Countries and Regions

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p. 6 of 7 BACK | NEXT Executive Summary I. Current Development Trends and Issues II. The Government’s Development Strategy III. ADB’s Development Experience IV. ADB’s Strategy V. ADB’s Assistance Program VI. Risks and Results-Based Monitoring and Evaluation

Country Strategy and Program Update 2006-2010: Bangladesh

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V. ADB’s Assistance Program

A. Overall Assistance Level

78. Starting in 2005, ADB's revised performance-based allocation (PBA) policy will be used to allocate its ADF resources. This is based on a 17-criteria assessment of Bangladesh's economic and social policy and institutional performance, public sector management, governance performance, and portfolio performance. In line with the revised PBA policy and the new Public Communications Policy,¹⁵ ADB will make numerical performance ratings publicly available in an annual report on country performance assessments. Accordingly, an indicative ADF level of $900 million is programmed for 2006-2008, averaging $300 million per annum, including about 20% of overprogramming to prepare for slippages during project processing. Based on the findings of ADB's study on Bangladesh's borrowing capacity, a 3-year ordinary capital resources (OCR) allocation of $900 million is considered during 2006-2008, taking into account (i) the positive impact of ADB OCR operations on economic growth in general and on Bangladesh's external position in particular, (ii) likely availability of counterpart funds, and (iii) the country's overall debt service capability to absorb OCR resources. OCR lending will be used to finance major infrastructure projects that will directly contribute to growth and competitiveness. It will help meet a portion of the large savings-investment gap and reduce the nation's reliance on costly supplier's credits in various sectors.

B. ADB Assistance for the Strategic Priorities

79. In line with the strategic focus outlined in chapter IV, the proposed 2006-2008 public sector lending program consists of 15 firm projects, totaling about $1.8 billion (Appendix 1, Table A1.10). (Concept papers for lending products are included in Appendix 4). An economic and sector work program forms the basis for ADB's support of policy reform, capacity building, and institutional strengthening. The TA program for 2006-2008 contains 23 TAs for an annual allocation of about $5 million for ADB financing, of which 12 are project preparatory TAs (Appendix 1, Table A1.11). The TA program will be augmented by initiatives financed by the ADB-managed Governance Cooperation Fund, Poverty Reduction Cooperation Fund and the Japan Fund for Poverty Reduction, to support the development of innovative ways to ensure the poor benefit from various ADB-financed projects. Concept papers for nonlending products are included in Appendix 5. The Government will continue to use ADF loan funds to prepare large and complex projects in the energy and transport sectors, while more TA funds will be made available to support key sector reforms, capacity building, and the design of targeted interventions.

80. To foster a vibrant and diversified rural economy, ADB assistance will contribute to (i) intensification, diversification, and value addition of crops to boost agricultural productivity, improve food security, and foster rural nonfarm enterprise development; (ii) strengthened farm-to-market linkages; and (iii) sustained growth of agriculture and agribusiness to generate productive onfarm and off-farm employment to raise rural income. ADB will support the Government's efforts to develop and adapt productivity-enhancing technologies, and to improve rural infrastructure and local governance. A commercial, agribusiness-orientation to address critical constraints to financing, production, and marketing will be promoted. Policy and institutional reform will be pursued, along with capacity building to encourage greater community participation in planning and implementing rural development initiatives. In addition, private sector participation in rural service delivery will be fostered. Emphasis will be accorded to building capacity of local governments, including union councils, in the financing, planning, design, implementation, operation, and maintenance of rural infrastructure.

81. Developing efficient and sustainable flood management and irrigation systems is central to boosting agricultural productivity and encouraging livelihood diversification. ADB assistance will build on the National Water Policy, and the National Water Management Plan of 2004, which adopt the basic principles of integrated water resource management, sustainable service delivery, and user participation in water management. In addition to providing assistance for efficient public investment in large (i.e., command) and small-scale water management schemes, ADB will support the Government's efforts to decentralize system design and management, and foster sustainable O&M by encouraging stakeholder participation and empowerment, integrating service delivery with other development services, and protecting and enhancing opportunities for disadvantaged groups to have access to irrigation. ADB support for development of the larger irrigation command systems will hinge on satisfactory implementation of the National Water Policy.

