Priority Economic Agenda Revised Paper-A. R. Bhuyan

8/11/2019 Priority Economic Agenda Revised Paper-A. R. Bhuyan

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Thoughts on Economics 7

Thoughts on EconomicsVol. 19, No. 0 1

Challenges for the Bangladesh Economy:

Priority Economic Agenda for the New Government

Ayubur Rahman Bhuyan1

[Abstract: The newly elected Government will need to adopt strong measures to

reduce poverty and accelerate the rate of economic growth sufficiently to attain the

status of a middle-income country by 2021 This broad ob!ective will re"uiremeaningful measures to raise resources for development# accelerate production in

real sectors# improve macroeconomic management# control inflation# diversify

e$ports# develop physical and human resource infrastructures# and improve

governance in economic# political and institutional fronts# which are essential to

long-term economic growth and sustained poverty reduction in the country %urrent

problems confronting the economy are identified and the tas&s needed by the new

Government to solve these problems are indicated in the paper'

! ntroduction

Bangladesh has made some convincing progress with economic development

during the years since its independence see Ta!les 1 through "#. Theresponsi!ility o$ the newly elected %overnment will !e to accelerate the paceo$ past progress and put the economy in trac& $or still $aster economic growth.'nce du!!ed as a !ottomless !as&et, Bangladesh is now poised to !ecome amiddle income country !y (0(1 when its per capita income will !e e)pected torise to *1000, which is one o$ the criteria $or graduation $rom the status o$ aleast developed country. To $ul$il this income criterion, Bangladesh %+ willneed to grow at an annual rate o$ at least - percent during the ne)t 1 years./chieving such a high growth rate and sustaining it at that level in the $ace o$the deep recession in the developed countries may not !e an easy tas&, !ut

!uilding on record o$ good economic per$ormance in the past years as well asdrawing on lessons $rom wea&nesses in certain areas o$ the economy the new%overnment should !e a!le to adopt the right policies and strategies that areneeded to accelerate the pace o$ economic growth.

The economy has achieved some nota!le successes in the $ollowing areas,which will o$$er opportunities to the new %overnment to prepare its policiesand programmes $or growth in the coming years

1ormer ro$essor o$ Economics, 2niversity o$ +ha&a.


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- 3hallenges $or the Bangladesh Economy ...............

i# The %+ growth increased $rom the average .4 percent in the 1970sto a!ove 4 percent in the 1990s, and a!ove 5 percent since the middleo$ the (000s.(

ii# er capita income has e)panded !y more than three6$old in the past 0years.

iii# The country is now e$$ectively sel$6su$$icient in $ood e)cept in years o$natural calamities.

iv# The growth o$ e)ports and remittances has remained healthy.

v# oreign e)change reserves are at a satis$actory level.vi# E)cept $or the recent increase in the rate o$ in$lation, the economy can

!e said to have !een per$orming well with reasona!le macroeconomicsta!ility.

vii#ome improvement has occurred toward achieving the millenniumdevelopment goals 8+%#, in particular in poverty reduction, net

primary school enrolment, gender parity in primary and secondaryschooling, and in child mortality.

hile these are signs o$ positive progress, there are also wea&nesses in certainareas o$ the economy, some o$ which are :uite serious.

i# /t *44", per capita income is low even !y outh /sian standards.

ii# +omestic savings and investment remain stagnant. roductiveinvestments are limited to only a $ew sectors.

iii# E)ports are concentrated in a $ew products and also to a $ewdestinations.

iv# The !alance o$ payments depends heavily on remittances.

2 %overnment o$ Bangladesh, 8inistry o$ inance, Economic /dviser;s ing. Bangladesh

Economic "urvey, 19-0, 1990, (00-.3The 2N 8illennium +eclaration (000 lays down eight speci$ic time6!ound goals 8+%s#

to !e achieved !y (014. The goals are a# halving poverty, !# universal primary education, c#gender e:uality and women empowerment, d# reducing child mortality, e# improvingmaternal health, $# com!ating malaria,


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v# overty is rampant even though it has declined considera!ly.

vi# 8ost indicators o$ human development, despite recent improvements,are low even !y standards o$ low6income countries.

vii#8a>or governance constraints have emerged, which threaten thesustaina!ility o$ past progress.

The development challenges are daunting, !ut they are not insurmounta!le.'ver the past three decades, Bangladesh has gained a lot o$ e)perience andlearnt lessons, !oth positive and negative. ?ising $rom the ruins o$ a war6ravaged economy in 1971, the nation has shown that with concerted e$$orts

constraints can !e overcome and progress with development is very muchpossi!le.

The economic agenda o$ the newly elected %overnment are laid down in clearand unmista&a!le terms in the government party;s election mani$esto. The

people have welcomed the %overnment party;s pre6election commitments andpledges as outlined in the mani$esto and have given the new %overnment aresounding mandate to carry out its economic agenda. =n order to $ul$il thecommitments, which are also reiterated in the rime 8inister6elect;s post6election press and media !rie$ing, the new %overnment will !e e)pected tounderta&e tas&s in the $ollowing areas

i# ?educing income poverty through accelerated economic growth@

ii# Boosting agriculture sector growth@

iii# E)panding the industrial sector@

iv# =mproving macroeconomic management@

v# 3ontrolling in$lation@

vi# +iversi$ication o$ e)ports@

vii# romoting physical and human resource in$rastructure@ and

viii# /ddressing pro!lems in the sphere o$ governance.Needless to mention, the new %overnment;s tenure !egins at a time when theworld economy has plunged into a deep recession, and hence it will need toadopt strong stimulus measures to !oost economic activity and try to minimiAeany adverse impact o$ the glo!al economic crisis on the domestic economy.8a>or challenges con$ronting the new government right a$ter assuming o$$icewill !e to &eep the rate o$ in$lation at a low and sta!le level, removein$rastructural !ottlenec&s, especially the power shortages, and improve


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10 3hallenges $or the Bangladesh Economy ...............

overall governance, all o$ which are critical $or accelerated economic growth,poverty reduction, and improving e)ternal competitiveness. ome o$ the corepro!lems the economy currently $aces and the tas&s the new %overnment willneed to underta&e to solve these pro!lems are highlighted in the remainder o$the paper.

! Poverty Reduction

overty remains widespread despite recent progress made possi!le !ysigni$icant agricultural development and lauda!le N%' and government

e$$orts during the past two decades. 2nemployment and under6employment isrampant, which, according to the (004605 a!our orce urvey, was,respectively, ".(C and (".4C o$ the country;s la!our $orce.=ncome poverty, asmeasured !y the 3ost o$ Basic Needs 3BN# method, declined $rom 4-.-

percent in 1991D9( to "-.9 percent in (000, and then to "0.0 percent in (004Ta!le #. =ncome poverty declined $aster !etween (000 and (004 than

!etween 1991D9( and (000.

Bangladesh;s a!solute poverty; in (004, as measured !y the +irect 3alorie=nta&e +3=# head6count ratio method, was "0." percent, and hard6core

poverty; was 19.4 percent Ta!le "#.#=t is worth noting that while !etween(000 and (004 the percentage o$ population in hard6core poverty declined !y

0.4 percent, the a!solute num!er o$ population !elow the poverty lineincreased in (004, although their num!er is lower than what it was in 199169(.The rate o$ decline in poverty rate also slowed down somewhat !ecause o$ thetwo $loods and cyclone idr in (00760-.

