reasons. First, it will give them the freedom to spend on their needs. Second, the management of procurement and distribution of commodities by the local government machinery might become an unmanageable task. Third, the scope of corruption is less in case of direct cash transfer through mobile banking, whereas it is easier in case of rice and other commodities. Fourth, direct cash transfer will not require people to gather and line up with the risk of COVID-19. Fifth, cash support has the potential to create multiplier effect on the economy and help boost the aggregate demand which is much needed at this point in time.
The cash transfer should be at least for three months. It is good to know that the local administration is already preparing lists of people who need support. In case of the existing social safety net programmes, there are inclusion and exclusion errors. That is, those who do not need support, they are on the list and those who need support are not on the list. Moreover, there is no such list for the urban poor. So, the selection of the recipients of support for COVID-19 affected people must be inclusive and comprehensive.
The use of technology can play an important role here. The proposed programme should build a mechanism where the vulnerable people can apply themselves for inclusion. A few hotline numbers should be allotted so that excluded citizens can call and apply for inclusion in the support programme. This updated list of the needy population should be posted online in the relevant websites of the government, such as the Ministry of Finance, and the Ministry of Disaster Management and Relief for transparency.
For the maximum utilisation of the support measures, strong oversight mechanism should also be in place. The non-government organisations (NGOs) and local bodies can be involved in the selection of beneficiaries and distribution of the relief which is much needed for the affected people.
Where will the money come from?
Given the poor revenue collections, there is little scope for the government to rely on its domestic resource mobilisation mechanism through the National Board of Revenue. The government itself has to rely heavily on the banking sector to meet up its expenditure and it has already overborrowed compared to its target during the current fiscal year 2020. In view of COVID-19, the government has already and rightly started to pursue an expansionary fiscal policy to boost domestic demand. In order to create liquidity in the economy, the central bank has also initiated expansionary monetary measures through lowering policy rates substantially.
As the government has limited fiscal space, it should reduce the pressure of public expenditure to the extent it does not affect employment. Projects which can wait for a few months or which have just been initiated recently may be halted for the time being. Recapitalisation of the loss-making state-owned banks should be stopped. Existing subsidies to various sectors should be revisited. Savings from lower oil prices in the global market can also be a source of fund during COVID-19 crisis.
Resources from the private sector is also essential during such crisis. While we see billionaires and millionaires of the world have pledged huge amount of money from their own pockets, we do not see such examples in our country. Of course, many in the private sector have been doing a lot. Many are probably supporting quietly. But expectation from them is much more. What we see even in our neighbouring country India in terms of philanthropic activities of the rich, we do not see that much in Bangladesh where the number of ultra-rich is growing at a faster rate than South Asian countries and even China.
International sources should be explored actively. International and bi-lateral organisations have come up with various packages and support measures and there is a large demand from member countries. Bangladesh should ask for support on flexible terms.
Some have suggested for printing money and spend. This may be an option to boost demand. However, if economic activities are not geared up and employment is not generated, then printing money does not help. It rather creates stagflation. That is, there will be high inflation and people may go to the market with a bag full of money but return with very few products. Because, there is also supply shock and the economy is stagnant.
This is of course a tricky situation for policymakers, because in order to create employment they have to increase public expenditure. Therefore, there needs to be a fine balance in making a choice. And we should not also forget, once stagflation begins it takes a long time to get over it as the history of many major economies including that of the United Kingdom teaches us.
Lastly, NGOs and individuals have also come forward to combat the current COVID-19-induced economic crisis. Their effort should continue to strengthen the hands of the government no matter how little their contribution is. A crisis of this magnitude requires collaboration of all stakeholders.
Dr Fahmida Khatun is the Executive Director at the Centre for Policy Dialogue.