Bangladesh has made remarkable economic and development progress in the past five decades and now the country needs a strong reform agenda to sustain its growth trajectory and further accelerate the growth rate in the long term, says a new World Bank report.
The report, ‘The Country Economic Memorandum – Change of Fabric identifies’, formally launched at a city hotel today identified key barriers to higher growth and proposed actionable reforms to maintain rapid growth.
The report urged strong policy reforms in three areas critical to sustain growth: stem the erosion of trade competitiveness, address vulnerabilities in the financial sector, and ensure orderly urbanisation process.
Planning Minister MA Mannan spoke at the report launching ceremony as the chief guest while executive director of SANEM Prof Dr Selim Raihan and founder of SBK Tech Ventures and SBK Foundation Sonia Bashir Kabir spoke as panel discussants.
World Bank acting country director Dandan Chen gave the opening remarks while Hoon S Soh, practise manager, macroeconomics, trade, investment and public sector, South Asia, World Bank gave the closing remarks.
Nora Dihel, senior economist and Zahid Hussain, lead economist consultant, World Bank made a power-point presentation on the findings of the report.
Yutaka Yoshino, lead country economist for Bangladesh, moderated the programme.
Speaking on the occasion, the planning minister said that Bangladesh is in the right path in terms of attaining GDP growth, attaining self-sufficiency in food, reaching power connections to the doorsteps of people and increasing the literacy rate.
“We can assure all that we’ll continue to strengthen our efforts to make more improvement,” he said.
Turning to the issue of uncertainty and political instability, Mannan said that political instability could be there as clouds are gathering in the sky.
“But, we hope that the storm of black clouds will not come as it will be ominous for all …. it won’t work to find solution to problems with sticks,”
He also called upon all concerned stakeholders, including the political parties to shun the politics of violence and coming to the path of discussion with showing civilised behaviour.
Executive director of SANEM Dr Selim Raihan said that Bangladesh did much better compared to the other countries in keeping macroeconomic stability.
The renowned economist also stressed the need for giving due importance on enhancing expenditure in social safety net programmes as well as in human capital, diversifying exports, bringing necessary reforms in the financial sector and mobilising more domestic resources.
The report also explored the implications of digital development and climate change as cross-cutting themes in these reform areas.
“Over the past decade, Bangladesh has been among the top 10 fastest growing economies,” said Dandan Chen, World Bank acting country director for Bangladesh and Bhutan.
“But there is no room for complacency. New and emerging challenges—including, advances in technology and climate change—demand new policy and institutional innovations to cater to the changing needs of a growing economy. To achieve its vision of upper middle-income country by 2031, Bangladesh will need strong and transformative policy actions,” she added.
The report envisages export diversification to reduce the risk of export volatility, create new sources of growth, and increase foreign exchange earnings in the long term. The heavy reliance on ready-made garments and Bangladesh’s protective tariff regime inhibits diversified export growth.
Further, with trade competitiveness based on low wages and trade preferences eroding, the country can increase the resilience of economic growth by diversifying its export basket.
Average tariffs in Bangladesh are higher than its comparator countries: the average tariff rate on intermediate goods in Bangladesh is 18.8 per cent, which is about twice the rate as in China, Thailand and Vietnam.
Overall trade costs and inefficient border processes are major impediments to trade. Deep and comprehensive trade agreements with the European Union and India covering tariff modernisation, increased trade facilitation, and services and investment reforms can respectively boost Bangladesh’s GDP by 0.4 and 0.5 per cent and exports by 1.4 and 3.9 per cent.
Scaling up private sector financing is essential for sustaining economic growth. Actions to improve asset quality, increase the capitalisation of banks, and address increasing non-performing loans are urgently needed to maintain financial stability and accelerate credit growth.
Unlike Thailand, China and Vietnam, Bangladesh has an untapped domestic capital market, which is required for raising long-term finance, particularly for infrastructure and climate adaptation projects.
Unlocking private sector financing for green investments and climate risk financing will become increasingly important. The country also needs to focus on expanding access to finance in underserved segments, such as women and MSMEs.
The country also needs to source external resources proactively, including through international capital markets, by promoting local currency financing, easing external borrowing constraints, and attracting foreign direct investment.
Although digitalisation of payments has increased rapidly with 34 per cent of adults using digital payments in 2017 in comparison to 7 per cent of adults in 2014, about 40 per cent of adults do not have a bank account. Strengthening credit infrastructure and promoting further digitalisation of financial services will be important to reach the most underserved population.
“Greater Dhaka generates one-fifth of the country’s GDP and almost half of its formal employment. The already congested capital needs to be prepared to accommodate climate migrants,” said Nora Dihel, senior trade economist.
“Better urbanisation and connectivity will help absorb the climate migrants and sustain fast productivity growth.
Successful urbanisation will mean attracting tradable activities to small and medium-sized cities.” she added.
This will require making the next tier of cities attractive to formal firms and skilled workers.
Cities will need to raise their own revenues to finance infrastructure investments and provision of services, including affordable housing.
Faster broadband speeds, better access to basic services, and easier intercity transport connectivity can lead to tier-2 cities like Gazipur and Narayanganj to promote urban growth outside Dhaka.