The $undamental challenge $or the new %overnment will !e to reduce poverty.overty reduction e$$orts must stri&e at the root causes o$ poverty, at the top o$which is the slow growth o$ %+. / high and sta!le rate o$ economic growthin e)cess o$ - percent# will !e needed in the coming years to trigger an e)it$rom the endemic poverty situation. /mong other causes o$ poverty is the$alling pu!lic e)penditure on social sectors, the !ene$its o$ which largely

accrue to the poor, growing ine:uality in income distri!ution, une:ual accessto productive assets, and poor access to pu!lic services.


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however, a su$$icient condition, though it is necessary, $or poverty alleviation.=n the 19-0s, growth rate o$ %+ was !elow " percent !ut the record o$

poverty reduction was !etter than in the su!se:uent decade when growth wasmore ro!ust. Thus, in the 1990s %+ grew !y a!out 4C !ut poverty did not$all to the e)tent possi!le, largely !ecause o$ the growing ine:uality in incomedistri!ution. %rowth did not tric&le down as the richer class netted much o$ theincreased income $rom growth.

2ne:ual income distri!ution is thus a !arrier to poverty eradication, whichwill not go away on its own. /ctive government intervention in $avour o$ the

poor will !e needed to reduce ine:ualities in income. To that end, a greaterattention should !e given to increasing the :uality o$ social serviceseducation, health# and reaching them to the poor. Emphasis should !e givento primary and secondary education and primary health care, the ma>or

!ene$iciaries o$ which are generally the poor.

ince the incidence o$ rural poverty is much higher than ur!an poverty, thenational poverty alleviation strategy should have agricultural and ruraldevelopment sectors as its principal targets. 2n$ortunately, lesser and lesserallocation was made to these sectors in all past $ive6year development plans,and also in all annual development programmes.

a$ety6net measures li&e $ood6$or6wor& programmes are desira!le !ecausethey can !ring relie$ to the rural poor, particularly in depressed areas, !ut thesecannot eradicate poverty. The %overnment should &eep in mind that theo!>ective o$ poverty alleviation e$$orts is not >ust to prevent poverty $romrising !ut to pull the poor a!ove the poverty line. This can !e made possi!leonly !y creating opportunities $or new employment.4

overty can also !e reduced signi$icantly !y creating opportunities $or sel$6employment, which will re:uire access to credit on concessional terms andeasier repayment schedules. hile the N%'s have played a &ey role in

poverty alleviation in the past years, %overnment is perhaps !est suited to dothis >o! through specialiAed institutions li&e F and B?+B.

=t will !e inappropriate to rely solely on the N%'s, whose role in povertyalleviation so $ar has allegedly !een at !est marginal. /ll N%'s there area!out twenty thousand N%'s in the country# together reach micro6credit to 5

5=n one estimate, a!out 1.-1 million wor&ers are added to the country;s la!our $orce every

year. This means that !etween (00- and (011 some 4." million wor&ers will enter the >o!mar&et. 'n top o$ that, there are already 1.-- million unemployed people loo&ing $or >o!s.Thus, new >o!s will need to !e created $or 7.1 million wor&ers !y (011 %'B, (00-#.


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1( 3hallenges $or the Bangladesh Economy ...............

million !orrowers. 'ne government organiAation, the B?+B, alone serves asmany clients. 8oreover, while the N%'s o!tain highly su!sidiAed $unding$rom Bangladesh Ban& and a $ew donor agencies, the cost o$ !orrowing $romthem is very high, which o$ten e)ceeds 40650 percent. 3ritics suggest that thelarge di$$erence !etween N%'s; $und costs and high interest rates charged ontheir loans strongly indicates that the N%'s are in $act ma&ing money $rommicro6credit !usiness. / proper evaluation o$ the role o$ N%'s in povertyalleviation is there$ore necessary. /$ter all, the %overnment cannot and shouldnot a!dicate the tas& o$ poverty eradication to N%'s, whose credi!ility is now

!eing increasingly open to :uestion.

! Accelerating Economic Growth

%iven the dominant role o$ $aster economic growth in poverty reduction,%overnment must decisively move toward raising %+ growth. %rowthmeans structural change. =n a low6income agrarian country li&e Bangladesh,the desired structural change will need to !e in the direction o$ industry andservices, and away $rom agriculture, where, $or o!vious reasons, the potential$or employment creation is now very limited. 2ltimately, >o!s will need to !ecreated in the modern manu$acturing and services sectors as well as in ruralindustrial and non6$arm activities $ishery, livestoc&, poultry, and horticulture#

to li$t the people out o$ poverty.or achieving accelerated growth, issues o$ utmost importance are those o$resource mo!iliAation $or investment, economic re$orms, and the developmento$ the private sector.

A$ Resource %obili&ation for nvestment

The most crucial recipe $or growth is investment, which could !e eithermo!iliAed !y domestic savings pu!lic andDor private# or o!tained in the $ormo$ $oreign direct investment +=#. / cause o$ concern $or the economy is thatdomestic savings have stagnated in the recent years. =n $act, as a percentage o$%+, the domestic savings rate has $allen $rom (0. percent in G(004605 to(0.1 percent in G(00760-. This implies that consumers had to allocate theincremental share o$ their income toward consumption !ecause o$ the increasein the rate o$ in$lation.

?eversing the declining trend in the domestic savings rate is a ma>or challenge$or the economy. / two6pronged attac& will !e needed $or that purpose. u!licsavings will need to !e raised !y improving government;s revenue collectionas well as !y cutting down recurrent e)penditure. rivate savings will need to


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!e encouraged and mo!iliAed through a mi) o$ prudent $iscal6monetarypolicies that are conducive to voluntary private savings as well as to theirintermediation. The presence o$ a networ& o$ well6$unctioning $inancialinstitutions and a disciplined stoc& mar&et is crucially important $or that

purpose. To that end, the government;s responsi!ility shall !e to securereasona!le monetary sta!ility so as to ensure that private savings are notdiscouraged !y in$lation.

/s in domestic savings, gross investment has also slowed down in the recentyears. /s a percentage o$ %+, gross investment has declined $rom (".7

percent in G(004605 to (".4 percent in G(00760-. The main reason !ehindthis decline is the slac& in pu!lic investment, which has remained historicallylow in this country. orse still, as a proportion o$ %+ it has declined over the

past decade H e.g., $rom 7. percent in G(000601 to 4.0 percent in G(00760-.


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1" 3hallenges $or the Bangladesh Economy ...............

economic sta!ility to underta&ing tas&s o$ e)panding and developing supplycapacity in ma>or production sectors, overhauling the education system, andadopting such measures as improving the :uality o$ pu!lic administration andthe $unctioning o$ $inancial and la!our mar&ets.

=n the past, re$orms pursued under donor6driven structural ad>ustmentprogrammes laid emphasis on economic li!eraliAation, the ma>or ingredientso$ which were the li!eraliAation o$ trade and e)change rate regimes,maintenance o$ !udgetary !alance, $inancial sector re$orms stressingderegulation o$ interest rates and denationaliAation o$ state6owned commercial

!an&s 3Bs#, withdrawal o$ agricultural su!sidies, and privatiAation andre$orm o$ pu!lic sector enterprises Es#. hile the emphasis on improvingmacro6economic management !y adhering to mar&et6oriented policy re$ormshas its merits, there should !e a strategic shi$t in the new %overnment;s re$orm

priorities that would contri!ute not >ust to sta!iliAation !ut also to generationo$ signi$icant supply response necessary $or accelerated growth.

