We will feel the economic fallout of coronavirus pandemic in two ways -short-term and long-term. In the short-term effect, one the one hand the production and service sectors have become stagnated, on the other hand, people are losing their purchasing power due to loss of income sources. The producers are at a loss as the labourers, the wage earners are not being able to work. Similarly, some of those labourers, wage earners, have already lost their jobs or are in constant fear of losing their jobs.
How would the loan help?
As a long-term fallout, when production resumes in the post-coronavirus depression, investments will shrink due to this current loss. That would affect production and unemployment will increase. It will be hard to boost economic activities and prices will skyrocket. In these conditions, when the ministers say that this stimulus package, which is actually a loan, would benefit people of all classes, they might be hoping that this would reach the people in the form of salaries, if the businesspersons use this loan-facility to continue production. And, everyone would be equally benefitted if the export and import become easier.
Or perhaps the government hopes that even if the businesspersons do not get the money now, they will get it later, which would help them overcome the losses they are incurring now.
Many countries adopt this expansionist technique to ensure the flow of money to keep the country’s economy vibrant. But its main objective is to fight the depression in the long-term. That means this benefit of loan works as an assurance to the businesspersons for their future endeavours and the government could be hopeful of the success of this package. What is the problem then?
This stimulus package does not ensure flow of money to increase people’s purchasing capacity to fulfill their basic needs and other necessities. Though it was necessary to provide cash to those who are not being able to meet their basic needs after losing jobs and other sources of income, the government did not choose this way as it did not consider that important
The first problem is, hundreds of thousands of labourers and those involved in the informal sector have already become jobless and those who did not lose their jobs are in constant fear. The number of people working in the informal sectors is over 50 million. What would happen to those who already have become jobless?
The second problem is, all kinds of economic activities have become stagnant. Amid this uncertainty, the government has shifted the responsibility of ensuring the income of millions of people upon the businesspersons.
Now the question is, will all the businesspersons get the loan? Some might not get the loan, some might not fulfill the conditions to avail the loan. Does this suggest that those businesses will not pay salaries? How could the government, then, claim that this package would benefit all?
Will the purchasing capacity be same?
This stimulus package does not ensure flow of money to increase people’s purchasing capacity to fulfill their basic needs and other necessities. Though it was necessary to provide cash to those who are not being able to meet their basic needs after losing jobs and other sources of income, the government did not choose the way as it did not consider that important. The government, though, might consider it important if the hungry people take to the roads and mugging, robbery and other types of crimes soars. But it would not be possible to mend the social losses then.
The stimulus package, as has been announced, is likely to set off a permanent dispute between the employer and employee. The victims who could have passed the crisis moment with cash and food assistance directly from the government were thrown into a situation of permanent conflict and unrest with the big and small entrepreneurs. We saw the first of this situation on 4 April when hundreds of thousands of readymade garment workers were forced to come to Dhaka despite the COVID-19 threat.
This swarm of RMG workers desperate not to lose their jobs prove how inefficient is the pro-businessperson package. What would happen if cash and food assistance were provided to them? The workers did not have to walk to come to Dhaka so desperately if they knew they would get assistance at their own areas. Desperation for wages has become visible among the workers. Even on 8 April two labourers were run over by a truck while demonstrating on demand of salary.
Cash and food assistance are beneficial for economy
Food and cash assistance will not only make the victims of the coronavirus fallout safe, in the long run the whole economy could be benefitted by it. According to John Maynard Keynes, one of the most prominent economists, it is possible to get tackle depression by adopting the principle of expanding expenses. This could increase the demands.
It is possible to get rid of depression in two ways — expense expansion and monetary expansion. Assisting through cash and food is part of the policy of expanding expenses. Through this the government, increasing expenses from the state exchequer, helps people in such a way that increases their purchasing capacity. As a result, of this the demands do not fall immediately. The expense expansion could include spending more in the health sector during the pandemic, emergency assistance in food crisis and decreasing tax in sectors that ensures public security, etc. This process ensures income of a seller and stabilises the market and , along the way, prepares ground to control any impending depression.
Another way is, adopting monetary expansion policy by decreasing interest rates, which encourages investment. The Bangladesh government has adopted this second type of policy. This policy cannot address the crisis immediately, rather it plays a role in creating expectations. These expectations is not created among all probable borrowers equally. The politically influential persons take it positively but the rest cannot rely on this policy, which leads a section of investors to increased loss of reliability on the government.
In cases of expense expansion policy, the government takes loans if the state exchequer does not have enough money. The government repays this loan from the money it earns from tax and VAT. But in case of adoption of monetary expansion policy, though the government pays as subsidy in interests of loans, investors must repay the remaining amount of interests and the loan.
Defaulted loans until November 2019 exceeded Tk 969.86 billion. The government has already said that no borrower would be announced a defaulter if he fails to repay loans until June 2020, as a measure to fight the coronavirus crisis. The amount of default loans is continually on the rise due to lack of any tough policy. If more people become defaulters, this would put pressure on the GDP. This situation will not be good for the economy in the long run. But the government has adopted such a policy, which would ultimately benefit the businesspersons.
Social safety fund
It is not possible to continue with the help of an individual or any organisation. Providing social safety is chiefly the task of the government. It might seem like state charity, but it is actually the right of the people to get food at the time of crisis. This help is not something beyond economics.
A specific social safety fund is necessary at this moment. We are hearing about assistance from many different sources separately. But the amount has not been specified nor the target beneficiaries. A Prime minister’s relief fund has been formed. A list is reportedly being prepared but there are questions about how many real needy and starved people would be included on that list. Doubts arise because, firstly, maybe those who have become jobless anew are not included in any previous list. Secondly, if allegiance to any specific party is made the yardstick, it would help the party’s objectives, not of real needy people. The list could be published online so that anyone can check who’s there and who’s not. There should also be a system to file complaints if any rich person is included or any poor person is excluded. This is how accountability could be ensured through a check and balance system.
Over the last few days, complications have arisen over paying the wages of RMG workers from the Tk 50 billion stimulus package. The list of names of RMG workers also could be published online. Those who would be included would get the wages.
Finally, we can say the stimulus package of Tk 727.50 billion announced by the government to fight the fallout of coronavirus is not timely and pro-people. Considering its percentage in relation to GDP (2.52 per cent) many people could present it as a something very big. What they should have observed is how the whole world is contributing to social safety. They should have analysed the package’s efficacy going beyond the numbers. If decreasing people’s suffering during this crisis is the yardstick to evaluate the stimulus package, we would have gotten the package specified to ensure social safety. Since that was not the case, we cannot say the stimulus package a timely and pro-people one.
* Moshahida Sultana is as associate professor at the Department of Accounting & Information Systems, Dhaka University.
* This piece has been rewritten in English by Shameem Reza
Source: Prothom Alo
