Bangladesh identified the first COVID-19 patient on March 08 and has reported 117 confirmed cases and 13 deaths till now. At present, the country is experiencing a 20-day long ‘holiday’ from 26h March to 14 April, consisting of a twelve-day general holiday declared by the government (from 29 March to 2 April, 5 April to 9 April & 12 April to 13 April), six weekends, and two public holidays (Independence Day on 26 March and Pahela Baisakh on 14 April). This prolonged shutdown has hit economic activity as both local and foreign demand fell. In these circumstances, Prime Minister Sheikh Hasina has unveiled a fresh stimulus package of BDT677.5bn (approximately USD8bn) in the form of four credit facilities on 5 April 5, 2020. Coupled with the previous BDT50bn (USD590mn) incentive package provided in the form of soft loans to the export-oriented industry, the total stimulus package now amounts to BDT727.5bn (USD8.59bn) or 2.5% of the GDP.
This stimulus package to be implemented in “immediate, short and long” phases. The main programs include 1. Increasing public expenditure, 2. Formulating a stimulus package, 3. Widening social safety net coverage, 4. Increasing monetary supply. The details of the financial stimulus scheme are attached below.
1. BDT300bn (USD3.5bn) working capital loan at a subsidized rate
To help the industries and service sector keep afloat, BDT300bn will be provided as a working capital loan through banks. This working capital loan facility will be revolving i.e. the balance at one point of time can reach BDT300bn. The lending rate of this facility will be 9%; half (4.5%) will be subsidized by the government.
2. BDT200bn (USD2.4bn) CMSME loan at a subsidized rate
The Cottage, Micro, Small and Medium Enterprises (CMSMEs) will get access to the BDT200bn working capital financing scheme. Like the abovementioned facility, this CMSME WC loan will be provided at a 9% interest rate and the government will subsidize by 5%. In essence, the beneficiaries will get the loans at 4% interest rate.
3. Increase EDF size by USD1.5bn (BDT127.5bn); Interest Rate Decreased to 2%
The Export Development Fund of Bangladesh Bank (the central bank) has been increased by USD1.5bn to facilitate the import of raw materials under back to back LC. Currently, the fund size stands at USD3.5bn which will amount to USD5bn after the increase. The interest rate has also been brought down to 2% from existing LIBOR+1.5% (i.e. 2.73%).
4. Introduction of BDT50bn (USD590mn) ‘Pre-Shipment Credit Refinance Scheme’
The prime minister has introduced a new ‘Pre-Shipment Credit Refinance Scheme’ of BDT50bn. The lending rate of this credit facility will be 7%. The fund is also targeted to export-oriented industries for the smooth execution of export orders.
| Sl No | Scheme Name | Amount (BDT bn) | Cost of Fund | Beneficiary | Fund source |
|---|---|---|---|---|---|
1 | Working Capital Finance | 300 | 9% (4.5% by the borrower and 4.5% by the government as a subsidy) | Affected Industries and Service Sector | Commercial banks will give loans from own funds |
2 | Working Capital Finance | 200 | 9% (4% by the borrower and 5% by the government as a subsidy) | SME, including cottage industries | Commercial banks will give loans from own funds |
3 | BB Export Development Fund | 127.5 | 2% | To facilitate raw material export under back-to-back LC | BB Export Development Fund |
4 | Pre-Shipment Credit Facility | 50 | 7% | Pre-shipment credit refinance scheme for local products along with export industry | BB Refinancing Scheme |
5 | Soft Loan | 50 | 2% | RMG | Government |