C$ Private "ector 'evelo(ment

The %overnment will need to e)pedite institutional re$orms necessary $or thee$$icient $unctioning o$ the mar&et economy and creating an ena!lingenvironment in which the private sector can $lourish. ?ecent deregulation

re$orms will need to !e !roadened and deepened. Bureaucratic red tape, whiche)ists at all levels o$ the policy hierarchy, should !e removed. %overnmentshould withdraw $rom all manu$acturing and commercial enterprises wherethe private sector can do !etter. %overnment;s role should !e one o$ a$acilitator rather than a regulator o$ private sector activity.

)! Policies for Agricultural 'evelo(ment

The agriculture sector in Bangladesh lac&s dynamism. =ts undiversi$iedcharacter and heavy dependence on rice production ma&es it vulnera!le to thevicissitudes o$ nature. The rice6centric agriculture sector growth may

potentially undermine the country;s long6run $ood security. To ensure $oodsecurity, a sustained growth in grain production is essential, which will call $orimprovements in the genetic materials, rationaliAation o$ seed production, and

!etter nutrient mi)es. /t the same time, diversi$ication o$ the crop !as&et andenhancing the scope o$ non6$arm agriculture should !e seen as important$actors $or the development o$ !oth agriculture and the rural economy o$ thecountry.

The $ollowing measures are recommended $or the agriculture sector


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i# ?esearches should !e done aiming at raising crop yield, anddeveloping crop6 and seed6development technologies.

ii# To raise agricultural value added, steps should !e ta&en to diversi$yagricultural production away $rom the heavy reliance on rice. Thiswill also re:uire policy support $or raising agricultural e)ports.

iii# ?egulations and controls that still remain on output pricing and onmar&eting and supplies o$ inputs should !e removed.

iv# /n e$$ective water management and $lood control policy should !eput in place.

v# The agricultural in$rastructure should !e improved to encourageproduction, raise productivity, and $acilitate mar&eting o$agricultural products.

vi# / crash programme should !e underta&en $or esta!lishing agro6!ased industries and also encouraging the development o$ livestoc&,poultry, $ishery, and agro6related activities.

vii# /gricultural credit on easier terms should !e made availa!le throughthe !an&ing system to ena!le $armers improve their land and $inanceinputs.

)! ndustrial "ector Policies

The per$ormance o$ the country;s manu$acturing sector has !een !elowe)pectations in the recent years. The sector registered an average growth rateo$ 76- percent during most o$ the nineties. The growth rate pea&ed in (004605at 10.77 percent !ut has !een stagnating since then at around -69 percent.There has !een limited investment, little employment increase, and onlymodest growth in industrial production, e)cept in the readymade garmentssector. =n particular, there has !een little investment in e)port industriesoutside o$ te)tiles. The causes o$ sluggish industrial growth are many.

irst, the nationaliAation o$ industries in the early years a$ter independence le$ta legacy o$ la!our militancy, over6employment, corruption, and managementine$$iciency, all contri!uting to heavy $inancial losses and a severe de!toverhang in the industrial sector.

econd, the response o$ the manu$acturing sector to the e)tensive deregulationmeasures adopted in the span o$ the past two decades has !een very wea& dueto pro!lems in $inancial sector, wea& in$rastructure, and poor law and orderconditions.


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Thirdly, tight monetary policy pursued in the recent times, coupled withgrowing !udget de$icits $inanced chie$ly with !an& !orrowing, limited the$unds availa!le $or investment in the private sector.

ourth, the growing incidence o$ smuggling and dumping has $loodedBangladesh with cheap $oreign goods with which domestic industrial productswere una!le to compete.

i$th, there has !een very limited $inancing o$ the important !ac&ward lin&ageindustries $or the garment sector. /$ter a spurt o$ investment $rom 1991 to1995, little more has !een done other than to complete the un$inished pro>ects.

ast, !ut not the least, there has !een little diversi$ication in industrialproduction, whether $or e)port or $or the domestic mar&et. No new industryhas emerged, chie$ly due to wea& in$rastructure that raises cost and reducescompetitiveness, inade:uate availa!ility o$ $unds $or new investment or $orwor&ing capital $acilities, and high transaction costs owing to administrativeincompetence and corruption.

The $ollowing steps will !e needed to overcome the pro!lems o$ the industrialsector

a) Promotion of Exports:


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c) Small Enterprises:romotion o$ small enterprises is o$ $undamental importto the $uture o$ the country;s manu$acturing sector. /lthough the smallenterprises have great employment creating potential, they have very limitedaccess to !an& credit !ecause o$ stringent collateral re:uirements. Thetechnical and management &now6how availa!le to these enterprises is alsoinsu$$icient. To improve their position, the %overnment may design ane$$ective credit guarantee scheme $or small entrepreneurs who do not have there:uired collateral. %overnment may also see& cooperation o$ private sector

!usiness organisations and trade !odies $or providing technical andmanagement &now6how to small enterprises.

d) Sick industries:%overnment should devise an e$$ective programme $orremedying the pro!lems o$ sic& industries. / suita!le mechanism mustsomehow !e $ound to aid the ailing >ute sector. =ndustry speci$ic treatmentshould also !e meted out to solve pro!lems o$ leather, $roAen $ood, and ?8%industries.

e) Agro-based industries: %overnment should design an action plan $orstimulating investment in agro6processing industries, which have su!stantiale)port potential. The T& !illion E:uity and Entrepreneurship und EE#,which was set up to encourage agro6processing industries, was a step in theright direction !ut it has remained virtually dormant since its esta!lishment

two years ago. =$ made truly operational and e$$ective, the EE couldcontri!ute signi$icantly to the growth o$ agro6!ased industries in the country.

f) Industrial Finance:Easy availa!ility o$ $unds $or long6term investment and$or meeting wor&ing capital re:uirements needs to !e ensured. hile the stoc&mar&et can !e an important source o$ long6term capital, there is perhaps noalternative to !an& $inance $or meeting wor&ing capital needs. or predicament o$ !an&s,particularly o$ the state6owned commercial !an&s 3Bs#. /s o$ +ecem!er (007, the ratio o$3Bs; gross Ns to their total loans was (9.9 percent. or the !an&ing system as a whole,the ratio was 1.( percent Bangladesh Ban&, (00-#.


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1- 3hallenges $or the Bangladesh Economy ...............

possi!ility, the new government must adopt !usiness6$riendly monetary andother policies that will encourage investment, !oost production and raiseemployment. '$ $oremost importance is the need $or cutting interest rates, a

policy that is now !eing pursued !y countries all around the world to arrest theeconomic downturn. =n such a situation, the =8;s advice to Bangladesh Ban&to tighten money supply which will invaria!ly raise interest rates on loans# onthe plea o$ cur!ing in$lationary pressure is ill6>udged and should !e ignored.The =8;s advice, i$ $ollowed, will ma&e credit costlier, s:ueeAe credit $or &ey

productive sectors such as garments, te)tiles, agriculture, and 8Es, and slowdown industrial growth. =nstead o$ containing in$lation, a tight money policy

as prescri!ed !y the =8 will discourage long6term investment and slow downeconomic growth.

h) Fiscal Polic" Support for Industries:iscal policy support o$ the $ollowingtypes may !e e)tended to the industrial sector

i# =mports o$ industrial inputs and capital goods should !e allowed$ree o$ duty even i$ it results in relatively high e$$ective rates o$

protection.

ii# Ta) holiday $or 10 years and accelerated depreciation allowance

should !e provided to e)port6oriented industries and also to otherdomestic industries on a selective !asis.

i) F#I Polic": The policies $or attracting += need to !e re$ormed. The$ollowing points need to !e given due consideration

i# =mportance should !e attached to technology trans$er. +=proposals that do not commit to !ring in new technology should !ere>ected.

ii# /ll discriminations that contravene the provisions o$ the oreign

rivate =nvestment /ct such as de!arring $oreign investors $rom

investing in certain industrial activities, re:uiring $oreign investorsto o!tain special permission $rom the 33=E $or certain imports, and

re:uiring $oreign investors to o!tain prior permission o$ the E3

and the Bangladesh Ban& $or repatriating their capital# should !e

removed.

iii# The Board o$ =nvestment B'=# should !e overhauled to raise itscompetence and a!ility to attract += in manu$acturing.


