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Government Actions against COVID

Government Actions against COVID

 

Practically speaking there are no absolute Free market economies anywhere in the world. The United States’ economy may be the closest to resembling a free market. However the federal and state governments still have a lion’s say in steering the US economy. Henceforth, everywhere else in the world Bangladesh being no exception, governments exercise a great deal of influence on their country’s economy. And at present when almost all economies have come to an unprecedented standstill, and all governments have taken steps to minimise the economic impact of this pandemic. There are a lot of similarities in these steps but it will still be interesting to know what has been done and how these central actions differ between developed and developing countries.

 

 

 

America has launched the biggest stimulus package in history at a whopping 2 trillion plus USD with an exponential push for unemployment benefits, a half trillion dollar lending program, a survival stimulus to the ailing airlines industry, sizeable stimulus for hospitals, protection for contractors and ‘gig’ workers who are not registered employees for any organisation, housing protection by preventing evictions of renters and foreclosures of mortgages by providing cost free loans and making it illegal to evict tenants for inability to pay rent. $450 million are directed towards food assistance programs. Furthermore the bill includes funds for evacuation of Americans and support for the Peace Corps, diplomatic programs and refugees.

 

 

The European Union has discarded its policies pertaining to public deficits through a 750 billion Euro stimulus package out of the European Central Bank. Italy one of the hardest hit countries and Spain following suit this breaking of policy was necessary. The ECB’s Pandemic Emergency Purchase Programme (PEPP) which stands at 7.3% of the Eurozone’s GDP, aims to fulfill the liquidity needs of all sectors of EU economies. It consists of a temporary public and private sector security purchase program injecting 120 billion Euros. This stimulus can benefit households, companies, governments and banks. 

 

 

 

The Italian government’s individual stimulus packages is a combined 750 billion Euros which is almost 50% of the country’s GDP. The aggregate of individual liquidity national measures of all EU countries stands at 26355 bn euros. This consists of tax delays and public guarantees among others. The aggregate for National Expenditure and fiscal measures out to 4332 bn.

 

 

 

Now government stimulus compositions are fairly similar in developing countries however the magnitude differs greatly. Then again it still scales up to a similar percentage of the GDP. In order to gain a perspective let’s analyse the stimulus for Bangladesh. Bangladesh Bank has also come to the liquidity aid of the country by announcing moratorium on payments till 30 June of this year. Exporting industries of Bangladesh are to receive 595 mn USD through 2% interest 2 year loans. 8 bn USD is also to be implemented in different phases ranging from immediate to long term. This will consist of boosting money supply, increasing public expenditure and widening social safety net coverage. A breakdown of this is 300 Bn BDT given to banks to support working capital requirements of industries. Half of the 9 percent interest on these loans are to be borne by GOB. The Central Bank’s Revolving Refinance Scheme of 150 Bn BDT enables banks to borrow 50% of BB’s disbursements at 4%. For SMEs’ working capital this stimulus package carries BDT 200 billion. Interest rate is the same as for larger industries however the government will foot 5% out of the 9% cost of funds. The Revolving Refinance Scheme worth 100 Bn BDT carries the same terms. There is further support for exporters as the government has arranged a back to back LC and a boost of the export development fund by 1.5bn USD. The interest rate will be a meagre 2%. The final segment of this package consists of a 50bn BDT pre-shipment refinance scheme from BB’s source charged at 3% to banks and 6% by banks to the public. Besides these Bangladesh received $100mn aid from the World Bank and a pledge of £22mn from the UK govt. Bangladesh can also access the SAARC development fund of upto $5 m.

 

 

 

Conclusively we can observe that the COVID stimulus does not vary widely in terms of the policies governments deploy. Developed countries just pump much larger funds into their economies in comparison. However developing countries are eligible to receive aid from international bodies and developed counterparts. The aims of government actions with regards to economic action is actually very uniform. It is to ensure that key industries survive, SMEs pull through, and workers keep their jobs so that once the sun sets on this pandemic the countries will have a backbone to rebuild their economies to their pre-COVID glory. The success and sustainability of these packages will however depend on when the world is finally freed from Coronavirus.

 

 

The post is written by Md. Zarif Tajwar Shihab. He is a third year BBA Student in IBA, University of Dhaka.

 

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