Report No. 13875-BD Bangladesh Recent Economic Developments and PriorityReform Agenda for Rapid Growth March 16, 1995 Country Operations Division Country Department I SouthAsia Region Document of the WorldBank Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized
143
Embed
Public Disclosure Authorized Report No. 13875-BD ... · Report No. 13875-BD Bangladesh Recent Economic Developments and Priority Reform Agenda for Rapid Growth March 16, 1995 Country
This document is posted to help you gain knowledge. Please leave a comment to let me know what you think about it! Share it to your friends and learn new things together.
Country Operations DivisionCountry Department ISouth Asia Region
Document of the World Bank
Pub
lic D
iscl
osur
e A
utho
rized
Pub
lic D
iscl
osur
e A
utho
rized
Pub
lic D
iscl
osur
e A
utho
rized
Pub
lic D
iscl
osur
e A
utho
rized
Pub
lic D
iscl
osur
e A
utho
rized
Pub
lic D
iscl
osur
e A
utho
rized
Pub
lic D
iscl
osur
e A
utho
rized
Pub
lic D
iscl
osur
e A
utho
rized
CURRENCY EOUIVALENTS
The external value of the Bangladesh Taka (Tk) is fixed in relation to a basket of referencecurrencies, with the US Dollar serving as the intervention currency. The official exchange rate onFebruary 3, 1995, was Tk 40.25 per US Dollar.
US$1 = Tk4O.25Tk 1 = US$0.025
Following local convention, expenditures and revenues are sometimes denominated in units of crore(abbreviated Cr), which is equal to Tk 10 million. At the current official exchange rate,Tk 1.0 Cr = US$248,447.
In this report, US$ is sometimes abbreviated as
WEIGHTS AND MEASURES
kWh = kilo watt-hourMCF = million cubic feetMMCFD - million cubic feet per dayMT = metric tonMW = megawatts
FISCAL YEAR (FY)
July 1 - June 30
TITLE BANGLADESH: RECENT ECONOMIC DEVELOPMENTS ANDPRIORITY REFORM AGENDA FOR RAPID GROWTH
COUNTRY : BANGLADESH
REGION SOUTH ASIA
SECTOR COUNTRY ECONOMIC
REPORT TYPE CLASSIFICATION MM/YY LANGUAGE
13875-BD CEM Unrestricted 03/95 English
ABSTRACT : While favorable trends in Bangladesh's macroeconomic stability and ininternal/external resource positions continued in FY94, the implementation ofstructural reform program slowed down significantly. Bangladesh needs fastereconomic growth in order to alleviate its massive poverty. In the medium-term, itshould strive for a higher, sustainable economic growth rate approaching 7 percent.Apart from higher agricultural growth, this would require a sizeable increase inprivate investment, particularly in labor-intensive export activities, and furtherimprovements in the implementation and quality of public expenditure ininfrastructure and human resource development. To this end, seizing the opportunityprovided by the continuing strong macroeconomic stability, the Government shouldremove the element of uncertainty pertaining to the pace and timing of the awaitedreform actions by pushing forward the stalled reform program. And it should furtherstrengthen poverty oriented social sector programs to ensure that economic growthindeed brings visible benefits to the poor. First, to energize the private sector, theGovernment should establish a facilitating business environment and strongly resumeincomplete policy reforms. To remove bottlenecks and achieve the neededexpansion, private investment--and, thereby, also new technology and management--should be attracted to infrastructure/energy by introducing the needed regulatory andinstitutional framework for sectors such as power, telecommunications, and gas. Inthe financial sector, early actions are needed to restructure the banking subsector inorder to improve its financial health and efficiency. Measures are also needed toenhance the efficiency and flexibility of labor markets. In the trade policy area,efforts should continue to lower the dispersion of import tariffs by lowering the highrates, which would also lower the average tariff rate. In industry, the focus shouldbe on speeding up the process of privatization. Second, with respect to the publicsector management, the Government should maintain economic stability throughcontinued sound macroeconomic management, and further strengthen efforts aimedat improving the quality and implementation of public expenditures. Continuingeffort is also needed to further improve the operational efficiency of the power andtelecommunication SOEs, which may remain in the public domain for some time.GOB should also intensify efforts aimed at reforming the public sector agencies thatare responsible for policy implementation, regulatory oversight and promotion ofprivate sector, with view to turning them into pro-active, facilitating entities. Third,in the human resource development area, sustained efforts are needed to furtherimprove the quality and coverage of education, family planning and primary healthcare services.
ABBREVIATIONS AND ACRONYMS
ADB - Asian Development BankADP - Annual Development ProgrammeBB - Bangladesh BankBBS - Bangladesh Bureau of StatisticsBGMEA - Bangladesh Garments Manufacturers & Exporters AssociationBIDS - Bangladesh Institute of Development StudiesBINP - Bangladesh Integrated Nutrition ProjectBOI - Board of InvestmentBPC - Bangladesh Petroleum CorporationBPDB - Bangladesh Power Development BoardBSB - Bangladesh Sericulture BoardBSRS - Bangladesh Shilpa Rin SangsthaBTC - Bangladesh Tariff CommissionCIB - Credit Information BureauCEM - Country Economic MemorandumCP - Contraceptive prevalenceDCCI - Dhaka Chamber of Commerce and IndustryDDS - Duty Drawback SchemeDEDO - Duty Exemption and Drawback OfficeDESA - Dhaka Electricity Supply AuthorityDFI - Development finance institutionDHS - Demographic and Health SurveyEPB - Export Promotion BureauEPI - Expanded Program of ImmunizationEPR - Effective Protection RatesEPZ - Export Processing ZoneESAF - Enhanced Structural Adjustment FacilityFDI - Foreign Direct InvestmentFFE - Food-for-educationFFW - Food for Work SchemeFP - Family PlanningFY - Fiscal yearGDI - Gross fixed investmentGDP - Gross domestic productGOB - Government of BangladeshHEP - Health economics projectICB - Investment Corporation of BangladeshIDA - International Development AssociationIEC - Information, education and communicationIMR/U5MR - Infant and under-5 mortality ratesICOR - Incremental capital-output ratioJSAC - Jute Sector Adjustment CreditMOHFW - Ministry of Health and Family WelfareNBR - National Board of RevenueNCB - Nationalized commercial bankNGO - Non-governmental organizationNIP - New Industrial Policy
NMWB - National Minimum Wages BoardPB - Privatization BoardPE - Public EnterprisePEM - Protein energy malnutritionPRMAC - Public Resource Management Adjustment CreditPSD - Private Sector DevelopmentPSI - Preshipment inspectionQR - Quantitative restrictionsRIP - Revised Industrial PolicyRMG - Readymade garments industrySBW - Special bonded warehouseSCI - Small Cottage IndustrySD - Supplementary dutySOE - State-owned enterpriseTFR - Total fertility rateTYRIP - Three-Year Rolling Investment ProgrammeUNICEF - United Nations Children's FundVAT - Valued added taxVGD - Vulnerable Group Development Scheme
BANGLADESH
RECENT ECONOMIC DEVELOPMENTS ANDPRIORITY REFORM AGENDA FOR RAPID GROWTH
Table of Contents
Page No.EXECUTIVE SUMMARY ............................ i
A. Introduction .1
B. Background: An Overview of the Recent MacroeconomicStabilization and Structural Reform Efforts .............................. 1
C. Impact of Reforms and Economic Performancein FY94 and Early FY95 ................................. ......... 8
Economic Growth in FY94 .......................................... 9Economic Growth Prospects in FY95 ........ ........................... 9Trends in Investment and Savings ......... ............................ 10Fiscal Developments and Issues ........ .............................. 11Balance of Payments Developments in FY94 and FY95 .14Money, Credit and Prices . 16
D. Poverty Trends and Actions to Alleviate Poverty .17
E. Near and Medium-Term Priority Reform Agenda ForFaster Growth and Poverty Alleviation .21
Establishing a Facilitating Business Environmentand Resuming Policy Reforms: Energizing the Private Sector .21Improving Public Resource Management and Administration .................... 26Attacking Poverty ............................................... 29
F. Medium-Term Prospects and External Aid Disbursements .30
External Financing in FY96 .33
ANNEX: ASSESSMENT OF PROGRESS IN THE IMPLEMENTATION OF REFORMSUNDER THE PARIS UNDERSTANDING FOR FY95 .35
Page No.Table 1: Macroeconomic Indicators, FY80-FY94 .............................. 2Table 2: Sectoral Composition and Growth in Key Sectors
under the Annual Development Program ............................. 11Table 3: The Central Government Budget: Financing of the
Deficit and Tax Revenue Sources ................................. 13Table 4: Social Sector and Targeted Spending in the Current Budget .................. 14Table 5: Balance of Payments (FY90-94) ................................... 15Table 6: Aid Disbursements . ........................................... 17Table 7: Medium Term Growth Scenario: Key Macro Indicators ................... 32
This Country Economic Memorandum was prepared by a team led by Tercan Baysan.The other member of the core team was Syed Nizamuddin. The study was prepared under thegeneral supervision of John Wall. Valuable contributions were received from John Wall,Shamsuddin Ahmad, Arun Banerjee, Charles Draper, Hafez Ghanem, Philip Gowers, ZamirHasan, Jagmohan Kang, Owaise Saadat, Shekhar Shah, Vidya Shetty, Sona Varma, Kamil Yilmaz,and the Agriculture Unit of the Bangladesh Resident Mission (RMB). The Memorandum wasprocessed by Mehar Akhter (RMB) and Jennifer C. Feliciano. The excellent cooperation of manyofficials of the Government of Bangladesh in preparing this report is gratefully acknowledged.
Page 1 of 2COUNTRY DATA - BANGLADESH
AREA POPULATION (1991) DENSITY148,393 km2 111.455 million 751 per km2 (1991)
Rate of Growth: 2.17% 959 per km2 of cultivabl land (1991)
POPULATION CHARACTERISTICS (1991) HEALTH (1992)Crude Birth Rate (per '000) 31.6 Population per physician 5,304Crude Death Rate (per '000) 11.2 Population per hospital bed 3,243Infant Mortality (per '000 live births) 90.6
INCOME DISTRIBUTION (1988/89) DISTRIBUTION OF LAND OWNERSHIP (1978)% of national income, highest quintile 46.2 % owned by top 10% of owners 49% of national income, lowest quintile 6.6 % owned by smallest 10% of owners 2
ACCESS TO DRINKING WATER (1992) ACCESS TO ELECTRICITY (1991/92)% of population - urban (piped water) 42 % of population - urban 56.7% of population - rural (tubewell) a/ 80 % of population - rural 4.7
NUTRITION EDUCATION (1991)Calorie intake as % of requirements (1988) 88 Adult literacy rate (%) 35Per capita protein intake (grams/day, 88/89) 64 Literacy rate for all ages (%) 24.9
a/ Based on 150 meter distance to tubewell.b/ World Bank Atlas methodology; base 91-93.c/ At market prices.d/ Data is for 1989/90 civilian labor force.e/ Disbursement
= not available.= not applicable.
Page 2 of 2
COUNTRY DATA - BANGLADESH
MONEY, CREDIT AND PRICES June 87 June 88 June 89 June 90 June 91 June 92 June 93 June 94(Billion Taka outstanding, end of period)
Money and Quasi-money 138.6 164.1 190.8 223.0 250.0 285.2 315.3 364.0Bank Credit to Public Sector 60.5 60.8 59.0 70.3 75.5 92.7 99.5 94.3Bank Credit to Private Sector 89.6 109.0 133.6 160.0 178.2 179.4 193.2 209.7
(Percentages or Index Numbers)
Money and Quasi-moneyas % of GDP 25.7 27.5 28.9 30.2 30.0 31.5 33.3 35.2
_/ Including IMF.b/ Excluding knitwear exports.. = not available.
EXECUTIVE SUMMARY
Introduction
1. This Country Economic Memorandum (CEM) is an "economic update" for Bangladesh. Itpresents a brief assessment of recent progress in the implementation of structural economic reforms inBangladesh and of the economy's performance in FY94 and early FY95. The CEM focusses on theremaining priority near- and medium-term structural reform agenda to achieve sustained increases ininvestment and economic growth, with a view to accelerating poverty reduction. It also looks at additionalactions needed to strengthen the ongoing poverty reduction programs.
Maintained Macroeconomic Stability Continues to Provide Opportunity for Accelerated Reforms
2. Economic performance during FY94 was in many respects a continuation of the trends of thepast several years. The achievement of macroeconomic balance was even further strengthened during theyear; but the opportunity this stronger macroeconomic performance presented for wider structural reformsto accelerate growth and reduce poverty was only weakly pursued.
3. GDP grew at 4.6 percent; investment reached 14.2 percent of GDP; the budget deficit remainedunder 6 percent of GDP with much of this deficit financed through concessional external resources; the rateof inflation was less than 2 percent for the second consecutive year; the external current account deficit fellto 1.6 percent of GDP; the overall balance of payments was positive; and the foreign exchange reservesgrew to eight months of imports. This is an impressive stabilization performance and a tribute to the soundmacroeconomic management of the Government. Other important developments that have contributed tothis performance include the progress toward foodgrain self-sufficiency; the continued growth of non-traditional manufactured exports; the increase of manpower exports and remittances; and continued inflowsof foreign aid.
4. This performance is a continuation of fundamentally favorable trends observed in recent years.Over the past five years exports have been rising faster than imports; government current revenues havebeen rising faster than current expenditures; national saving has doubled as a percent of GDP; inflation hasremained very moderate; and expenditures on development have risen as a percent of GDP and relative tocurrent expenditures. Sustaining the macroeconomic stability is important, however, especially in view ofthe more recent upward pressures on the general price level caused by the rising domestic rice prices andpotential demand-side pressures associated with the growing remittance inflows and increases in thecompensation of Government employees. Moreover, careful public expenditure management will continueto be essential in this election year.
5. This remarkable macroeconomic stability stands in stark contrast to the harsh realities of life inBangladesh. It has a population of about 120 million, with over 800 persons per sq. km., making it themost densely populated non-city state in the world. Population has doubled since the mid-1960s, and willdouble again in 35 years at the present growth rate of about 2 percent. At only US$224, per capita incomeremains very low. An estimated half of the population still live in absolute poverty, and only 35 percentof the adult population is literate. It has limited natural resources and is subject to severe floods andcyclones.
6. Given the low level of income and the tremendous poverty reduction challenge, Bangladesh hasto strive for much higher economic growth. While the 2.5 percent average per capita GDP growth achievedin the last five years compares favorably with many developing countries, it is significantly below thegrowth rate--above 4 percent--that is needed to tackle Bangladesh's extreme poverty problem.
- ii -
7. Achieving this higher pace of growth would mean Bangladesh's very low investment rate (12-14percent of GDP) must increase to a level in the 20 percent of GDP range, as observed in other low incomecountries. Most of this increase needs to come from the private sector, domestic as well as foreign. Publicsector investment should focus on human resources and infrastructure, thus complementing privateinvestment and ensuring that economic growth indeed brings visible benefits to the poor.
8. It is also important that investment takes place in activities with the greatest potential for creatinga dynamic and efficient economy in line with the country's comparative advantage and poverty alleviationneeds. In this respect, export-based and labor-intensive growth is crucial to achieve sustained increases ingrowth and employment opportunities, given Bangladesh's limited domestic market and a large and fastgrowing (3 percent) labor supply, which is its principal source of comparative advantage. The dynamismshown by the garments subsector is a testimony to this. This will also help to further diversify theeconomy's export base.
9. In principle, the Government of Bangladesh (GOB) has adopted such a strategy of rapid economicgrowth as an effective way of achieving poverty reduction. Building on the structural reform initiatives thatwere started in the 1980s, the GOB has launched a fairly comprehensive structural reform program in theearly 1990s to open up and establish a liberalized, market- and private sector-driven economy, operatingwithin a stable macroeconomic environment. With the financial support of multilateral and bilateral donorsand a social safety net program to protect the poorest segments of the population, the Government hasintroduced policy and institutional reforms in the fiscal, financial, exchange rate, trade and industrialpolicies, and in the area of public resource management and public enterprise sector.
10. However, in most areas, the reformn program is either incomplete or important actions are yetto take place. Indeed the recent slowdown appears to have created a perception of uncertainty regardingthe pace, timing and magnitude of the awaited reform actions in the areas of trade, fiscal policy, financialsector, and privatization. This uncertainty and the slowness of progress in creating a conducive businessenvironment might at least partly explain why private investment response has not been stronger. Thelatter, while has shown an increasing trend in the early 1990s, has remained below 8 percent of GDPobserved in the early 1980s and remains significantly lower than what is needed for a stronger, privatesector-led economic growth performance.
11. Good progress has been made in the trade policy area, but the continuing high dispersion aroundthe statutory (unweighted) tariff average of 30 percent (inclusive of the license fee) remains a shortcomingof the whole tariff rationalization effort so far. Similarly, significant efforts have been made toward theremoval of most policy distortions and promotion of private investment in agriculture. However, continuedefforts are needed in this sector to enhance factor productivity and diversification in farm and off-farmactivities. This is necessary for bolstering agriculture's contribution to economic growth, employment andpoverty alleviation, especially given that well over 80 percent of the civilian labor force lives in the ruralareas.
12. Bangladesh's financial sector, notwithstanding the recent reform measures, is weak and not yetable to provide efficient financial intermediation for an economy that needs to grow faster. Under theburden of sizeable non-perforning loans and inadequate capitalization, the four Nationalized CommercialBanks (NCBs) and most private banks remain financially weak, and the recapitalization of the NCBs iscreating a significant burden on the budget. In the public sector, over 200 non-financial state-ownedenterprises (SOEs), with assets of over $13 billion and close to 300,000 workers, account for only about6 percent of GDP. Their losses averaged over 1 percent of GDP in FY92-93. Their inefficiency is a majorburden on the economy and budget. GOB's current privatization program, which started with theannouncement of 46 SOEs in late 1991 and expanded in 1994 with the jute sector's privatization program,
- jjj -
is very modest, covering only about 6 percent of the total SOE assets (excluding petroleum). And despiteits modest coverage, the implementation of the privatization program has been slow, with only 18 SOEprivatizations-of which 11 have so far been handed over to their new owners-since FY93.
13. Strengthened efforts are needed in the public resource management area to reinforce taxrevenue performance, and further improve the quality and effectiveness of public expenditures, includingthat of social sector programs. More effective governance is needed in public sector management toimprove the quality and efficiency of public sector entities in the provision of services, in resourcemobilization, in the implementation of new policies and regulatory oversight, and in facilitating a well-functioning business environment. Significant gains in budgetary performance and resource allocation couldbe achieved by addressing some of the continuing public sector inefficiency problems. For example, in thepower sector-notwithstanding the recent improvements--system losses are still high (35 percent) andcollections low (85 percent of billings).
14. Given the magnitude of poverty, there is no room for complacency. The economy has the benefitof fairly comfortable budgetary and balance of payments situation. The macroeconomic stability and thecomfortableforeign reserves cushion provide yet another opportunity to resume the stalled structural reformprocess and attack poverty. GOB's stronger commitment to the unfinished policy and institutional reformprogram is essential to remove the perception of uncertainty in the business environment and create theconditions which will attract both domestic and foreign private investment to levels that would support asustained increase in economic growth. A continuing effort is also needed to improve public administrationand further strengthen poverty oriented social sector programs to ensure needed improvements in the qualityof social sector services.
15. The main reforms needed were summarized in the Paris Understanding for FY95: (i) attackingpoverty; (ii) improving public administration; and (iii) energizing the private sector. Since the Aid GroupMeeting (AGM) of April 1994, the GOB's reform efforts have varied in intensity and coverage, with mixedresults toward achieving the reform goals in each of these three areas. Taking these developments intoaccount, a near- and medium-term priority reform agenda for faster growth and poverty alleviation ispresented below.
A. Establishing a Facilitating Business Environment and Resuming Policy Reforms: Energizingthe Private Sector
16. Need for political stability. Since early 1994, increasing political uncertainty has createdeconomic uncertainty regarding the pace and timing of further policy reform actions and is adverselyaffecting Bangladesh's image as a potential host country for foreign direct investment. It is widely believedthat whatever the outcome of present political difficulties, the move towards markets and the private sectorwill not be abandoned. However, the current political environment is preventing Bangladesh from reapingthe full benefits of the important reforms achieved so far. The country urgently needs to re-establish aconsensus on national political processes to avoid costly disruptions in economic activity and push forwardwith the unfinished reform agenda.
17. Establishing a facilitating business environment. To realize the efficiency gains expected fromderegulation of markets and opening up of the economy, and exploit export opportunities in areas whereBangladesh has a comparative advantage, firms must be able to adjust their output and employment levels,and move their resources into relatively more profitable areas or exit from activities that appear no longerprofitable. To facilitate such adjustments and reduce the cost of doing business, the Government must domore to remove infrastructure bottlenecks, improve efficiency and flexibility of labor and financial markets,establish an effective commercial legal and judicial system to facilitate easy entry/exit, enforce contracts and
- iv -
protect property rights.
18. In infrastructure, efficient and expanding power, telecommunications, and transportation servicesare important in creating cost competitive and growing industries. To achieve rapid economic growth,Bangladesh's existing infrastructure capacity must not only be used more efficiently--through improvementsin operational efficiency and timely maintenance/rehabilitation--but also expanded. In this regard, attractingprivate investment--and management--into infrastructure will be particularly critical. Therefore, thelegal/regulatory and institutional framework should be developed and put into effect in order to pave theway for private investment, which is now anticipated in power, telecommunications, and gas sectors. Also,accelerating improvements in rural infrastructure is especially important for facilitating furtherdiversification and intensification in farm production and for the expansion of off-farm activities.
19. The legal framework governing labor markets must be reformed to institute a market-basedbargaining process that is free from government interference, and a system of severance liabilities that arein line with the market conditions and developing country norms. De-politicization of industrial relationswill benefit both the workers, businesses, and the economy directly by shifting the collective bargainingprocess to the negotiation table and eliminating the very costly economy-wide agitations, with also positiveimpact on Bangladesh's investment climate and external image. The Government should also review itsseverance payment system, with a view to bringing them in line with levels mandated by the labor law.