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iv# 8ost importantly, there is the need $or accelerating thedevelopment o$ the country;s physical in$rastructure H power, gas,water, sanitary services, transport, communication, ports etc. Hwithout which all e$$ort to attract new investment, whether $oreignor domestic, will $ail.

v# The recommendations o$ the Bangladesh Better Business orumBBB# to improve the !usiness and investment climate throughincreased interaction !etween private and pu!lic sectors should !eapproved and implemented.

$) Privati%ation:The stalled process o$ privatisation should !e restarted withall seriousness. The recurrent losses o$ the Es have not only !urdened thenational e)che:uer !ut also contri!uted to the erosion o$ the $inancialsoundness o$ development $inance institutions +=s# and sate6ownedcommercial !an&s. The trans$er o$ Es to the private sector may improvetheir operational per$ormance. =n the event the Es are not $oundeconomically via!le, these should !e closed down. The ma>or areas in which

privatiAation should proceed rapidly are power generation, Bangladesh Biman,and BTTB in the services sector, and large6scale industrial enterprises,including the pro$ita!le ones li&e the $ertiliAer $actories in the manu$acturingsector. /s part o$ the privatiAation process, the %overnment will need to design

and implement a retraining programme $or wor&ers retrenched in theprivatiAation process. The responsi!ility o$ the training programmes shouldrest with the rivatiAation 3ommission.

k) &abour 'arket reforms: /ppropriate re$orms in the la!our mar&et arenecessary to address la!our pro!lems, which are a !ig hindrance to thecountry;s industrialiAation. =t is essential that la!our organisations are notgiven political patronage !y any political party. There should !e no nationalminimum wage. ages should !e strictly lin&ed to productivity. This will call$or !ringing an improvement in industrial relations, a reduced role o$government in wage setting, and increasing the use o$ decentraliAed !argaining

!etween entrepreneurs and wor&ers $or wage determination at the enterpriselevel. a!our disputes should !e settled strictly in accordance with the e)istinglaws o$ the country.

l) (eed for Polic" oordination: /t present, several ministries e.g.,3ommerce, =ndustries, Kute, Te)tiles, and inance#, %overnment agencies li&ethe Bangladesh Ban&, 3ollectorate o$ 3ustoms and E)cise, the +irectorate o$3ustoms =ntelligence and =nvestigation, and the NB?#, and constitutional

!odies li&e the Bangladesh Tari$$ 3ommission and the E)port romotion


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(0 3hallenges $or the Bangladesh Economy ...............

Bureau# are responsi!le $or $ormulating and implementing trade and industrialpolicies. There is hardly any coordination among them, which ma&es itdi$$icult $or industrial enterprises to approach the right authorities and see&redress $or their grievances. /de:uate re$orms are needed to ensurecoordination o$ their activities. or that purpose, an institutional $orum namedas the National 3ouncil $or the rivate ector N3# may !e created. The3ouncil should !e headed !y the rime 8inister and consist o$ 8inisters o$3ommerce, =ndustries, inance, Energy, a!our, and ectives should !e to limit the %overnment;s !udget de$icit,maintain a low in$lation rate, and ensure that the economy relies more andmore on the mar&et to set prices. To that end, the re$orm programmes o$ the

past one and a hal$ decade in the $iscal and $inancial systems should !econtinued. There is national consensus on the need $or such re$orms and

%overnment should continue these e$$orts.A$ Government Budget

The !udget de$icit should !e !rought down $rom the current 5 percent to 6"percent o$ %+ over the ne)t $ive years.

+n the revenue side, the revenue collection e$$ort should !e intensi$ied toraise the revenue6%+ ratio to 1"614 percent $rom the present low level o$ 11

percent. The current drive to !roaden the ta) net should !e sustained andimproved.

There is a rationale $or cutting the corporate income ta) rates $urther. /lthough

a reduction o$ corporate ta) rates may lead to a temporary loss in revenue, theloss will !e o$$set !y improved compliance and eventually more rapid revenuegrowth through greater investment and larger pro$it generation.

The contri!ution o$ non6NB? ta)es and non6ta) revenues should !e enhanced,including !y pricing pu!lic utilities at cost and stopping the $iscal


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Thoughts on Economics (1

haemorrhage !y ta&ing immediate measures on privatiAation o$ the loss6ma&ing Es.7

+n the e-(enditure side,the government should

i# Feep the growth o$ pu!lic e)penditure !elow the revenuegrowth rate@

ii# ut a cap on the growth o$ non6development e)penditure,su!sidies, and grants to Es@

iii# ormulate a realistic pu!lic e)penditure port$olio, &eeping in

view the current glo!al economic slowdown@iv# ?aise the :uality o$ pu!lic spending, which will re:uire !etter

design and implementation o$ pu!lic programmes throughcompetitive procurement, strengthening audits, involvement o$

!ene$iciaries, and service delivery through private sectorwherever possi!le.

v# 8a)imiAe the use o$ $oreign aid !y designating pro>ects$inanced !y pro>ect aid as the Ihard6coreJ developmente)penditure@

vi# ?educe %overnment !orrowing $rom !an&s $or $inancing non6development e)penditure@

vii# top pro>ect $inancing with high interest, short6maturitysuppliers; credit $rom a!road.

B$ Ban.ing and %onetary Policy

The main pro!lem in the !an&ing sector is poor governance, which hasresulted in seriously in$ected port$olios o$ the state6owned commercial !an&sthat still dominate the !an&ing sector. Even the private !an&s are not immune$rom the in$ection. argely as a result o$ corruption, a!out 1 percent o$ total

!an& loans, e:uivalent to a!out 4 percent o$ %+, are non6per$orming. /

orld Ban& analyst remar&s, I/long with power sector losses and low ta)compliance, the large magnitude o$ non6per$orming loans is the most telling

7Net losses o$ the Es in G(00760- were T& 4(.77 !illion %'B, (00-a#. Total outstandingde!t lia!ilities o$ the Es as at the end o$ Kune (00- were T& 554.4 !illion, o$ which T&"-4.9" !illion, or 7.0 percent o$ the total, is owed to the %overnment. To improve the%overnment;s $iscal management and !ee$ up its resources $or meeting current e)penditures,the ongoing e$$ort to !oost revenue collection must !e accompanied !y a strong drive torecover the large outstanding de!t lia!ilities o$ the Es.


16/31

(( 3hallenges $or the Bangladesh Economy ...............

evidence o$ poor governance in Bangladesh with negative conse:uences $orpoverty reductionJ /hmed, (001#.