82. Addressing transport and communications bottlenecks has become more urgent in the post-Multi-Fiber Arrangement era of global trade, to reduce the cost of doing business and improve the overall investment climate. ADB's public sector operations will build on several decades of progress by encouraging the progressive adoption of policy and institutional reforms in the transport sector, and complement the assistance of other DPs, including DFID, Government of Japan, and World Bank, by (i) adopting a holistic view and network approach to the transport sector, with a focus on its sustainability and the effects of development on the environment and society; (ii) assuming a major role in helping the Government sequence its transport reforms to improve safety, efficiency, and quality of service; (iii) supporting private sector participation and partnership in infrastructure operation and management; (iv) improving sector governance, including that of the Chittagong Port Authority (CPA), Roads and Highways Department (RHD), and Bangladesh Railway (BR); and (v) promoting subregional cooperation by developing strategic transport links and cross-border arrangements. Through its private sector window, scope exists for ADB to complement assistance from other DPs to remove critical bottlenecks in sectors where other DPs are playing a lead role in support of policy and institutional reform, such as in the inland water transport and telecommunications subsectors.

83. Ports. Chittagong Port, which handles nearly 85% of the country's seaborne cargo, is one of the most inefficient and costly ports in Asia. In the New Mooring Terminal, the Government approved the introduction of the landlord concept to promote private sector participation in terminal management and operation. Competition between the two terminals will ultimately lead to the adoption of more efficient work and management practices in the CPA-run Chittagong Container Terminal. Over time, ADB will help the Government adopt the landlord concept and promote greater private sector participation in the sector to improve operational efficiency. ADB will adopt a gradual and sequenced approach to port sector reform. In the first phase, assistance is being provided to Chittagong Port to reduce costs and delays through automation; better management; improved infrastructure facilities; and better integration between port services, customs, and commercial shippers. In the second stage, ADB will assist the Government to restructure the management and operation of Chittagong Port, with the aim of further lowering costs, reducing delays, and improving service quality.

84. Roads (including bridges). In line with the principal findings of the 2003 CAPE (footnote 10), ADB will support road sector development within a multimodal framework that links planning for future development with progress in clarifying institutional roles and in operating and maintaining the existing road network. Focusing on strategic national and regional road transport corridors, including the Dhaka-Chittagong corridor, future ADB assistance in the sector will be linked to (i) continued institutional reform of RHD with due attention to improved governance and transparency including capacity building; (ii) sustainable financing of road maintenance, including the establishment of an appropriate O&M funding mechanism; and (iii) improved road safety. Building on lessons learned from the path-breaking Jamuna Bridge Project,¹⁶ support will be provided for the development of the (5.6 km) Padma Bridge. This megaproject will link the eastern and southwestern parts of Bangladesh at Mawa-Jajira to provide a strategic overland route between Bangladesh and its neighboring countries through India. Land acquisition, resettlement, and other safeguard issues will be addressed early in the process to minimize the risk of unwarranted project delays. Assistance will also be provided to identify opportunities to involve the private sector to ensure that the bridge is operated and managed on a financially sustainable basis.

85. Railways. The CAPE suggests that railway support should be considered only after strong Government commitment to reform has been demonstrated by up-front actions. It observes that expansion of railway services or carrying capacity has been limited. Since Bangladesh has a very high population density and tremendous scarcity of land, the railway system needs to play a much more prominent role, particularly for domestic and international freight traffic, and especially in areas in which the rail system can operate at lower costs and with less environmental damage than road transport. In line with the Government's National Land Transport Policy, the first reform step will be to introduce a lines-of-business structure including freight and passenger, together with modern accounting and financial management systems. This will enable the railways to operate in an efficient and commercially viable manner. Other policy measures include the transformation of BR into a corporate entity over the medium term. The timing, sequencing, and phasing of these institutional reforms will build on lessons learned from previous assistance provided to corporatize SOEs in transport and other sectors. Support for reform of BR will be accompanied by critical investments in infrastructure and rolling stock, which will allow the country to take advantage of the potential for increased subregional rail traffic and movement of freight traffic.

