Introduction

Introduction
The worst global health catastrophe of the century and the greatest threat since World War II are both
COVID-19. In December 2019, Wuhan City, Hubei Province, China, reported a fresh infection
impacting locals. The World Health Organization (WHO) has designated 2019 as the Coronavirus
Disease (COVID-19). It is rapidly spreading around the world, causing serious health, economic, and
social difficulties for everyone. The main purpose of the information in this document is to give a
graphic overview of the COVID-19’s economic influence on the world. An economic downturn is being
brought on by the coronavirus outbreak. To stop the spread of disease, the majority of nations have
instituted complete or partial lockdown procedures. The lockdown has significantly hampered the world
economy, many businesses have scaled back or shut down, and many people have lost their jobs.
Overview of the COVID -19 pandemic and it’s impact on the global economy:
The pandemic’s negative economic effects were particularly severe in emerging nations, where the
revenue losses it produced exposed and exacerbated some latent economic fragilities. It became evident
that many people and businesses were unprepared to absorb an economic shock of that size and duration
as the epidemic played out in 2020. Studies using data from before the financial crisis indicate, for
instance, that more than 50% of households in emerging and advanced countries would not be able to
continue basic consumption for longer than three months in the event of income losses.2 Similar to this,
the typical company’s cash reserves could only cover less than 55 days of expenses.3 Prior to the crisis,
a large number of families and businesses in emerging nations already labored under unmanageable
debt levels.
The WHO referred to the Chinese epidemic as a public health emergency rather than a pandemic. Due
to the lack of knowledge and the unpredictability of the Cov-19 situation in Wuhan, global supply lines
and trade have been disrupted, asset prices have changed, and decision-making for multinational
corporations has become difficult. Wuhan has been named as the financial center of central China. SAP,
Microsoft, and Group PSA are a few of the 500 finest firms in the world that have their headquarters in
Wuhan (4). It is the largest commercial and transportation hub in the nation and also the top
manufacturer of steel and automobiles. China’s economic development has recently outperformed the
country’s average growth rate, with its GDP increasing by 7.8% in 2019 as opposed to the average for
all of Asia. According to research from Johns Hopkins University, 270 million people have contracted
the coronavirus, and 190,000 have perished as a result. The virus’s global spread has been stopped in
several nations and towns. Closing borders, closing offices and schools, and forbidding large gatherings
are some of the methods. Due to the global financial crisis, there was a “Great Lockdown” that froze
all economic activity worldwide, damaging firms and resulting in job losses. No nation is immune,
hence we are dealing with a true global crisis, IMF head economist Gita Gopinath stated earlier this
month (22). A few numbers and infographics demonstrate how the global economy has been impacted
by the coronavirus epidemic.
Role of central banks in mitigating the economic effects of the pandemic
To control economic turbulence and attain price stability, central banks employ monetary policy, which
results in low and stable inflation. In many developed economies, central banks have clear inflation
targets. A lot of emerging nations are implementing inflation targeting as well. The central bank must
support prudential rules that restrict short-term borrowing in foreign currencies in order to avoid
mismatches (and hence crises). This is one of the few types of capital regulations that lessen the banking
industry’s susceptibility, encouraging wider, longer-term lending markets .
The regional monetary authorities must implement special policies in response to the unique conditions
brought on by the coronavirus’s spread. In addition to conventional tools like lower interest rates, central
banks have been seeking unorthodox strategies to prevent long-term effects from a brief but possibly
severe negative shock. Central banks have created new tools that they can employ to assist businesses
and households weather the storm since the global financial crisis of 2008. In addition to being in a
different circumstance than they were prior to the previous financial crisis, central banks are also
experiencing a new kind of shock. This article outlines a number of policies that certain central banks
may already be implementing and others may want to pursue, and it outlines some of the restrictions.

Central banks of Bangladesh, Bangladesh Bank have taken various initiatives to mitigate the economic
impact of the Covid-19 pandemic. Beacuse during the covid-19 pandemic the economic situation was
totally unstable all over the world. Here are some of the key measures taken by Bangladesh Bank:

Monetary policy measures:

Interest rate cuts: Many central banks all over the have cut their policy interest rates to near-zero levels.
The main reason of that interest cut was to stimulate borrowing and spending, and to support the economy.
According to a report of BDnews24.com on 29 july, 2020, Bangladesh Bank has reduced the interest rate
to 4% to support the local businesses.

