Answer the questions base following extract taken from an article named “Bangladesh PM unveils massive stimulus package to counter adverse effects of coronavirus,” published in The Hindu Business Line. (link: https://www.thehindubusinessline.com/news/world/bangladesh-pm-unveils-massive-stimulus-package-to-counter-adverse-effects-of-coronavirus/article31261915.ece) “Bangladesh Prime Minister Sheikh Hasina on Sunday announced stimulus packages to the tune of Taka 72,750 crore (USD 8,573 million) to counter the adverse effects of coronavirus on the country’s economy.” “The premier said the first of the four packages involves Taka 30,000 crore to be provided to affected industries and service sector organisations as working capital through banks as low-interest loans. She said the commercial banks would provide the amount as loans from their own funds to concerned industries and enterprises on the basis of bank-client relations. The premier said the government would pay half of the interest amounts to banks as subsidies to the affected enterprises, which would pay the rest of the interest. “The interest rate of this lending facility will be 9 per cent and the concerned industries and business organisations will pay 4.50 per cent interest, meaning half of the interest of that loan,” she said.” What type of fiscal policy is this?
Answer the questions base following extract taken from an article named “Bangladesh PM unveils massive stimulus package to counter adverse effects of coronavirus,” published in The Hindu Business Line. (link: https://www.thehindubusinessline.com/news/world/bangladesh-pm-unveils-massive-stimulus-package-to-counter-adverse-effects-of-coronavirus/article31261915.ece)
“Bangladesh Prime Minister Sheikh Hasina on Sunday announced stimulus packages to the tune of Taka 72,750 crore (USD 8,573 million) to counter the adverse effects of coronavirus on the country’s economy.”
“The premier said the first of the four packages involves Taka 30,000 crore to be provided to affected industries and service sector organisations as working capital through banks as low-interest loans. She said the commercial banks would provide the amount as loans from their own funds to concerned industries and enterprises on the basis of bank-client relations.
The premier said the government would pay half of the interest amounts to banks as subsidies to the affected enterprises, which would pay the rest of the interest.
“The interest rate of this lending facility will be 9 per cent and the concerned industries and business organisations will pay 4.50 per cent interest, meaning half of the interest of that loan,” she said.”
- What type of fiscal policy is this?
- Explain your answer and draw an AD-SRAS-LRAS diagram to show the possible effects of the Government paying half of the interest on the loans that will be disbursed by the banks.
- Will this lead to budget deficit? Do you think crowding out will be an issue given the current Covid-19 crisis?
- Read the following portion taken from another article (link: https://tbsnews.net/economy/banking/bangladesh-bank-creates-money-worth-over-tk70000cr-revive-economy-76435?fbclid=IwAR108OXKcbXq6JjZj6v9FbULrDtys_QsZySUTKeAmauoqTjppgnLqU89muw#.Xq5kdXhgRqq.facebook). What problem with the policy is being talked about here? Explain your answer with an AD-SRAS-LRAS diagram.
“On the other hand, complex processes for applying and getting funds from the stimulus package has slowed down releasing of the money.
For instance, disbursing loans for garment workers has been delayed due to a task the banks are not ready to handle. Instead of the RMG factories, Banks were given the responsibility to verify the RMG workers' names and national identification numbers – a job difficult for the banks to carry out.
"How can banks ensure that the workers are actually employed by the factories?" Mamun questioned. "Garment factories should verify it.”
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