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Low coverage of stimulus packages hinders post-pandemic recovery; small firms suffer

| Updated: November 09, 2020 21:20:00


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The global pandemic has slowed down economic activities across the world. Bangladesh is also experiencing an economic downturn fuelled by the crisis. During such economic downturn, a close monitoring of the private sector is warranted as recovery from recession will require rejuvenation of the private sector. Unless the business community in a country is assured of returns and risk minimisation, no country can recover from economic recession.

A critical and thorough assessment of the businesses is required to gauge the gaps in policies and expectations from the business communities. Against this backdrop, SANEM and The Asia Foundation jointly conducted a survey on over 300 firms in Bangladesh aimed at investigating attitudes and expectations of businesses on profitability, investment, wages, employment, business costs, sales or exports, stimulus packages, amongst others.

Out of the 303 firms surveyed under this study, 153 firms were from the manufacturing sector and 150 firms were from the services sector. Seven sub-sectors in the manufacturing industry and eight sub-sectors in the services industry were identified based on Bangladesh’s latest available National Accounts Statistics. The number of firms to be surveyed for each of the subsectors were chosen based on the sub-sectors’ contribution to the GDP.

Based on the survey responses, this study constructs three indices, namely – (i) Present Business Status Index (PBSI) in April-June 2020 compared to April-June 2019, (ii) Present Business Status Index (PBSI) in April-June 2020 compared to January-March 2019, and (iii) Business Confidence Index (BCI) for July-September 2020 compared to April-June 2020. The indices are first prepared at the firm level and later aggregated to the sub-sectoral and sectoral level incorporating appropriate weights.

Major findings

Business status in April-June 2020 was dismal: The overall PBSI for April-June 2020 compared to the corresponding quarter of the previous year stands at 26.44. When compared to the last quarter (January-March 2020), the PBSI for April-June 2020 is found 29.48. Noteworthily, all indicators of PBSI (over last year and last quarter) are below 50, indicating that the status of the business in April to June 2020 compared to April to June 2019 or January to March 2020 was significantly worse. Two sub-indicators for both indices – (i) profitability, and (ii) sales/export orders had the lowest scores.

During April-June 2020, the worst performers were the RMG, leather, light engineering, wholesale and restaurant, while the better performers were pharmaceuticals and the financial sector: The PBSI over the past year and the last quarter for the pharmaceuticals sector are 38.97 and 40.69, respectively, and for the financial sector are 39.72 and 42.50 respectively. Compared to other sectors (such as RMG or Leather and Tannery), the PBSI on profitability, investment, or sales and exports in the pharmaceutical as well as in the financial sector was higher by several folds.  It shows, although the overall business situation for both sectors can be termed as ‘worse’ compared to the reference quarter (January-March 2020 or April-June 2019), however, in comparison to other sectors, the scores are significantly higher for the pharmaceutical and financial sectors.

Business confidence improved for July-September 2020: The Business Confidence Index (BCI) for July-September 2020 stands at 51.06. It suggests, on average business, enterprises are somewhat optimistic regarding their business performance in the next quarter (July-September 2020) compared to the last quarter (April to June 2020); although the level of such positive expectation can be said extremely minimal. Despite improvement in overall business confidence for July-September 2020, some manufacturing sub-sectors like RMG, leather, light engineering are pessimistic regarding the improvement in the overall business scenario in July-September 2020 over April-June 2020. However, the major improvement in sectoral business confidence for July-September 2020 is seen for textile and pharmaceuticals from the manufacturing sector, and all sub-sectors from the services sector as their BCIs are above 50.

Large firms performed better compared to the Micro, Small, and Medium Enterprises (MSMEs): Compared to Micro, Small, and Medium Enterprises (MSMEs), the BCI score of the large firms is higher by three percentage points. The overall PBSI scores (on both indicators) is also higher for the large firms compared to the MSMEs.

Only one-third of the surveyed firms acquired the stimulus packages announced by the government: Around 33.7 per cent of the respondent said their firm received the stimulus package. Another 55.4 per cent of the respondents replied that they did not avail the package. Some of the respondents (around 10.9 per cent) were not sure whether their firm received the stimulus package benefit or not.

Large disparity in receiving the stimulus packages between the manufacturing and services sector: Amongst the firms who received the stimulus packages (102 firms out of 303 surveyed firms), 80 per cent are from the manufacturing sector, while only 20 per cent are from services sector. In total, out of the 153 firms surveyed in the manufacturing sector, 53.6 per cent of the firms replied that they received the stimulus packages. In the case of the services sector, only 13.3 per cent of the surveyed firms availed the stimulus package.

Large enterprises are more capable of acquiring the stimulus packages: In the case of the micro and small firms, only 18.4 per cent of the firms received the package. With regard to medium firms, around 42.3 per cent firms acquired the package. In contrast, 57.3 per cent of the surveyed large firms availed the benefits.

