The global recovery from the Covid-19-induced fallouts appeared uncertain as the low-income countries accommodating the majority portion of the global population get unequal treatment in terms of foreign borrowing and other fiscal supports, says former Bangladesh Bank governor Atiur Rahman.
"Almost 80% of all financial support for recovery went to the developed countries, equivalent to 16% of their national income, while poorer countries, in contrast, saw 36% cut in bilateral aid commitments last year."
Besides, developing countries had very limited fiscal space due to diminished borrowing capacity.
Atiur, also a professor at the University of Dhaka, came up with the observations on Monday while presenting a keynote paper at a seminar organised by the Dhaka University Advanced Social Science Research Centre.
"With poor credit histories and ratings, poorer countries face much higher interest rates on foreign borrowing. International support has been simply inadequate for them," the economist said.
He believes that the disparities among the rich and the poor economies would make the much-anticipated Covid recovery tough to attain.
Dr Atiur pointed out that public debts in poorer nations became high amid the pandemic. On the other hand, their revenues had shrunk.
"Moreover, a 12% fall in foreign direct investment to developing economies in 2020 has made the recovery process even more difficult for them,'' said the professor.
Central banks' roles
In such a situation, central banks need to expand their balance sheets to give credit to the governments, Atiur Rahman suggested.
Governments required the credit flow for creating fiscal space to strengthen relief, recovery, and reform, to enable spending on nationally produced goods and services, to invest in productive capabilities and creating more jobs, to enhance social protection, and to ensure excess liquidity not creating inflationary pressure.
A strong financial sector enabled the government of Bangladesh to provide stimulus packages equivalent to 4.6% of the GDP amid the pandemic.
He opined that digital finance service (DFS) has played a pivotal role in Bangladesh for covid recovery.
He also opined that mobile finance service opened a window for Bangladesh. Besides, the pandemic has made agent banking deliver a future on its great potential, he said.
Titled "In Search of Sustainable Finance for Inclusive Development", the event discussed different aspects of recovery from the pandemic fallouts.
Chairman of the Policy Exchange M Masrur Reaz and Dhaka University Professor Zia Rahman were present, among others at the event.