Regions and Countries

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p. 2 of 4 BACK | NEXT I. Current Development Trends and Issues II. Implementation of the Country Strategy and Program III. Portfolio Management Issues IV. Country Performance and Assistance Levels

Country Strategy and Program Update 2005-2006: Bangladesh

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II. Implementation of the Country Strategy and Program

A. Progress in Poverty Reduction

6. Bangladesh has made substantial progress in improving its human development indicators, particularly with regard to raising primary school enrollment, reducing the gender disparity in primary schools, widening immunization coverage, reducing infant and child mortality, and limiting population growth. Progress in these areas can be explained by broadbased growth, a pro-poor bias in public expenditures and strong involvement of nongovernmental organizations (NGOs) and community-based organizations in providing services that effectively reach the poor.

7. The Government’s interim poverty reduction strategy (PRS) completed in 2003 accords high priority to human development, especially to improving access to health and education, and to fostering gender equality. The interim PRS includes a set of poverty reduction targets and social development goals that are consistent with the millennium development goals (MDGs) (Appendix 1, Table A1.1). These are, by contrast, relatively modest as compared with those set out in the poverty partnership agreement signed with Asian Development Bank (ADB) in 2000. To transform the interim PRS into a full PRS by end-2004, the Government has established 13 thematic groups to refine sector strategies. ADB's new CSP, now in preparation, will build on the PRS, and will be completed in early 2005. The new CSP will be a results-based one, and will contain detailed sector and thematic strategies and plans as set out in the PRS. Monitoring and measuring the progress toward MDGs is an integral part of the PRS. ADB through technical assistance (TA) support is assisting in capacity building for poverty monitoring and evaluation under the PRS.

B. Progress in the Country Strategy and Program Focus Areas

1. Governance

8. Weak governance continues to impede development in Bangladesh. ADB’s recently completed governance assessment reaffirmed the need to improve governance including curbing corruption, improving law and order and human security, and building local government capacity. Parliament, on 18 February 2004, passed the Independent Anticorruption Commission Bill, which provides for the establishment of an autonomous anticorruption commission. A National Committee on Corruption Prevention would coordinate efforts to prevent corruption in line ministries, and a comprehensive anti-corruption strategy is being developed. Thanks to steady progress in key sector reforms (i.e., in energy, transport, financial, and social sectors), some progress has been made in improving sector governance and in building local government capacity.

9. In addition to the support for establishment of an independent anticorruption commission, ADB's main contribution has been in reforming governance practices in specific sectors. Building on in-depth understanding and long-standing support in key sectors, ADB has been able to foster incremental improvement in sector governance, an approach that complements well governance reforms supported by the World Bank and bilateral funding agencies. While ADB will continue to support governance reforms in key sectors, scope exists for ADB to strengthen its support for anti-corruption initiatives, to extend support for implementation of public administration reforms including training of civil servants, and to facilitate access of the poor to justice through judicial, law enforcement, and police reforms. The new CSP will examine the potential to expand the scope of governance assistance beyond sector-based reforms.

2. Private Sector Development

10. ADB’s recently completed private sector assessment and consultation with representatives of the private sector revealed that numerous constraints to private sector development remain. These include: political conflict, port bottlenecks, erratic energy supply, weak regulatory and judicial systems, limited communications and transport infrastructure, a shallow financial sector, and competitiveness challenges in the key garments sector posed by the impending Multifiber Arrangement (MFA) phase-out. While the legal and regulatory policy is generally favorable for private sector development, there is a wide gap between policy and implementation.

11. ADB’s operations will continue to focus on improving the climate for private sector development. The ongoing and planned assistance is helping the Government in promoting small and medium enterprise development, in facilitating and soliciting private sector participation in port, railway, natural gas, and power projects; and in providing education and urban primary health care services that are complementary to public sector investments.