20. In the financial sector, the Government must undertake further actions to establish a financiallysound, efficient and competitive sector. As a priority measure, the Bangladesh Bank must embark on aprogram of bank restructuring to improve the financial health of the banking sector. More emphasis shouldalso be placed on institutional reforms and strengthening as these have lagged behind policy reforms. Theimproving supervision function of Bangladesh Bank itself needs to be strengthened further with particularemphasis on enforcement. In addition, the central bank also needs to continue improving the conduct ofmonetary policy, with an increasing shift towards indirect monetary policy instruments. Making theBangladesh Bank (BB) more autonomous would be an important step in strengthening monetary andfinancial management. In the area of loan recovery, pending actions should be taken to remove legalobstacles to debt recovery by amending the Financial Loan Courts Act (1990), to empower the courts toexecute their judgements, and strengthen these courts with additional judges, magistrates and police officersto enforce decrees for faster collection of defaulting loans. The banking sector also needs to have moreeffective competition. To this end, the Government should pursue more vigorously its two-prongedapproach--i.e., the privatization of nationalized commercial banks and the licensing of new private banks.
21. The Government has initiated some steps to reform the legal framework for markets and theiudicial system, but the process is incomplete in many instances and progress has been very slow in othercases. In addition to amendments to Financial Courts Act mentioned above, the already prepared drafts ofthe Bankruptcy Bill and the Foreign Investment Protection and Promotion Act should proceed through theneeded reviews without unnecessary delays and be submitted for Parliament's approval. The recent passingby Parliament of the Companies Bill (1994) and the amendment to the Negotiable Instruments Act of 1881should be followed by the modernization of other commercial legislation. Firm actions are also needed toimprove the efficiency of judicial administration and legal procedures.
22. Trade policy reforns. In the trade policy area, the Government should continue with its ongoingreforms towards achieving the already announced medium-term goal, within two years, of lowering theaverage level and dispersion of import tariffs, such that effective protection rates are comparable with thoseprevailing in internationally competitive developing countries. To remove policy uncertainty, theGovernment should also announce in advance the planned tariff changes for FY96 and FY97.
- v -
23. With respect to the import regime, the ultimate objective of future tariff rationalization shouldbe to move toward a lower, uniform tariff regime. Specifically, near-term steps should include: (i)lowering of higher tariffs further, accompanied by the removal of the import license fee, as well of the userand commodity specific tariff exemptions; as a result, over the next two years, a substantial reduction inthe dispersion of tariffs could be achieved, with a consequent fall in the (unweighted) average tariff ratebelow the current 30 percent; (ii) all the remaining trade-related quantitative restrictions (QRs) should beeliminated; and (iii) customs clearances should be speeded up through the implementation of off-shore pre-shipment inspection (PSI) and phasing out of the tariff values for the assessment of import-duty liabilities.VAT should be extended to textiles, although the Government finds this difficult in present circumstances.As regards the export regime: (i) few remaining export taxes and bans/restrictions on exports of someagricultural and manufactured goods should be phased out without much delay, since these are discouragingthe development of the corresponding activities--the objective of "protecting" consumers through importbans can be achieved more efficiently through competition; (ii) the efficiency of the duty drawback systemshould be enhanced through increased application of "flat" drawback rates. And in the area of exchangeregime, the limits placed on exporters in retaining their export proceeds--which are inconsistent with theadopted current account convertibility--should also be phased out.
24. Industrial Dolicy: privatization of state-owned enterpnses (SOEs). Reducing the size of theSOE sector through privatization is one of the key elements of the Government's structural reform programtowards greater reliance on markets and the private sector. In FY94, two enterprises were privatized. Andin FY95, the Privatization Board (PB) has handed over 7 enterprises to their new owners, and 7 more unitsare expected to be handed over. An additional 19 SOEs are in various stages of tendering. While asignificant share of excess manpower was reduced through voluntary separation schemes (VSS) and lay-offsup to end-FY94, the process has slowed down in FY95 and prospects for the remainder of FY95 appearunfavorable, particularly in the current uncertain political situation.
25. A more aggressive implementation of the privatization program is important not only to achievethe immediate intended objectives of eliminating the burden of inefficient SOEs on the economy andenhancing efficiency, but also to maintain the credibility of the Government's commitment to market-basedreforms and private sector development. Accordingly: (i) the Government should make a firn andunequivocal commitment to privatization process and take steps to speed up the implementation, includingthe allocation of adequate funds for meeting separation benefits; (ii) the PB's institutional capacity must bestrengthened quickly, using international and local expertise in technical, financial, and legal areas to carryout proper valuation of assets and market responsiveness, and prepare sales prospectuses and tenderdocuments; on this basis, the PB should expedite the privatization of enterprises identified for its FY95 andFY96 program; and (iii) the privatization program should be expanded beyond its current limited coverageand include other SOEs.
26. Successful progress in the implementation of privatization could also elevate support forexpanding the program not only to all of the manufacturing SOEs, but also utilities, now open to the privatesector. International experience has indicated that it is much easier to mobilize popular support forprivatization of SOEs (and/or other forms of major private sector presence) in, for example,telecommunications and power sectors, due to dissatisfaction with the performance of SOEs in these sectors.
27. Enhancing agricultural productivity. In addition to fostering significant growth in potentiallyvery dynamic manufacturing industries, enhancing the contribution of agriculture to economic growth willalso be important for raising the GDP growth rate. Despite the extreme scarcity of crop land, achievingan agricultural growth rate of close to 3 percent (the average realized in FY81-90) should be possiblethrough additional measures, including: (i) further improvements in research and extension services tofoster factor productivity growth and production of higher value products, including vegetables and
- vi -
horticulture crops, fish and shrimp, and silk; (ii) removal of any remaining policy distortion, including themaximum retail price for fertilizer and other emerging problems in the fertilizer market; (iii) the promotionof private sector initiatives in off-farm activities; and (iv) further improvements in the efficiency andproductivity of public expenditures in agriculture and natural resources. Policy reforms in other areas,together with accelerating improvements in rural infrastructure, should complement the broadly appropriateagricultural policies and the above listed actions in enhancing agricultural growth.
B. Improving Public Sector Management
28. Better uublic resource management. In the fiscal policy area, the Government's overridingconcern should be to maintain macroeconomic stability by remaining fiscally prudent, and continueimproving the quality and efficiency of public expenditures. This is important to accelerate the reformprocess and improve the business climate for domestic and foreign private investment.
29. The Government has achieved considerable improvements in the revenue as well as theexpenditure side of its budget. On the revenue side, the process of broadening the coverage of the VATand direct taxes must continue through the elimination of most exemptions. Stronger commitment is alsoneeded for strengthening the tax administration in order to improve tax compliance and enforcement.
30. With respect to the Annual Development Program (ADP), the Government has achieved asignificant increase in the implementation of ADP in FY94, while also effecting a satisfactory shift in theADP's composition toward social sectors. However, there is still heavy bunching of spending towards theend of the fiscal year. Moreover, while the implementation of taka-financed projects has been accelerated,a matching improvement in the implementation of donor-aided projects has not happened. Some of thereported FY94 ADP spending was in the form of reallocations within the budget and of advance paymentsthat are expected to be realized in actual investment in FY95. While the improving performance of ADPin the early part of FY95 also reflects a more determined government resolve in this area, for sustainedimprovements in the implementation and efficiency of the ADP as well as in related aid utilization, measuresinitiated in a number of areas need to be followed up: (i) procurement of goods/works/services will continueto be a critical area, where an action plan should be implemented to ensure effective application of GOB'srevised guidelines, including compliance with stipulated time limits; (ii) monitoring/enforcement and follow-up mechanisms will need to be strengthened and reinforced by institutionalizing accountability for projectimplementation performance; and (iii) greater financial delegation is needed for the implementation agencies.
31. Accelerating public sector management reforms. To support its efforts in resource mobilizationand policy reforms, the Government should also focus more intensely on the governance issues andaccelerate efforts aimed at improving the efficiency of the public sector entities in the provision of services,cost recovery, regulatory oversight, implementation of new policies, and in the establishment of afacilitating business environment. It should also move forward with the local government reform to promoteefficient decentralization and implementation of infrastructure and social sector programs more effectively.
32. In the power sector, while there has been some improvements recently, system losses (35percent) and low collections (85 percent of billings) continue to be the major problem for the BangladeshPower Development Board (BPDB) and Dhaka Electricity Supply Authority (DESA). Stronger commitmentwill be required to address the institutional and management issues for reducing system loss to an acceptablelevel. Meanwhile, in the transportation sector, reform progress has been satisfactory in BangladeshRailways (BR) in the reduction of excess manpower, in formulating an institutional reform and incontracting out ticketing operations to the private sector. However, the implementation of the BRinstitutional reforms still remains to be carried out. As regards the Bangladesh Inland Water TransportationAuthority (BIWTA) and Bangladesh Inland Water Transportation Corporation (BIWTC), there has been
- vii -
some progress in improving their operational efficiency since January 1994, but the implementation ofvarious reform action plans must be speeded up. There has been good progress in improving the planningand implementation of road projects.
33. Efforts aimed at making the key government agencies--such as the Customs Department, NationalBoard of Revenue (NBR), Board of Investment (BOI), Export Promotion Bureau (EPB), Duty Exemptionand Drawback Office (DEDO)--more efficient and responsive need to be strengthened and speeded up.There is a need for a more serious and concerted effort to turn these entities into pro-active agencies topromote private sector development.
34. In some public sector agencies, such as Bangladesh Agricultural Development Corporation(BADC), Food Directorate, and Bangladesh Water Development Board (BWDB), staff rationalization isfacing funding constraints, requiring the support of the Government. Reform progress in the BWDBappears on schedule, though considerable time will be required to bring about qualitative changes in theoverall work environment.
35. In the civil service area, overall progress of the ongoing efforts aimed at the elimination ofredundant functions and restructuring/downsizing of government departments has been slow. Some difficultbut important medium- and long-term issues, such as the inter-cadre issues, have not been addressed yet,and not much progress is expected in improving personnel management and training in FY95. There is aneed for renewed commitment to these administrative reforms.
C. Attackdng Poverty
36. Strengthening of the social sector programs, rural development programs--including market-basedmicro credit--expansion of water supply and sanitation and safety nets are key elements of the Government'spoverty alleviation objective. The Government has continued its efforts to improve conditions in these areasby shifting more budgetary resources (both from the revenue budget and the ADP). This trend is continuingin the FY95 Budget. There is, however, need for continued effort to improve the quality of services in thesocial sectors.
37. In education, progress has continued in school enrollments, especially female enrollment at bothprimary and secondary levels. An increasing proportion of enrollments is in non-government schools andNGOs are providing non-formal primary education programs aimed at literacy and re-entry into formalprimary schools. Free textbooks for primary school students and stipends for female secondary schoolstudents assist the poor and females to enroll and complete schooling. The quality of primary schools isimproving through curriculum reform, free textbook distribution and increased teacher training and schoolsupervision. However, further quality improvement is necessary for improving the current unsatisfactorystudent completion and achievement rates and reducing the inefficiencies and wastage in the system.
38. There has been progress in most areas of family planning and primarv health care services.Given the long-term nature of processes, the actions need to be pursued with sustained resolve in orderachieve continued improvement in results. There is a need for reaching women and children with a widerange of family planning and maternal and child care services. The plan for targeting of younger couplesin family planning, for instance, and monitoring their contraceptive prevalence rate (CPR) needs to beimplemented effectively. And the promotion of clinical methods of contraception will improve costeffectiveness. Private sector participation, which has started in the transport of contraceptives (in about asixth of the country) and information campaigns, should be promoted and expanded further.
- viii -
39. The FY95 government program for water supply and sanitation expansion is very appropriate,though the GOB's FY95 plan for the construction of more than 2 million rural latrines appears ambitious.Little progress has been made in articulating policies aimed at addressing urban poverty. GOB should playa more active role in coordinating the donors' efforts in this area to ensure that these complement andreinforce each other. It should also come up with an overall policy framework to deal with urbandevelopment and urban poverty issues. Given the complexity of the task involved, the GOB will needexternal support to deal with the situation. In this respect, the GOB has recently initiated a study on urbanpoverty with donor assistance.
40. The initiatives of BB, commercial banks and Grameen Bank to promote the expansion of soundmarket-oriented credit provision and savings mobilization in rural areas and urban slums are well placed.However, to ensure sustainable success in these efforts, the continuing pressure to lower interest rates forrural lending should be resisted. Also, efforts aimed at closing down unprofitable state-owned rural bankbranches should continue.
41. With respect to the targeted safety net programs, the GOB recently introduced food-for-education(FFE) program, which is aimed at encouraging primary education of children in poor families. GOB shouldmonitor cost effectiveness of this program vis-a-vis that of the other experimental programs in the primaryeducation subsector, as well of other targeted programms. The progress toward raising the food distributionunder the "vulnerable group development" (VGD) and the "food for work" (FFW) programs has beenmixed. While the distribution under FFW is expected to exceed the target of 500,000 MT in FY95, thatunder the VGD program is likely to fall short of 350,000 MT target. GOB and the donors need to considerways of supporting an expansion in this vital social safety net. This outcome also underscores the need forstrengthening of institutions for food assisted development programs, such that they can be integrated intothe overall development program.
42. The Government, taking into account the important linkage between poverty alleviation andenvironment, has also carried out a commendable process of consultation with cross-sectional groups of thesociety to develop a broad framework for addressing environmental issues and for completing an importantphase in the preparation of a "National Environmental Management Action Plan" (NEMAP). There is aconsiderable amount of additional work to be done in order to determine realistic environmental objectivesand priorities, based on economic analysis of costs and benefits involved, select a set of priority actions andthe agencies to implement them, and establish the needed institutional mechanism to implementenvironmental policies. The latter should rely heavily on appropriate pricing/taxation of resources/servicesand products, and be complemented by necessary monitoring mechanisms.
43. Accelerating reforms for faster growth. To achieve faster economic growth and povertyreduction, the Government needs to accelerate the slow moving reform program in all the key frontsdiscussed above. Incomplete reform effort would limit the success toward a sustained increase in growth,while a failure to move the reform program forward would most likely leave the current trends in growthand poverty reduction unchanged.
External Financing in FY96
44. Strong commitment to the acceleration of unfinished reforms and sustaining efforts to improvethe quality of public expenditure in general and public investment in particular would be important forBangladesh to continue receiving donor assistance in meeting its external financing needs. Recentimprovements in the ADP implementation and continuing efforts aimed at better prioritization ofdevelopment expenditures with emphasis toward social sectors and infrastructure are good signs. But theseefforts should be intensified and sustained. Assuming that such efforts continue and the GOB accelerates
- ix -
reforms, moderately rising external aid is needed in the medium-term to finance increasing imports, startingwith a project aid disbursement of about $1.3 billion for FY96. Commodity aid disbursements, projectedat $0.4 billion, would continue at roughly their expected FY95 level as result of continuing adjustmentoperations. And food aid disbursements are projected at $0.15 billion, consistent with the levels of foodaid in recent years. The pace and composition of FY96 aid disbursements will ultimately depend, however,on the speed at which the Government implements the needed reforms.
RECENT ECONOMIC DEVELOPMENTS ANDPRIORITY REFORM AGENDA FOR RAPID GROWTH
A. INTRODUCTION
1. Objectives and scope. This year's Country Economic Memorandum (CEM) for Bangladeshassesses recent economic and social developments and reviews the recent progress made in theimplementation of structural reforms and examines the economy's performance in FY94 and earlyFY95. Assessment of these developments is made against the intended policy and institutional changesand desired trends in investment, economic growth, and resource balances.
2. The principal theme of the report is the challenge of moving the economy to a higher growthpath in the remainder of 1990s, with a view to strengthening the economy's capacity to generate moreemployment and incomes, thus, tackling Bangladesh's principal development objective, i.e., povertyreduction. Accordingly, the CEM focuses on the crucial importance of accelerating policy andinstitutional reforms, building on the reform measures implemented in recent years and benefitting fromthe remarkable macroeconomic stability achieved.
3. With this general framework, Section B provides an overview of the recent macroeconomicstabilization and structural reform efforts. Section C reviews Bangladesh's economic performance inFY94 and early FY95. Section D looks at poverty trends, social indicators, and actions aimed atpoverty alleviation. Section E discusses the near- and medium-term policy and institutional reformpriorities in order to achieve sustained increases in savings, investment and economic growth, andgreater opportunities for the poor. Medium-term economic prospects and likely aid disbursementpatterns under a stronger/accelerated reform scenario are discussed in Section F. Finally, the Annexthat follows the text provides--in a matrix format--a recapitulation of the progress made by theGovernment in implementing the reform measures covered by the Paris Understanding for FY95, whichemerged at the April 1994 Aid Group Meeting in Paris.
B. BACKGROUND: AN OVERVIEW OF THE RECENT MACROECONOMICSTABILIZATION AND STRUCTURAL REFORM EFFORTS
4. The 1980s saw depressed incomes, savings, investment, and economic activity, feeding eachother. During FY80-FY84, GDP growth averaged 3.1 percent annually, the rate of inflation 13.4percent, the budget deficit 9.3 percent of GDP, and the external current account deficit reached 10percent of GDP (see Table 1). In the second half of the 1980s, macroeconomic performance wasmixed. At an annual average GDP growth rate of 3.4 percent in FY85-89, economic activity continuedto be very sluggish, showing only a slight improvement over the first half of the 1980s, and falling farshort of what is needed to reduce the widespread poverty facing the country. While natural disastersexacerbated this outcome, particularly because of the very high share of the agricultural sector in GDP(40 percent in this period), so did the depressed domestic demand associated with very low investmentactivity.
5. The sluggish economic performance of the 1980s, and particularly, the low private investmentactivity in the second half of the 1980s could partly be linked to the ad hoc and weakly pursuedmacroeconomic adjustment and structural reform initiatives of the 1980s by the Government. Indeed,starting in the early 1980s, the Government initiated steps, signaling the start of a process of industrialderegulation, trade liberalization, promotion of the private sector, and the divesting of state-owned
Sources: Bangladesh Bureau of Statistics (BBS); Twenty Years of NationalAccounting of Bangladesh (1972-72 to 1991-92),BBS, July 93; Export Promotion Bureau (EPB) , Bangladesh;Bangladesh Bank (BB).
a/ Excludes food subsidies.b/ Defined as the difference between expenditure/GDP and
revenue/GDP ratios, further adjusted for a residual amount to reflect the differencebetween the fiscal accounts and estimates of total financing of the Government
c/ Exports' imply merchandise exports only.d/ Imports' imply merchandise imports only.e/ Represents the ratio of debt service to total foreign exchange
earnings from export of goods and non-factor services, plusworkers remittances.
f/ Based on Dhaka Consumers Price Index (CPI).P: Provisional
enterprises (SOEs). The notable reform measures include the privatization of 33 jute mills and 37textile mills, agricultural input market liberalization, replacement of the positive import list with anegative list of banned/restricted imports, a significant reduction of quantitative restrictions (QRs) onimports, and the initiation of steps aimed at improving the health of the financial sector and liberalizingthe interest rates. However, many of the intended structural reforms were postponed.
6. In early 1991, the Government of Bangladesh, building on the structural reform initiatives ofthe 1980s, launched a more deternined and comprehensive structural reform program to open up andestablish a liberalized, market- and private sector-driven economy, operating within a stablemacroeconomic environment. Since 1991, the GOB has been introducing important reform measures inthe fiscal, financial sector, exchange rate, trade and industrial policies, and in the area of publicresource management and public enterprise sector. There are still many areas where either the reformagenda is incomplete or important actions are yet to take place. Many of these reform efforts have beensupported by several adjustment credits from IDA', the Fund's Enhanced Structural AdjustmentFacility (ESAF) for the period FY91-93, by loans from the Asian Development Bank (ADB) and othermultilateral and bilateral donors. Some key reform actions introduced by the Government over theperiod spanning FY92-FY94 and in early FY95 are reviewed in the remainder of this Section.'
7. Fiscal policy reforms. Apart from restraining current spending as part of its fiscaladjustment effort, the GOB initiated a major tax reform to strengthen budgetary resource mobilization,and also to improve the efficiency and equity of the tax system. The introduction of a value-added tax(VAT) with the FY92 budget was the centerpiece of the tax reform effort. The VAT was introduced ata uniform rate of 15 percent at the manufacturer-cum-import level.3' Together with protection-neutralsupplementary duties, this system largely replaced the earlier structure of differentiated sales tax onimports and excise taxes on domestic goods.4' Efforts have continued to improve the effectiveness ofVAT administration, expand the coverage of VAT through the removal of some exemptions5' and byexpanding the number of registered traders, with a view to extending the VAT to wholesale and retailtrade services. The FY95 Budget introduced registration of wholesalers on an optional basis. Changeshave also been made to rationalize the direct tax system by lowering the high corporate and personalincome tax rates and reducing exemptions.
8. With these tax reforms, the total revenues of the central government rose significantly.Revenues which had stagnated at around 9 percent of GDP over a decade in the 1980s, grew to 10.9percent of GDP by FY92 and to 11.9 percent by FY94. Shortage of local funds had for longconstrained Bangladesh's project implementation capacity and the country's absorptive capacity forproject aid. The recent improvement in revenue performance has virtually eliminated this local fundsconstraint, and high priority and foreign assisted projects are, as a general rule, now fully funded.
!' Financial Sector Adjustment Credit (FSAC), Public Resource Management Adjustment Credit (PRMAC), Second Industrial Sector AdjustmentCredit (ISAC 11), and Jute Sector Adjustment Credit (JSAC).
v For a more detailed review and assessment of macroeconomic stabilization and structural reform measures introduced by GOB in the early 1990s,see: The World Bank, Bangladesh: From Stabilization to Growth, March 17, 1994 (Report No. 12724-BD).
3' Textiles, fertilizer, medicine, books, the output of cottage industries, and (more recently) capital goods and other agricultural inputs have remainedexempted from the VAT.
4' Note that textiles, hand-made cigarettes (biri), and bank services, which have not yet brought under the coverage of the VAT, are still subjectto excises.
3' During FY93, VAT was extended to cover: in the industrial sector, natural gas, petroleum products, contractual manufacturing and cigarettes;in the service sector, services rendered by: the water supply and sewerage authority; jewelry, goldsmith and gold melting shops; general insurancecompanies other than life insurance policies; courier companies; privately owned medical clinics; clearing and forwarding agents; and beauty parlors.
9. However, the process of tax reform is not complete yet, and the effectiveness of the taxadministration needs to be strengthened further in the tax collection area. Currently, over 30 percent ofthe total tax revenues come from customs duties and, with the inclusion of VAT collected, imports stillcontinue to be the principal source of tax revenue in Bangladesh as the trade-related taxes account forabout 62 percent of the total tax revenues. Only 55 percent of VAT revenues (including thesupplementary tax) are collected from domestic sources and income/profit taxes account for only 18percent of tax revenues. As for the tax collection performance, the outstanding income tax arrears haveremained high.
