Published in The Daily Star on Monday 4 May 2020
Dr Fahmida speaks to Dr Akhtar on economic policies
Bangladeshis have long wanted their own policy dialogue platform, a medium through which they can access the sort of expert, unbiased opinion that is available elsewhere in the world, such as BBC’s Hard Talks or Oxford Union style debates.
The current pandemic has brought that need to the forefront, and in response, Youth Policy Forum (YPF) has introduced its flagship series: “Talking Policies with Dr Akhtar Mahmood.”
Recently retired from the World Bank Group (WBG), Dr Mahmood has worked in over 30 countries during his near three-decade long career at WBG. His areas of work included private sector development, investment climate, privatisation and regulatory reforms. And over the years, Dr Mahmood has become synonymous with nuanced and hard-hitting policy advice.
On April 21, he sat down (virtually) with Dr Fahmida Khatun, executive director of Centre for Policy Dialogue and one of the nation’s leading economists, to talk about “Economic Policies during Crises” in the inaugural episode of Talking Policies with Dr Akhtar Mahmood.
Over 6,000 people tuned in to listen and ask questions. This is an excerpt of their conversation.
AM: According to you, how has Bangladesh fared in handling Covid-19?
FK: WHO has emphasised on “tests, tests, tests.” We were late in following this advice. When we recognised the problem, our cases grew, and it became apparent that our health system was not prepared.
There are two parts of an effective public health system: resources and management. We only spend 0.9 percent of our GDP on healthcare. Coupled with centralised hospitals and neglected community clinics or sub-national level health complexes around the country, the system is strained. Higher resource allocation alone cannot solve the problem of our healthcare system. Effective management is required particularly in maintaining adequate number of well-trained doctors and nurses along with medicine and equipment.
However, Bangladesh is not the only country that has faced a setback in managing Covid-19 crisis. The health sectors of many developed countries, like the USA, are struggling to keep up. IEDCR’s management has improved in the last one month and the government of Bangladesh is trying its best to keep people at home during this lockdown.
AM: I agree. Bangladesh’s disaster management systems are internationally recognised. Despite the delay in engagement, institutions are starting to ramp up their efforts to contain this pandemic and their experience with previous disasters is of great help. There is one factor that we often neglect in public expenditure – the need for soft infrastructure along with hard infrastructure. Money alone does not solve problems.
Let us talk about the economic impact of Covid-19 in Bangladesh and the various support packages announced by the government to mitigate the impact. What is your opinion on the financial packages the government has proposed? Much of these involve channeling loans through the banking sector, which had its own set of challenges prior to the outbreak.
FK: Nearly 80 percent of total package worth Tk 96,419 crore is in the form of liquidity support to businesses and agriculture through the banking sector, and the rest is relief. This is worrying because other than a few banks, the sector in general has become vulnerable. Many banks own a large amount of non-performing loans and suffer from weak risk management and inadequate internal monitoring.
The loan facility in the stimulus package may increase non-performing loans, and many borrowers may become willful defaulters. On the other hand, many SMEs may be unable to access loans. The central bank has asked banks to sanction loans based on customer relationship, and many SMEs do not fulfil this eligibility criteria as they may not have received financing in the past. So, no matter how generous the package, unless it is implemented efficiently and monitored well, there is a probability that those who truly need this support may miss out while others may take advantage of the policy.
AM: Non-payment of loans is a very worrying phenomenon. In my very first research work nearly 40 years ago, I worked on this subject and it is sad to see the problem still exists.
Several commentators also wonder why the RMG sector, an established industry with annual exports over $30 billion, lacks a contingency plan to deal with such a crisis. There seems to be a tendency to ask for government bailouts. In East Asian countries like South Korea and Taiwan, the government used to provide support to export-oriented industries in the 1950s-1970s but always in return for meeting certain performance targets, and they were extremely strict about instilling accountability and discipline. Why is that missing in our RMG industry?
FK: Yes, I agree with you completely. It is sad that this 40-year-old industry cannot sustain itself without government help even for a short period. Even now, not all orders are cancelled, and some buyers have made commitments not to cancel their orders from Bangladesh.
Like other export sectors, RMG must pay only 0.25 percent source tax on their export proceeds. It also enjoys bonded warehouse and back-to-back LC facility, incentives for exporting to non-traditional markets, etc. Thanks to dynamic and hardworking entrepreneurs, the sector has done well by taking advantage of the global and domestic opportunities. However, it is time that the industry becomes self-sustainable. The government should extend support to other growing sectors so that those can flourish, and lead to greater diversification.
AM: We have learned that the Boro output has been high this year, but we don’t know how effective the harvest would be or what prices our farmers would get for the produce. What is your view on the immediate prospects of the agricultural sector?
FK: A large portion, Tk 15,610 crore, of the fiscal package is targeted to the agricultural sector and it is a priority for the government right now. Tk 5,000 crore has been allocated for loans to farmers at an interest rate of 5 percent, and government should consider providing 3 percent interest subsidy to lessen the burden.
An important consideration during harvesting season is the need for labour movement across districts. During the lockdown, the administration should facilitate this by making special transportation arrangements and ensuring field work takes place safely.
The government has announced that it will purchase additional 2 lakh metric tonnes of boro rice directly from farmers. Such measures ensure that farmers get the right price for their harvest while consumers also get a reasonable market price.
The pandemic has hit all countries. We must not forget how difficult it was to purchase rice during the 2008 financial crisis. This time the global economy is in a much more dire state and in terms of priority, food security comes second only to public health.
AM: Continuing on the subject of food security and purchasing power, your recent Daily Star article, “No Choice Between Lives and Livelihood,” was illuminating. A recent research conducted by PPRC and BIGD has revealed that Covid-19 has led to a 70 percent drop in income for poor and vulnerable non-poor households, many of whom are part of the informal sector. You have recommended cash support for these individuals. Why and how do you think this support should be provided?
FK: I see some merit in food support to the poor because currently we have enough rice to distribute. However, direct cash transfer is preferable since people have other necessities such as medicine, baby food, rent payments, etc. To ensure transparency, direct cash transfer to beneficiary accounts through mobile banking is a good option.
The list of beneficiaries under social safety net programmes suffer from both exclusion and inclusion errors. The government should update the list with the help of NGOs who work at the grassroots level and have a more updated database. Since social safety net programmes are for the rural poor, there is no comprehensive list of the urban poor. But these can be updated by using resources such as BRAC’s survey of slums in Dhaka or lists of slums and floating people by the Bangladesh Bureau of Statistics.
AM: That brings us to our final question – what impact will Covid-19 have on the coming year’s budget?
FK: We usually maintain a 5 percent budget deficit. However, this year, the focus should be on saving lives and livelihoods. Budget deficit is likely to be higher but that should not deter the government from spending for the vulnerable.
Resource mobilisation will be key. Our revenue collection is very low and due to the crisis, it will be even lower. Several steps can be taken to improve revenue-collection, but they are medium-term initiatives and not immediately implementable. To mobilise resources for government spending now, projects should be reprioritized and put on hold – particularly those which are recently initiated or have low employment implications. Government departments should cut their expenditures at least by half, maintain austerity while mobilising resources from external sources, such as international organisations. The private sector can come forward. The government should involve NGOs and local people who have on the ground experience to overcome this crisis. This is the time to work together.