Alan Greenspan, who led the US Federal Reserve for two decades, was summoned in congress and testified that the financial crisis of 2008-2009 was an economic tsunami which could happen once in a century. Who would know that another tsunami was lurking in covid-19 just 10 years down the road? Who would know that a contagious disease, which is typically destined to torment the fate of tropical countries, will shudder the foundation of the mightiest economy by slapping the highest number of death tolls on its fortune? Despite its dangers, it is the time to rethink about policies and drastic changes.
Bangladesh can embark on some drastic initiatives which are long overdue. The typical budget year from July to June is now useless. Who will listen to the budget? Let the new budget year be merged with the calendar year starting from 2021—the year of the golden jubilee of Bangladesh's birth. The ministry of finance will face the toughest time in the next six months or more, though it will take years to fill up the fiscal holes. Many safety net approvals must be swallowed on emergency grounds by the prime minister's discretion. Any calculations for growth numbers or other figures will go wrong. It may be farcical!
Let the budget be running for the rest of 2020 on need-based allocations. The government should start making calendar-year based budgets from January. Many economists argued for year-based budgets in the past. The ex-finance minister once indicated a possibility of its acceptance because the year-based budgeting is simpler and productive. The quarter of July-September is practically the worst period for the country to mark the beginning of project implementation. The last two months of the budget year, May and June, are again problematic for high heat and storms. In contrast, moving to the calendar year will definitely give two excellent periods of the year at two ends, enabling the government to avail a good start and a good finish needed for productivity and better implementation.
This is the time to rethink about our fiscal corrections. Despite respectable growth, Bangladesh has long been marked as a country of the weakest fiscal capacity in the region. Many countries formed separate ministries for collecting taxes. Our revenue collection under the leadership of a bureaucrat is a blunder we have been making for long under a colonial mindset. A political leadership, which will be accountable to the parliament, at this, one of the most vital public offices, is indispensable. If we can form ministries for such sectors which give less than 2 percent of GDP, why can't we form a ministry for revenue which is 12 percent of GDP—and has the potential to turn into 20 percent of GDP? We should, the sooner the better.
The ex-finance minister in an interview in January unmasked the hollowness of the national board of revenue (NBR) and didn't hesitate to express NBR's untrue statements of revenue collection—which were hyped-up figures. It's a shame! Sometimes, the NBR boss is under tremendous pressure to make up numbers, suggesting that a public representative is essential here to run the lifeline office of the economy. And revenue collection will be the toughest task for the government in the post-corona phase too, when banking will further be floundering in default pandemics. After forming a new ministry of revenue, the ministry of finance will be able to concentrate on sound budgeting by coordinating with the ministries of revenue and planning.
Milton Friedman, after 30 years of the great depression, came up with his theory of monetarism and argued about the effectiveness of monetary policy in recessions. But Keynesian economics proved to be more practical. It asserts that fiscal policies are more powerful than monetary policies during economic disasters. America picked up the Keynesian side during the great recession of 2007-2010. At some point, President Nixon jocularly branded all of us as Keynesians. And this is more so now! The US stock market cascaded down even further in the dip, contradicting the Fed's rapid monetary loosening that brought the policy rate close to zero. Monetary policy turned toothless.
In contrast, the market rallied up when President Trump announced the largest fiscal package in history—exceeding USD 2 trillion dollars in a USD 21 trillion economy. Good that Bangladesh is also going for direct fiscal actions although they will balloon up fiscal deficits further. The direct payments to the poor and the vulnerable by using both the bureaucratic and political machinery will be imperative. Nobel Laureate Abhijit Banerjee recently advised the Indian government to print money and to hand them out to the poor. No government will be that desperate because inflation is a potential snake, but the intent of Banerjee's argument is to connect directly to the needy—a task which the monetary authority or banks can't do without satisfying procedural requirements.
Still Bangladesh's central bank has a lot to do particularly to save its balance of payments—the most challenging frontier and more important than domestic credit expansion. India faced its worst financial crisis in the early 1991s when it ran out of its foreign reserves and encountered the toughest blow from its current account balance. Our exports are doomed to plummet. Americans now think about life and death. They have no time or urge to buy garments—no time to be fashionable.
Remittances have already gone down and they will be in the decline frenziedly. Bangladesh Bank (BB) now should further liberalise the inflows of capital and remittances. As an irregular remitter, I face so many rules, regulations, obstacles, and sometimes paperwork on top of a poor nonmarket exchange rate. These are enough to explain why migrants resort to hundis or informal channels. BB has to abandon the tangling foreign exchange rules which are the brainchild of the 1956-model advisers. Two percent incentive on remittances still has strings attached to it. Make them free and let the market determine the exchange rate. Of course, BB deserves credit for allowing USD 10,000 cash for travellers. Even that ceiling should be lifted for inflows up. Loans to small and medium enterprises, farmers, and petty businesses should be interest free. And so should be student loans for at least a year.
Once in October 2008, the Fed Chair Ben Bernanke warned President Obama, "Act now, or there will be no economy on Monday." The time now is worse than that. We believe the Bangladesh government will work relentlessly to protect the helpless and at least minimise the damages looming on the horizon.
Biru Paksha Paul is professor of economics at the State University of New York at Cortland.