10. On the exDenditure side, efforts are still continuing to better integrate the Three-Year RollingInvestment Program (TYRIP), which has been introduced as a framework for prioritizing the investmentprogram, into the budget cycle for ensuring adequate funding within a consistent macroeconomicframework. For improving aid utilization and project implementation, the GOB also introduced somemeasures in FY92-FY94, including the new procurement guidelines, revised personnel policies affectingproject implementation (including training of the staff), higher project financial authority limits,simplified procedures for land acquisition and resolution of resettlement issues, and theinstitutionalization of a system for monitoring large projects. These actions are aimed at: improving thequality and efficiency of the Annual Development Program (ADP); achieving the needed shifts in thecomposition of ADP by increasing its poverty orientation; strengthening the project pipeline; andproviding adequate current funding for high priority social services and operations and maintenance.
11. These efforts have shown some improvements in the composition of public expenditurestowards social sectors and in the implementation of especially non-donor funded projects (see Sections Cand D below for details). However, sustained efforts are needed to improve the quality anddevelopment impact of public expenditures, particularly in the area of prioritization, projectimplementation and aid utilization, and avoiding investment in areas where private investment could takeplace. In project implementation, there are continuing deficiencies in the effective application ofprocurement guidelines. Delays ranging from 9 to 28 months were observed in the procurementprocessing from the floating of tender until the time of work order, thus, causing delays in aidutilization. The processing and approval of technical assistance project proposals (TAPPs) continues tobe a slow process, thus adversely affecting project preparations.
12. Financial sector reforms. One of the important reform efforts in this sector relates to thesteps aimed at moving toward market determination of interest rates, though the process is not completeyet. This is because of the remaining interest rate controls and the significant market power of thenationalized commercial banks (NCBs). To improve the sector's performance, the GOB also enactedthe Financial Courts Act in 1990 and established twenty-seven special courts to facilitate debt recoveryby the banks, and established a credit information bureau (CIB) in the Bangladesh Bank (BB). InDecember 1994, the BB's Banking Control Department issued a new circular--BCD 20--whichintroduced new guidelines for loan classification and provisioning. The latter stipulates theestablishment of international classification and provisioning standards within 2-5 years, though a shorterphase-in period would be preferable. GOB has also carried out some recapitalization exercises toimprove the financial health of NCBs, which have been weakened by sizeable nonperforming loans.Efforts have also begun to strengthen the supervisory capacity of (BB) and regulatory enforcement. Toimprove the off-site surveillance of banks, the BB introduced a bank rating system based on theCAMEL system used in the U.S.. Also, a credit risk analysis system was established for large loans,and some steps have been taken to strengthen BB's on-site inspection capacity. In addition, 34unprofitable rural branches of banks have been closed since last year, and memoranda of understandinghave been signed with five private banks regarding the improvement of their asset positions.
13. Despite the progress made, Bangladesh has a long way to go for establishing a healthy andoperationally efficient financial system. The principal problem is the very poor quality ofintermediation, resulting in huge arrears which have yet to be recognized. This serious problem existsboth in the NCBs and most private banks. As the banks try to recoup the costs of sizeable non-performing loans, the real lending rates are also pushed up under the dominant position of NCBs, withlikely negative effects on private investment. Also, the BB still specifies the floor deposit interest ratesfor savings accounts and fixed deposits in banks, and establishes interest bands for lending toagriculture, exports, and small and cottage industry (see Appendix Table 6.5 for details).§' Finally, thedominant role of NCBs needs to be reduced substantially to promote competition.
14. Exchanee Rate Policy and Exchange System. On January 1, 1992, the Government unifiedthe exchange rate system by abolishing the "Secondary Exchange Market System", under which asystem of multiple exchange rates had been implemented. Also, significant improvements have beenmade by removing most of the exchange controls on current account transactions, thus effectingconvertibility in most of these transactions.2' And in April 1994, Bangladesh accepted the Article VIIIobligations of the International Monetary Fund. This is a significant step in that it constitutes acommitment to the current account convertibility. Another positive step includes the development of aninterbank foreign exchange market. The Government has also been managing the exchange rate policyflexibly, with a view to avoiding appreciation of the real exchange and also maintaining macroeconomicstability. The real effective exchange rate depreciated by about 10 percent between 1990 and 1993.More recently, following a 5.7 percent appreciation during October 1993 and January 1994, it continuedto depreciate between February 1994 and November 1994 by 6.6 percent (see Appendix Table 3.12).
15. Industrial and trade policy reforms. In the industrial policy area, the Industrial Policy of1991 and its subsequent (late 1992) amendments further relaxed the investment sanctioning regulations,removed the remaining regulatory impediments to foreign investment8', reduced the number of areasreserved for the public sector to a very few by opening telecommunications, power generation, anddomestic air transport to the private sector. However, the legal/regulatory environment in line withdesirable market structures and appropriately developed pricing policies still need to be worked out inorder to attract private investment into these latter sectors.
16. In the power sector, some steps were taken recently to initiate a sector reform program aimedat improving the performance and efficiency of the sector and promoting private sector entry. InSeptember 1994, the Cabinet approved in principle a reform package prepared by an interninisterialcommittee. The key elements of the reform program include: (i) improving the performance of theexisting utilities through the restructuring, corporatization and commercialization of Bangladesh PowerDevelopment Board (BPDB) and Dhaka Electricity Supply Authority (DESA), and rationalization ofdistribution areas among BPDB, DESA, and Rural Electrification Board (REB); (ii) establishing anappropriate (transparent) regulatory framework to promote efficiency and competition; (iii) forming a"Power Cell" within the Ministry of Energy and Mineral Resources to manage the reform effort; and(iv) attracting private investment. Success of this initiative will depend on the Government's continuedcommitment. A similar reform effort is also being pursued in the natural gas sector. Notwithstanding
t Only the small and cottage industry (SCI) rate is currently subsidized, and the banks are reimbursed for the subsidy from a limited transparentfacility.
Z' For year to year changes in Bangladesh's exchange controls over various categories of balance of payments transactions, see: The InternationalMonetary Fund, Exchange Arrangements and Exchange Restrictions, (various years).
!' Under the 1980 Foreign Private Investment Act, foreign private investment is protected against nationalization and expropriation and is given,in principle, equal treatment. And currently, foreign investors can undertake projects in all but 5 reserved areas, with 100 percent ownership andare permitted to repatriate capital invested, dividends, royalties and capital gains.
- 6 -
these positive steps, however, substantial structural reform challenges remain to be tackled in the powerand gas sectors.
17. In telecommunications, a second concession for the provision of basic telephone service in theremaining 200 rural areas was awarded in July 1994 to another private company. The Government hasaccepted the principle of competition in the provision of cellular, paging and radio trunking services,and the Bangladesh Telegraph and Telephone Board (BTTB) issued a tender invitation in July 1994,inviting applications for additional operators in the latter service areas. However, the overall reformprocess has been slow. The Cabinet has yet to review and approve a Telecommunications policyStatement, articulating the Government's policy for the sector. The amendment to the BTTB Ordinance,transferring the regulatory responsibility from the BTTB to the Ministry, has yet to be submitted to theParliament. And the Government's recent authorization of a major expansion in the existing basicnetwork by BTTB represents a missed opportunity for rapidly introducing a second operator in thesector through private investment and management.
18. In trade, the import regime has been the principal area of focus for reform actions. Thecoverage of QRs has been reduced from 315 four-digit tariff headings (about 25 percent of the totaltariff code headings) in FY90 to about 104 four-digit commodity categories in FY95, with thedebanning of five items announced in this year's Budget. Of these, only 26 categories (mainly textiles)are now kept in the Control List clearly for trade-related reasons. There has been also a considerableprogress in lowering the average level of import tariffs, particularly by lowering the very high rates onfinal goods. The maximum statutory tariff rate was reduced from 509 percent in FY91 to 60 percent inFY95, while the highest rate on intermediates and some final goods has come down to 45 percent. Theonly exceptions are textile products which enjoy about 20 percent additional nominal protection throughthe VAT exemption of domestic textile production. Over the same period, the unweighted average tariff(inclusive of the 2.5 percent license fee) was reduced from 89 percent to 30 percent, and the number ofoperative tariff slabs was reduced from 26 in FY92 to 6 in FY95. However, between FY91 and FY95,the dispersion of import tariffs did not show a decline. The principal reason for this is the continueduse of tariff concessions. And in FY95, the dispersion of the unweighted tariffs in fact has increased,as tariffs on additional inputs and capital machinery (for the export industry) were lowered to zerorate.- The continuing dispersion of nominal tariff rates, which implies that "effective protection rates"(EPRs) have most likely renained widely dispersed also, has been an important shortcoming of thewhole tariff rationalization effort so far.
19. An administrative order in November 1994 enhanced the use of the pre-shipment inspection(PSI) mechanism12' by allowing certificated values to override the existing system of "tariff values"used for assessing tariff liabilities. The latter, which have been a major source of disputes and costlydelays in customs clearances, has also been pushing the protection upward because of higher tariffvalues used.
20. On the export side, the progress in reforming the export policy, regulatory and infrastructuralenvironment has been slow. Export bans, used as a way of "protecting" consumers, still exist oncertain agricultural products--including wheat, pulses, onion, jute and sun-hemp seeds, unprocessed orfresh prawns and shrimp, and whole bamboo and cane--and manufactured products--including urea,ferrous and non-ferrous metals and their scraps, petroleum and certain petroleum products, gur andkhandari sugar, certain types of rice bran and wooden logs, and edible oils and milk products. Andthere are export taxes on hides and skins. Also, the pace of planned actions has been slow in extending
' The coefficient of variance increased from 65 percent in FY91 to 67 percent in FY95.
°' PSI scheme basically allows importers to contract an offshore agency to certify the value of the goods they are importing.
- 7 -
the Special Bonded Warehouse (SBW) scheme to products beyond ready made garments (RMG), inmaking the Duty Drawback Scheme (DDS) more effective through the expansion of "flat" drawbackrates (which are easy to apply), in improving the performance of the Duty Exemption and DrawbackOffice (DEDO), and in making the Export Promotion Bureau (EPB) a pro-active and effective entity.
21. In agriculture, most of the negative policy distortions hampering agriculture--affectingirrigation, fertilizer use and the cropping pattern, and trade--have been eliminated, and Bangladesh hasreached rice self-sufficiency in years of normal weather. To support these positive policy reforms andfoster agricultural growth, the Government has also continued the implementation of its long-term ruralinfrastructure development program, which has recently become better integrated. More recently,however, problems appear to have arisen in the fertilizer market due to disruptions at the factory gatedeliveries--which is supposed to work on the principle of first-come-first-served--and the introduction ofmaximum retail price irrespective of the distance from the point of delivery. The price controls whichhave fixed of factory-gate and retail prices below what the market might have shown have created asituation of excess demand and (reportedly) speculative holdings at a time of increasing demand duringthe cultivation of Irri-boro (winter rice), causing realized prices to rise sharply.''' In response, theGovernment has also involved the district administrations in the distribution of fertilizer. Thesedistortionary developments may hamper the development of competitive production/distribution activitiesin the fertilizer market, also adversely affecting the long-term development of agriculture.
22. Public enterDrise reforn and privatization. The public sector's domination over industryhas fallen sharply as a result of the denationalizations and privatizations in the 1970s and early 1980s.At end-FY93, there were 214 non-financial SOEs'2 1, with assets of over $13 billion, sales of $3.6billion, and 294,890 workers. The contribution of all SOEs to GDP amounted to 6.1 percent in FY92--14.3 percent in industry, 7.6 percent in services, and 0. 1 percent in agriculture. Public ownershipremains high in key subsectors including jute, textiles, steel, fertilizer, sugar, hydrocarbons, and almostall the utilities. Losses of the SOEs--which averaged close to $300 million (over 1 percent of GDP) inFY92-FY93--constitute a major burden on the budget and divert resources away from pressingareas.L' Furthermore, costs of their inefficiency are also shifted to industries that have to use theiroutput.
23. Reducing the size of the SOE sector through privatization is one of the key elements of theGovernment's structural reform program towards greater reliance on markets and the private sector. Aspart of this objective, in October 1991, the Government had announced a list of 46 SOEs slated for thefirst stage of privatization--including SOEs in textile, steel and engineering, sugar and other food, andchemicals--and in March 1993 established the Privatization Board (PB), which is responsible for theimplementation of the privatization program. Also, to reduce excess manpower in SOEs, 25,000workers were retrenched from the jute sector between June 1990 and December 1993. And in 1994, afocused program of privatization and restructuring has also started in the jute sector, with the support ofIDA's Jute Sector Adjustment Credit (JSAC).A4' With this latter expansion, the privatization
11' For example, recently the realized prices for urea reached the range of Tk 300-350 per 50kg bag, in contrast to the (fixed) mill-gate price ofTk 186.25 (or $93 per MT) and retail price of Tk 230 ($114 per MT). Currently, the f.o.b. price of urea in the region (Jakarta, Bangkok) is inthe range of $200-250 per MT.
'2' Excluding Railways, Telephone and Telegraph, and financial SOEs.
"L' Within the public sector, jute, power, and railways account for a large share of the losses.
!-' In addition to the pfivatization of 18 jute mills, the program also includes voluntary retrenchment, retraining of the displaced workers, and debtrestructuring components. So far the progress has been slow, however, because of the delays in the implementation of closing units, privatization,and debt restructuring. Until now, the GOB has closed 4 public jute mills, downsized I mill, and reduced employment by 12,600 in the jutesubsector. During the remainder of FY95, five jute units are expected to be closed and 10,000 workers are to be separated from these mills.
- 8 -
program's coverage amounted--in terms of FY91 values--to less than 6 percent of the total assets of allSOEs (excluding petroleum) and 18 percent of total operational losses.'5 '
24. Despite its modest coverage, so far the implementation of the privatization program in generaland that of the jute sector in particular has been slow. Overall, since FY93, a total of 18 SOEprivatizations have been finalizedL'' through February 1995, involving 6 SOEs in chemicals, 7 intextiles, 3 in steel/engineering, and 2 in sugar/food. Of these, only 11 SOEs have actually been handedover to their new owners--2 in FY93, 2 in FY94, and 7 in FY95. The remaining 7 are expected to behanded over soon. Currently, an additional 19 enterprises are in various stages of tendering process.For FY96, the PB has a provisional list of additional 41 SOEs to be privatized. While a significantshare of excess manpower was reduced through voluntary separation schemes (VSS) and lay-offs up tothe end of FY94, the process has slowed down in FY95, and prospects for the remainder of FY95 donot appear favorable, particularly in the present uncertain political situation. Indeed, the implementationof privatizations/closures of jute mills under the JSAC will be a critical test of whether this problem canbe overcome.
C. IMPACT OF REFORMS AND ECONOMIC PERFORMANCEIN FY94 AND EARLY FY95
25. Economic performance during 1993/94 was in many respects a continuation of the trends ofthe past several years. The achievement of macroeconomic balance was even further strengthenedduring the year; but the opportunity this strengthened macro performance presented for wider structuralreforms to accelerate growth and reduce poverty was only weakly pursued.
26. For FY94, the Bangladesh Bureau of Statistics (BBS) estimated that GDP grew at 4.6 percentand the investment rate reached 14.2 percent of GDP. The budget deficit remained under 6 percent ofGDP with much of the deficit financed through concessional foreign aid; the rate of inflation was lessthan 2 percent for the second consecutive year-l; the external current account deficit of the balance ofpayments fell to 1.6 percent of GDP; the overall balance of payments was positive; and foreign reservesgrew to eight months of imports. This is an impressive stabilization performance and a tribute to thesound macroeconomic management of the Government. Other important developments that havecontributed to this performance include the progress towards foodgrain self-sufficiency; the continuedgrowth of non-traditional manufactured exports; the increase of remittances; and continued inflows offoreign aid.
27. This performance reflects a continuation of fundamentally favorable trends. Over the past fiveyears GDP growth averaged 4.7 percent, well above the 3.8 percent realized in FY80-FY89 (Table 1);exports have been rising faster than GDP; government current revenues have been rising faster thancurrent expenditures; national saving has doubled as a percent of GDP; the growth of money, credit andinflation have steadily fallen; and expenditures on development have risen relative to currentexpenditure.
The World Bank, Bangladesh: From Stabilization to Growth, op.cit., page 108.
± In the sense that the winning bids have already been announced.
ii' Based on consumer price indices. Implied GDP deflator and the wholesale price indices for agricultutal and industrial products indicate a higherannual increase in the general price level.
- 9 -
28. This encouraging macroeconomic performance stands in stark contrast to the harsh realities oflife in Bangladesh. With almost half the population living in absolute poverty and per capita income of$224, there is no room for complacency. The improved macroeconomic situation creates theopportunity to attack poverty with greater vigor. This in turn will require an acceleration in the pace ofeconomic growth through higher rate of investment and savings and increased productivity. The mainpolicy challenges include to: maintain macroeconomic stability; further reform financial policies andinstitutions; open the economy further; privatize and restructure state owned enterprises; improvequality and public spending; and reform public administration.
Economic Growth in FY94
29. Real GDP growth in FY94 was 4.6 percent, compared to an average annual growth of 3.4percent achieved in the second half of the 1980s, and 4.5 percent in FY93 (Table 1).'82 The minorshortfall from the target growth rate of 4.8 percent in FY94 can be attributed largely to continued lowgrowth in agriculture (1.8 percent), particularly in crops (0.5 percent), which has a large share in GDP(Appendix Table 2.4). In addition, while industrial growth (8.5 percent) was higher, its contribution toGDP is still fairly small. However, the dominant service sector grew at 5.3 percent in FY94,compensating for the weak performance of agriculture.
30. Agricultural growth was low primarily because of a 1.8 percent fall in foodgrain productionfrom the record level achieved in FY93 (see Appendix Table 7.3). Farmers reacted to the sharp fall inrice prices in FY93 by a 2 percent reduction in total fertilizer offtake and 4 percent decline in use ofdiesel for irrigation in FY94 (see Appendix Table 7.8). The impact of the crop shortfall on growth wasoffset by some recovery in non-crop agriculture, particularly in fisheries and livestock, which are likelyto have benefitted from easier access to bank credit. Major cash crops also declined in FY94--raw juteby 10 percent and sugarcane by 5 percent (Appendix Tables 7.6 and 7.3, respectively); the decline inFY94 of jute crop output can be seen as a supply response partly to the 11 percent decline in growers'prices in FY93.
Economic Growth Prospects in FY95
31. Growth prospects in FY95 suffered a setback from drought conditions which affected aman(summer rice) cultivation in 35 districts; out of these, 16 north-western districts were the worst affected.Average rainfall in the Rajshahi Division during the aman planting season (July-August) was only about50 percent of normal levels. Preliminary assessment of the FY95 aman crop changed considerablybetween the various Government agencies. These estimates range from 8.5 million MT to 9.0 millionMT, or 4-10 percent below the FY94 level (9.4 million MT). This shortfall might have been at leastpartly compensated by higher winter crop production--boro (winter rice) and wheat and other rabi(winter) crops--as farmers are likely to have tried to make up for these losses. Rice prices havecontinued to rise sharply in the post-aman harvest season so far, and this might have induced somesupply response in the rabi crops. There are anecdotal reports of continued higher non-crop activities inthe rural areas in fisheries, livestock, poultry and horticulture. In view of the possibility of somerecovery in rabi and other crops during the rest of the year, and also in non-crop agriculture, overallagricultural growth could still improve over the low FY94 level.
32. Diesel sales during the first four months of FY95 was about 40 percent higher than thecorresponding FY94 level. This suggests some appreciable pick up in economic activities, particularlysupplementary irrigation for aman and in transport. The quantum index of large scale manufacturing for
'MThe FY94 GDP growth estimate is still provisional and expected to be revised.
- 10 -
July-November shows an 8 percent growth over the corresponding period of FY94. Chemicals, foodand tobacco, and basic metals sub-sectors have performed relatively well, while the cotton textilessubsector has lagged behind last year's performance. Industrial growth in FY95 and beyond willdepend on export prospects for a number of manufactured products, particularly ready-made garments inFY95. Available information on exports and credit to the private sector suggest a pick-up in economicactivity in FY95 so far (details are discussed in a later section).
Trends in Investment and Savings
33. Gross fixed investment (GDI) is estimated by the Bangladesh Bureau of Statistics (BBS) tohave risen marginally from 13.8 percent of GDP in FY93 to 14.2 percent in FY94 (Table 1). Thisincrease in the overall investment rate has been largely due to a rise in public investment under theADP. BBS's preliminary estimate of public investment in Table 1 does not, however, fully reflect thisexpansion. The private investment to GDP ratio, while has been on a slowly rising trend since FY91and showed a marginal increase in FY94 over FY93, continues to be still lower than the 8.1 percentobserved in the early 1980s and much lower than what is needed in a private sector-led economicgrowth of 6-7 percent (see Table 7). National savings performance improved further in FY94, whileforeign savings fell to 1.6 percent of GDP. Foreign savings represented only 11 percent of GDI.
34. While the incentive structure has improved over the years as a result of macroeconomic andsectoral policy reforms, private investment in the formal sector has not yet picked up. Some of the keyelements of the unfavorable business environment are inadequate infrastructure and uncertain powersupplies. Problems in the financial sector have also constrained access to bank credit for financinginvestment. These constraints continue to cause considerable delays and raise the cost of doing businessin Bangladesh and hence adversely affect the competitiveness of domestic activities, which is likely tohave discouraged potential local and foreign investors alike. (A more detailed discussion onBangladesh's investment climate is contained in Section E below).
35. Public investment has increased considerably in FY94, largely on account of higher ADPrealization. Expenditure under the FY94 ADP is estimated to have reached to Tk 90 billion,representing 92 percent of the original ADP target and a 37 percent increase over the FY93 ADPspending level (see Appendix Table 5.4). As pointed out earlier, over the past two years the GOB hastaken a number of measures to improve project implementation. These policy and proceduralimprovements and effective monitoring mechanisms have not yet been fully institutionalized and thehigh ADP realization in FY94 could be attributable partly to reallocations within the budget and aheavily bunched pattern of spending towards the end of the fiscal year. For instance, the ADPspending was much more bunched in FY94 than in earlier years, with 28 percent of the annual targetreported to have been spent in June. In addition, there were sizeable advance payments in FY94, suchas Tk 4.4 billion under the Jamuna Bridge project, which relate to investment that will be carried out inFY95 and beyond. There were also transfers of Tk 2.1 billion of capital expenditure from the currentbudget to the FY94 ADP, which complicate the comparability with past ADPs but has however beenincluded for the purpose of estimating overall public investment.
