Stimulus fund lacks stimuli

Bangladesh Bank’s (BB) Tk 60,000 crore stimulus package is struggling to stimulate investment as economic stagnation, energy shortages, costly electricity and weak infrastructure deter businesses from borrowing and expanding production.

Nearly 80 per cent of the package for businesses, industries, farmers and job creation remained undistributed as of October 15, with only Tk 11,959.82 crore disbursed under 15 schemes, according to official data.

Another Tk 2,559.97 crore was under processing, bringing the total disbursed and awaiting processing to Tk 14,519.79 crore, or 24.2 per cent of the package. More than Tk 45,480 crore had yet to be disbursed or placed under processing.

The slow progress raises questions about whether the programme can deliver the support businesses need to restart factories, expand production and protect jobs. Three of the 15 schemes had recorded no disbursement, while several others had released only a small portion of their allocations.

The package includes Tk 41,000 crore to be mobilised from banks with surplus liquidity and Tk 19,000 crore from the BB’s own resources under a government guarantee. Seventeen banks agreed to provide the bank-funded portion.

When the package was announced in May, bankers had already warned that turning the large allocation into actual lending would be difficult.

The concerns are reflected in the latest disbursement figures. The Tk 20,000 crore scheme for closed industries and the service sector had released only Tk 560.93 crore, or about 2.8 per cent of its allocation. Another Tk 929.50 crore was under processing.

The small and medium enterprise refinancing scheme had disbursed Tk 907.73 crore against Tk 5,000 crore, leaving more than Tk 4,092 crore undistributed. The Tk 10,000 crore scheme for agricultural production, food security and rural employment had released only Tk 292.90 crore, or 2.9 per cent of its allocation.

The situation was even weaker in the northern region’s agriculture-based economic development scheme, which had disbursed Tk 48.67 crore against Tk 3,000 crore.

Three schemes had made no disbursements: the Tk 3,000 crore export diversification refinancing scheme, the Tk 1,000 crore scheme to boost rural economic activities, and the Tk 2,000 crore scheme for export-oriented frozen shrimp and other fish.

The green factory and green industry scheme had Tk 527.47 crore under processing against its Tk 1,000 crore allocation. The Tk 1,000 crore programme for unemployed young people had its entire allocation under processing but had yet to record a disbursement.

A few schemes performed better. The pre-shipment credit refinancing scheme had disbursed Tk 6,917 crore, the highest amount among the reported schemes and more than its stated Tk 5,000 crore allocation. The creative economy scheme had used its full Tk 500 crore allocation.

At the other end, the start-up financing scheme had disbursed just Tk 32.59 crore against Tk 500 crore, with another Tk 5 crore under processing. The leather goods and footwear exporters’ scheme had released Tk 98 crore against Tk 2,000 crore.

The contrast shows that the problem is not uniform across all schemes. Some financing programmes have moved ahead, while others have struggled to convert their allocations into loans.

For businesses facing cash shortages, the delay can mean postponed investment, lower production and greater pressure to retain workers. For banks, however, lending to struggling businesses carries the risk of adding to already high defaulted loans.

The central bank’s challenge is to bridge that gap by ensuring that eligible businesses can access funds without weakening banks further. 

The success of the programme will depend not on the size of the announced package, but on how quickly money reaches viable businesses and whether it helps restart production and create jobs.

As of October 15, less than one-fifth of the Tk 60,000 crore package had been disbursed. The early warnings from bankers suggest that funding arrangements, borrower quality and the underlying problems facing industries must be addressed if the remaining money is to reach the sectors it was intended to support.

Mashrur Arefin, chairman of the Association of Bankers, Bangladesh, described the package as “an excellent plan” but questioned how banks would arrange the money, as much of their surplus liquidity was already invested in Treasury bills and bonds. Banks also need to retain funds to meet their day-to-day obligations.

He suggested that the BB could make the arrangement more workable by easing liquidity conditions, including through changes to the repo mechanism or the cash reserve ratio.

Syed Mahbubur Rahman, managing director of Mutual Trust Bank, raised another concern, warning that banks would be reluctant to lend to closed or failed factories because of the risks involved.

Restarting such factories requires more than financing, he said. Businesses may need changes in management, operational restructuring, rehiring workers and solutions to longstanding financial problems. If revival efforts fail, banks will lose the money.

Mahbubur also said private-sector credit growth had slowed to around 4.7 per cent because viable borrowers were scarce, rather than simply because banks lacked liquidity. 

Energy shortages, high electricity costs and weak infrastructure were also holding back investment, Mahbubur also the former chairman of the ABB said.