A multitude of factors contributed to firms not receiving the stimulus packages: Many of the respondents (around 122 firms) opined that they did not avail the packages as they think it is not a grant rather a loan with soft terms. Several firms (31 firms) identified that there were no packages for their industries. Around 34 firms responded that the lengthy procedure in availing the stimulus package barred them from opting it. Around 39 firms responded that they did not avail it due to bank-related difficulties. Difficulty in obtaining information as well as the size of the stimulus packages was also identified as reasons hindering the firms from obtaining it.

The firms acquiring the packages faced several problems: Around 64 per cent of the respondents (out of 83) marked lengthy procedure as a major problem. ‘Difficulty in the bank-related services’ was identified as a major problem by 61 per cent of the respondents (out of 90). Around half of the respondents (out of 85) replied that difficulty in obtaining the information or understanding the procedure for availing the packages was one of the major problems.

The firms availing the stimulus package found it to be effective: Out of the 102 stimulus package recipients, 47 per cent viewed the packages as very effective, and another 40 per cent opined it as effective. Only 6 per cent of the recipients said the stimulus package was not effective at all.

Policy implications

Planned management of the COVID-19 induced health crisis is essential: A centralised approach to managing the crisis, especially the effect of the pandemic on national health status is required. If not properly managed it will have chain effects on consumption expenditures, investment expenditures as well as output and GDP growth in the long-run.

Adopting a sustainable recovery plan for the economy to come out of the COVID-19 pandemic induced crisis: Bangladesh should undertake a remedial policy plan over the medium to long term. The plan should specify the areas where the Government should commit to further policy deepening. A reference point for such specific policy deepening can be taken from the priority areas identified in this study.

Adopting policies for attracting FDIs in the country: Relying on the domestic private investment will not be sufficient enough for Bangladesh in attaining as well as sustaining a higher growth trajectory. Many foreign investments are now diverting from China to other destinations due to the recent development in the global trade situation. Bangladesh needs to upscale its logistics and other institutions as well as infrastructural supports.

Restructuring or rationalisation of the tax system: As this study has identified, there is a need to rationalise the overall tax system. The complex tax structure needs a complete redesign following international best practices. Redemption of duties and taxes through a planned and informed procedure in order to reduce business costs in times of uncertainty and suppressed confidence in the business environment would be essential for future development.

Easing the business environment: Bangladesh needs to improve the overall business environment in the country. The property registration system needs to be eased. There are a couple of essential utility services where further improvement is needed. Over the years, the problem of access to electricity has largely been resolved. However, the quality of the supplied electricity is still a concern. Other utility services (such as water and gas) require improvement in quality as well. With regard to trade and other logistics, Bangladesh needs a revamped action for eradicating the trade logistics barriers (such as procedural delays, time to export/import, etc.). Above all, corruption in the country is an impediment to sustainable development in the future.

Devising a monitoring and evaluation (M&E) framework for keeping a tab on the stimulus packages: Although the government of Bangladesh announced the incentive packages, there is no widely available information that states how many firms availed those packages, what problems they faced, or what is the update on the stimulus packages. The government needs to devise a M&E framework in monitoring the progress in disbursing the stimulus packages. The framework should encapsulate possible barriers as well as challenges being faced by the firms.

Easing the disbursement of the stimulus packages from the banking sector: The Bangladesh Bank needs to provide a guideline to the banks in disbursing the loans to the small and medium enterprises as the banks are less interested in disbursing the incentive packages to the small and medium enterprises. Moreover, a large number of business entities in Bangladesh remain outside of the formal banking system. The central bank of the country can undertake necessary measures in collaboration with the NBR in devising a policy so that all business enterprises can come under the financial sector network. Careful observation is required in identifying where the customers are facing problems and how to overcome those challenges.

Effective implementation of the stimulus packages: As identified in the report, a large number of the respondents from the survey remarked that the information regarding the stimulus packages was not appropriately available. The unavailability of proper instruction on how to avail the packages was one of the major constraints. Therefore, information on how to avail the stimulus packages needs to be well disseminated in all relevant business forums.

Dr Selim Raihan is Professor of Economics, University of Dhaka and Executive Director, SANEM. [email protected].

Mahtab Uddin is Lecturer of Economics, University of Dhaka and Research Economist, SANEM. [email protected]

Md. Tuhin Ahmed, Jonaed, Research and Fabiha Bushra Khan are research associates, SANEM.

[The article is based on the survey report titled “COVID-19 and Business Confidence in Bangladesh: Results from the Firm-level Survey in July 2020” conducted and published by the South Asian Network on Economic Modeling (SANEM) in collaboration with the Asia Foundation (TAF).]

 

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