3. Gender and Development

12. While progress has been seen in women's empowerment, ADB’s recent gender assessment revealed that severe gender disparities persist in both human and income poverty. Trafficking of women and children as well as gender-related violence are major concerns. Another key issue is the likelihood that a large number of female workers in the garments industry may face retrenchment after the expiry of MFA at end-2004. Promoting women’s advancement is one of the five pillars of the Government's interim PRS. ADB has been mainstreaming gender concerns in all operations and in policy dialogue. Key areas of ADB support for promoting gender equality will be (i) increasing the return on women’s labor through improving their access to productive resources and skills development, (ii) strengthening the capacity of institutions to facilitate women's participation in decision-making processes, and (iii) providing social protection to women who are vulnerable to economic and social shocks. Specific components will continue to be included in various ADB-assisted projects so as to ensure social protection of the vulnerable and victims, and to build government capacity at various levels to address issues of violence against women, human trafficking and dowries.

4. Regional Cooperation

13. The successful conclusion of the 12th South Asian Association for Regional Cooperation (SAARC) Summit in January 2004 vastly improved prospects for subregional cooperation in South Asia. Bangladesh is strengthening its efforts to foster regional cooperation as evidenced in the recently concluded third meeting of the trade, investment, and private sector cooperation working group and the second meeting of the South Asia Business Forum held in Dhaka under the ADB-assisted South Asia Subregional Economic Cooperation (SASEC) program. Thanks to its strategic geographic location, close cultural and historical ties, and economic complementarities, Bangladesh is well-positioned to benefit from subregional cooperation. In this context, ADB will support Bangladesh's efforts to foster regional cooperation by assisting the Government to reform the external trade regime, through active participation in ongoing SASEC and other subregional cooperation initiatives, and by establishing an integrated subregional transport and energy network to enhance Bangladesh’s position as a transport and transshipment hub and a transit country for emergencies in the subregion.

5. Sector Priorities

a. Agriculture and Natural Resources

14. Diversification and intensification of the crops subsector will be essential to boost agricultural productivity and to foster rural nonfarm enterprise development. Transforming agriculture from subsistence to a commercial orientation, and promoting agribusiness development through private and public partnership, will be instrumental in improving the livelihood of 76% of the country’s population (and 85% of the poor). The Government's interim PRS also highlights accelerated rural infrastructure and local governance improvement as an integrated approach to encouraging rural industrialization. The 2004–2006 pipelines contain both loans and TAs to support crop diversification, agribusiness development, key rural infrastructure improvement, and water resources management. The National Water Management Plan, approved by the Government in March 2004, will guide the country’s water resources management and ADB’s operational focus, particularly ADB support for institutional reforms in the water sector. The Government, with ADB support, has recently completed a fisheries study and a forestry sector review, the findings of which will be reflected in the new CSP.

b. Social Sectors

15. Assisted by ADB and other development partners, a full sector-wide approach has been adopted to reform primary education, focusing on quality improvement through better governance, management reform, and introduction of key performance indicators. Policy reforms aim to improve quality and efficiency in secondary education, including introduction of a school-based assessment system on a pilot basis, a performance-based school subvention system, and establishment of a teacher recruitment and certification authority. In health, ADB will concentrate on urban primary health care guided by the Government’s health, nutrition, and population development framework, including building local government capacity, to deliver high-quality services to the urban poor, particularly women and children, in partnership with NGOs. To complement assistance by other development partners, ADB will continue to address key human related issues, e.g., trafficking, child labor and HIV/AIDS, through mainstreaming these in its various lending programs. ADB will also assist the Government to tackle arsenic contamination by incorporating arsenic mitigation activities within its programs for promoting more effective health care provision, safe water supply and sanitation, and an arsenic-free agricultural environment.

16. ADB’s medium-term emphasis in urban development will remain on developing secondary towns. The focus will be on decentralizing and strengthening local government, improving financial revenue generation, supporting the involvement of communities and the private sector in urban services, improving living conditions for the urban poor, and addressing urban environmental issues.