36. Public investment performance in the key sectors under the FY94 ADP has been somewhatmixed (see Appendix Table 5.4). Judged against the nominal 37 percent increase in the overall ADPspending, agricultural investment performance was somewhat better than the average, whileimplementation in the water sector was disappointing (Table 2). The increase in the share of industry inFY94 does not represent an expansion in the public sector's role. Rather, this is mostly for preparingthese units for privatization and for maintenance/replacement purposes. Investment performance inenergy was mixed; while power sector investment expanded, investment in oil and gas declined in
- 11 -
FY94. Infrastructure accounted for a large share (27 percent) of the ADP, with ADP investment intransport and communications expanding rapidly. There has been a considerable improvement in theshare of ADP resources allocated to the social sectors in the last few years. Educational spending,which represented only 4 percent of the total ADP in FY90, has increased at an impressive rate,accounting for 10 percent of the ADP now.'9' Investment performance in population and health hasalso been reasonably satisfactory with their combined share doubling since FY90 to almost 8 percent inFY94.
Table 2: Sectoral Composition and Growth in Key Sectorsunder the Annual Development Program
Source: Implementaion, Monitoring and Evaluation Division
37. Another area where public investment rose appreciably is in rural infrastructure--which isimportant for raising the factor productivity in agriculture--and other investment supported under thefood-for-work (FFW) programs, with the volume of wheat distributed under this channel rising by 40percent over the low FY93 level.
Fiscal Developments and Issues
38. GOB has continued to manage its budgetary operations prudently, with the budget deficitbeing limited to below 6 percent of GDP every year since FY92 (Table 1). This has been achievedpartly through improvements in tax policy, notably, the introduction of VAT, and an associateddomestic tax effort, supplemented by better control of current expenditures in recent years. The overallbudget deficit remained at 5.9 percent of GDP in FY94, despite the significant increase in developmentspending. As in the past, much of the deficit continues to be financed through concessional donor
L* A food-for-education (FFE) program was introduced under the FY94 ADP to encourage primary education of children in poor families. Theallocation for FFE (Tk 0.8 billion in FY94), which is part of the ADP education sector allocation, has been almostdoubled in FY95 (Tk 1.5 billion).GOB should monitor the cost effectiveness of this program vis-a-vis that of other experimental programs in the primary education subsector as wellas of other targeted programs.
-12 -
assistance (see Table 3). Unfortunately, however, with respect to the domestic financing of itsbudgetary debt, the Government continued, as in FY93, replacing the low interest treasury bills (TBs)with high interest savings bonds, which are not only high cost--despite the recent reduction in the ratespaid on these--but also not traded, and therefore, do not contribute to deepening the capital market.
39. The rapid growth--averaging 19 percent annually--in budgetary revenues achieved duringFY91-93 slowed down to 8.5 percent in FY94, with the revenue/GDP ratio remaining about the samne,because of some shortfalls in the major taxes administered by the National Board of Revenue (NBR).While this outcome partly reflects the lukewarm growth in economic activities and hence in the tax basein FY94, it also reflects some changes in the tax structure (see Table 3) as well as continued weaknessin tax enforcement, and raises questions about the sustainability of the revenue growth achieved inrecent years. Total budgetary expenditures increased a bit faster than revenue, from 17.6 percent ofGDP in FY93 to 18 percent in FY94, largely due to the rise in ADP spending; the expansion in currentspending was contained to slightly less the nominal GDP growth rate. Consequently, there was a shiftin the composition of public expenditures towards development spending. GOB was also able to financean increased share (32 percent) of the ADP in FY94. Net foreign financing of the deficit fell from 5.6percent of GDP to 4.9 percent, largely as a result of increased external debt amortization and decline inproject aid disbursements.
40. Trends in budgetarv revenues in FY94. The tax/GDP ratio declined from 9.6 percent inFY93 to 9.2 percent in FY94 on account of some shortfall in the major taxes administered by NBR--VAT, customs duties, income tax and excise duties (see Tables 1 and Table 3). Total NBR-administered taxes in FY94 amounted to Tk 89.4 billion, falling about 4.5 percent short of thebudgetary target (Appendix Table 5.2).2°' The annual nominal growth in NBR taxes slowed downappreciably in FY94 to about 5 percent, compared to 18 percent per annum during FY92 and FY93.The shortfall in VAT was due to the slow expansion of domestic VAT coverage, slow import growth,and drop in tobacco sales. And the shortfall in customs duty can be attributed to reductions in importtariffs on a large number of import items, further compounded by slow growth of imports in FY94.The slow growth in income taxes was due to improvements in tax policy, notably reductions in taxrates, which have not been matched by adequate efforts to increase the tax base by improving taxcompliance. Non-tax revenues increased somewhat from 2.4 percent of GDP in FY93 to 2.7 percent inFY94 due to a 24 percent increase in collections in FY94.
41. Current expenditures. GOB continued to exercise effective control over current expenditurewhich rose by about 8 percent, marginally less than the nominal GDP growth rate, with theexpenditure/GDP ratio declining marginally in FY94. The improvement in the poverty orientation ofthe current budget in terms of social sector spending and targeted food distribution has been somewhatmixed in FY94 and so far in FY95 (Table 4). While the spending on education continues to rise in realterms over the years, its share in current expenditure has increased much less slowly since FY90 (17percent), with only a marginal increase in FY94, and, in addition, the FY95 budget allocation showssome decline.L" The share of spending in health and population control has also increased ratherslowly since FY90 (5.7 percent), rising marginally in FY94, but the FY95 budget allocation shows adecline.
!' For actual tax collections, source: The National Board of Revenue (NBR).
LI' Te share of the prinary education sub-sector did not increase in FY94, and the FY95 budget allocation shows a mnarginal decline.
- 13 -
Table 3: The Central Government Budget:Financing of the Deficit and Tax Revenue Sources
Sources: Ministry of Finance and the Natioral Board of Revenue.
42. The major publicly-supported social safety nets available for meeting the food requirements ofthe vulnerable sections of the poor in Bangladesh are the targeted food distribution programs likevulnerable group development (VGD) and food-for-work (FFW). While the volume of grainsdistributed under FFW and VGD improved somewhat over the low FY93 level, it remainedconsiderably below the levels of the late eighties and early nineties. While distribution under FFW inFY95 is being restored to past levels, distribution under VGD continues to be low. This is partly linkedto the decline in food aid levels in recent years and its continued partial distribution under somemonetized channels, in addition to the limited size of the GOB-supported component which has not fullycompensated for the decline.22/
43. Budcgetary trends and prospects in FY95. The FY95 budgetary target for NBR-administered taxes is Tk 98.5 billion, reflecting a nominal increase of 9.6 percent over the FY94 level.NBR-administered tax collections during July, 1994-January, 1995 were 9 percent higher than thecorresponding FY94 level, implying that tax performance so far has been generally in line with thebudgetary target. Income tax collections during this period were 24 percent lower than thecorresponding FY94 level. This reduction is partly due to lower income tax collections from theBangladesh Petroleum Corporation (BPC) because of increased import duties on petroleum which hasreduced BPC's profits. This is, however, being compensated by higher customs duties--following theadoption ad valorem rates--on petroleum imports. Collections of VAT during this period has been 11percent higher than the corresponding FY94 level, and customs duties have been 22 percent higher, bothlargely on account of a significant pick-up in dutiable imports. On the expenditure side, the GOB'srecent decision to grant a 10 percent interim increase in basic pay to Government employees will imposean additional budgetary burden in FY95, which may amount to about 2 percent of current
!2P Expansion of these social safety nets is one of the actions for attacking poverty under the Paris Understanding for FY95, and the progress inthis areas is discussed in the annex that follows the text.
- 14 -
expenditures.2! Next fiscal year, the resulting increase could amount to about 6 percent of currentexpenditures. Careful monitoring of expenditures will be necessary, with a view to avoiding anexpansionary fiscal program that would aggravate inflationary pressures.
Table 4: Social Sector and Targeted Spending in the Current Budget(Crore takas)
Sub-Total 2239 (26.5) 2462 (27.0) 2595 (26.1)VGD, GR and TR 295 261 230Food-for-Work 332 415 379
Figures in parentheses indicate several share as percentage of total current expenditureSource: Ministry of Finance
44. FY95 Annual Development Program. ADP implementation during FY95 so far impliessome improvement over last year. The Implementation, Monitoring and Evaluation Division's (IMED)estimate of ADP spending during July-December, 1994 is Tk 35.3 billion or 32 percent of the plannedannual ADP spending, and close to the target realization rate of 35 percent for the first half of the fiscalyear.-' This is 41 percent higher than the corresponding FY94 level of ADP spending which wasequivalent to only 26 percent of the annual target. There have been some improvements in themonitoring of ADP spending this year, but concrete actions are required in a number of areas, notablyprocurement processing and contract award for goods, works and consultancies.§!' Nevertheless,further improvements in the implementation of the ADP are needed.
Balance of Payments Developments in FY94 and FY95
45. Bangladesh's balance of payments position continues to be comfortable. The current accountdeficit narrowed further in FY94 to $420 million (or 1.6 percent of GDP), compared to $676 million(or 2.6 percent of GDP) in FY93 (Table 1). The balance of payments generated an overall surplus of$673 million, which led to a further build-up in foreign exchange reserves to $2.8 billion, equivalent to8 months of total imports, or 1 1 months of non-aided imports (Table 5). The low current accountdeficit in FY94 was largely due to stagnant imports, partly reflecting sluggish investment activity, ratherthan buoyant export performance, and was also aided by some growth in workers' remittances. Aiddisbursements declined primarily because of a fall in project aid disbursements, which in turn are linkedto project implementation issues and the pronounced bunching of ADP spending in late FY94; (anotherfactor is the low aid commitments of FY93 --Appendix Table 3.9).
46. Export statistics compiled by the Export Promotion Bureau (EPB), which is based on exportshipments, suggest a slowdown in export growth in FY94 to about 6 percent in nominal terms,
Ž' The decision is to grant a 5 percent increase in basic pay and related allowances (such as housing and festival allowances) from January 1995and the remaining 5 percent from July, 1995.
24/ Total ADP, including the SOE spending that is not included in the central government budget, amounts to Tk 110 billion for FY95.
2' Actions in these areas are also included in the Paris Understanding for FY95, and the developments are assessed in the annex.
- 15 -
compared to 16 percent per annum during FY90-93 (see Appendix Table 3.3); this implies only a 1.4percent growth in export volume. This slowdown is attributed primarily to a sharp decline in thegrowth of ready made garments (RMG) exports which have accounted for over half the gross exportearnings in recent years. EPB's estimates show only a 4 percent growth of RMG exports (in dollarterms) in FY94, down from 27 percent per annum during FY90-93."' There are a variety ofexplanations given by observers for this slowdown: cancellations of some contracts by the exportersthemselves due to profit squeeze from the sharp increases in the prices of key inputs (cotton yarn andfabrics) while output prices showed even downward pressures with intensifying internationalcompetition; difficulties of obtaining imported inputs in a timely manner due to a tightening of inputmarkets; possible diversion of imported inputs to the highly protected domestic market (i.e., leakagefrom the bonded warehouses) induced by increased rates of return and slowdown in exports with fallingprofit margins; diversion of demand to other supplying countries due to rising production disruptionscaused by power outages and hartals (general strikes) in Bangladesh.2 '
Table 5: Balance of Payments (FY90-94)(US$ billion)
Sources: Bangladesh Bank, Export Promotion Bureau and Economic Relations Division
47. Exports of traditional items like raw jute, jute goods and tea continued to stagnate in FY94,reflecting weak export demand (see Appendix Table 3.3). Exports of leather and frozen food on theother hand performed relatively well, with the growth coming from an expansion in export volumerather than increase in prices.
48. Merchandise imports through official channels in FY94 amounted to $ 4.2 billion, virtuallyunchanged from the FY93 level in nominal terms, and implying only 1 percent real increase involume.L' This has been partly due to lower food imports and lower petroleum prices, as well as anappreciable decline in the import of milk food, linked largely to increased domestic production, and ofedible oil. In addition, imports of raw materials and intermediate goods did not respond fully to theimport liberalization and tariff reduction measures, largely reflecting the moderate level of economicactivities. The anticipation of lower import duties in FY95 also contributed to a deferral of imports toFY95. Yarn imports increased significantly by 34 percent, while that of fabrics rose by 14 percent,suggesting some pick-up in the RMG subsector activity.
w The FY94 RMG export level is likely to have been underestimated, as suggested by the upward revision of EPB's initial estimates for the firstquarter of FY95.
2I' RMG export data compiled by the Bangladesh Garments Manufacturers Exporters Association (BGMEA) suggest a 10 percent growth in thevolume of RMG exports in FY94, implying that in volume terms RMG exports showed a reasonably strong growth. The BGMEA estimates arealso FOB values but are based on data compiled by agencies in the importing countries.
2!' There are also large volumes of unrecorded imports (and some exports).
- 16 -
49. Workers' remittances reached $1,089 million, 15 percent higher than the FY93 level. Thisgrowth reflects a steady increase in the number of Bangladeshis working abroad, and also an increasingshare of remittances being channeled officially, the latter being linked to the liberalization of theexchange control regime.
50. Total aid disbursements declined by 2 percent in FY94 (see Table 6 and Appendix Table3.9). While project aid disbursements declined by 10 percent from the FY93 level, the disbursementsrate, relative to a lower opening pipeline, improved in FY94. The pipeline had fallen significantly atthe beginning of FY94 because of a sharp decline in project aid commitments in FY93, but it recoveredby end-FY94 because of a considerable pick-up in project aid commitments during FY94. Commodityaid disbursements also increased from their low FY93 level, partly reflecting quick disbursements onaccount of retroactive financing under some multilateral aid programs for sizeable imports. Food aidcontinued to be at a low level, with the volume of aid-financed foodgrain imports declining further by11 percent in FY94. This essentially reflects reduced dependence on imports because of progresstowards foodgrain self-sufficiency.
51. Balance of payments trends in FY95. EPB's estimates of exports during the first fivemonths of FY95 suggest a 34 percent increase compared to the corresponding FY94 level, and RMGexports--including knitwear--for the same period are 33 percent larger than the last year's correspondinglevel.L' On the import side, the BB's provisional estimate suggests an import growth of 26 percent inthe first half of FY95 over the same period in FY94, with strong increase in donor-financed imports.Most of the latter increase is attributable to the strong pick-up in imports of machinery, industrial rawmaterials and intermediates, and crude petroleum. These developments imply an acceleration inindustrial activity and sustained strong performance in RMG and other manufacturing exports.
52. At the same time, gross foreign exchange reserves increased by $0.4 billion to $3.2 billionbetween end-June and end-December 1994, with aid inflows of over $0.6 billion through November anda 12 percent increase in remittances in the first half of FY95 over the corresponding period in FY94.
53. The continuous build up in reserves will put pressure on the exchange rate, undermining thecompetitiveness of exports. This is a development that requires close monitoring, particularly given thatthe current upward pressure on the general price level--which is building up with the rising rice pricesand now also with the salary increases for government employees--is likely to be intensified as some ofthe increasing proceeds of monetized foreign exchange inflows (e.g., remittances) are spent on non-tradables.
Moneg. Credit and Prices
54. The growth in overall credit slowed from 8 percent in FY93 to 4 percent in FY94(Appendix Table 6.1). This was largely due to a decline in public sector credit, despite the rise in ADPspending, because the GOB relied considerably on non-bank sources of financing, i.e., the issuance ofhigh interest national savings bonds. Credit to the private sector continued to be sluggish, particularlyduring the first three quarters of FY94. Credit policy was liberalized somewhat in response to thistrend, including some reductions in lending rates for the three selected activities that are still subject tointerest rate bands--agriculture, exports, small and cottage industry--which led to sizeable creditdisbursements in the last quarter. Outstanding private credit during the year rose modestly by 8.5percent, reflecting cautious borrowing decisions by potential investors and also a conservative lendingstance by the banks. The latter had substantial excess reserves--amounting to 7 percent of deposits--at
r These are EPB's revised estimates of exports based on an improved data compilation system for RMG exports.
- 17 -
end-FY94, reflecting to some degree the problems of the banking sector and of financial intermediation.In FY95, by end-December 1994, private sector credit showed an increase of 13 percent on year-on-year basis, also reflecting a pick-up in business activity.
Table 6: Aid Disbursements(US$ million)
FY92 FY93 FY94
Project Aid 1064 1094 990Commodity Aid 386 372 451Food Aid 241 121 118
Source: Economic Relations Division and staff estimates.
55. At 1.8 percent in FY94, the rate of inflation--based on the consumption basket of the Dhakamiddle class--remained low for the second consecutive year (Appendix Table 9.1). This was largely dueto continued stable food prices, which are estimated to have increased by only 0.4 percent, while pricesof non-food items rose by 3.7 percent. In FY95, the general price level has been rising faster becauseof a sizeable increase in rice prices so far, with the 12-month running average through December 1994showing a 3.6 percent increase. These price trends are linked to the drought-affected shortfall in amancrop, which has already led to a sharp increase in foodgrain prices, and could lead to further increasesin the general price level during the remainder of the fiscal year. Indeed, as pointed out above, thereare additional upward demand pressures in the economy. This suggests that careful macroeconomicmanagement will remain essential.
D. POVERTY TRENDS AND ACTIONS TO ALLEVIATEPOVERTY
56. To comprehend the dimensions of the challenge of poverty reduction facing Bangladesh, it isimportant to review some of the poverty and social sector indicators and their changes through time.This will also highlight why achieving faster growth is so crucial. Below, a summary overview ofpoverty incidence, population growth pressures, and trends in health, nutrition, and education indicatorsis presented, together with a look at some of the actions aimed at improving these social indicators.
57. Poverty Incidence. Results of the Household Expenditure Surveys (HES)--for the six yearsconducted, including the latest one for 1991/92--with respect to the incidence of poverty are given inAppendix Table 1.9. However, intertemporal comparisons of these results are made difficult, becauseof the use of different methodologies by the Bangladesh Bureau of Statistics (BBS) in estimating povertyin different years and the change in the survey method introduced in 1983/84. The latest HES showsthat in 1991/92 close to half of the population was below the poverty line, which is measured by BBSfor 1991/92 in terms of direct calorie intake, a change from previous years.
- 18 -
58. Using a different methodology than that used by the Bangladesh Bureau of Statistics, aninterim analysis of the preliminary 1991/92 data suggests that poverty incidence did not decline between1988/89 and 1991/92, so that poverty still remained high in both rural and urban areas at the start of the1990s2.3' The rural areas fared worse in this respect as compared to urban areas. The povertyindicators also show a greater incidence of poverty in rural than urban areas. It appears that theabsolute number of the poor have increased in both the rural and urban areas.3L'
59. The high percentage of hard core poverty is also reflected in the nutritional and health statusof the population. In 1992, moderate to severe malnutrition was present in 68.3 percent of childrenunder 6 years of age. This figure was only slightly lower than in 1985-86 (71.5 percent) and higherthan in 1989-90 (66.5 percent). This is among the highest levels of malnutrition in the region. Nepal(51 percent), Sri Lanka (42 percent) and Indonesia (38 percent) have a much lower problem ofmalnutrition.
60. Apart from Government data, of the most notable dealing with rural poverty has been theAnalysis of Poverty Trends project carried out by the Bangladesh Institute of Development Studies(BIDS) since 1989.LŽ The BIDS studies are based on household panel data collected from arepresentative sample of villages. The most recent study suggests that the incidence of rural povertybetween 1990 and 1993 has declined slightly, though much of the gains appear to have been made by1992, followed again by a stagnation of poverty in 1993.33' This study broadly suggests, though itdoes not test this proposition, that this very modest improvement in the poverty situation may be due tothe pick-up in economic growth following a slide in the early 1990s on the one hand, and, on the other,the absence of major natural disasters and the positive impact on rural household nutrition of the sharpdecline in the price of rice during 1992/93.34' There are also poverty studies that are underpreparation. The Asian Development Bank (ADB) is working with the GOB on preparing a TA projectfor studying urban poverty in Bangladesh, and preparations have already started for an IDA study onrural poverty.
61. Population, health and nutrition trends, and the education sector. Population growthremains a paramount problem for Bangladesh. Efforts to address it have met with some success but toachieve zero population growth, continued improvements in the level and quality of family planning,basic health, and education services will be essential.
62. Bangladesh has a population of about 120 million, with over 800 persons per sq. km., makingit the most densely populated non-city state in the world. Population has doubled since the mid-1960s,and at the present growth rate of about 2 percent has a doubling time of 35 years.
& See: Martin Ravallion and Binayak Sen, "When Method Matters: Toward a Resolution of the Debate about Bangladesh's Poverty Measures,'Policy Research Working Paper 1359, World Bank, September 1994. The methodological analysis using a poverty line based on the cost of a bundleof basic-needs goods suggests that the percentage of the population below the poverty line was 52.9 percent in rural areas and 33.6 percent in theurban areas in 1991-92, giving a national poverty incidence just under 50 percent.
Li' More recent information on poverty incidence in the early 1990s is not available from Government data. A new Household Expenditure Surveywill be fielded during 1995, and its results are expected to be available more quickly because of improvements in the data collection and processingprocedures.
i! Hossain Zillur Rahman, Rethinking Rural Poverty, University Press Limited, Dhaka; and "Rural Poverty Update 1990-92", Analysis of PovertyTrends Project BIDS, 1993.
' Hossain Zillur Rahman, "Rural Poverty Update, 1992-93," Analysis of Poverty Trends Project, BIDS, April 1994.
LI Hossain Zillur Rahman, 'Low Price of Rice: Who Loses, Who Gains?" Analysis of Poverty Trends Project, BIDS, February 1994.
- 19 -
63. However, with the implementation of successful family planning (FP) services, fertility hassharply declined since the mid 1970's from a total fertility rate (TFR) of 7 children per woman to about4, with a continuing increase in contraceptive prevalence rate (CPR). But a TFR of 2.2 would need tobe reached in only 11 years time if GOB's goal of replacement fertility by the year 2005 is to bereached.35' Sustained increases are needed in CPR to raise it from 45 percent in FY94 to the 70-75percent range required to achieve the GOB goal.
64. According to the latest Demographic and Health Survey (DHS) 1993/94, 24 percent ofmarried women have an unmet need for FP services; particularly younger couples remain under-served.h' Quality improvement efforts remain weak and available clinical services are underutilized.Significant improvement in continuation rates for spacing methods is needed. Making the method mixmore effective, creating coordination between health and FP departments including joint delivery ofimmunization programs and FP services, involving the community in the delivery of services, andincreasing utilization of private sector capacities will contribute to program effectiveness.