Quantitative easing (QE): Bangladesh Bank had implemented large-scale asset purchase programs to inject
liquidity into the financial system and support the economy. This initiavies involves buying government
bonds, corporate bonds, and other securities to increase the money supply and lower borrowing costs. In
addition to the increasing budget deficit, the central bank has pursued quantitative easing to absorb the
shock of covid 19 on the economy by lowering the cash reserve ratio, reverse repo rate, repo rate and bank
rate shown in the graph below.
 Chart Title
8
6
4
2
0
CRR Repo Reserve Repo Bank Rate

Before COVID 19 After COVID 19

Regulatory policy measures:

Liquidity provision: Durinthe covid pandemic central bank have provided liquidity to financial institutions
to ensure they have sufficient funding to continue lending to households and businesses. According to a
report of Bangladesh bank publised in June 2021, The Government of Bangladesh with the collaboration
of the Bangladesh Bank had announced a series of stimulus packages and refinance schemes equivalent to
BDT1284.41 billion to recover from the covid 19 related economic losses. This includes offering repurchase
agreements, term funding facilities and other forms of lending.
.

Loan Forbearance & Restructuring

Loan Forbearance:
The Bangladesh Bank introduced a loan forbearance policy in March 2020 to help borrowers who were
facing financial difficulties due to the pandemic. Under this policy, banks were allowed to offer a grace
period of up to six months on loan repayments for eligible borrowers. The borrowers did not have to
pay any interest or penalties during this grace period. The policy was extended several times and was
in effect until June 30, 2021.
Restructuring of Loans:
The Bangladesh Bank also introduced a loan restructuring policy in March 2020 to help borrowers who
were unable to repay their loans due to the pandemic. Under this policy, banks were allowed to
restructure the loans of eligible borrowers without classifying them as non-performing loans (NPLs).
The policy allowed banks to reschedule loan repayments, extend loan terms, and lower interest rates for
borrowers who were facing financial difficulties due to the pandemic.The Bangladesh Bank also
provided specific guidelines on loan restructuring for the sectors that were most affected by the
pandemic, such as the garment industry, tourism, and small and medium-sized enterprises (SMEs).The
loan restructuring policy was initially valid until December 31, 2020, but was extended several times
due to the ongoing impact of the pandemic. As of March 2021, more than Tk 13,000 crore
(approximately $1.5 billion USD) worth of loans had been restructured under this policy.
Bangladesh Bank introduced loan forbearance and loan restructuring policies to support borrowers who
were facing financial difficulties due to the COVID-19 pandemic. These policies helped to ease the
financial burden on borrowers and supported the stability of the banking sector in Bangladesh during
the pandemic.
Capital Buffers & stress Tests
Capital Buffers:
In response to the COVID-19 pandemic, the Bangladesh Bank implemented a number of measures to
ensure the resilience of the banking sector. One such measure was the strengthening of capital buffers
for banks.The capital buffers are designed to absorb losses and ensure that banks have sufficient capital
to maintain their operations in times of economic stress. The Bangladesh Bank increased the capital
conservation buffer (CCB) for banks from 2.50 percent to 3.50 percent in April 2020 to ensure that
banks have adequate capital to weather the economic impact of the pandemic.In addition, the
Bangladesh Bank also reduced the cash reserve ratio (CRR) and statutory liquidity ratio (SLR) for
banks, which provided additional liquidity to the banks during the pandemic. The CRR was reduced
from 5.50 percent to 3.00 percent, and the SLR was reduced from 13 percent to 11 percent.
Stress Tests:
Stress tests are conducted to assess the ability of banks to withstand adverse economic scenarios. The
Bangladesh Bank conducted stress tests on banks to evaluate their ability to absorb potential losses and
maintain their financial stability in adverse economic conditions.

The stress tests were conducted using a range of scenarios, including a severe stress scenario that
assumed a significant deterioration in the economic environment due to the pandemic. The stress tests
evaluated the impact of various factors such as a decline in GDP growth, increase in non-performing
loans, and decrease in deposit growth.The results of the stress tests showed that most of the banks in
Bangladesh had sufficient capital to withstand the adverse economic scenarios. The banks that did not
meet the capital adequacy ratio requirements were instructed to take corrective measures to improve
their capital position.
Analysis:
The capital buffers and stress tests conducted by the Bangladesh Bank were crucial measures aimed at
ensuring the resilience of the banking sector during the COVID-19 pandemic. The increase in capital
buffers and the reduction in CRR and SLR provided banks with additional capital and liquidity to absorb
losses and maintain their operations during the pandemic.
The stress tests conducted by the Bangladesh Bank evaluated the ability of banks to withstand adverse
economic scenarios, and the results showed that most of the banks in Bangladesh had sufficient capital
to maintain their financial stability. The stress tests also identified the banks that needed to take
corrective measures to improve their capital position.
The capital buffers and stress tests conducted by the Bangladesh Bank were effective measures in
maintaining the stability of the banking sector during the pandemic. The measures helped to ensure that
banks had sufficient capital and liquidity to withstand adverse economic conditions and maintain their
operations. The analysis showed that the Bangladesh banking sector remained resilient during the
pandemic, which was a significant achievement given the challenging economic conditions.

