Fiscal stimulus refers to government actions taken to energize the economy or pull it out of a recession. It's primarily done through two channels: increasing government spending and cutting taxes. The goal is to boost demand and economic activity.
The main tools are increased government spending (on infrastructure, healthcare, education) and tax cuts (giving individuals and businesses more disposable income to spend and invest).
Fiscal stimulus can be highly effective during recessions. During the COVID-19 pandemic, most countries announced massive stimulus packages to prevent economic collapse.
However, there are downsides — stimulus can increase government debt (fiscal deficit) and may lead to inflation in the long term.
In Bangladesh, the government announced stimulus packages totaling about 1.2 lakh crore taka during COVID-19, including credit facilities for SMEs, cash assistance for workers, and agricultural subsidies.