The large volume o$ non6per$orming loans and huge provision short$alls ma&e!an&s charge high interest rates on their loans. /nother important reason whycommercial !an&s do charge high interest rates is the high cost o$intermediation o$ $unds. 3ommercial !an&s have to pay high interest rates ontheir deposits !ecause the %overnment raises loans !y selling savingcerti$icates which o$$er higher rates o$ return.

or overcoming the !an&ing sector pro!lems, $ollowing measures will !e

needed

i# There should !e easy access to !an& credit $or !oth wor&ing andventure capital, which are essential $or e)pansion o$ productiveactivities.

ii# 3ost o$ capital should !e reduced through recovery o$ classi$iedloans. E$$orts toward recovery o$ such loans will need to !eintensi$ied.

iii# The spread !etween !an&s; deposit and lending rates should !enarrowed.

iv# The interest rates o$$ered on %overnment $inancial instrumentsshould !e lowered to have any impact on commercial !an&s;deposit rate structure.

v# %overnance in the !an&ing system shall need to !e improvedthrough improvements in management.

vi# =ssues o$ privatiAation o$ state6owned commercial !an&s, mergingtheir operations, and closure o$ their loss6ma&ing !ranches should

!e closely e)amined.

vii# Bangladesh Ban& should !e made truly autonomous and

independent o$ %overnment control, which is necessary $orenhancing the :uality o$ its supervisory and regulatory $unctions.The Bangladesh Ban& 'rder 197( should !e amended $or that

purpose.

C$ Ca(ital %ar.et

Vigorous e$$orts will !e necessary to invigorate the capital mar&et. The$ollowing steps are recommended


17/31

Thoughts on Economics (

i# The sphere o$ the stoc& mar&et should !e enhanced !y !ringing innewer instruments such as insurance $unds, pension $unds, etc.

ii#

New $unds need to !e in$used. Ban&s and non6!an& $inancialinstitutions NB=s# do have a !ig role to play in that regard.

iii#

Ta) rules with respect to capital gains on ='s and secondarystoc& mar&et transactions should !e made clear !y the NB?.

iv# ?egulations governing the esta!lishment o$ mutual $unds !yprivate $inancial esta!lishments should re:uire transparent

reporting o$ all transactions in order to protect the investors andto ensure $air competition among mutual $unds.

v# The investors must also !e protected $rom insider lending. TheE3 should review the mar&et regularly to identi$y any possi!leinsider lending transaction.

vi# The stoc& mar&et needs to !e strengthened through $urthertransparency and e$$iciency o$ the regulatory mechanism H theE3.

)! Controlling nflation

The rate o$ in$lation rose $rom less than (.00 percent in (000601 to more than

10.0 percent in (00760-. +espite some recent decline, the in$lation rate still

remains high, threatening the sustaina!ility o$ past achievements in

macroeconomic sta!ility. =nternational prices o$ $uels and $ood items have

come down signi$icantly in recent months !ut domestic prices in Bangladesh

have not $allen correspondingly. Bringing the in$lation rate down should

there$ore !e a crucial tas& o$ the new %overnment.

8easures will need to !e ta&en to stri&e at the root causes o$ in$lation. =t is

now well esta!lished that in$lation in Bangladesh has !een caused largely !y

the scarcity o$ supply rather than !y monetary e)pansion. No wonder,

there$ore, that despite the tight monetary policy pursued !y Bangladesh Ban&

since 8arch (004 to chec& the in$lationary pressure H 3ash ?eserve

?e:uirement 3??# was raised and commercial !an&s were as&ed to raise

their lending rates H the general price level continued to rise. =nstead o$


18/31

(" 3hallenges $or the Bangladesh Economy ...............

containing in$lation, the curtailment o$ private sector credit !y commercial

!an&s adversely a$$ected investment and productive activity in the economy.

upply scarcity having !een the ma>or cause o$ in$lation in Bangladesh, a tightmoney policy to cure it is !ound to $ail. 'n the contrary, an accommodativemonetary policy will !e necessary that will ma&e credit easily availa!le to the

private sector, !oost production in $ields and $actories, and !ring down prices.The only way to ensure that too much money will not be chasing too $ewgoods is to maintain an e$$icient !ase o$ production.

or a certain period, the %overnment e)perimented to ease down prices o$some essential products !y such measures as monitoring mar&ets, openingwholesale centres and retail outlets, and reducing import duties on certain

products, !ut these ad hocmeasures $ailed to reduce the price pressures. Thesolution o$ the pro!lem will re:uire an e$$ective strategy $or removal o$ supply

!ottlenec&s and increased production in all productive sectors o$ the economy.

/ signi$icant contri!utor to the rising in$lation in the country has !een the highgovernment !orrowing $rom the !an&ing system to meet its growing non6development e)penditure. There is a growing realiAation that governmente)penditure results in a higher level o$ prices !ecause these are largelyunproductive e)penditures and do not add to national output. 8oreover,

government e)penditure $inanced !y !orrowed $unds displaces or crowds outthe private investors. This displacement essentially retards production o$goods and services, which would not !e the case i$ ade:uate credit were madeavaila!le to the private sector. / reduction o$ the government;s domestic

!orrowing to de$ray its non6development e)penditure will thus !e necessary to!ring down the overall in$lationary pressure.

=n$lationary surges witnessed in the past two years were due to several otherreasons li&e the rise in world prices in certain essential products, naturalcalamities, increases in the price o$ utilities, and in$rastructural !ottlenec&sthat created di$$iculties in mar&eting. /part $rom the a!ove, criminal activities

such as e)tortion $rom !usinessmen and illegal toll collection !y miscreants$rom vehicles during the movement o$ merchandise were and still are in alarge measure responsi!le $or raising domestic prices. =t is also alleged thatunscrupulous traders, hoarders, and pro$iteers, mostly having politicalconnections, ar!itrarily raise prices in the mar&et.

Thus, the in$lation control strategy o$ the new %overnment will re:uire actionson a num!er o$ $ronts. teps will !e needed to remove supply !ottlenec&s !yencouraging production in all productive sectors as well as !y $acilitating


19/31


imports whenever necessary. This will call $or measures to ensure easyavaila!ility o$ credit to the private sector. =t will !e necessary to address thestructural $actors and non6economic constraints li&e in$rastructural

!ottlenec&s, corruption in pu!lic services, and poor law and order conditionsthat a$$ect production and raise production costs. /t the same time, there will

!e the need $or e)ercising $iscal restraints such as lower government!orrowing $rom !an&s and reduction o$ the government;s non6developmente)penditure, and $or other pu!lic policy measures to prevent hoarding and

pro$iteering !y unscrupulous traders, which will e$$ectively contri!ute tolowering prices.

)$ /rade Policy

The great challenge $or the country is to e)pand e)ports with a view toimproving the current account !alance. The !alance o$ payments can !eimproved !y cutting down imports as well, !ut that would slow downeconomic growth, which is hardly desira!le.

3are$ully designed policies will !e needed to diversi$y the narrow e)port !ase,$or which !oth promotional and even some mild protective measures may !eneeded. Entrepreneurs should !e encouraged to produce and e)port high6value

products that $etch higher $oreign e)change earnings.

/ care$ul handling o$ e)change rate, tari$$, investment, and su!sidy policieswill also !e re:uired $or promoting e)ports.

Kust as the e)port !ase is undiversi$ied, so is the e)port mar&et, which isconcentrated in a $ew developed countries. North /merica and esternEurope currently account $or a!out -4 percent o$ Bangladesh;s total e)ports.=n the wa&e o$ the present glo!al $inancial turmoil, the growth prospect o$e)port to these countries has !ecome uncertain. or this reason, whilevigorous e$$orts should !e made to retain these traditional e)port mar&ets, thesearch $or new mar&ets, in particular in East and outheast /sia and in thenew rich 8iddle Eastern countries, should !e intensi$ied.

Trends in manpower e)port $rom Bangladesh should !e monitored andcorrective measures ta&en to prevent any slowdown in remittances./ppropriate mechanisms should !e devised to encourage remittances throughthe o$$icial channel.

=n addition to the a!ove, the $ollowing steps may !e ta&en to address thecountry;s e)ternal sector pro!lems

i# 8aintain an e)change rate $avoura!le to e)port.