65. GOB's strategy is to expand and improve the quality of FP services. It has, during FY95,prepared a National Action Plan aimed at addressing program weaknesses and improving performance.It has taken the first steps towards utilizing the private sector for transporting contraceptives, designingand executing IEC activities, and increasing service outlets. It also involved NGOs in policy andprogram decision making. Overall, the program has aimed at reaching the poorest sections of society.
66. The health status of the population is poor. Life expectancy at birth is 57 years for both menand women. Infant and under-5 mortality rates are still high but are declining. The 1993/94 DHSestimates the IMR to be 88 per 1000 live births and the child mortality rate 132 per 1000 live births, adecline from over 100 and 160, respectively, per 1000 live births in the mid 1980s.
67. The major causes of morbidity and mortality are malnutrition, infectious diseases, especiallydiarrheal diseases, acute respiratory infections and tuberculosis, and complications of pregnancy andchildbirth. In addition to protein energy malnutrition (PEM), micronutrient deficiencies are majorcontributors to poor health. Vitamin A deficiency (leads to blindness), iodine deficiency disorders andiron deficiency anemia are widespread.
68. GOB is implementing several projects to improve the above situation and reach especially themost poor. The most successful intervention is the immunization program. In 1993, 84 percent of 2year-old children were fully immunized and 80 percent of young infants' mothers had received at least 2doses of tetanus toxoid. Other projects are aimed at reducing morbidity and mortality from diarrhealdiseases, acute respiratory infections, and tuberculosis. Although not as impressive as the expandedprogram of immunization (EPI) program, these interventions are beginning to make an impact. Thereduction of IMR and under-5 mortality rates seen since the late 1980s is probably due to the combinedeffect of all these activities.
69. While interventions aimed at reducing micronutrient deficiencies are in operation and a varietyof projects to ensure food security were conducted in the past, a comprehensive nutrition program totackle the serious nutritional situation of the population was not initiated by the GOB until very recently.A project has now been developed to focus on the most vulnerable groups, children under 2 years ofage and pregnant and lactating women. To be funded by the GOB and IDA and supported by UNICEF
L' Desired family size in Bangladesh is about 3 children. It should be less than 2 in order to reach the two child family norn.
!V Only 25 percent of married women aged 15-19 and 36 percent of those aged 20-24 are current users of FP services, against 59 percent of those
aged 35-39.
- 20 -
technical assistance, the Bangladesh Integrated Nutrition Project (BINP) will be negotiated in the firsthalf of 1995.
70. Very little has been done to provide maternity care services, and maternal mortality remainsvery high. A network of public health care facilities has been established throughout the country but thequality of services is poor and utilization low. Two recent surveys found that government run facilitiesare utilized by less than 10 percent of sick people. Hospital statistics show that bed occupancy rates inrural areas is about 60 percent. Over the last two decades, the GOB's goal has been to increase thenumber of health facilities and health workers but less attention has been paid to the quality of servicesprovided.
71. GOB is implementing several projects which seek to increase utilization of rural hospitalservices and improve maternal and neonatal health care. Among these are several training activities,development of a human resource plan, the health economics project (HEP) and the Reorganizationstudy. The HEP will help develop a Health Economics unit in the MOHFW that will provide economicanalysis of health programs and interventions. The Reorganization study will propose a restructuring ofthe Ministry of Health and Family Planning programs that should rationalize the use of availableresources. However, there is a need to develop a Health Policy and a process of strategic planning,management and policy development. The upgrading of management and clinical skills is needed toimprove the quality of care.
72. Increasing the coverage and quality of education, particularly female education, is critical todeal successfully with the population growth problem and poverty issues. The Government has alsobeen trying to increase the budgetary resources allocated to the education sector, particularly primaryeducation, with some success. The share of government expenditure on education in total centralgovernment budget increased from 10.3 percent in FY91 to 13.4 percent in FY94, and over the sameperiod, the share of the primary education in the total education expenditures increased from about 49percent to 53 percent. In recent years, significant progress has also been made in school enrollments,especially girls' enrollment at both primary and secondary education levels, due to the implementationof compulsory primary education and stipends for female secondary school students. Total primaryschool enrollment has increased from 11.9 million in 1990 (45 percent female) to 18.3 million in 1993(47 percent female), and the gross enrollment ratio has increased from 78 percent in 1978 in 1990 to116 percent in 1993.2' Total secondary school enrollment has increased from 3 million in 1990 (33percent female) to 5.2 million in 1993 (41 percent female).38'
73. However, efforts to improve the quality of education need to be strengthened to improve theunsatisfactory student completion and achievement rates and low teacher-student ratios. Currently, ofthe cohort entering Grade 1, only 43 percent complete the primary school cycle and 40 percent drop outby Grade 3. Furthermore, tests administered on students who completed the primary school indicatethat only 42 percent achieved basic literacy competencies. As regards the teacher-student ratio, this wasnationally at 1:66 in two shifts and 1:33 in one shift in 1993.
74. The road to a substantial reduction of poverty in Bangladesh is still long. However, it is alsoclear that faster economic growth is necessary to enhance the economy's capacity to tackle Bangladesh'ssevere poverty problems.
/l' These figures include students enrolled in all governuent and non-government schools. Net enrollment ratios are not known.
SF The 1990 figures exclude girls attending madrasahs while the 1993 figures include them.
- 21 -
E. NEAR AND MEDIUM-TERM PRIORITY REFORM AGENDA FORFASTER GROWTH AND POVERTY ALLEVIATION
75. The remarkable macroeconomic stability that has been sustained so far and the comfortableforeign exchange reserve cushion continue to provide opportunity to resume the stalled structural reformprocess and attack poverty. GOB's convincing re-commitment to the unfinished reform program isessential to remove the perception of uncertainty in the business environment and stimulate bothdomestic and foreign private investment to levels that would support a sustained increase in economicgrowth. While the 4.7 percent average GDP growth achieved in the last five years is a strong growthrate, particularly with an investment activity that has been hovering around 12-14 percent of GDP, it issignificantly below the range--above 6 percent--where the economy could reach a capacity to effectivelytackle Bangladesh's extreme poverty problem. A continuing effort is also needed to improve publicadministration. Poverty oriented social sector programs do require further strengthening to ensureneeded improvements in the quality of social sector services
76. The above reform agenda reflects the Paris Understanding for FY95: (i) attacking poverty; (ii)improving public administration; and (iii) energizing the private sector. Since the Aid Group Meeting(AGM) of April 1994, the GOB's reform efforts have varied in intensity and coverage, with mixedresults toward achieving the reform goals in each of these three areas. Taking these developments intoaccount, a near- and medium-term priority reform agenda for faster growth and poverty alleviation ispresented below.
Establishing a Facilitating Business Environment and Resuming Policy Reforms:Energizing the Private Sector
77. Need for political stability. Since early 1994 increasing political uncertainity has createdeconomic uncertainty regarding the future course of reform actions and is adversely affectingBangladesh's image as a potential host country for foreign direct investment. The uncertainty relatesmore to the pace, timing, and the magnitude of further policy reform actions (e.g., in the trade andfiscal policy areas), rather than the possibility of policy reversals. It is widely believed that whateverthe outcome of present political difficulties, the move towards markets and the private sector will not beabandoned. However, the current political environment is hindering Bangladesh in reaping the fullbenefits of the important reforms achieved so far. The country urgently needs to re-establish aconsensus on national political processes to avoid costly disruptions in economic activity and to resumethe unfinished reform agenda.
78. Establishing a facilitatine business enviromnent. To realize the efficiency gains expectedfrom deregulation of markets and opening up of the economy, and exploit export opportunities in areaswhere Bangladesh has a comparative advantage, firms must be able to adjust their output andemployment levels, move their resources into relatively more profitable areas or exit from activities thatappear no longer profitable. To facilitate such adjustments and reduce the cost of doing business, theGovernment must start removing infrastructure bottlenecks, improve efficiency and flexibility of laborand financial markets, establish an effective commercial legal and judicial system to facilitate easyentry/exit, enforce contracts and protect property rights.
79. In infrastructure, efficient and expanding power, telecommunications, and transportationservices are important in creating cost competitive and growing industries. For an economy that needsto grow at above 6 percent, Bangladesh's existing infrastructure capacity must not only be used far moreeffectively through sustained improvements in operational efficiency, timely maintenance and
- 22 -
rehabilitation, but substantial capacity increases would also be needed particularly in the electricity andtelecommunications sectors. The legal/regulatory and institutional framework should be developed andput into effect in order to pave the way for private investment, which is now allowed in power,telecommunications, and gas sectors. Appropriately taken Government initiatives in allowing privateinvestment in ports--particularly in container handling operations--could pave the way for reducing portconstraints in export activities. Accelerating improvements in rural infrastructure is especiallyimportant for facilitating further intensification and diversification of farm production and for expansionof off-farm activities, thus enhancing the capacity of agriculture to contribute more to economic growthand poverty alleviation.
80. Flexible labor markets are important for the success of Bangladesh's overall developmenteffort and growth strategy based on labor-intensive manufacturing exports. Labor is Bangladesh's mostabundant resource, providing a comparative advantage in labor-intensive products. Full utilization ofthis comparative advantage for the economy and for achieving poverty reduction objectives, labormarkets must efficiently allocate labor in a changing market environment, link real wages toproductivity and send appropriate signals about skill needs, facilitate needed employment adjustments byfirms in response to changing market signals, allow for balanced and freely held collective bargaining,within a legal framework that also establishes a proper balance between flexibility ofemployment/retrenchment decisions and job security.
81. To these ends, the Government should take steps to institute a market-based collectivebargaining process that is free from government interference, and a system of severance liabilities andpayroll taxes that are in line with the market conditions and developing country norms. Accordingly,the Government itself should adjust its current practice of paying high separation payments and bringthese gradually down to legally mandated amounts. The current public sector norms for separationpayments are high for private firms that need to restructure to remain competitive. However, safety netprograms should be maintained for displaced workers--e.g., as in the case of the jute sector where theretrenched workers are helped through retraining programs for self-employment or re-employment. De-politicization of industrial relations will benefit both the workers, businesses, and the economy directlyby shifting the collective bargaining process to the negotiation table and eliminating the very costlyeconomy-wide agitations, with also positive impact on Bangladesh's investment climate and externalimage.3'
82. Efforts are also needed to improve the poor position of women in the labor market, whereonly 5 percent of women workers are engaged in the formal sector, over 80 percent of women workersare unpaid family helpers, only 6 percent of government jobs are occupied by women and only 2percent of SOE employees are women. Any discriminatory bias that may exist in hiring womenemployees in the public sector should be addressed. This would complement the Government's currentemphasis on investing in education of girls through the secondary cycle and would set an example forother employers.
83. In the financial sector, the Government should undertake further reform actions to establish afinancially sound, efficient and competitive sector. As a priority for the very near-term, the BangladeshBank (BB) must embark on a program of bank restructuring to improve the financial health of thebanking sector, preparing restructuring plans for all banks. These restructuring efforts would require atrilateral approach, involving the Government, the BB and banks. Also, efforts aimed at closing
LW For a comprehensive assessment of Bangladesh's labor market issues and recommendations for reform measures,see: The World Bank,Bangladesh - From Stabilization to Growth, op.cit., pp. 148-161; and, The World Bank, Banaladesh: Labor Market Policies for Hi2her Employment,(Green Cover will soon be issued).
- 23 -
unprofitable rural branches of NCBs should continue. In the policy area, the lending rate bands forspecial activities and the deposit rate floors should be removed. Beyond this policy move, the emphasisshould be on institutional reforms and strengthening as these have lagged well behind policy reforms.The recent improvements in the supervision function of BB itself need to be strengthened further withparticular emphasis on enforcement. Vigorous enforcement, if it is to become a reality, would requirefull political backing for the central bank. In addition, the central bank also needs to continueimproving the conduct of monetary policy by using indirect instruments instead of relying on directcontrols. (An assessment of the recent partial progress made in the implementation of specific measuresaimed at achieving the latter objectives is given in the Annex below, where a matrix presents anoverview of progress under the Paris Understanding for FY95).
84. In the area of loan recovery, pending actions should be taken to remove legal obstacles to debtcollection by amending the Financial Loan Courts Act (1990), to empower the courts execute theirjudgements, and strengthen these courts with additional judges, magistrates and police officers toenforce decrees for faster collection of defaulting loans.
85. The banking sector also needs to have more effective competition. The dominant role of theNCBs needs to be substantially reduced. This can be accomplished by privatization of NCBs and/orallowing the share of private banks to increase more rapidly, including the licensing of new banks. TheGovernment is considering both options and has in fact approved the issuance licenses to sevenapplicants. The Bangladesh Bank has already issued one license and two more are expected to be issuedsoon. As regards the privatization of NCBs, the Government's commitment to privatize the RupaliBank--one of the four NCBs identified for privatization about two years ago--should be implemented assoon as practicable. For the other NCBs, preparations for privatization should also be initiated. Untiltheir privatization, a serious effort should be made to improve their operational efficiency. This wouldrequire fundamental changes in the incentive system governing the management and staff'scompensation.
86. Beyond the dominant banking sector of the financial system, the Government should helpdevelop a money market (with emphasis, initially, on the development of an active interbank market)and the capital market. The Government also needs to deal decisively with the DFI (developmentfinance institution) subsector. The earlier decision to privatize BSRS (Bangladesh Shilpa Rin Sangstha)should be implemented and the other much larger institution, BSB (Bangladesh Shilpa Bank), should bedrastically restructured, if its immediate closure is not considered feasible. The third, ICB (InvestmentCorporation of Bangladesh), should be privatized given the field of its operations, i.e., the capitalmarket.
87. The Government has initiated some steps to reform the legal framework for markets and thejudicial system, but the process is incomplete in many instances and progress has been very slow inother cases. The already prepared drafts of the Bankruptcy Bill and amendments to Financial CourtsAct and the Foreign Investment Protection and Promotion Act should proceed through the neededreviews without unnecessary delays and be submitted for Parliament's approval. The recent passing byParliament of the Companies Bill (1994) and the amendment to the Negotiable Instruments Act of 1881should be followed by the modernization of other commercial legislation. Firm actions are also neededto improve the efficiency of judicial administration and legal procedures, which suffer from very highcase overload due to a lack of resources, insufficient number of well trained judges, and an absence of
- 24 -
effective arbitration process.12'
88. Trade policy reforms. From an economic efficiency viewpoint, the key objective of a tariffrationalization effort must be to move towards uniformity in nominal rates and, thereby, in effectiveprotection rates (EPRs), while also trying to lower the average rate. This will bring the incentiveregime closer to neutrality, also reducing the anti-export bias of the trade regime as the average tariffrate is reduced. And the residual anti-export bias, of course, needs to be compensated for through abroadly applicable and well functioning mechanism that provides for duty/tax-free access to inputs usedin exports. In the trade policy area, therefore, the Government should continue with the reforms towardthe already announced medium-term goal, to be achieved within two years, of lowering the averagelevel and dispersion of import tariffs, such that effective protection rates are comparable with thoseprevailing in internationally competitive developing countries. To remove policy uncertainty, theGovernment should also announce in advance the planned tariff changes for FY96 and FY97.
89. With respect to the import regime, near-term steps should include:
* Lowering of higher tariffs further, accompanied by the removal of the import license fee,as well of the user- and commodity-specific tariff exemptions and exonerations. Over thenext two years, a substantial reduction in the dispersion of tariffs could be achieved byreducing the high tariffs, which would also lead to a reduction in the average tariff ratebelow the current 30 percent. (Improvements in the revenue performance of direct taxesand the VAT, increases in the import duty collections due to the expansion of imports thatwould result from faster growth and diversion of at least some of the illegal trade to legalchannels would relieve the revenue pressures).
3 All the remaining trade-related QRs should be eliminated. This, together with the loweringof high tariffs, would especially affect textile items, exposing them to effective externalcompetition through official channels, which they now face from illegal imports.Continued protection of inefficient, economically unviable textile units side-by-side withefficient and competitive ones would retard this sector's development in general and healthylinkages with the RMG subsector in particular. Lowering of protection for the formershould be seen as the most effective way of promoting this sector. Ironically, this ishappening through undesirable route of illegal imports, which is also depriving theGovernment of tariff revenues.
* Customs clearances should be speeded up through the effective implementation of off-shorepre-shipment inspection (PSI) and phasing out of the tariff values as base for the assessmentof tariff liabilities.
Possible short-term labor displacement associated with this continuing import liberalization programshould be addressed through safety net programs for helping retrenched workers, with donor support ifnecessary. VAT should be extended to textiles, although the Government finds this difficult in presentcircumstances.
e' In 1990, there were 697 subordinate judges against 359,652 pending cases and 30 judges in the High Court as against 22,817 pending cases.And while the budget for the administration of justice rose to Tk 0.5 billion in FY93, it is a meager amount compared to the size of population andthe volume of cases. Although altemative dispute resolution mechanisms are available outside the judicial system, they are not widely used dueto problems of enforcement.
- 25 -
90. As regards the export regime:
* The few remaining export taxes and bans/restrictions on exports of agricultural andmanufactured goods (see paragraph 20) should be phased out without much delay, sincethese are discouraging the development of the corresponding activities. The objective of"protecting" consumers can be achieved more efficiently through competition instead ofexport bans.
* The efficiency of the duty drawback system needs to be enhanced through increasedapplication of "flat" drawback rates and improvements in the functioning of DutyExemption and Drawback Office (DEDO).
91. In the area of exchange regime, the limits on the retention of export proceeds by exportersshould also be phased out; they are inconsistent with the policy of current account convertibility.
92. In managing the exchange rate, the Government needs to take into account also the pace anddepth of trade liberalization in order to maintain competitive real exchange rates. Trade liberalizationwill, ceteris paribus, shift the underlying demand and supply functions in the domestic foreign exchangemarket. This means that the "equilibrium" real exchange rate will also change.
93. Industrial policy: privatization of state-owned enternrises (SOEs). A more aggressiveimplementation of the privatization program is important not only to achieve the immediate intendedobjectives of eliminating the burden of inefficient SOEs on the economy and enhancing efficiency, butalso to maintain the credibility of the Government's comrnitment to market-based reforms and privatesector development. Also, a good progress in reforming the NCBs crucially depends on the successfulhandling of the SOE sector problems. Accordingly: (i) the Government should speed up itsimplementation, including the allocation of adequate funds for meeting separation benefits; (ii) the PB'sinstitutional capacity must be strengthened quickly, using international and local expertise in technical,financial, and legal areas to carry out proper valuation of assets and market responsiveness, and preparesales prospectuses and tender documents; on this basis, the PB should expedite the privatization ofenterprises identified for its FY95 and FY96 program; and (iii) the privatization program should beexpanded beyond its current modest coverage and include other SOEs.
94. Successful progress in the implementation of privatization could also elevate support forexpanding the program not only to all of the SOEs producing tradables, but also utilities which are nowmostly open to the private sector. International experience-e.g., in Argentina, Peru, and Venezuela--has indicated that it is much easier to mobilize popular support for privatization of SOEs (and/or otherforms of major private sector presence) in, for example, telecommunications and power sectors, due togrowing dissatisfaction with the performance of SOEs in these sectors. However, as pointed out earlier,to attract private investment and promote maximum competition in these sectors, the Governrnent shouldfirst establish the sectoral legal/regulatory frameworks, making the business environment and policiestransparent.
95. Enhancing agiicultural Rroductivitv. The agriculture sector currently accounts for 35percent of GDP and is the most important source of employment and food. Given that well over 80percent of the population and the civilian labor force live in the rural areas, a robust agricultural sectorwill be crucial for its continued and enhanced contribution to economic growth, employment, andpoverty alleviation. Growth of agricultural GDP averaged 3 percent in FY81-90 and about 2 percentduring the last four years. Despite the extreme scarcity of crop land, however, achieving an agriculturalgrowth rate of close to 3 percent in the medium-term should be possible. To this end, the challenges
- 26 -
for agricultural policy strategy are to: (i) improve research and extension services to bring newtechnology and diffuse technology so as to bolster factor productivity growth and production of highervalue products, including vegetables and horticultural crops, fish and shrimp, and silk production; (ii)remove the remaining policy distortions (e.g., those observed in the fertilizer market, interest rate cap,recurrent loan write-offs), implement policies already in place, and avoid/resist any policy reversal; (iii)promote private sector initiatives in off-farm activities--e.g., in processing, marketing, and transport;(iv) accelerate improvements in rural infrastructure and in the efficiency and productivity of other publicexpenditures in agriculture and natural resources to promote further diversification and intensification offarm output and non-farm activities; and (v) maintain a good balance in public expenditures for newinvestments and operations and maintenance.
96. It should also be stressed that the implementation of the pending policy and institutionalreforms discussed in this section would complement the broadly appropriate agricultural policies andneeded additional actions referred to above in bolstering agricultural growth.
Improving Public Resource Management and Adminiistration
97. Public resource manaeement. Sustaining macroeconomic stability should be the primaryconcern of the Government in the fiscal area, with particular emphasis on improving the quality ofpublic expenditures and further enhancing the revenue performance. Maintaining prudent fiscal policiesis crucial to accelerate reforms and improve the investment climate for domestic and foreign privateinvestment. GOB should also take into account the cost of recapitalizing NCBs in its budgetarymanagement.
98. The Government has achieved considerable policy improvements in the revenue as well as theexpenditure side of its budget. On the revenue side, the process of broadening the coverage of the VATand direct taxes must continue through the elimination of exemptions. Stronger commitment is alsoneeded for strengthening the tax administration in order to improve tax compliance and enforcement.
99. Regarding public expenditures, apart from avoiding non-priority expansionary programs,continued emphasis should be placed on the prioritization and implementation of public expenditures toenhance their quality and thus their development impact. Public sector investment should take place inhuman resource development and infrastructure, not in activities where private investment could takeplace. This would ensure that economic growth indeed brings visible benefits to the poor and a strongcomplementarity is achieved between public and private investment to bolster growth prospects and theprivate sector development.
100. With respect to the Annual Development Program (ADP), notwithstanding the significantimprovement in the FY94 realization rate and shift toward social sectors, the ADP implementation stillappears to have been suffering from the heavy bunching of spending towards the end of the fiscal year,as this was more pronounced in FY94. While the improving implementation performance of ADP inthe first half of FY95 also reflects a more determined government resolve in this area, for sustainedimprovements in the implementation and efficiency of ADP as well as in related aid utilization,measures initiated in a number of areas need to be followed up seriously: (i) procurement ofgoods/works/services will continue to be a critical area, where an action plan should be implemented toensure effective application of GOB's revised guidelines, including compliance with stipulated timelimits; (ii) monitoring/enforcement and follow-up mechanisms will need to be strengthened andreinforced by institutionalizing accountability for project implementation performance.
