Bailing out the economy
FOR quite some time we had been hearing about a bail-out program for the sectors hit hard by the economic recession. It is quite natural that Bangladesh not sit silent when almost all other countries are taking serious steps to save their affected sectors.
The finance minister has also recently announced an incentive package worth $500 million to remain true to the earlier commitment of his government. We reckon that the package is the first step, since the worst of the recession is yet to hit, and adjustments would have to take place in accordance with the severity of the slides unfolding over time.
One fine thing to note about the package is that an element of flexibility is enshrined in the package, and this has already been shown with an assurance of bringing the textile-spinning sector under the umbrella of the incentive package.
A comparison of our package with our competitors in the international market might show that, in terms of monetary allocation, Bangladesh falls far behind. A package of $500 million pales in comparison to India's stimulus package of billions of dollars. But bear in mind that India's exports account for roughly one-fifth of its total GDP compared to Bangladesh's one-tenth. By any stretch of imagination, India's vulnerability to external shock is much higher than that of ours.
We argued before that the prevailing recession could be rewarding in the face of falling prices, and Bangladeshi manufactures could seize upon this opportunity in upgrading and modernising their technologies.
Let us note a few positive points from the package. We are happy to see that cash subsidy is not as pervasive in this package as it had been in the past policies of addressing sector-specific sickness.
Cash subsidies have many drawbacks in terms of equity, efficiency, cost-effectiveness, and also in terms of incentives. Policy support works better than cash support, provided polices are pursued promptly.
The aim of driving up domestic effective demand through job creation via infrastructural development, capping the lending rate at 13%, and rightly identifying the really reeling sectors like leather, frozen foods, and jute goods, emphasis on agricultural sector, etc should boost the economy.
And more importantly, an allocation of Tk. 374 crore, reserved for safety nets should go a long way in bailing out the poor.
The allegation that the most vital sector, RMG, had been left oin the back burner does not auger well just at the moment. Resources are very scarce and have to be allocated judiciously on priority basis. It is true that RMG sector is passing through rough weather, but the growth rate and the prices are not so bad compared to other sectors that find their boats sinking.
As the package is flexible, incentives could flow in later on for the RMG sector, also as dictated by the depth of the crisis.
But any package of incentives must be pitted against the possibility of its proper implementation. It is necessary to have such package; the sufficient condition being its quick and proper implementation.
For example, the Tk.1,500 crore stipulated as farm subsidy plus Tk. 500 crore for agricultural loan recapitalisation should see that the real farmers benefit out of the programs.
System losses should be carefully monitored and political interference should be minimised as far as possible. Again, it is not clear how and when the Tk. 600 crore stipulated for the power sector would be disbursed. The power sector is already in shambles and unless this sector gets streamlined, it would be difficult to attain the objectives of the announced package.
And finally, all that glitters might appear gold, provided all the proposed projects are prepared and implemented through high-level bureaucratic efficiency and political sagacity.
The finance minister is faced with a formidable challenge of pulling the economy out of recession, and the incentive package that he announced recently might help the sectors at a stake.
We can only hope that necessary arrangements will be made in strengthening the monitoring and evaluation wings of the respective departments. Red tape-ism should be reduced vastly and severe penalties should await the defaulters. The slip between the cup and the lip is not new in this country and we want to see an end to that this time. The tree will be known by the fruit it bears.
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