20/31

(5 3hallenges $or the Bangladesh Economy ...............

1.

ii#(.

3onsider e)tending su!sidies on a selective !asis to speci$ice)port6oriented industries that $ace severe competition inworld mar&ets.

iii#.

top or at least &eep under chec& all import6intensive, lowpriority, pu!lic e)penditure pro>ects.

iv#".

=ncrease vigilance !y 3ustoms to reduce the incidence o$ over6invoicing o$ imports and under6invoicing o$ e)ports.

v#4.

trengthen lo!!ying e$$orts, !ilaterally and through the T',under its pecial and +i$$erential Treatment L+T#

provisions, $or o!taining :uota6$ree, duty6$ree mar&et access todeveloped countries $or e)port products.

vi#5.

Ta&e steps to &eep the sea ports $ree $rom all trou!les. /lltypes o$ services provided !y the two seaports should !edeclared Iessential servicesJ.

vii#7.

rovide !onded warehouse $acilities to new non6traditionale)port items, including gems and >ewelry industries.

viii#-.

2nderta&e a comprehensive mar&et survey to identi$y at leastthree or $our new products, which have good e)port prospectsin the world mar&et.

i)#9.

ormulate an e6commerce policy to give appropriate $ocus andprominence to e6commerce strategy in the country.

)#9.

Ta&e initiative to $ully operationaliAe the /T/ agreement tohave mar&et access to //?3 countries.

)i#10.

trengthen the institutional capacity o$ trade6relatedinstitutions, such as Bangladesh Tari$$ 3ommission, E)portromotion Bureau, National Board o$ ?evenue, and the+E+', and set concrete targets $or these institutions.

)ii#11.

Ensure coordination among 8inistries and trade6relatedinstitutions.

0! nfrastructure Policy


21/31


The picture o$ the country;s in$rastructure is alarming and a signi$icantconstraint to a more rapid e)pansion o$ economic growth. There are seriousde$iciencies in the :uality and :uantity o$ in$rastructure services, whichincrease the cost o$ doing !usiness in the country. acing acute power crisis,Bangladesh is see&ing to attract += in power generation !ut the agenda $orthe re:uired sector re$orms are not very clear yet. 8uch o$ the in$rastructure

provision power, telecommunication, railways, ports, road networ and theirmaintenance are in the ine$$icient pu!lic sector. =ncentives $or attracting

private investment in the country;s in$rastructure are inade:uate and a properregulatory $ramewor& $or private provision o$ in$rastructure is sadly lac&ing.

The new %overnment will need to give high priority to addressing thesepro!lems.

A$ Power "ector

Electric power is a !asic in$rastructure o$ present day development !utBangladesh has !een su$$ering $rom an acute power crisis $or several years.The present production capacity o$ "70( 8 actual production (79 8# is$ar short o$ the country;s demand $or 4400 8. +i$$iculties in the powersector include

i# hortage o$ generating capacity that results in increasing level o$

load6shedding@ii#


22/31

(- 3hallenges $or the Bangladesh Economy ...............

captive power, consumption !y households, and production 3N% $or vehicles.

The planning o$ $uture power plants on gas alone will cause a gas shortage $or

these other sectors.

/s gas will !e short supply until new gas $ields are discovered, the use o$ coal,a relatively cheaper input, $or power generation o$$ers a possi!ility. Thecountry has now a possi!le coal reserve o$ 1"00 million metric tons, which ise:uivalent to 7 T3 o$ gas. The use o$ coal to generate power does not haveuniversal support, however. rotests have !een raised saying that mining coal

!y using the open pit method will cause damage to environment. Nevertheless,

the gravity o$ the country;s power crisis demands that the de!ate over how tomine coal !e :uic&ly resolved.

3oal, li&e gas, is a non6renewa!le resource, and hence alternative sources o$energy should also !e e)plored. The use o$ wind, tidal, and solar energy has

!een tal&ed a!out !ut these have very limited potential. These sources can at!est produce 16( 8 o$ electricity at present !ut the country needscommercial energy plants upwards o$ 1000 8.

Nuclear energy is e$$icient !ut at the same time relatively costly. There arealso ris&s involved in sa$ety procedures and disposal o$ waste materialsgenerated in nuclear power plants. There$ore, the use o$ nuclear energy can !e

thought o$ only in a very distant $uture when a completely new improvednuclear technology, research on which is underway in the western developedcountries, will !e availa!le.

/t the moment, there$ore, the new %overnment will need to solve the energycrisis !y optimising the use o$ availa!le gas and coal resources as well ase)ploring the opportunities o$ using wind, tidal, and solar energy $or powergeneration as $ar as possi!le.

8eanwhile, it will !e necessary to address the &ey pro!lem o$ system loss inthe power sector, which is pro!a!ly among the highest in the developingworld. Estimated system losses, a!out (( percent o$ output in (00760-, are in

large part a re$lection o$ power sector the$t and poor collection o$ !ills. The$inancial losses o$ the Bangladesh ower +evelopment Board B+B# wereestimated at Ta&a 1.5 !illion in (00760-. /s o$ +ecem!er (00-, power !illsworth T& 9 !illion remained unrealiAed. The present power sector pro!lems,thus, can !e signi$icantly overcome !y reducing the systems loss andcollecting the unrealiAed !ills. ?egretta!ly, however, instead o$ givingattention to improving the revenue situation through recovery o$ dues andreducing systems losses, the B+B has su!mitted a proposal !e$ore the


23/31


Bangladesh Energy ?egulatory 3ommission to increase the average electricitytari$$ !y "0C citing reasons o$ increased production cost. uch an increase intari$$ would cost the productive sectors heavily.

The new %overnment should seriously consider the $ollowing re$orms in thepower sector

i#a

2nderta&e an immediate review o$ the physical conditions o$e)isting plants and carry out maintenance to improve theiroperation.

ii#!

=nstead o$ raising the electricity tari$$ to reduce $inancial losseso$ the plants, attention should !e given to improvemanagement, raise !ill collections, and reduce systems losses.

iii#c

=n accordance with the policy o$ Iower $or /ll !y (0(0J,!uild a 8aster lan $or raising the production capacity to meetthe country;s present as well as potential demand in themedium and long term.

iv#d

eparate distri!ution $rom generation and transmission, andturn over the distri!ution system to local authorities. The local

distri!utors shall purchase power $rom the B+B and collect!ills $rom their clients, which will thus solve the collectionpro!lem.

v#e

elect $oreign investors in the power sector throughcompetitive !idding. 3ompetitive !idding is important to avoid

pro!lems that countries li&e a&istan $aced in the area o$private power generation.

B$ Ports

orts in !oth 3hittagong and 3halna are plagued with ine$$iciencies andla!our pro!lems, resulting in high shipping costs. or e)ample, the cost o$moving a container through 3hittagong ort comes to *500 compared to *140600 in neigh!ouring country ports. The high port charges reduce thecompetitiveness o$ the country;s e)ports and also raise the costs o$ imports toconsumers and domestic industries. The physical capacity o$ the ports andtheir e:uipments is insu$$icient to cope with the rapid growth o$ $oreign tradeand meet the growing demand $or services $rom the port users.