- 27 -
101. Public Sector Manaeement and Administrative reforms. A significant governancechallenge is facing the GOB in the public sector management and administration area. This is toaccelerate efforts aimed at improving the efficiency of the public sector entities in the provision ofservices, in resource mobilization, regulatory oversight, implementation of new policies, and infacilitating a well-functioning and efficiency-enhancing business environment. The importance of astrengthened tax administration in achieving sustained improvements in the budget tax revenueperformance was already mentioned above. An important step towards good governance in the publicsector would be to move forward with the local government reform, which is crucial for efficientdecentralization and implementation of social sector and infrastructure programs. In an effort to reducebureaucratic delays, NBR has recently transferred the responsibility for issuance of Utilization Permits(UP), for import of RMG raw materials to the Read-made Garment Exporters Association.
102. In some public sector agencies, such as Bangladesh Agricultural development Corporation(BADC), Food Directorate, and Bangladesh Water Development Board (BWDB), staff rationalization isfacing funding constraints, requiring the support of the Government. Reform progress in the BWDBappears on schedule, though considerable time will be required to bring about qualitative changes in theoverall work environment.
103. In the power sector, despite the recent improvements, system losses (35 percent), lowcollections (85 percent of billings) and ratio of cash collections to generation valued at the average tariff(56 percent) continue to be the major problem for the Bangladesh Power Development Board (BPDB)and Dhaka Electricity Supply Authority (DESA). Stronger political commitment will be required toaddress the institutional and management issues for reducing system loss to an acceptable level.Meanwhile, in the transportation sector, reform progress has been satisfactory in Bangladesh Railways(BR) in the separation of (11,000) excess manpower, in formulating an institutional reform program andin contracting out ticketing operations to the private sector. But the BR reform program needs to bereviewed and an action plan put into effect. As regards the Bangladesh Inland Water TransportationAuthority (BIWTA) and Bangladesh Inland Water Transportation Corporation (BIWTC), there has beensome progress in improving their operational efficiency since January 1994, but the implementation ofvarious reform action plans must be speeded up.
104. The key Government implementationlsupport institutions such as the Customs Department,National Board of Revenue (NBR), and Duty Exemption and Drawback Office (DEDO) continue to besources of unnecessary delays in their day-to-day dealings with the private sector, thereby unnecessarilyincreasing costs for the business. They have shown slower progress in implementing new policies andin adopting to the Government's policy of economic liberalization. Also, notwithstanding the recentimprovements, the Board of Investment (BOI) and Export Promotion Bureau (EPB) still remainineffective in their promotional activities. Findings of recent small surveys carried by the World Bank'sResident Mission in Dhaka (Box 1) shed some light on the dimensions of these problems.
105. The Government should take further steps to strengthen these institutions for an effectiveimplementation of the policy reforms and turn some of these entities (specifically BOI and EPB) intopro-active promotion agencies. They should be streamlined, with their procedures simplified and stafftrained to deal with the business community. The Government should further improve institutionalizedmechanisms for formal consultations with private sector to resolve major bureaucratic impediments totheir daily activities and receive feedback on the actual implementation of policy and institutionalreforms. (Annex at the end of the text reports on the progress achieved in the implementation of actionstaken by the Government to address some of these issues).
- 28 -
106. Regarding administrative reforms, overall progress of the ongoing efforts aimed at theelimination of redundant functions and restructuring/downsizing of government departments has beenunsatisfactory. Some difficult but important medium- and long-term issues, such as the inter-cadreissues, have not been addressed yet, and not much progress is likely to be achieved in improvingpersonnel management and training in FY95. There is a need for renewed commitment to theseadministrative reforms.
Box 1. Additional Costs of Doine Business and Chaneing Business Environment
To gather qualitative information about the implementation of recent reform measures and obtain feedbackon delays/problems encountered at some of the key Government institutions, the World Bank's Resident Mission inDhaka carried out a small scale survey of 75 RMG exporters. Also, about 220 manufacturing concerns were surveyedto learn about their perception of recent changes in the business environment. The findings are summarized below underpanels A and B, respectively.
PANEL A:1) On an average it took:
(i) 12 days (with a maximum of 30 days) for the exporters' imported inputs to be released through customsat the ports/airport;(ii) 9 days (with a maximum of 75 days) to obtain customs clearance for exporting a shipment;(iii) 7 days (with a maximum of 30 days) to complete all the documents required for exports; and,(iv) on an average a firm spends more than half a person-year to deal with Government agencies such ascustoms, port authority, tax department, EPB, and various ministries. Moreover, a firm has to spend 7percent of its sales revenue (on an average) to overcome the delays by Government agencies in imponingand exporting of goods.
2) According to the responses, DEDO takes, on an average, up to 52 days (with a maximum of 120 days) toissue the refund check for duty drawback.
3) The most important reasons that were cited for causing delays in meeting deadlines for shipment werehartals/labor strikes, customs clearance, power failures, delays by fabric suppliers, and delays at ports.
4) Most of the Special Bonded Warehouse users indicated that their experience with the customs authority wasnot satisfactory.
PANEL B:1) A majority (57 percent) of the respondents, specially those that are engaged in exports, thought that the
business climate was more favorable to the private sector now than five years back. And 52 percent of therespondents indicated that day-to-day constraints and bottlenecks facing in business activities have decreased.
2) The attitude of the bureaucracy does not seem to have changed over the last five years as 70 percent of therespondents did not think that government officials are more responsive to the problems and needs of theprivate sector.
3) Among the reform measures, the deregulation of industrial investment does not appear to have beenimplemented fully according to 53 percent of the respondents who did not agree that it is easier to start anew business or expand an existing one now than previously. However, most of them agreed that it iseasier to import machineries (77 percent) and raw materials (71 percent) than before. Two-thirds of theexport-oriented firms also found it easier to export goods at present.
4) The surveyed entrepreneurs seemed to be divided on the quality of service provided by such GOB agenciesas EPB, BOI and the commercial banks, as about half of them found the services of these institutions tohave improved over the last five years while the other half found their services to be just as poor. Bycontrast, all the respondents unequivocally found the services of NBR (Customs, VAT, Income tax), DEDO,PDB, DESA, WASA, and Titas Gas to be just as bad as before and the reforms seemed to have failed tobring improvements in the quality of services offered by these agencies.
- 29 -
Attacking Poverty
107. In addition to accelerating the economic growth rate, strengthening of the social sectorprograms, and efforts aimed at rural development and expansion of water supply and sanitation are alsokey elements of the Government's poverty alleviation objective. The Government has continued itsefforts to improve conditions in these areas by shifting more budgetary resources (both from the revenuebudget and the ADP). This trend is continuing in the FY95 Budget. There is, however, need for acontinued effort to improve the quality of services in the social sectors.
108. In education, to ensure the success of the efforts aimed at improving the quality of primaryeducation through curriculum development, textbook distribution and teacher training, the wastage in theschool system needs to be reduced. Long-term teacher development strategies are needed to improvethe education and training levels of teachers, particularly in non-government schools. And greateremphasis is needed to improve student learning achievements. Teacher recruitment and deploymentneed to provide a balanced distribution of educated and trained teachers across all schools, including thenon-government schools where about 40 percent of primary and 98 percent of secondary students areenrolled. Also, the expansion of enrollments to include poor children is particularly important inattacking poverty.
109. There has been varying degrees of progress in most areas of family planning and primarvhealth care services. A widely accepted and comprehensive National Health Policy needs to bedeveloped in the light of a health sector review, with new directions for effective primary services,specially directed to mothers, children, and extremely poor in both rural and urban areas. The plan tofocus on younger couples in family planning and the promotion of clinical methods of contraceptionwill, if implemented, improve effectiveness of the program. Private sector participation and informationcampaigns should be promoted and expanded. Maternal and child care and primary health care (PHC)services could be made more efficient and effective if their organization and rationale were betteriterated and resources allocated appropriately. An urban PHC program also needs to be developed.The National Health Policy will give direction to such a process and its preparation should be completedas soon as possible.
110. The FY95 government program for water supplv and sanitation expansion is very appropriate,though the GOB's FY95 plan for the construction of more than 2 million rural latrines appearsambitious. As regard efforts aimed at addressing urban poverty, little progress has been made inarticulating urban policies to mitigate the situation. GOB should play a more active role in coordinatingthe donors' efforts in this area to ensure that these complement and reinforce each other. It should alsocome up with an overall policy framework to deal with the urban development and urban poverty issues.Given the complexity of the task involved, the GOB will need external support to deal with thesituation. In this respect, the GOB recently initiated a study on urban poverty, with donor assistance.
111. As regards efforts aimed at enhancing credit access opportunities for the poor, the initiativesof BB, commercial banks and Grameen Bank to promote the expansion of sound market-oriented creditprovision and savings mobilization in rural areas and urban slums are well placed. However, to ensuresustainable success in these efforts, the continuing pressure to lower interest rates for rural lendingshould be resisted.
112. With respect to the targeted safety net programs, the progress toward raising the fooddistribution under the "vulnerable group development" (VGD) and the "food for work" (FFW) programshas been mixed. While the distribution under FFW is expected to exceed the target of 500,000 MT inFY95, that under the VGD program is likely to fall short of 350,000 MT target. GOB and the donors
- 30 -
need to consider ways of supporting an expansion in this vital social safety net. This outcome alsounderscores the need for strengthening of institutions for food assisted development programs, such thatthey can be integrated into the overall development program.
113. The Government, taking into account the important linkage between poverty alleviation andenvironment, has also carried out a commendable process of consultation with cross-sectional groups ofthe society to develop a broad framework for addressing environmental issues and for completing animportant phase in the preparation of a "National Environmental Management Action Plan" (NEMAP).The task now is to assess the various environmental risks confronting Bangladesh, define some key,time-bound and realistic environmental objectives, adopt an appropriately designed and workablestrategy and identify a set of priority actions, indicating which agency is responsible for theirimplementation with clear deadlines. It is also important to weigh the relative costs and benefits ofproposed solutions. Future work would need to involve more rigorous economic analysis as a basis formaking difficult choices and setting priorities. And the use of market-based policy regime--prices thatreflect negative externalities and/or appropriately set indirect taxes--should weigh heavily in determiningthe policy regime in support of environmental objectives. In addition, the NEMAP needs to linked to doNational Conservation Strategy and sector plans for natural resources such as water, fisheries andforests.
F. MEDIUM-TERM PROSPECTS AND EXTERNAL AID DISBURSEMENTS
114. Bangladesh has to achieve a sustained increase in economic growth to above the 6 percentrange in order to improve prospects for poverty alleviation. With the sustained macroeconomicstability, comfortable budgetary and balance of payments situation and foreign exchange reserves,Bangladesh continues to have an opportunity to start moving the economy to a higher plateau ofinvestment, economic growth, incomes, savings, and employment creation. The Government mustcapitalize on these rather positive macroeconomic conditions, and strongly re-commit itself to a fast paceof reforms in all three major reform areas expounded above. Because of their strong complementarityand reinforcing effects, it is important to stress that reforms should be carried out in all of these areas toensure the success of rapid growth efforts. Incomplete reform effort would adversely affect prospectsfor faster growth. And a failure to accelerate the stalled reform program would not alter the currentgrowth performance and poor prospects for lowering the absolute number of the poor.
115. External environment. Another compelling reason for Bangladesh to accelerate reforms isthat it should prepare itself for an external environment that is becoming increasingly competitive andpave the way for the development of a competitive and diversified export base. External developmentsare showing that the trend of increasing competition in global markets will continue with the increasingintensity of trade liberalization, and globalization of economic linkages. And now with the recentconclusion of the Uruguay Round, which has important implications for Bangladesh's single mostimportant export item RMGs, Bangladesh needs to not only maintain/enhance its competitiveness inRMGs, jute/products, leather goods, and frozen fish, but also move into other potential export areas,exploiting its comparative advantage in labor.
116. Currently, over 50 percent of Bangladesh's exports comprise of RMGs. Of this almost halfare restricted by Multi-Fibre Arrangement (MFA) quotas. Potentially, the termination of the MFAAgreement can result in increased exports of these commodities. On the other hand, phasing out ofMFA quotas will level the playing field for all textile and clothing exporters. If Bangladesh's productsare not competitive with other countries' garment exports, it may result in trade diversion and loss of a
- 31 -
hitherto guaranteed market for Bangladesh's garments.
117. Recent studies show that the removal of MFA will substantially increase South Asia's exportsof textiles and clothing.-' Bangladesh's share in this increase will be determined largely by thecompetitiveness of its products vis-a-vis India, Pakistan and Sri Lanka. For Bangladesh to retain--andpreferably expand--its export share, it is essential that its exporters remain internationally competitive.This would require continuous access to inputs at internationally competitive prices, while a relentlesseffort in product, design, and fashion development, and market promotion would also be needed. Also,improvements in the cost and quality of domestic input suppliers could contribute both to RMGcompetitiveness, as well to Bangladesh's net external trade position. While the MFA removal process isbackloaded, with nearly half the products scheduled to be liberalized in the tenth year, Bangladeshcannot afford to be complacent. Developing countries the world over are gearing up to take advantageof the opportunities created by the Uruguay Round. In this regard, Bangladesh's trade liberalizationwill play an important role by increasing competitive pressures in the domestic market, thereby inducingefficiency in production and resource allocation, and also encouraging export diversification. Already,there are signs of increasing export diversity beyond RMG, frozen fish, shrimp, and leather products,with potential items such as fresh flowers, computer software development and electronic dataprocessing, silk, and stuffed toys.
118. The accelerated-reforms scenario. Prospects for faster growth will be strong under anaccelerated-reforms program. But, the Government must move in all fronts to remove the perception ofpolicy uncertainty, establish the credibility of commitment to market-based reforms, and thus, ensurerapid growth. It is particularly important not to delay those actions that are critical for raising privateinvestment levels. The strengthening of public administration in resource management, qualityenhancement in public expenditures and the ADP implementation will be important. This would pavethe way for further increases in public investment without compromising its quality and efficiency, whilealso ensuring a sustained macroeconomic stability. Early actions to speed up the process of reformingthe financial sector, tariff rationalization, and of privatization will also be critical.
119. Under this accelerated-reforms scenario, with total investment rising from an annual averageof 12.8 percent of GDP in FY90-94 to 16.1 percent in FY95-99 and 18.7 percent in the first part of thenext decade, GDP growth would gradually rise from below 5 percent in the first half of the 1990s toabout 7 percent by the end of the decade (Table 7). In terms of sectoral growth, the accelerated-reformsscenario assumes that the growth in agriculture would increase from 1.8 percent in FY94 to 2.8 percentin the medium-term, which is not unrealistic as elaborated in Paragraphs 92 and 93 above. Acceleratedreforms would stimulate increasing dynamism in industry (i.e., manufacturing, mining, utilities, andconstruction), driven by an expanding investment activity. As a result, industrial growth would risefrom about 7 percent in FY90-94 to 9.6 in the second half of the 1990s. Growth in manufacturingwould rise from also 7 percent to above 11 percent over the same period, with a faster expansion ofexport-oriented production. Expanding linkages with the service sector, particularly with anincreasingly healthier banking sector, would also lead to a higher growth in the latter sector--from 5.2 to6 percent.
120. Because of high import content of investment and import liberalization, rising investment andgrowth would also gradually raise the import/GDP ratio--from just under 16 percent to almost 20percent by the end of the decade. The exports/GDP ratio would also start rising--from about 10 percent
L'' A recent study--Yongzheg, Y., Martin, W., and Yangashima, K. Evaluating the Benefits of Abolishing the MFA in the Uniguav Round Package,Mimeo., The World Bank, October 1994--estimates that following the removal of MFA, South Asia's aggregate exports of textiles and clothingwill increase by 23 percent and 123 percent, respectively, while their outputs will expand by 12 and 51 percent.
- 32 -
in FY94 to just under 13 percent by the end of the 1990s--with the positive impact of a falling anti-export bias of the incentive regime and improvements in the institutional support. In the medium-termn,RMGs, leather products, fish products, other non-traditional exports as well as jute/products wouldcontinue to be the key exports items, while further export diversification would also start.
Table 7: Medium Term Growth Scenario: Key Macro Indicators(In percent of GDP, unless noted otherwise)
121. The external current account deficit would remain at above 3 percent of GDP in the later partof the 1990s. The current account deficit and debt amortization would be financed by rising aiddisbursements that would most likely be forthcoming in response to stepped up reforms and continuingimprovements in the ADP implementation. Also, particularly in later years, foreign direct investmentin, especially, infrastructure and utilities would contribute to the balancing of external accounts. Withcontinuously rising import demand, foreign exchange reserves would come down from their currentlevel of over 8 months of imports equivalent to 7 months of imports by the end of the decade.
122. Under this scenario, budgetary developments would continue their positive trend. With anincreasing coverage of VAT and improvements in the tax administration, the revenue-GDP ratio wouldgradually rise, more than offsetting any likely tariff revenue losses associated with further tariffrationalization, and finance an increasing portion of government expenditures. Consequently, theoverall budget deficit would fall from about 6 percent of GDP in FY94 to below 5 percent by the end of1990s.
123. The slow-reform scenario. Failure to accelerate the slow moving reform process under suchfavorable macro conditions would basically leave the investment environment unchanged. With so manycritical policy and institutional areas facing incomplete reform programs, it will be difficult to convince
- 33 -
the domestic and, especially, foreign investors to undertake increasing levels of invetment. Projectionscarried out under the assumption of slow moving reform program show that GDP growth would renminbelow 5 percent in the medium-term because of continuing sluggish private investment activity. This iscertainly not a desirable scenario, under which economic activity would continue at levels lower thanwhat is needed to tackle poverty, with the consequent enduring increase in the absolute number of poorand social tensions.
External Fuac in FY96
124. Strong commitment to the acceleration of unfinished reforms and sustaining efforts to improvethe quality of public expenditures in general and public investment in particular would be important forBangladesh to continue obtaining donor aid in meeting its external financing needs, especially in view ofthe increasing competition for concessional aid and declining supply of grant money. Recentimprovements in the ADP implementation and continuing efforts aimed at better prioritization ofdevelopment expenditures are good signs, but these efforts should be intensified and institutionalized.Assuming that such efforts continue and GOB accelerates reforms, the projections for such a rapidgrowth scenario indicate increases in the external current account deficit relative to GDP in the medium-term, as imports grow faster. This implies-notwithstanding Bangladesh's currently comfortable balanceof payments situation-a moderately rising need for external assistance in the medium-term, starting witha project aid disbursement of about $1.3 billion for FY96. Commodity aid disbursements, projected at$0.4 billion, would continue at roughly their expected FY95 level as a result of continuing adjustmentoperations. And food aid disbursements are projected at $0.15 billion, consistent with the levels of foodaid in recent years. The pace and composition of FY96 aid disbursements will ultimately depend,however, on the speed at which the Government implements the needed reforms.
125. With the increasing openness of the economy, private capital flows, including foreign directinvestment, will play a greater role in meeting Bangladesh's external financing needs. Nevertheless,concessional official assistance will continue to play an important role in meeting Bangladesh'sdevelopment needs.
ANNEX
ASSESSMENT OF PROGRESSIN THE IMPLEMENTATION OF REFORMS
UNDER THE PARIS UNDERSTANDING FOR FY95
ASSESSMENT OF PROGRESS IN MEETING TARGETS UNDER THE PARIS UNDERSTANDING FOR FY95
I. ATTACKING POVERTY
Reform Actions under the Progress to Date Overall Assessment and Prospects for Remainder of FY95Paris Understanding
Reinforce priority to improving A new national curriculum is being developed for all five primary classes and Primary school enrollment and attendance are improving.quality of primary/mass education introduced nationwide into classes 1, 2 and 3. Free textbooks are distributed However, resources should be targeted to rural and urban areasand sound division of coverage annually. Most government primary school teachers are trained, and an where enrollment and attendance of girls and children of poorbetween govermnent and non- increasing number of non-government school teachers are attending one-year families remain low. Curriculum reform is a continuous processgovernment schools. courses at government training institutes. In-service teacher training is and teachers should be actively involved in review of curriculum
conducted at school, and school cluster levels and additional school implementation. Some textbook re-use has been implemented.supervisors have been appointed. The national teacher-student ratios are Savings could be used for other quality improvements such asabout average for the region. However, class size varies tremendously within provision of stationery, additional reading materials, and schooland between schools as a result of poor teacher deployment practices. libraries. Teacher training and supervision need to place greaterDistribution of government grants has been extended to include a variety of emphasis on raising student learning achievement. Communitynon-government schools, including NGOs conducting nonformal primary support and management of schools are increasing and should beeducation programs. Of all students enrolled in primary schools, 40% are in expanded through incentives for monitoring teacher and studentnon-government schools. attendance.
Accelerate progress in family Contraceptive prevalence rate (CPR) has increased overall, from 39.9% in There have been varying degrees of progress in most areas, butplanning coverage, improve 1989 to 44.6% in FY94. but within younger age groups progress is slower. given that these are essentially long-term processes, the actionseffectiveness of primary health Contraceptive methods mix has not shifted towards cost-effective methods. need to be pursued in order to achieve improvement in results.care services at the grass roots Private sector, including NGOs. have been involved increasingly. Coverage Efforts to reach the younger unserved couples needs to be geared wlevel, and improve cooperation of essential primary health care services such as immunization is high at the up. Promotion of clinical methods of contraception will improvebetween health and family grass roots level, but coverage of maternity services is very limited. An cost effectiveness. Improvement of quality of services andplanning workers. integrated nutrition project is being prepared. Launching a reorganization management at the field level is essential. Increased acceptance of
study for improving cooperation between health and family workers has been ante natal services and development of a viable MCH networkslow. Two TA projects --- for improving human resources planning, and for needs to be promoted. Private sector participation should beimproving policies on health economics --- have been initiated. further promoted.
Implement water supply and A situation analysis has been prepared, based on which a national program of The program for FY95 is very appropriate, but it is not clearsanitation expansion plan action for the sector will be prepared within FY95. GOB has announced a whether direct subsidy is the most appropriate and cost-effective
program of subsidy for construction of rural latrines, aimed at expanding means of achieving the objective. GOB's quantitative target forsanitation coverage from 35% at present to 50% by mid-1995, which will expansion of sanitation in FY95 appears unrealistic.involve construction of over 2 million latrines.
