On the eve of Bangladesh embarking on a countrywide shutdown on 26 March, the Government announced a Taka 5,000 crore coronavirus bailout package to pay the wages and allowances of export-oriented industries’ workers for 3 months starting from April.
Considering garment manufacturing being the principal export sector of the country, the package was expected to help garment makers the most and it did as well after the Government released another Taka 2,500 crore from the Taka 30,000 crore bailout package (rolled out for the large industries affected by the pandemic), as the initial fund of Taka 5,000 crore was found inadequate to take care of the needs.
Subsequently, banks disbursed the amount directly to the workers’ bank accounts or mobile financial service (MFS) accounts. As part of it, borrower enterprises got interest-free loan (with a 2 per cent service charge) to be repaid in 18 instalments over 2 years, which include 6 months as grace period.
However, by June, the industry came up with yet another request asking the Government to continue low-cost loans to help them pay wages to workers for another 3 months. But then one would wonder, having received the Taka 7,500 crore already, what is the rationale behind seeking support for 3 more months!
The letter – jointly written by the Bangladesh Garments Manufacturers and Exporters Association (BGMEA) and the Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA) to the Finance Minister AHM Mustafa Kamal on 22 June as they pursued another round of financing, a copy of which was sent to the Principal Secretary to the Prime Minister –highlighted the need for such a facility, as RMG has been one of the worst-hit sectors after its earnings in the immediate past fiscal year fell to its lowest in a decade at US $ 27.83 billion, which is 18.45 per cent lower than in fiscal 2018-19, consequent to the large-scale order cancellations by global buyers and severe fall in demand for apparels in the Western world.
Garment factory owners are worried about carrying out various activities, the future of the industry, and how to pay wages to the workers, the joint letter underlined, adding that as a result, it would not be possible for most garment factory owners to pay wages to workers for July, August, and September.
“We only said that we need another package. We do not have an adequate inflow of work orders from our international retailers and brands. So we demanded financial support from the Government, so that we can overcome our challenges,” Mohammad Hatem, Vice President, BKMEA, justified the garment makers’ stand, further adding that with the current flow of work orders, many will not be able to pay the wages and allowances.
According to the survey (Analysis of Factory Capacity Booking), carried out by the BGMEA, the industry has so far booked orders that would constitute only 35 per cent of its total production capacity for the first half of the current fiscal year (FY 2020-21).
The survey revealed that the apparel makers booked 48 per cent, 38 per cent and 30 per cent confirmed work orders against their capacity for the months of August, September and October respectively, while about 21 per cent and 17 per cent of their capacity have so far been booked for November and December respectively.
Further, even though work orders were coming in limited quantities, there has been an average price decline of 14 per cent as reflected from the orders confirmed in July, for delivering during the period from July to December this year.
On an average, the price trend has been showing a 14 per cent dip in the second half of 2020 as compared to last year, the survey found, according to which, men’s undergarments had the highest price decline of 43 per cent, followed by baby items with a 35 per cent decline in price.
Only knitted bottoms got a price hike of 6.0 per cent this year, it showed.
Also to be taken into consideration in this regard, as has been highlighted by the garment makers, it may take up to 8 months to get the payment for the shipments already made following extended payment term demands by most buyers, but the workers have to be paid to keep factories up and running to execute the current shipments and make the delivery for the orders coming in.
Given such dire circumstances for a sector, which is the lifeline of the country’s economy and a mass employment provider, it was just a matter of time before the Government gave dew consideration to the garment makers’ request.
So, well before the garment makers were to pay the festival bonus and July’s wages to the workers ahead of the holy festival of Eid-ul-Azha, the Government, on 23 July, approved yet another stimulus package worth Taka 3,000 crore for the export-oriented industries to help them provide wages and salaries to their workers for July.
This is the third stimulus package for the export-oriented industries, which are now actively running their units since March.
After the Government’s move, the Finance Ministry asked the central bank (Bangladesh Bank) to provide the additional fund to the export-oriented industries, in accordance with which the central bank sent letters to 47 banks to release the fund from the stimulus package.
To avail the same, borrowers will have to pay 4.50 per cent interest while banks will get 9 per cent interest as the Government will give the rest as subsidy, while banks will be permitted to take up 50 per cent fund from the central bank’s refinance scheme to provide the credit to the export-oriented industries smoothly.
Borrowers will have to pay the loans within 2 years including a grace period of 6 months.
Further, according to recent reports, loan disbursement from the Taka 30,000 crore fund is also increasing rapidly, as roughly half of the amount is expected to be disbursed soon.
The Bangladesh Bank (BB) has so far approved loans amounting to Taka 9,200 crore against 650 firms under the stimulus package for industries and services affected by the coronavirus pandemic.
The Government has announced stimulus packages totalling over Taka 1,00,000 crore to overcome the economic impact of the virus, including a Taka 30,000 crore package for industries and service sectors.
After verifying loan proposals of scheduled banks, the Bangladesh Bank has so far approved Taka 9,200 crore loans in favour of COVID-19 affected firms from the Taka 30,000 crore stimulus package, a central bank official told the media, adding that the banks have intensified loan disbursement activities, as the central bank has instructed banks to complete loans disbursement from all stimulus funds by August this year.
Hope such timely intervention and support provided by the Government would be able to mitigate the garment manufacturers’ challenges to a great extent in such trying times. However, one issue that perhaps needs to be taken care of involves the so-called strict riders attached to availing the low-cost loan facilities, which have prevented many small and medium-sized players from being able to enjoy the same, alleged many.
Also Read: Bangladesh Bank’s payment guarantee initiative: What’s in it for exporters?