24/31


The ma>or pro!lems $aced !y the country;s largest sea6port, the 3hittagongort, are the $ollowing

i# =nade:uate in$rastructures 6 !erth $acility, storage $acility,including yards $or container storage, container handling$acilities, and >etties 6 are a ma>or constraint.

ii# ac& o$ a developed internal multi6modal transport systemma&es :uic& cargo removal $rom the port di$$icult, thuscreating cargo >ams.

iii# 3omple) and time6consuming rules o$ the 3ustoms/dministration and the ort /uthorities hinder :uic& clearanceo$ the cargo, impeding normal $unctioning o$ the ort.

iii# Needless control and intervention !y the hipping 8inistrycurtails the authority o$ the ort /dministration, which o$teno!structs the normal activities o$ the ort and createcongestions.

iv# Bureaucratic decision6ma&ing process, red tape and poormanagement result in poor delivery o$ service and rent6see&ing.

v# The in$luence o$ the doc& wor&ers is the most seriousconstraint. 8ultiplicity o$ wor&ers unions, which are lin&edwith one or the other political party and politiciAation o$ theunions are at the root o$ la!our militancy and turmoil at theort.

%overnment policy needs to !e directed to address these pro!lems. Theproposed setting up o$ a private sector container terminal may $orce the3hittagong ort to underta&e measures $or its improvement, !ut, to !e a!le tocompete with the private terminal, the moderniAation and development o$ itsin$rastructure will !e essential. rivatiAation o$ parts o$ the $unction o$ the ort

may also improve the e$$iciency o$ the ort.C$ /elecommunications

The country;s telecommunication networ& is inade:uate, ine$$icient ande)pensive. Top priority should !e given to the rapid development o$ thissector. To ma&e any real progress, the provision o$ the service needs to !ehanded over to the private sector. The %overnment will !e responsi!le to


25/31


regulate rather than operate the system. The $ollowing actions arerecommended $or the new %overnment

i# rivatiAe the newly corporatiAed BTTB.

ii# 3omplete the pro>ects, including the e)pansion o$ the cellularsystem, which have !een started to provide service through the

private sector.

iii# E)pand the use o$ the Bangladesh ?ailway;s $i!re optics networ&to provide improved inter6city service.

iv# E)pand telephone service to the rural areas.

v# Bring uni$ormity in telephone tari$$ o$ private cellular companies.

vi# The tari$$ $or telephone use should !e !ased on cost, and charges$or land phones should !e !ased on $airness and a$$orda!ility.

0! uman 'evelo(ment Policy

+espite past progress, human development indicators in Bangladesh still lagsu!stantially !ehind the levels achieved !y countries at similar level o$development. Bangladesh has the lowest li$e e)pectancy in the outh /sian

region, $alling even !ehind the average o$ the low6income countries. or concernsa!out the :uality o$ !asic services, including education.

u!lic sector is the dominant source o$ $inancing human development in thiscountry. Budgetary $unding has increased over the years !ut remains much

!elow the re:uired level due to severe pu!lic resource constraints. 3ostrecovery policies are inade:uate and there are serious concerns a!out thee$$iciency and e:uity o$ these services, particularly in the health sector.

u!lic spending on health services, at only 1 point o$ %+ is grossly

inade:uate. hile a larger allocation o$ pu!lic resources is needed $or thehealth services, pu!lic e)penditure needs to $ocus much more strongly on

!asic health care as opposed to tertiary care, which should mostly !e le$t to theprivate sector. / ma>or policy wea&ness is the lac& o$ an e$$ective regulatory$ramewor& $or private health care. /s a conse:uence, while a $lourishing

private health care service has emerged in response to demand, there areserious pro!lems o$ :uality control, accounta!ility and a$$orda!ility. /lso, the


26/31

( 3hallenges $or the Bangladesh Economy ...............

pricing policy $or pu!licly provided tertiary care is inappropriate, providinghuge su!sidies without regard to incomes.

The emerging health pro!lems $rom ur!an environmental degradation, waterpollution, solid waste management, along with the increasing ris&s o$ /=+and other contagious diseases li&e dengue $ever have !ecome a cause o$concern. The a!ility o$ ur!an municipalities to handle these pro!lems isconstrained !y poor governance o$ these institutions. =n rural areas, access tosa$e drin&ing water has increased !ut the pro!lem o$ arsenic poisoning hasemerged as a serious health haAard.

=n the education sector, the ma>or pro!lem areas are the poor :uality o$education at all levels, low secondary school enrolment the lowest in theouth /sian region#, low adult literacy rate, ine:uity o$ pu!lic educationspending, and inade:uate policy $ramewor& $or private provision. ow :ualityo$ education is re$lected in low education achievements, high dropouts, and

poor lin& o$ education with the >o! mar&et. The education system is moregeared towards general education than towards science and technology.Muality pro!lems in education relate to a host o$ $actors involving curriculum,teacher :uality, inade:uacy o$ teaching materials, and governance pro!lemrelating to a!sentee teachers and corruption related to e)amination and testing.

'verall, the most pressing pro!lem in human development is the low :ualityo$ pu!lic services, re$lected in poor health standards and low educationachievements. /ddressing this concern is a &ey development challenge $orBangladesh and thus it should !e given a high priority in the new%overnment;s agenda.

=n order to address the human development pro!lems, the $ollowing measuresare recommended

i# ?aise resources to allow e)pansion o$ pu!lic spending on humandevelopment to 465 percent o$ %+.

ii# /dopt steps to improve the e$$iciency and e:uity o$ pu!lic

spending in health, education, water supply, and environmentalprotection.

iii# u!lic health spending should $ocus mostly on preventive pu!lichealth services, primary health care, nutritional and populationservices to the poor. rivate health care within a proper regulatory$ramewor& shall ta&e care o$ all other services.


27/31

Thoughts on Economics

iv# The education management, including curriculum, testing ande)amination standards, needs to !e thoroughly re$ormed.

v# The technological content o$ the curricula needs to !e vastlyenhanced, and graduates or diploma holders should not only havethe theoretical &nowledge o$ the state6o$6the6art in each s&ill !utalso practical s&ill in respective industries and potentialvocations.

vi# The ongoing arsenic poison mitigation programme should !erapidly implemented to ensure sa$e water supply in rural areas.

vii# 8unicipal governance should !e su!stantially improved to ensurewater supply :uality and proper solid waste management.

viii# 'ptions $or private provision o$ water and water managementneed to !e seriously considered.

0! Governance ssues

%ood governance H which means that the civil administration is responsive tocitiAens; needs and that the institutions o$ the state are supportive o$ the poor His the &ey to long6term economic growth and sustained reduction in poverty.

Notwithstanding some positive achievements !y Bangladesh in the sphere o$governance such as in reducing the gender !ias, ensuring the li!erty o$ pressand media, restoration o$ democratic government, adoption o$ the ?T='rdinance, setting up an independent /33, and separation o$ >udiciary $romthe e)ecutive, instances o$ governance $ailure on economic, political andinstitutional $ronts are overwhelmingly large, which vitiate the overalleconomic and social environment and thwart the process o$ economic growth.

a)*n the economic front#governance di$$iculties are re$lected in high $iscalde$icit, low ta) compliance, ine$$icient pu!lic spending, high losses o$ Es,

power sector the$ts, and the de$ault culture in the !an&ing system. These

indicators show the su!stantial incidence o$ ine$$iciency and corruption inpu!lic administration.

ide6ranging re$orms will !e needed to address these pro!lems. =n the $iled o$pu!lic $inance, the ta) administration should !e improved. The option o$esta!lishing an autonomous ta) institution with incentive and accounta!ilitymay !e seriously considered. The %overnment will need to strictly $ollow therecommendations o$ the u!lic E)penditure ?eview 3ommission to improve$iscal transparency and e$$iciency o$ pu!lic resource use. / comprehensive


28/31

" 3hallenges $or the Bangladesh Economy ...............

solution o$ the corruption pro!lem in !an&ing, power, and Es will re:uireprivatiAation along with regulatory capacity in the pu!lic sector to sa$eguardpu!lic interest.

b)*n the political side#e)tremely con$rontational partisan politics and poorlaw and order situation had hitherto !een a strong indication o$ serious

political governance di$$iculties. uries to theeconomy. The !usiness community considers terrorism and e)tortion as ma>oro!stacles to e)pansion o$ !usiness, which damages the country;s image

a!road. To the average citiAen, the most pressing governance pro!lem is thewea& law and order situation, which threatens to erode peoples; con$idence inthe state institution /hmed, (001#. This matter re:uires attention on a war$ooting and on a strictly non6partisan !asis. aw should !e applied even6handedly to prevent crime and handle criminals. The country as a whole andthe civil society in particular must have the determination to raise their strongvoice against such sel$6in$licting in>uries to the economy.