Adopt urban policies which focus GOB is working with ADB on preparing a TA project for studying urban Little progress has been made in articulating urban policies tomore on urban poor, including poverty in Bangladesh. The TA project has been approved and the study is mitigate the situation. GOB should play a more active role inmonitoring of urban poverty and being initiated. IDA, ADB and Netherlands are working with GOB to prepare coordinating donor efforts in order to ensure consistency ofstrengthening of municipalities for projects for municipal infrastructure development, which explicitly address approach. In addition, it would be desirable for GOB to formulatebetter targeting of their services the poor. soon a comprehensive overall policy framework to facilitate the
formulation of appropriate programs. Given the complexity of thetask involved, GOB will need external support to deal with thesituation.
Operationalize National Council No concrete action has been taken. The Ministry of Women's Affairs has been pursuing this issue withfor Women's Development the Cabinet, but prospects for early action in this area appear
uncertain.
Reform Actis Under the Prorss to Date Overall Assessment and ProsDecs for Remainder for FY9SPari Understandmin
Enhance investment Preparation of the Second Rural Road and Market Improvement Project has GOB has shown greater responsiveness and interest in promoting the
opportunities for been accelerated by IDA at the request of GOB. An ongoing agricultural objective in recent months but clearly more serious efforts are required
intensification and diversification study by IDA, being carried out in close collaboration with as part of a comprehensive overall strategy for promoting agriculturaldiversification of farm GOB, will be exploring possibilities for enhancing agricultural exports. GOB diversification and growth.production and for expansion has expressed interest in a possible IDA-supported project to promoteof non-farm activities by agricultural diversification.accelerating improvement ofrural infrastructure.
Promote expansion of sound Government is actively supporting a joint GOB/IDA/ADB rural finance study, Efforts since March last year have been mixed, with GOB showingmarket-oriented credit which will be looking into more cost-efficient and effective mechanisms for responsiveness and initiative in some areas but lack of full commitmentprovision and savings delivering rural financial services. GOB clearance has been given for the in others. The pressure to lower interest rates for rural lending is notmobilization in rural areas closure of some 93 loss-making rural branches (or 3% of 3000 rural branches encouraging since these pose a threat to the viability of the lendingand urban slums through the in the country), but only 34 branches have been closed so far. Progress in operations. The effort to close down unprofitable rural bank branchesbanking system, NGOs, closure has lagged particularly for NCBs, which have closed down only 4 also appears to lack strong commitment with limited progress in closure
Grameen Bank and BRDB branches although 57 branches had been approved for closure. Bangladesh so far.programs. Bank and commercial banks are in the process of establishing links with
reputable NGOs to reach the poor more effectively. GOB is providingguarantee for floating of bonds by Grameen Bank. Currently GOB is alsoconsidering setting up a poverty credit fund, with donor assistance, to beexecuted by the Bangladesh Bank to help funance poverty lending by institutionslike the Palli Karma Sahayak Foundation, BRAC and other NGOs.
Raise food distribution under Food allocations for the VGD program (which is reaching some 450,000 Overall progress in this area has been mixed. While distribution undervulnerable group women) in FY95 up to December have been about the same level as in FY94, FFW is expected to exceed the annual target (500,000 MT), that under
development (VGD) channel but has lagged considerably behind the annual target. Food donors and GOB VGD is likely to be only about 185,000 MT, considerably less than theto 350,000 MT and under have not been able to raise their level of contribution to match the VGD target. Additional food aid allocations for the VGD program are notfood-for-work (FFW) to distribution target. While GOB has increased its allocation to the VGD expected from the donors during the remainder of the year. GOB and500,000 MT in FY95, and program, this has been inadequate for meeting the annual target. Distribution donors would have to consider how they could jointly support an
improve targeting of these under the FFW program, on the other hand, has been in line with the annual expansion in this vital social safety net, and establish a realistic targetprograms to the more target. The development impact of the VGD program continues to be for FY96. Also food assisted development programs like VGD wouldvulnerable sections of the enhanced, with the development coverage of the women being raised from 28% have to be increasingly integrated into the overall development planning
rural poor, and improve the in 1992/94 to 77% in FY95. in order to raise their development impact. This would require, among
longer-run development other actions, early implementation of the action plans for
impact of these programs. strengthening of institutions for food-assisted development (SIFAD),progress in which has been slow.
Complete the consultation The process of consultation has been completed and a draft NEMAP document Considerable work needs to be done to address the gaps in the draft
process to prepare a widely has been prepared and discussed with donors but progress is behind schedule. NEMAP document before it takes shape as an implementable and well
supported National The NEMAP document in its present form contains a check list of almost all articulated plan. In addition to addressing the various deficienciesEnvironmental Management observable and potential environmental problems and issues confronting the key identified in the current draft, including comments obtained from
Action Plan (NEMAP) and sectors. What it lacks however are: key time-bound short/medium and long- donors, various sectoral plans and strategies, such as the Nationalstart its implementation by term environmental objectives, criteria for establishing priorities and assessing Conservation Strategy, National Water Plan, etc, should be taken into
December; introduce environmental risks; indications of sources of financing of environmental- account in revising the NEMAP.effective mechanism for related actions and, related to this, a statement of the environmentalassessing realistic policy/institutional regime, and a strategy for addressing environmentalreplacement values of concerns related to FCDI projects and FAP.properties expropriated andredressing grievances ofaffected persons.
11. IMPROVING PUBLIC ADMINISTRATION
Reform Actions Under the Paris Progress to Date Overall Assessment and Prospects forUnderstanding Remainder of FY95
Stress political commitment to urgent action There have been expressions of political commitment to improved public sector performance Prospects for better public sector performanceon improved public sector performance and but these have not been sufficiently strong and the urgency of actions has not always been will depend on high-level interventions to speedaccountability, particularly in Ministries apparent. Commitment to the process of administrative reforms, restructuring and up the policy and institutional reforms affectingcentral to ADP execution and private sector manpower rationalization, for instance, which are crucial for improved public sector project implementation and private sectordevelopment. performance, has not been sufficiently strong. The establishment of an autonomous development. Prospects during the rest of the
Privatization Board and change in the role of the Board of Investment, and appointment of a fiscal year look uncertain, and decision makingSpecial Envoy by the Prime Minister for private sector issues are indications of GOB's is likely to be affected by the politicalcommitment to private sector development, but actual performance in effective deregulation uncertainty.and privatization has been slow. While high-level review meetings, chaired by the PrimeMinister, on ADP implementation did not take place in the first half of FY95, these havebeen initiated recently.
Achieve an appreciable increase in the ADP expenditure in the first half of FY95 was 32% of the annual target, compared to 26% in While there has been some improvement in ADPrealized ADP in FY95, including fulfillment the first half of FY94 and 27% in the first half of FY93. ADP monitoring has improved in realization during the first half of FY95,of at least 35% of the annual target in the FY95 with the setting of quarterly spending targets against which performance is judged. compared to that during the correspondingfirst half; strengthen the implementation Procurement reporting is however still unsatisfactory and subject to delays, and there is yet periods of FY93 and FY94, realization hasmonitoring, enforcement and follow-up no systematic review of status of procurement at a sufficiently high level to deal with cases of fallen short of the target. Actions initiated in amechanisms, and improve the quality of the delays/lapses. The coverage of the training program on procurement should be increased to number of areas need to be followed uppublic investment program. include personnel of all aided projects. A recent positive step is the seting up of a seriously and an action plan implemented for
procurement monitoring cell in IMED, which will cover large/medium-sized contracts on a addressing outstanding problem areas early in s
monthly basis. There has been some delegation of financial authority, and legislation has 1995 in order to achieve a satisfactory ADPbeen amended to provide greater delegation of authority for land acquisition. Instructions outcome in FY95. Procurement ofrequiring full-time Project Directors have been issued. While there has been some goods/works/services will continue to be theimprovement in ADP monitoring by the Planning Commission, and follow-up by LMED, critical area, where the action plan should beconcrete actions are required for institutionalizing improvements in the Ministries/agencies implemented to ensure effective application ofand for ensuring enforcement of targets/guidelines. The three year rolling investment plan GOB's revised procurement guidelines,(TYRIP) and a process of pruning have been institutionalized. However there are questions including compliance with stipulated time limitsabout the rationale and priority of a number of projects in the TYRIP/ADP, and GOB is for various stages of the procurement cycle.reviewing donors' comments. In addition, the quality of appraisal of non-aided Mechanisms for monitoring, enforcement andprojects/programs in the ADP is not known, and a sizable amount of block allocations have follow-up will need to be strengthened andapparently not been linked to performance indicators or provided as part of a prioritized plan. accountability for implementation performanceProject processing/approval, particularly for TAPPs, is not proceeding sufficiently should be institutionalized.expeditiously, with implications for the build-up of the project pipeline.
Complete the work of the Committee on The Nurunnabi Committee (NNC) has been mandated to review 260 governmental Overall progress has been unsatisfactory. The
Intensify efforts for manpower While a sizable share of the excess manpower has been separated through voluntary Progress in separation has been unsatisfactory inrationalization in parastatals, and carry out separation scheme and lay off up to end-FY94, the process has slowed down in FY95 so far, FY95, and prospects for the remainder of FY95small sample surveys of separated workers, largely because of an apparent weakening of political commitment, but also partly inadequate do not appear favorable. There is a need for
funds. The survey of separated manpower has not yet been undertaken. renewed commitment to consolidate the progressachieved and allocate adequate funds for meetingseparation costs.
Agreed Reform Actions Progress to Date Overall Assessment and Prospects for the Remainder of FY95
Implement restructuring plans While a sizable number of staff have opted to leave BADC, the voluntary retirement Overall progress and prospects appear to be mixed. GOB needs
for Bangladesh Agricultural program has been kept in abeyance because of funding constraints. Ministry of to support the separation costs of BADC staff. The TA support
Development Corporation Agriculture has made a request to the European Union for TA support for facilitating to BADC should be approved expeditiously and the
(BADC) and Food restructuring of BADC. A good start has been made in implementing the reform restructuring implemented soon, with forward planning for
Directorate, and a program program in the BWDB with the filling of top management position with full-time downsizing beyond voluntary separation. In the BWDB,
of reform and reorganization Members, and overall progress of the reform program is on schedule. considerable time will be required to bring about qualitative
of the Bangladesh Water changes in the overall work environment, and special efforts
Development Board (BWDB) should be made to speed up the process.
Proceed with law reforms; A Legal Task Force recommended a dated action plan for law reforms but its The agenda for FY95 has been partially implemented, and is
remove legal shortcomings, implementation has been slow, with little substantive actions in strengthening judicial unlikely to be addressed fully during the remainder of the fiscal
understaffing of the judicial processes and training. There has been good progress in drafting legislation year. The process of vetting various draft legislation by the
system, deficiencies in legal (Bankruptcy Bill, Financial Loan Courts Act, Foreign Investment Protection and Law Ministry, and clearance by Cabinet and ultimate ratification
procedures; continue Promotion Act) but these are still awaiting veting by the Law Ministry and by Parliament should be speeded up. Stronger political
updating commercial subsequent submission to Parliament for ratification. There has been little progress in commitment will be required for implementing these vital legal
legislation and establish Law addressing deficiencies in legal procedures and judicial administration. Updating of reforms, particularly since some of these are linked to difficult
Reform Commission. the existing commercial legislation is also proceeding slowly. Although GOB has issues like separation of powers.
decided to establish a Law Reform Commission, it is not yet operational.
Implement expeditiously the A power sector reform program was approved by GOB in September and some TA The TA projects for the implementation of the reform program
power sector reform program projects are being prepared for implementing the program. BPDB has decided to should be approved and implemented expeditiously. Stronger
as a means of bringing the contract out some of its commercial operation functions (meter reading/billing) to the political commitment will be required to address the institutional
unacceptably high systems private sector. BPDB and DESA will be monitoring system losses at the 1I -KV and management issues for reducing systems loss to an
loss under control. feeder level. System losses and low revenue collections continue to be the major acceptable level,
problems confronting BPDB and DESA. Average systems loss for a 12-month period
ending October was 23.1% for BPDB, 31.5% for DESA and 35.2% combined.
Pursue implementation of the Satisfactory progress has been made in separation of excess manpower of Bangladesh Overall progress has been mixed, with much better progress for
reform plans to transform the Railways (BR), in formulating an institutional reform program, and in contracting out BR than in BIWTA/BIWTC. Stronger commitment will be
main transport parastatals some ticketing operations to the private sector. After a period of standstill, there has required to speed up the implementation of the various action
into commercially-oriented been some momentum since last January in the implementation of various action plans plans for BIWTA and BIWTC. GOB will also need to review
and market responsive for improving the operational performance of BIWTA and BIWTC, but progress the proposed reform program for BR and adopt and implement
organizations. continues to lag behind schedule. an action plan soon.
Continue progress in tax Progress in improving VAT administration has been partly constrained by delays in Overall progress has been mixed. While there have been
administration and efficiency appointing a VAT advisor, who is now expected to arrive by end-January. In income improvements in tax policy, stronger commitment would be
of the tax system, and in tax, while some progress has been made in reorganizing the jurisdiction of tax offices required for strengthening tax administration in order to improve
rationalizing public and raising the number of assessing officers, these effons are inadequate for tax compliance and enforcement. VAT administration should be
expenditures by strengthened improving tax enforcement. In the revenue budget, low priority expenditures, like strengthened further to improve the coverage of domestic VAT.
control over low-priority untargeted food subsidies, continue to be controlled. GOB has recently decided to In income tax there is a need for more measures: recruiting
spending and adequate award an interim across-the board 10% increase in basic pay of Government additional assessing officers; computerizing income tax accounts;
allocations for operations and employees, whose budgetary implications have not been fully assessed. Allocations in identifying new tax payers through surveys and registers on
maintenance (O&M). the FY95 budget for operations and maintenance (O&M) in key sectors (roads, importers/exporters/VAT payers; prioritizing efforts by
irrigation and flood control structures, etc) have been raised in real terms. expanding self-assessment for low income groups and focusing
on assessment of higher income groups.
111. ENERGIZING THE PRIVATE SECTOR
Aged Reform AProwess to Date Oval Asesment and ProsectsrRemWader of EK95
Extend tiade liberaization measures Only two hems have been removed from the FY95 Control List, leaving QRs on 26 HS-4 The agenda has been implemented only partially,by reducing irport controls, by items (mosdy textiles) for trade reasons. Tariff rationalization is continuing satisfactorily, and prospects for early action in the reminder ofrationalizing tariff structure, and by with the highest rate of duty coming down to 60% for nost iteas. The number of tariff the year appear uncertain.reducing reliane on tariff values rates has also been reduced from 12 to 5. The average tariff rate has been lowered fromdtrough increased use of pre- 40% in FY94 to 30% in FY95. While tariff values continue to be used as the basis forshipment inspection (PSI) or other determination of customs duties for the bulk of imports, one positive decision is that in themeans. case of goods imported under PSI the PSI value will override the tariff value.
Ensure more effective high-level While key officials in NBR, Ministry of Commerce nd BOT hold frequent meetings with Overall progress in this area has beenmonitoring of implementation and private sector representatives in the various Chambers of Commerce and Industry to resolve unsatisfactory. There is yet no formal monitoringapplication of policy reforms at the major problems and irritants, no formal institutional setup is yet in place for reporting and set-up and the programs for strengthening andbusinessman's level, and strengthen monitoring progress. The reorganization plan for BOI has been approved by the Ministry of restructuring of BOI, DEDO and EPB have notthe Board of Investment (BOI), Establishment, but has been awaiting further clearance by Finance Ministry for some time. been implemented; prospects for action in theDuty Exemption and Drawback The DEDO continues to lack adequate professional staff, which has also affected its remainder of FY95 appear uncertain. There is aOffice (DEDO) and Export functioning, and businessmen continue to experience problems in claiming duty drawback. need for strong political commitment to movePromotion Bureau (EPB) to make Exporters are not satisfied with EPB's service. While a reorganization plan has been decisively with the restructuring of BOI, DEDOthem truly private sector supporting proposed for the EPB quite some time ago, it has not been adopted yet. Problems and EPB, and to change the orientation of theseorganizations with strong technical encountered with the customs administration are considered to be a major obstacle to the agencies to promote private sector activity.expertise. smooth functioning of businesses.
Improve Bangladesh's inage as an In April GOB set up a Task Force to propose measures to increase FDI. The Task Force has Overall progress has been satisfactory. However,attractive destination for foreign proposed an 18-point agenda, based on which a detailed action plan is being formulated. some recent measures regarding participation by A
direct investment (FDI) by giving Facilities for foreign investors in the EPZ have been expanded; BOI is now more responsive foreign investors in the capital market is likely toattention to the services available to to foreign investors. Key GOB officials have been active in major foreign capital markets in be restrictive. While a number of positiveforeign investors. advocating Bangladesh's case as a favorable destination for FDI. The Bangladesh Investment initiatives have been taken, political instability and
Conference organized jointdy by the BOI and Euromoney in January 1995 was attended by a the legacy of regulations however continue tonumber of international fund managers and some potential foreign investors and generated undermine the country's potential for attractingconsiderable interest by international investors. FDI.
Prepare and begin implementation of A reform plan was discussed by an IDA financial sector Mission with GOB in August 1993 While there has been progress in a number ofa comprehensive reform plan for but this has not been adopted or implemented effectively. Actions have been taken in a areas, particularly policy improvements, progressBangladesh Bank (BB) to enhance number of areas to improve supervisory/regulatory functions: monitoring through the has been limited in enhancing BB's institutionalits supervisory capacity and CAMEL rating system, credit risk analysis system, on-site inspection, new guidelines on loan capacity. A comnprehensive reform plan for BBstrengthen regulatory enforcement classification and provisioning, and understanding reached with selected private banks. has been available, and this should besubstantially. However, further rationalization of BB's organization structure, including improvements in implemented effectively. BB's supervisory
management and staffing policies, is required in order to improve its institutional capacity. capacity is improving gradually. Regulatoryenforcement has also inproved and furtherimprovements are expected.
Remove legal obstacles to debt An amendment to the Financial Loan Courts Act 1990 has been drafted, but has been Overall progress is unsatisfactory. The amendmentrecovery by amending the Financial awaiting vetting by the Law Ministry before submission to Parliament for ratification. A to the Financial Loan Courts Act 1990 should beLoan Courts Act, 1990, and final decision on appointment of additional judges exclusively for the Loan Courts has not yet ratified by Parliament as soon as possible. Thestrengthen these courts with been taken, and the Law Ministry is still dealing with this matter. GOB is considering decision regarding appointment of judges for tdeadditional judges, magistrates and appointment of special loan recovery officers, and this proposal should be implemented Loan Courts should also be taken as soon aspolice to enforce decrees for faster expeditiously. possible.realization of defaulting loans.
Acreed Reform Actions Profress to Date Overall Assessment and Prospects for Remainder ofFY95
Strengthen the financial condition Bangladesh Bank has introduced a revised loan classification and provisioning system The recently introduced classification and provisioning
of the banking system by which aims to achieve international standards within 2-5 years. This system now system is not adequate to deal with the problem, and efforts
tightening the classification and allows 50% deduction for land/buildings as collateral, the effect of which will be to should be made to improve it gradually. The capital
provisioning requirements and by reduce provisioning requirements. This raises questions about the adequacy of the strengthening plan has been partially implemented so far but
working capital strengthening provisions, particularly given the capital inadequacy of most banks . BB has started the process is continuing.
plans. working on capital strengthening of individual private banks and has reached
Memorandum of Understanding (MOU) with 5 such banks, but the process has been
slow. Ministry of Finance has agreed to recapitalize the NCBs annually for jute
sector loans, and some funds have already been provided.
Encourage the growth of sound Following clearance by a Cabinet Sub-Committee, BB has approved issuance of Banking license to all the 7 new banks is likely to be issued
private sector banking so that license to 7 new banks. License has been issued to I bank so far, and is expected to within FY95. Other required elements of the reform are
competition can be enhanced; and be granted to 2 others soon. These 3 new banks are expected to start their operations unlikely to be addressed in FY95 unless GOB demonstrates
rationalize branch network and by the end of FY95. Hard budget constraints have not yet been imposed on public greater resolve.
staffing of the NCBs. enterprises which continue to have easy access to the banking system. Although
Ministry of Finance has authorized each of the four nationalized commercial banks
(NCBs) to close down 57 of their loss-making branches, only 4 branches have been
closed down, and there has been no retrenchment for that purpose.
Accelerate the process of A total of 64 public enterprises (PEs) have been included in the privatization program Out of the 64 public enterprises (PEs) targeted for
privatization through the so far. 4 PEs were privatized in FY93 and FY94. Some 7 PEs have been privatization in FY95, perhaps no more than one-third of
Privatization Board and prepare a transferred to the new owners in FY95 so far, while 7 PEs await hand-over. An these PEs are likely to be actually privatized in FY95. A
program of privatization for additional 19 PEs are in various stages of tendering. The privatization program for more decisive stance is required in order to speed up the
FY96. FY96 will include about 41 new PEs, plus a sizable number likely to be carried over slow pace of privatization.
from FY95.
Complete and activate the In power, GOB has received 22 private sector proposals for setting up generation Progress in the power sector continues to be slow and
regulatory arrangements plants, but these are not sufficiently substantive, and GOB has requested additional greater conunitment will be required. In the gas sector,
envisaged to enable private sector information from them. GOB is inviting private sector proposals for a power progress to-date in negotiating PSCs is satisfactory, but
investment in power, gas and generation plant at Meghnaghat. Since GOB lacks technical expertise for evaluation Petrobangla's limited technical capacity to negotiate and
telecommunications, and secure of proposals, it is seeking technical assistance from donors. In gas, no regulatory absence of a regulatory body are the main constraints. In
new private investment in these body has yet been set up: two production sharing contracts (PSCs) for gas exploration the telecommunications sector, progress to date in some of
sectors. and development have already been signed and some more are being negotiated and the reform measures has been satisfactory.
expected to be signed shortly. In telecommunications the Cabinet has approved aBTTB Ordinance, which separates the operation and regulatory functions, but this hasnot yet been submitted to Parliament for ratification. GOB is negotiating a jointventure with a leading telecommunication equipment manufacturing enterprise to
acquire majority ownership in the local telephone manufacturing company (TSS).
STATISTICAL APPENDIX
STATISTICAL APPENDIX
TableNo. Section/Title Paze No.
