Home 
Countries and Regions Country Partnership Strategies Document
|
Country Strategy and Program Update 2003-2005: Bangladesh
I. Current Development Trends and IssuesA. Recent Political and Social Developments1. The national election for the eighth Parliament was held under the caretaker Government on 1 October 2001. The alliance that was led by the Bangladesh Nationalist Party (BNP) won a considerable victory with more than a two-thirds majority in the national election, which was generally considered to be free and fair. The former ruling party (the Awami League), however, until recently boycotted parliamentary sessions; it also boycotted the recent city corporation election. Although the frequency of hartals (general strikes) has declined since the last national election, the law-and-order situation continues to be a major concern. Social instability is seen in many forms, including high crime rates, violence against women, and illegal toll collection. Moreover, confrontational politics continue to impede sound policy making and implementation of key reforms. Political consensus building is crucial for the implementation of a broad-based program for macroeconomic stabilization and structural reforms. In this regard, the Awami League's recent joining of the Parliament is a welcome development. 2. Over the last decade, Bangladesh has achieved notable progress toward the Millennium Development Goals and Targets (Table A1.1). The latest Household Income and Expenditure Survey (HIES 2000) of the Bangladesh Bureau of Statistics reveals that in 2000, 49.8% of the country's population was below the upper poverty line compared with 58.8% in 1991/92 (Table A1.3). During the decade ending 2000, the proportion of people below the poverty line declined by about one percentage point per annum. However, over this period, rural poverty remained more extensive than urban poverty. Income inequality worsened countrywide and it increased at a faster rate in urban than rural areas. In terms of social indicators, substantial progress has been made over the last decade in key areas of human development, particularly in improving life expectancy, literacy, and health indicators, and in promoting gender equity (Table A1.3). By 1999, the infant mortality rate had declined to 57 per 1,000 live births, life expectancy had increased to 59 years, and adult literacy had increased to 52.6%. B. Economic Assessment and Outlook3. During fiscal year (FY) 2001 (July 2000 - June 2001), Bangladesh maintained relatively strong economic growth with record low inflation, despite lingering external and fiscal pressures. The gross domestic product (GDP) growth rate in FY2001 was 5.2% compared with 5.9% in FY2000. A bumper crop in agriculture and healthy growth in the industry sector, particularly in manufacturing, underpinned the growth performance. Inflation declined to 1.6% in FY2001 from 3.4% in FY2000, mainly due to depressed food prices. Despite improvement in revenue collection, the budget deficit remained high at 6.1% of GDP due to a surge in expenditures. To ensure macroeconomic stability, it is essential for the Government to maintain a sustainable fiscal framework by emphasizing mobilization of domestic resources, reducing unproductive expenditures, improving efficiency of external aid utilization, and addressing losses of state-owned enterprises (SOEs) and nonperforming assets of the banking system. Although exports recorded an impressive 12.4% growth, the current account deficit increased to 2.1% of GDP in FY2001 compared with 1% in FY2000. This was mainly on account of an increase in imports and a decline in private current transfers, including remittances. Foreign exchange reserves declined to $1.3 billion or 1.7 months of imports at the end of FY2001 compared with $1.6 billion at the end of FY2000. 4. An unfavorable external environment and the economic fallout from 11 September 2001 have considerably undermined the country's growth prospects for FY2002. The GDP growth rate in FY2002 is likely to decline to 4.2% due to lower agricultural growth and a contraction in export-oriented manufacturing and services. Following several measures to contain expenditures and raise revenues, the budget deficit is expected to decline to 4.4% of GDP during FY2002. Notwithstanding the setback in exports, declines in imports and higher workers' remittances are expected to bring notable improvement in the current account balance during FY2002. Gross international reserves, at $1.6 billion at the end of FY2002, remained low but were higher than the level at the end of FY2001. 5. Bangladesh achieved a 5% average annual GDP growth rate in the past decade. Based on simulation results of a macroeconomic model developed to determine the responsiveness of poverty reduction to economic growth1, Bangladesh will, however, need a sustained annual GDP growth rate of around 7.5-8% to meet the income poverty reduction target of the poverty reduction partnership agreement (PPA) that the Government and the Asian Development Bank (ADB) signed in April 2000. C. Implication for Country Strategy and Program6. Sound macroeconomic management, structural reforms, and political stability are crucial for implementing the country strategy and program (CSP). The Government has taken a number of measures to address the emerging macroeconomic concerns, including liberalizing credit, pruning development spending by 16% in FY2002, raising administered prices of some utilities (petroleum, power and gas), and closing some of the loss making SOEs and closing or merging nonprofitable branches of nationalized commercial banks. The Government's FY2003 budget places utmost importance on augmenting domestic revenues and envisages a reduction in the budget deficit to 4% of GDP. Although ambitious, the budgetary targets of FY2003 are prudent and consistent with the achievement of fiscal sustainability. The Government needs to carry out comprehensive reform measures as agreed during the Bangladesh Development Forum meeting in Paris in March 2002. These include improving governance, public administration, and fiscal management; restructuring SOEs and privatizing them; and accelerating financial and other sector reforms. ADB, together with other development partners, will further enhance policy dialogue on these issues.
|
RSS Feeds
Back
Top of page