The new %overnment will need to accord high priority to com!ating crime andterrorism. tronger and meaning$ul action will !e needed to put an end to thelaw and order crisis and esta!lish the rule o$ law, which is a pre6re:uisite $orthe $urther development o$ the country.

c) *n the institutional front# wea& governance encompasses the entirespectrum o$ the country;s civil administration, and also in local governmentsin rural and ur!an areas. Two recent orld Ban& reports reveal glaringinstitutional wea&nesses and corruption in civil service, pu!lic audit andaccounts, the law and order institutions, and the >udiciary orld Ban&, 1995@orld Ban&, (000#. The outgoing 3areta&er %overnment adopted signi$icantinstitutional re$orms in certain areas viA., in the >udiciary, u!lic ervice3ommission, Election 3ommission and the /nti63orruption 3ommission/33#. The new %overnment;s pledge to eradicate corruption !y $urtherstrengthening the /33 and ma&ing it independent has !een highly acclaimed

!y the people. ?e$orms will now !e needed in the civil service and also inlocal governments. trong local governments with $inancial authority andaccounta!ility $or per$ormance can contri!ute signi$icantly to rural wel$areand poverty alleviation. essons on international e)perience in institutionalre$orms in relevant areas should !e o$ great help to the new %overnment intheir tas&.


29/31


RE2ERENCE"

/hmed, adi: (000#. IThe olitical Economy o$ overty ?eduction in outh /sia?ole o$ %ood %overnance.J 8imeo, orld Ban&, ashington, +.3.

/hmed, adi: (001#. IBangladesh since =ndependence +evelopment er$ormance,3onstraints and 3hallenges.J Bangladesh 3ournal of Political Economy, Vol V,

No. 1.

Bangladesh Ban& (00-#. Annual Re(ort, 3uly 4556 7 3une 4558!

Bangladesh Bureau o$ tatistics BB# (004#. ousehold ncome*E-(enditure

"urvey 4559!Bangladesh =nstitute o$ +evelopment tudies B=+# (000#. Bangladesh uman

'evelo(ment Re(ort 4555.

%'B, lanning 3ommission (007#. %illennium 'evelo(ment Goals 7 %id*/ermBangladesh Progress Re(ort 4556, +ecem!er.

%'B, lanning 3ommission (00-#. %oving Ahead 7 National "trategy forAccelerated Poverty Reduction 455*11, 8ay.

%'B, 8inistry o$ inance, Economic /dviser;s ing 19-0#. Bangladesh Economic"urvey185.

%'B, 8inistry o$ inance, Economic /dviser;s ing 1990#. Bangladesh Economic

"urvey 15.%'B, 8inistry o$ inance, Economic /dviser;s ing (00-a#. BangladeshEconomic "urvey, 4558.

orld Ban& 1995#. Bangladesh: Government /hat ;or.s 7 Reforming thePublic "ector! ashington, +.3.

orld Ban& (000#. Corru(tion in Bangladesh: Costs and Cures! ashington,+.3., /pril 7.

/able 1: %a


30/31


=mport growth C# 67.59 11.40 6-.40 1(.(0 15."0 (4.5

?emittances million 2*# 75" 1--( (40 "-0( 4979 7914

?emittance growth 0."0 60.0 .00 (".79 (".41 (.9

=n$lation ?ate ."0 1.9" (.79 7.17 7.(( 10."-

oreign E)change ?eservesmillion 2 *# --0 107 14- "-" 4077 51"9

"ources:BB@ Bangladesh Ban&@ 8inistry o$ inance.

/able 4: Bangladesh>s Progress with uman 'evelo(ment 11*455=

tem 15*1 1*55 455=

/dult iteracy o$ 14O years old# C# 7.0 6 4".0

rimary chool Enrolment rate C# 50.0 6 -7.(

rimary chool 3ompletion rate C# ".0 6 4.0

i$e E)pectancy years at !irth# 45.0 5.5 54.1

=n$ant 8ortality rate per 1000 live !irths# 9" 5( "4

8aternal 8ortality rate per 1000 live !irths# 4.7" 6 (.90.

Total ertility rate C# 6 . (."

/ccess to sa$e drin&ing water $or ur!an opn C#/ccess to sa$e drin&ing water $or rural opn C#

9-.-9.1

66

99.979.0

opulation !elow the poverty line C# 3BN method 4-.-P "-.9PP "0.0Q

opulation growth rate C# (.17 1.-4 1.51O

Note:P ?elates to 1991D9( PP ?elates to (000 Q ?elates to (004 O?elates to (007"ources: B=+, Bangladesh uman 'evelo(ment Re(ort, 4555@ %'B, lanning 3ommission. %illennium

'evelo(ment Goals 7 %id*/erm Bangladesh Progress Re(ort 4556@ %'B, lanning 3ommission,%oving Ahead 7 National "trategy for Accelerated Poverty Reduction 455*11, 8ay (00-.

/able ?: /rends in ncome Poverty since 11@4

11@4 4555 Annual change $

11@4*4555

4559 Annual change $

4555*4559

ead Count Ratio

National 4-.- "-.9 61.- "0.0 6.9

2r!an "".9 4.( 6(.( (-." 6".(

?ural 51.( 4(. 61.5 ".- 6.4

Poverty Ga(

National 17.( 1(.- 6(.9 9.0 65.-0

2r!an 1(.0 9.1 6(.4 5.4 65.41

?ural 1-.1 1.7 6(.- 9.- 65."-

"uare of Poverty Ga(

National 5.- ".5 6.- (.9 6-.-12r!an "." . 6(.7 (.1 6-.5"

?ural 7.( ".9 6.- .1 6-.74

"ource:BB, ousehold ncome*E-(enditure "urvey 4559!

/able #: Poverty Estimate on the basis of ead Count Ratio under 'C %ethod

Dear Po(ulation below Poverty ine

National Rural Frban

%illion %illion %illion

Poverty ine 1: Absolute Poverty H 4144 calorie nta.e (er (erson (er day


31/31


199169( 41.5 "7.4 "".- "7.5 5.- "5.7

1994695 44. "7.4 "4.7 "7.1 9.5 "9.7

(000 44.- "". "(.5 "(. 1.( 4(.4

(004 45.0 "0." "1.( 9.4 1".- ".(

Poverty ine 4: ardcore Poverty H 1859 calorie nta.e (er (erson (er day

199169( 0." (-.0 (5.5 (-. .- (5.

1994695 (9.1 (4.1 (.9 (".5 4.( (7.

(000 (".9 (0.0 1-.- 1-.7 5.0 (4.0

(004 (7.0 19.4 1-.7 17.9 -. ("."

"ource: /s $or Ta!le .

Priority Economic Agenda Revised Paper-A. R. Bhuyan

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