Fiscal policy coordination

Step 1: Coordination with the Government

The Bangladesh Bank coordinated closely with the government to implement fiscal policy measures
aimed at mitigating the impact of the pandemic on the economy. The government announced several
stimulus packages, including monetary support for the vulnerable sectors of the economy, such as
agriculture, export-oriented industries, and small and medium-sized enterprises (SMEs).

Step 2: Reduction in Policy Rates

The Bangladesh Bank reduced the policy rates to support economic growth and provide liquidity to the
banks during the pandemic. The policy rates, such as the repo rate, reverse repo rate, and the bank rate,
were reduced to historically low levels.

The repo rate, which is the rate at which the Bangladesh Bank lends to commercial banks, was reduced
from 5.25 percent to 4.00 percent. The reverse repo rate, which is the rate at which commercial banks
can lend to the Bangladesh Bank, was reduced from 4.75 percent to 3.75 percent. The bank rate, which
is the rate at which the Bangladesh Bank provides credit to the government, was reduced from 5.00
percent to 4.00 percent.

Step 3: Implementation of Prudential Measures

The Bangladesh Bank implemented prudential measures to ensure the stability of the financial sector
during the pandemic. The prudential measures included the strengthening of the capital buffers for
banks, the reduction of the cash reserve ratio (CRR), and the statutory liquidity ratio (SLR), and the
implementation of loan forbearance and restructuring schemes for borrowers.

Step 4: Provision of Liquidity Support

The Bangladesh Bank provided liquidity support to the banking sector to ensure that the banks had
sufficient funds to meet the needs of the economy during the pandemic. The liquidity support included
the extension of the repo facility, the reduction of the CRR and SLR, and the provision of refinancing
facilities to the banks.

Step 5: Coordination with International Agencies

The Bangladesh Bank also coordinated with international agencies such as the World Bank and the
Asian Development Bank to secure additional financing for the country. The financing was aimed at
supporting the vulnerable sectors of the economy and mitigating the impact of the pandemic.

Step 6: Monitoring and Evaluation

The Bangladesh Bank monitored the implementation of the fiscal policy measures and evaluated their
effectiveness in mitigating the impact of the pandemic on the economy. The monitoring and evaluation
process involved the assessment of the impact of the measures on the economy, the identification of any
gaps or weaknesses, and the development of strategies to address them.

Overall, the coordination of fiscal policy measures during COVID-19 by the Bangladesh Bank was
aimed at mitigating the impact of the pandemic on the economy. The measures included the reduction
of policy rates, the implementation of prudential measures, the provision of liquidity support,
coordination with the government and international agencies, and monitoring and evaluation. The
measures were effective in maintaining the stability of the financial sector and supporting the vulnerable
sectors of the economy during the pandemic.

Important Policies taken by the Bangladesh Bank

Bangladesh Bank have taken several steps to maintain the growth momentum of the economy
amid the pandemic. Government has declared various stimulus packages, as well as
Bangladesh Bank, has taken initiatives to ease monetary policy. The Government of
Bangladesh with the collaboration of the Bangladesh Bank has announced a series of
stimulus packages and refinance schemes equivalent to BDT 1284.4 billion which is 4.59
percent of GDP to recover from the Covid-19 related economic losses. The major steps taken
by the Bangladesh Bank are given below:
Stimulus Packages
• External Sector
1. Support of BDT 50 billion for export-oriented industries to pay the salaries and
allowances of workers and staff.
2. Increase in Export Development Fund (EDF) from USD 3.5 billion to USD 5.5 billion
to tackle the slowdown in export and resurgence of the Covid-19 affecting export
productivity.

• Large Industry
1) Support of BDT 600 billion as working capital loan facility for large
industries.

• Refinance Scheme in Agricultural sector

I. BDT 50 billion as refinance scheme for the agriculture sector.
 II. Distribution of BDT 32 billion as low-interest credit for the poor farmers, migrant
workers and trained youth and unemployed youth.
• Humanitarian aid and social safety net programs
a) Distribution of 0.4 million metric tons of rice and 0.1 million metric tons of wheat for
humanitarian food aid
b) Initiation of social safety net programs like direct cash incentive of BDT 12.0 billion,
pay allowances among 0.7 million beneficiaries, and allocated BDT 21.30 billion for
homeless people;

Bangladesh Bank’s Key Initiatives

• Monetary, Exchange Rate and Bank Liquidity
I. CRR: Cash Reserve Ratio (CRR) requirement has been reduced from 5.5% to 4.0%.
II. interest rate has been cut gradually from 6.0% to 4.75%.
III. Reverse Repo rate has been reduced from 4.75% to 4.0%.
IV. Bank rate has been reduced from 5.0% to 4.0%.