c. Finance

17. The financial sector is characterized by weak governance, poor asset quality, capital inadequacy, an ineffective legal and judicial framework, and poor accounting and auditing practices. The capital markets have ineffective market supervision, limited capacity of major market players, inadequate supply of capital market instruments, inadequate transparency, and slow development of market infrastructure. As a result, there is a low level of investor confidence in the financial markets. Recently, the Government embarked on an ambitious program to overhaul the banking sector with the assistance of the International Monetary Fund (IMF) and the World Bank. Progress in banking sector reforms will help revive the capital market. ADB, in coordination with IMF and the World Bank, would focus its future assistance on developing institutional sources of funds that are professionally managed and that could effectively pool funds of retail investors. This will help strengthen the current system of intermediation by promoting competition and leveling the playing field, and enhance financial market governance by helping build the institutional foundations for prudentially sound, stable and sustainable development of the sector. Subject to Government commitment to further reforms, the new CSP will examine the potential to strengthen ADB assistance in the sector.

d. Physical Infrastructure

18. Infrastructure deficiencies, including gas, power, ports, railways, and strategic national highways, are major impediments to the country’s economic development. Land and seaport inefficiencies, in particular, hinder the country’s international trading links. Bangladesh’s exports would likely earn more if inefficiency and corruption in the management of the seaports were eliminated. Corruption, coupled with inefficient management practices, is a key reason for the low levels of operational efficiency of the infrastructure network. The central policy challenge is to redefine the role of the public sector from service provider to regulator, and to increase reliance on private sector participation in the provision and management of economic infrastructure and services. The joint study by ADB and the Government of Japan on Economic Growth and Poverty Reduction in Bangladesh in 2003/2004 further underlines the key policy reforms that are needed to remove infrastructure deficiencies and improve the quality of infrastructure services.

19. The Government has developed road maps of policy and institutional reforms in energy and transport, including further restructuring and unbundling of power sector operations, allowing full autonomy to gas sector entities, restructuring the Roads and Highways Department, introducing a road maintenance fund, reorganizing Bangladesh Railway, and introducing private participation in capacity expansion and the management of Chittagong port. Following the enactment of the Energy Act in March 2003, the Energy Regulatory Commission has come into operation. A revised Railway Act is being finalized with wider stakeholder participation, and Bangladesh Railway is being given increased managerial autonomy and more accountability. In this context, the Government with ADB support is preparing a medium-term reform program for Bangladesh Railways for the next 10 years. The reform measures for the first three years of this program will be implemented as part of the Railway Sector Development Project being processed in 2004. The National Land Transport Policy (NLTP), approved by the Government in April 2004, lays the foundation for institutional reforms and integrated development of the road and railway transport subsectors. A Multi-modal Transport Policy is being developed to include other modes of transport and represents another step toward the development of a multi-modal transport system.

20. Sector reforms in transport and energy are complex but critical to assist Bangladesh exploit its position as a sub-regional transport hub. Combining incremental reforms with sector investment is a strategy appreciated by the Government. The 2004–2006 pipelines contain both loans and TAs to assist the Government further the agenda for transport and energy reform.

C. Highlights in Coordination of External Funding and Partnership Arrangements

21. ADB has been cooperating closely with the other development partners to support the Government’s thematic groups for PRS formulation. ADB chairs the local consultative group subgroups for energy, transport, project implementation, and the urban sector, and coordinates with other development partners to provide input into the Government’s thematic group for infrastructure development and reforms. ADB is represented on all other local consultative group subgroups (a total of 22) and actively contributes to policy dialogue, especially on matters related to governance, macroeconomic policy, education, and health. Regular consultations with IMF and the World Bank have been maintained. Recent program support by the World Bank complements ADB’s assistance on key sector reforms especially in the energy and transport sectors.

22. At the project level, following the sector-wide approach in primary education, ADB is ready to coordinate with other development partners in formulating investment projects in areas where it has been leading sector reforms. Of immediate relevance are ADB’s proposed projects during 2004-2006 to support education, health, energy, transport, small and medium-size enterprises, and the financial sector, where coordinated efforts with other development partners will be required to advance the reform agenda. As a part of the development partners’ joint initiative to manage development results, ADB is assisting the Government to streamline its project documentation and approval procedures, which currently constitute a key reason for project start-up delays. A joint country portfolio performance review was conducted with the Japan Bank for International Cooperation (JBIC) and the World Bank to address other generic issues related to project implementation, and to support harmonization of development partners’ operations.

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