HUMAN RESOURCES . 49
1.1 Population Projections1.2 Population Benchmarks by District1.3 Vital Population Statistics1.4 Comparison of Child Nutritional Status Results from
Three National Surveys1.5 Health Statistics1.6 Family Planning Statistics1.7 Distribution of Population by Economic Activities1.8 Employment by Occupation and by Sex1.9 Income Distribution and Poverty Indicators1.10 School Attendance and Adult Literacy Rate
NATIONAL ACCOUNTS .................... 59
2.1 Gross Domestic Product at Current Prices2.2 Gross Domestic Product at Constant (1984/85) Prices2.3 Gross Domestic Product, Sectoral Deflators2.4 GDP Growth2.5 Gross Domestic Product by Expenditure in Current Prices
BALANCE OF PAYMENTS .................... 64
3.1 Balance of Payments3.2 Balance of Payments - Requirements and Sources Format3.3 Value of Total Exports by Commodity3.4 Quantity and Value of Traditional Goods Exports3.5 Quantity and Value of Non-Traditional Exports3.6 Quantity and Value of Major Import Commodities3.7 Imports and Exports Volume and Price indices and Terms of Trade3.8 Total Import Financing3.9 Aid Pipeline3.10 Commitments and Disbursements of Aid by Type of Aid3.11 Average Exchange Rates3.12 Real Exchange Rate Index
TableNo. Section/Title Page No.
EXTERNAL DEBT ................... 76
4.1 External Public Debt Outstanding Including Undisbursed4.2 Service Payments, Commnitments, Disbursements and Outstanding
Amounts of External Public Debt
BUDGET .... ... 80
5. 1 Revised Budget Summary5.2 Revised Budget Estimates of Current Revenues and Expenditures5.3 Actual Income and Expenditure of the Central Government5.4 Annual Development Programme5.5 Financial Performance of State-Owned Enterprises
MONEY AND BANKING.. . ................ 85
6.1 Money Supply and Domestic Liquidity6.2 Agricultural Credit Issued by Major Credit Institutions6.3 Loans Sanctioned by Development Finance Institutions6.4 Nominal Interest Rates on Selected Savings Accounts & Certificates6.5 Nominal Interest Rates on Advances
7.1 Land Utilization Statistics7.2 Area Under Main Crops7.3 Production of Main Crops7.4 Aus and Aman Production by District7.5 Production of Boro and Wheat by District7.6 Jute Production by District7.7 Irrigation Summary7.8 Commercial Fertilizer Distribution by Type and Region7.9 Public Foodgrain Distribution System Operations7.10 Seasonality of Public Foodgrain Distribution System Offtake7.11 Supply and Disposition of Raw Jute7.12 Public Foodgrain Procurement by District7.13 Public Procurement of Aman Rice and Paddy by District7.14 Public Procurement of Boro and IRRI Rice and Paddy and Wheat
TableNo. Section/Title Page No.
INDUSTRY AND INFRASTRUCTURE . ....................... 105
8.1 Quantum Index of Medium and Large Scale Manufacturing Industries8.2 Production of Selected Industrial Goods8.3 Chittagong Export Processing Zone Statistics8.4 Natural Gas Statistics8.5 Electricity Production and Consumption8.6 Railway Statistics8.7 Transport Statistics
PRICES AND WAGES ................ 113
9.1 Consumer Price Indices9.2 Natural Gas and Petroleum Product Prices9.3 Retail Prices of Petroleum Products9.4 Wholesale Prices of Consumer Goods in Urban Areas9.5 Wholesale Prices Indices of Agricultural and Industrial Products9.6 Daily Wages for Unskilled Labor9.7 Wage Differentials9.8 Agricultural Wage Rates
- 49 -
Tabb 1.1BANGLADESH POPULATION PROJECTIONS('0001Pro,etlon wtth NRA - I by 2010
AGE GROUP 1990 1995 2000 2005 2010 2015 2020 2025
TOTAL M+F 108275 119401 130512 141306 151211 160787 170385 179659
Division 1961 1974 ------------ 1981 Cus-------------- 1974-to-1981 to 1985 1 .-.------.---- 1991 Cs S1----Ditrict Cenan Census Total mew FerAle Househods Avwage Growth Total Per ha Totai Male Fsmel. ousehokds Averag
*/ District wise population of Bangladesh ladjusted). Supplement No. 1 to the Preliminary Report on Population Census. June 1992.
Note: Data shown represent actual census results, not adjusted for probable undercounting.The adjusted 1981 Census estimate of total populaton is 89.940.000 for the Census date of March 8. 1981.
Defiitions of:Chroic m _lrtntion < 90% medion < 90% median < 90% median < 90% modin < 90% median < 90% median < 90% median < 90% medin
height for age height for age height for ae height for a" height for age height or age height (or age height for a*p
Acute malrwtrton < 80% median < 80% nedin < 80% dian < 80% modn < 80% median < 80% median < 80% median < 0% edianwegt fow heih weigt for height wveght for height weight for height veigh for height weight for heigt eig for ight wght for height
also 2sd from medianheightfor agp & weiht
for hiht.
Actual same size 430 croa-aectional 510 croaa-sactional 3283 urban nd rua Rural aub-se 2800 1900 urban and 4590 3283 urban and rural 2356 uban and nrral 2110 urban & rural Lcrosas-ational; four cros aecbonol. rurl chdren b/ cross-aectional; four croctonal; four N.A.
data collection data coltction dat colectionbw0f F. '~d.pa
Age rag 0-59 onxir 0.59 months 6-71 monxts 3-71 monti. 6-59 monew 6-71 ronthu 6-71 mont N.A.
Popurstlon co- bIra Rural Urban and mrr Urban and nrual Urban skim and na Urban nd Rural Urban and rr Urban and nea
IFS =butbut of NutuWion rnd Food Scia, Dha Uniety.NS- _ dl Buiimiu of Stffdcs. Ndtl Nutrltion Survey nd Household
E p Survey.HKI - Hobn Kelr bewnstioref/a Stew p. t tra among total popuatkwnlb UtIbn won kckd tbe k oru ndy a nxd r r Includ de_tar prr woon only.Not: The 9FS B"ay ud t Harvrd Stadrd m thew bwration referece
etandad for pIt n otdgrowd daa d 888 aud NCHS rw.SonoverIaninimbitlti stahL1 wa-d be coured for byfthl difts wad. Rbem variation dui to a S' _a ueed by WINS m mareEaty to accoLar tor the differ in nu*uional steA Ia by thetfl- ataveyi The BII su mp _ w_ Ida- kEo four dhta tour d 1cnpenods ovr a Vara tOme whN FS aruwt cdactad dae once diwing
a/ Cumulative, assuming year-to-year carry-over of 90%.b/ Assuming one couple-year of protection per 15 cycles of pills, 150 condoms
or foam tablets, or 4 doses of injectables or vials of EMKO.c/ Cumulative, assuming year-to-year carry-over of 70%.d/ Staff estimates based on age-specific marriage rates from 1981 census.e/ Couple-years of protection per married female aged 15-49.
Sources: MIS, Directorate of Family Planning, Bangladesh Bureau of Statistics, and staff estimates.
Table 1.7DISTRIBUTION OF POPULATION BY ECONOMIC ACTIVITIES(in million)
1984/85 1985/86 1989 1990
Male Female TotaMalale Female Total Male Female Total Male Female Total
1. NationalPopulation aged 10 years and above 34.30 33.10 67.40 36.00 34.40 70.40 36.70 34.10 70.80 39.00 34.50 73.50Economic participation:
a/ Intertemporal comparisons of poverty incidence is complicated by changes inmethodology between the various rounds of survey.b/ The derived total population is inconsistent with those in the HES (FY89, p.47) which
Indicate a total population of 104 million of which 90.8 million in rural and13.2 in urban. The latter will, however, result in poverty incidence indicatorssubstantially different from the HES estimates.
Source: BBS, Household Expenditure Surveys.
- 58 -
Table 1.10SCHOOL ArTENDANCE AND ADULT LITERACY RATE, 1991
a/ Consumption plus Investment.b/ Derived as residual.c/ BBS data.d/ From Balance of Payments table 3.1 converted into taka by using average exchange rate.e/ GDPimp)-Consumption = GDI-Net Imports.f/ GDS +Net Factor Income from Abroad.g/ Current Account Deficit of the Balance of Payments.
MEMORANDUM ITEMS:Reserve level, end of June 1US$ m) 752 897 962 585 966 1679 2197 2822-Reserves, excluding gold (US$ m) 729 873 941 585 943 1657 2171 2795-Gold, national valuation (US$ m) 23 24 21 20 23 22 26 27Average annual exchange rate (Tk/US$) 30.635 31.246 32.143 32.932 35.667 38.152 39.140 40.000
--not available separatelya/ Exports and imports include that of EPZ since 1987/88b/ Merchandise imports are reported on a mixed valuation basis, partly fob and partly cif and exclude EPZcJ Including valuation changes and ACU account changes other than those of reserves.df Including changes in the valuation of reserves.1993 Figures are preliminary estimates.
Source: Bangladesh Bank
Table 3.2BALANCE OF PAYMENTS - REQUIREMENTS AND SOURCES FORMAT(US$ mllions)
.. = not available separately.*/ Includes dried and salted fish and fish products, sharktins, and fishmaws.b/ Includes other item not shown above.cl Excdudk knitworSource: Export Promotion Bureau.
- 69 -
Table 3.6QUANTITY AND VALUE OF MAJOR IMPORT COMMODITIES
/a As a large portion of imports is financed on a grant basis, unit prices are often available for accounting purposes only./b Includes petroleum products imported by BPC from its refining operations in Singapore as well as imports of non-fuel
petroleum products./c Consumer and other intermediate goods not seperately shown.Note: 1 bale of raw cotton = 500 Ibs; 1 bale of polyester = 618 Ibs; 1 bale of viscose - 441 Ibs; 1 bale of yarn = 400 lbs.
Source: Planning Commission.
Table 3.7IMPORTS VOLUME AND PFUCE INDICES11980/81= 1001
a/ Overstated by the amount of commodity aid which is reimbursed by donorsb/ Wage Earners Scheme.c/ Underestimated by the amount of commodity aid payments which are reimbursedd/ This total includes imports of $121 for EPZ which is not shown under the sources of import financing
Note: Data reflect payments rather than commodity arrivals.Valuation for commodities financed under loans and grants is on amixed fob/cif basis, depending on the terms of the respective aidagreements; all other categories reflect cif valuation.
Source: Bangladesh Bank, Statistics Department.P:Provisional
Ratio of Actual Commitmentsto Pledges (%) 105.2 115.9 99.4 84.1 75.6 91.1 95.7 77.0 90.6 59.1 120.9
Commodity aid includes cash aid, and project aid includes technical assistance.Discrepencies between closing pipeline in one year and opening pipeline in the nextyear result from adjustments for currency revaluations, aid cancellations, andreclassifications.
Source: Economic Relations Division. Staff estimates of project aid disbursements for FY92 and FY93
Table 3.10COMMITMENTS AND DISBURSEMENTS OF AID BY TYPE OF AID(USS million)
a/ Unweighted averages of monthly exchange rates shown. The rates are period averages of the market rate (IFS, line rf),which are cross rates based on a fixed relationship to the Pound Sterling since January 1972.
b/ Unweighted averages of end period monthly data. As of January 1992, secondary rate has been abolished.c/ Unweighted averages of quarterly exchange rates shown.
Source: International Financial Statistics and Statistics Department, Bangladesh Bank.
- 75 -
Table 3.12Real Effective Exchange Rate Index a/(1980 -100)
TOTAL EXTERNAL DEBT 13,047,820 3,884,060 16,931,881 13,981 984
NOTES: (1) Only debts with an original or extended maturity of over one year are included in this table.(2) Debt outstanding includes principal in arrears but excludes interest in arrears. X
Table 4.2BANGLADESH: SERVICE PAYMENTS, COMMITMENTS, DISBURSEMENTS, AND OUTSTANDING AMOUNTS OF EXTERNAL PUBLIC DEBT
PROJECTIONS BASED ON DEBT OUTSTANDING INCLUDING UNDISBURSED AS OF DECEMBER 31, 1993
INCLUDING ONLY DEBT COMMITTED - DECEMBER 31, 1993
DEBT REPAYABLE IN FOREIGN CURRENCY AND GOODS
(IN THOUSANDS OF U.S. DOLLARS)
DATE DEBT OUTSTANDING AT T R A N S A C T I O N S D U R I N G P E R I D : OTHER CHANGESEND OF PERIOD
DISBURSED : INCLUDING : COMMIT- : DISBURSE- : S E R V I C E P A Y M E N T S CANCEL- : ADJUST-ONLY UNDISBURSED MENTS MENTS ----------- :-----------:----------- LATIONS * MENT **
* Includes Writeoffs; Projected amounts in this column are amounts excluded from projections due to unknown terms.
** This column shows the amount of arithmetic imbalance in the amount outstanding including undisbursed from cne period tothe next. The most common causes of imbalances are changes in exchange rates and transfers of debts from one categoryto another in the table.
a/ Tax levied on land hodings. It was virtually boished in FY74 together with the imposition ol the Agriculture Income tax but reinstated in 1978/77.b/ Includes electrickity dutie, estete duty on agricultural land, taxes on immovable property, gift taxes, capital gains tax, tool taxes, bettetment tax on
commercial setabiishments and other levies.c/ lnckjdes receipts from nationalized intursnce, other industrial operations and dibinvestmnent of industrial units. For 1973174 these are included
undr industrie above.d/ Receipts of various government departments. especially under general administration, social economic agricutture and other servIces etc.
e/ There hes been a change in the definition of subaidy, especlely during FY93. FY93 figures therefore, ere not fully comparble to the previou
Y- figures.f/ Govwnments budgetary definition. ThIs is different from the definition used in Annex Table 5.3, which is based on a definition used by IMF.
Source: Ministry of FInwnce
- 82 -
Tail 5.3ACTUAL INCOME AND EXPENDITUPE OF THE CENTRAL GOVERNMENTTak biYon
*/ Exclud food subsidies. whkih h cludd under the ood account deficit.bl Co rm resoADO poet expentwr, the Food for Work progran, m _icalanwous intnnt (non-devebopment) and nt lon nd advane.
A m*r pet of gross link b Governnt i minclud withn t ADP.c/ inclug forein gno.
Source: Mintry of Fhncend IMi and Sank Staff Estirnate.
Note: Data used in the text differ from those shown above. The text data used IMED estimates on taka expendituresand ERD estimates on project aid disbursements.
Source: MkiistrV of Finance and Planin Commission.
Table 5.5:Finncial Perfomance of State-Owned EnterprisesTaka mUion
P - Provional revised budget estirateSource: Monitoring Cefi, Autonomous Bodies Wmg, Ministry of Finance.
Table 6.1MONEY SUPPLY AND DOMESTIC LIOUIDITY(Tk biltion)
June 30, June 30. June 30. June 30. June 30, June 30. Dec 31 June 30. Doc 31 June 30. Dec 31 June 30. Jun. 30. b/ June 30. cd June 30, b/ June 30,cI June 30 c/1983 1984 1985 1986 1987 1988 1988 1989 1989 1990 1990 1991 1992 1992 1993 1993 1994
a/ Percent charnes over precedmng period.bl Data re adjusted (a3 to esclude write-down of industrial loans and recapitalization of state banks which involved issuance of Tk 17.3 billion
in long-term Treasury bonds (1991/921 end (bl to esclude the impact o3 mrs-reporting of Bangladesh Krishr Bank and BCCI s well as Tk 15 bilbonof bonds issued by the government to NCBs for loan write-off and recapitalization rnd provisioning requirements. 11992/931.
c/ Actual.
Data prepared on the basis of revised reporting system.
Source: Bangladesh Bank. Statistics Department.
- 86 -
Table 6.2AGRICULTURAL CREDIT ISSUED BY MAJOR CREDIT INSTITUTIONS(Tk crore)
a/ Includes refinancing provided by Sonali Bank to TCCAs/KSSs through the IRCP/RDB.bl Includes agricultural term credit as well as financing for marketing, transport and agro-industries.cl Includes only crop loans.d/ Including Tk62.26 crore disbursed by BRDB, for which breakdown is not available.e/ Including Tk46.50 crore disbursed by RAKUB for which breakdown is not available.f/ Including loans of Pubali Bank Ltd.g/ Includes Tk324.17 crore under BKB Tk37.06 under RAKUB- Not available at present.
Sources: Bangladesh Bank, Agricultural Credit Department; Bangladesh Krishi Bank; Bangladesh Samabaya Bank, Ltd.;and commercial banks.
- 87 -
Table 6.3LOANS SANCTIONED BY DEVELOPMENT FINANCE INSTITUTIONS(Tk crorel
a/ Includes jute and allied fibres.b/ Includes forestry and wood products.c/ Includes glass and ceramics.d/ Includes inland water and road transport, cinemas, hotels, and clinics.e/ Includes amount invested in the Government SecuritiesfI Net of subsequent cancellations and adjustments.
Source: Shilpa Bank & Shilpa Rin Shangstha.
Table 6.4NOMINAL INTEREST RATES ON SELECTED SAVINGSACCOUNTS AND CERTIFICATES(percent per an)nm
Jan Sept July Sept Aug Dee Jan July Jan July Dec June Jan April June June 30.
/a Traditional = lute, jute goods and loose tea. non-traditional = packet tea & jute carpets; other = newly emerging industries. From July 7, 19861 Dec. 1989. a rate of 7 percent wasapplied to a small number of newly emerging non-traditional e.port items engineering & electrical goods, handicrafts and hafdlooms.) This special rate was abolished effective Jan. 1990.
/b Includes service charge of 4%./c Does not include services charges of 2% over the rate of 13% applied with efect from April 1, 1984./d Effective April 1. 1992 BB removed all ceiling on deposit rates and all floors and ceiling on all lending rates with the neception of enport, agriculture and small and cottage indunries sectors.
- = not available; - = not applicable.
Source: Bangladesh Bank, Statistics Department
- 91 -
Table 7.1LAND UTILIZATION STATISTICS000 Hectares
1988/89 1989/90 1990/91 1991/92 1992/93
Total area 14839 14839 14839 14840 14840
Not availablefor cultivation 3094 3150 3221 3857 4193
e/ Including PS, TP and other types of fertilizer.bl Included under PSc/ Does not include 162.13 thousend MT sold directly by BCIC for which districtwise breakdown is not eveileble.dl Detailed district wise offtske from 1991/92 cannot be shown accurately in an open market situation where
distributors are free to buy and sell wherever there is demand.
Source: Bangladesh Agricultural Development Corporation,IFDC/ Bangladesh Bureau of Statistics.
Table 7.9PUBLIC FOODGRAIN DISTRIBUTION SYSTEM OPERATIONS('000 metric tons)
/a Includes: essential priorities; other priorities; large employers; & direct sales to flour mills./b Marketing operations involve direct sale of grains to dealers at subsidized prices./c OMS in paddy and rice were initiated during 1981/82; wheat OMS began in 1978/79.
Source: Food Planning and Monitoring Unit, Ministry of Food.
Table 7.10SEASONALITY OF PUBLIC FOODGRAIN DISTRIBUTION SYSTEM OFFTAKE('000 metric tons)
to Jaalrpur wee a subdivilson of Mymensingh until December 26, 1978.Note: 1.0 ton rice equivalent - 1.0 ton wheat - 1.5 ton paddy.Source: Minlstry of Food.
- 105 -
Table 8.1QUANTUM INDEX OF MEDIUM AND LARGE SCALE MANUFACTURING INDUSTRIES(1981/82 - 100D
BBL = barrel.BTU = British Thermal Unit is = 0.25 kilocaloriesCFT = cubic feet.MMCF = million standard cubic feet.BCF = Billion Cubic FeetNote: (i) The estimated recoverable gas reservesis on the basis of abandonment ofpressure a
(ii) Net gas reserve position after adjustment of cumulative production till January 1 99
Table 8.5ELECTRICITY PRODUCTION AND CONSUMPTIONIGWH EXCEPT AS NOTED]
/a Includes bulk sale to DESA (Dhaka Electric Supply Authority seperated from the Bangladesh Power DevelopmentBoard and functioning since October 1 1991); and REB (Rural Electrification Board).
/a Total track mileage in 1978/79 was 4503 km./b Including 6 narrow gauge steam locomotives./c Excluding fuel for the railways and for the military.Source: Ministry of Communications.
a/ Data cover only roads constructed and maintained by the Roads and Highways Department. 'High' roads areroads with cement, concrete, bituminous concrete or bituminous surface; "low' roads are roads withstone, gravel, brick, or earth surface, but which are properly aligned and have drainage structures.
b/ Including jute boats and flats.c/ Can travel up the main river routes.:: = Not available.
Notes: Dhaka middle income index refers to families with 1973/74 incomes of Tk 300 to Tk 999.Dhaka government employees index refers to non-gazetted employees with monthly salaries ofTk 100 to Tk 400 in 1969/70.
= Not available
Source: Bangladesh Bureau of Statistics.
Table 9.2NATURAL GAS AND PETROLEUM PRODUCT PRICES
Effective DatesNATURAL GAS - TITAS SYSTEM
June 30, June 27, June 18, July 1, July 1, July 1, July 1, May 1, March-11985 1986 1987 1988 1989 1990 1991 1992 1994
Table 9.2 (Continued)NATURAL GAS AND PETROLEUM PRODUCT PRICES, 1980-1992
PETROLEUM PRODUCTS /c July 1984 June 1986 June 1987 June 1988 Oct 1990 July 1992TAKA/IMPERIAL GALLON Ex-depot Ex-depot Ex-Ref Ex-depot Ex-Ref Ex-depot Ex-Ref Ex-depot Ex-Ref Ex-depot Ex-Ref Ex-depot
/a Price was raised to Tk 75/cylinder with effect from 12 August 1982./b '50% of the sanctioned load./c Ex-refinery and ex-depot at Chittagong. In July, 1984 prices were fixed in liters with minor
adjustments in ex-depot prices as shown. Ex-refinery prices were not changed.Per 12.5 kg
Source: Titas Gas Company and Bangladesh Petroleum Corporation.
Note: The wholesale price indices lbase 1969/70 = 1001 are prepared for six urban centers in Bangladesh (Dhaka, Chittagong,Khulna, Rajshahi, Sylhet and RangpurO and cover 44 individual items. Weights are assigned in proportion to the grossvalue of production for each item in the base year 1969/70. The national index represents the unweighted average
of the indices for the six urban centers.Source: Bangladesh Bureau of Statistics.
- 120 -
Table 9.6DAILY WAGES FOR UNSKILLED LABOR la(Tkiday)
/a Based on average wage rates for Dhaka. Chittagong, Raishahi and Khulna Divisions./b Deflated by rural consumer price index,/c Deflated by the average of the consumer price indices for industrial workers in Chittagong, Khulna and Narayanganj./d Refers to skilled workers.:: = Not availableNote: BBS has discontinued wage series for agriculture and fishery sector.