• Interest suspension on loan and investment

a. Interest charge on loan and investment by banks has been suspended for two months
(April and May, 2020). Business community has benefited enormously.
Impact of Policy Intervention on Bangladesh Economy
The Bangladesh central bank, like many other central banks around the world, took various
initiatives during the pandemic to stabilize the economy and support businesses and
individuals affected by the pandemic. However, these initiatives have also faced criticisms.
Here are some of the criticisms of the Bangladesh central bank's initiatives during the
pandemic:
GDP Growth
Bangladesh has been doing progressively well in terms of macroeconomic performance in the
last decades. Macroeconomic stability has been one of its founding cornerstones and that has
helped the growth process to be sustained, and it also maintains exchange rate stability
compared to the other developing countries. Bangladesh’s macroeconomic performance is
also a reflection of its very prudent fiscal management.

Figure 4.1.1 depicts the GDP growth of Bangladesh from FY10 to the FY20. Due to the
pandemic shock Bangladesh’s GDP growth is appeared to be at 5.24 percent in FY20
compared to the GDP growth of 8.15 percent in the previous fiscal year. Bangladesh’s
economy has so far managed the challenges brought by the global Covid-19 outbreak well.

Inflation
Inflation had been under control in Bangladesh in recent years. It is thus important to review
if Covid-19 has any impact on the price stability, in particular, on the price of food.
Figure 4.2.1 shows the point-to-point inflation rate during pre-Covid and post-Covid period.
Food inflation increased in June 2020 and stood at 6.54 percent and further to 7.34 percent in
October 2020. The general inflation rate was at its peak in October 2020 which was 6.44
percent and was mostly driven by food inflation as non-food inflation declined during this
period. Recently, the general inflation rate and food inflation rate are both considered in a
stable situation. In April 2021, general inflation rate and food inflation rate stood at 5.56
percent and 5.57 percent respectively. The non-food inflation rate has been falling from 6.04
percent in April 2020 to 5.55 percent in April 2021.

Figure 4.2.2 shows the general inflation (12-month average) rate during pre-Covid and post-
Covid situations. In March 2020, the general inflation rate was 5.60 percent and it increased
in April 2020 and stood at 5.63 percent which later recorded 5.59 percent in May 2021. Food
inflation rate was 5.43 percent in March 2020 which increased to 5.46 percent in April 2020
and stood at 5.82 percent in May 2021. The non-food inflation rate was 5.86 percent in March
2020 which increased to 5.90 percent in April 2020 and recorded 5.23 percent in May 2021.
Due to the loss of food production during Covid-19 pandemic, food prices increased. Mainly
due to the rise in food inflation, general inflation increased during the pandemic. However,
non-food inflation increased at initial phase of pandemic it gradually reduced.
Although BB’s monetary policy stance and monetary programs for FY21 are essentially
expansionary and accommodative for all growth support needs, the inflation rate seems to be
around the target value set for this fiscal year.

Money Supply and Liquidity

A record high wage earners' remittance influx along with substantial inflows of foreign loans
and grants since March 2020, improved the foreign exchange market stability during a
pandemic when the export condition was weak. BB also participated in the foreign exchange
market and purchased foreign currencies to keep the nominal exchange value of BDT
competitive. As a result, steady growth in net foreign assets was observed throughout 2020
(figure: 4.6.1). Net domestic assets of the banking system of Bangladesh also grew largely
due to government borrowing from the banking system to finance various large projects and
stimulus packages in the stated period.
In March 2020, growth of net foreign assets and net domestic assets were 3.6 and 14.7
percent which increased to 7.4 and 15.0 percent respectively in April 2020. Broad money
(M2) growth recorded an increase of 13.1 percent in April 2021 against April 2020. Of the
sources of broad money, the growth of net domestic assets increased by 8.3 percent, and net
foreign assets increased by 30.9 percent at the end of April 2021 as compared to the same
month of the previous year.
To boost up liquidity in the money market, BB proactively reduced CRR in March 2020,
which helped banks to ease up the liquidity condition, as shown in the figure: 4.6.2.
Moreover, BB also adopted an expansionary and accommodative monetary policy for FY21.
The minimum required liquid assets of the scheduled banks reduced to BDT 195900.48 crore
in April 2020 from BDT 214227.94 crore in March 2020 and stood at BDT 215316.13 crore
in April 2021. Total liquid assets of the scheduled banks increased to BDT 309708.2 crore at
the end of April 2020 from BDT 304136.55 crore as of the end of March 2020 and gradually
increased to BDT 416994.06 crore. The excess liquidity in the market shows an increasing
trend right after the policy rate cut by Bangladesh Bank and the excess liquidity increased to
BDT 201677.93 crore in April 2021 against BDT 113807.71 crore in April 2020.
Analysis