86. Despite considerable progress in restructuring and encouraging private sector participation in power generation, the sector continues to suffer from high system losses, lack of supply capacity, poor quality of power supply, weak financial management and regulation, large payment arrears (principally from semigovernment agencies), and political interference in enterprise management. ADB, in close cooperation with other DPs, will play a key role in pursuing dialogue with the Government to proceed to a second generation of reforms, aside from its continuing support to expand and upgrade power supply systems. These will clearly distance the policy-making bodies from the actual operations of the unbundled power entities by transforming the new companies into financially sound, commercially oriented, and self-sustainable corporations. By assisting the Government to enable suitable public-private partnerships in generation, corporatization of the remaining urban distribution entities of Bangladesh Power Development Board, and partial privatization of the distribution subsector, a combination of ADB-supported public and private sector operations will expand power systems, establish benchmarks for improved efficiency and customer services, and reduce the operational and financial pressures on the power sector. Full operationalization of the Energy Regulatory Commission will be supported to ensure that tariff setting, quality control, and licensing of private operations take place in a professional and impartial manner.

87. In accordance with its strategy for the hydrocarbon subsector, ADB will support commercialization by encouraging private sector participation, deepening sector reforms, assisting Petro-Bangla to assume greater commercial autonomy, and separating regulation from sector activities. Reducing losses, both physical and financial, and tariff restructuring, are crucial to the long-term viability of the sector. ADB will support investments and institutional reform to increase access to natural gas at affordable prices across the country, as well as undertake policy and institutional measures to maintain environmental sustainability.

88. ADB will assist Bangladesh to promote good financial sector governance. ADB will not limit its focus to capital markets; instead it will expand the focus to cover other subsectors, including policy and institutional reforms for the banking subsector in close coordination with the IMF and World Bank, such as establishment of a sound debt recovery framework to support ongoing banking reform. In line with the CAPE recommendations and lessons of the previous Capital Market Development Program,¹⁷ ADB assistance will be provided for capital market development when strong commitment of the Government to meaningful reform is demonstrated. To prepare for major capital market reform, capacity-building measures to strengthen the regulatory and supervisory capacity of the Securities and Exchange Commission and to improve the governance of market intermediaries will be supported. ADB's private sector operations will support reform of the financial sector assisted by other DPs, including possible support for privatization of Rupali Bank. ADB will continue to help the Government implement a new national policy for SME development; and develop the newly established foundation to improve SME access to development finance. ADB will also address specific regulatory, information, market access, and technology bottlenecks to broaden SME operations; and support reforms and capacity building of financial intermediaries relevant to SME development.

89. ADB support will continue to focus on improving the quality and relevance of education by improving education policies, providing institutional and organizational strengthening, ensuring gender balance, and building capacity. Investment sustainability will be strongly emphasized in future ADB assistance. Operationally, support will build on the achievements of the ongoing comprehensive PEDP-II.¹⁸ Within primary education, assistance will be provided to the Government's new program of early childhood education as set out in the NPRS, to ensure that young children are adequately prepared to benefit from primary school training. Complementing the formal education system, ADB will continue to provide support to nonformal education and continuing education training programs to cater to the needs of school dropouts and other disadvantaged groups.

90. Building on progress made in secondary-school decentralization, performance-based school management and supervision, curriculum reform, and privatization of textbook printing and distribution, ADB will continue to assist the Government in advancing secondary education reforms. To improve the marketable skills of school leavers, ADB will support improvement of the technical education and vocational training system to become more flexible, responsive to market needs, and geared to the requirements of the informal sector.

91. Madrasahs exist as a parallel system for primary and secondary education, and impart Islamic religious education isolated from the needs of the labor market. Few training facilities are available for madrasah teachers, and such schools and teachers have not benefited from external assistance. ADB will assist the Government to modernize the madrasah education curriculum so that graduates have more employable skills. This will make an important contribution to poverty reduction in rural areas and to fostering social harmony and stability.

92. Building on past interventions and complementary to support of other DPs, ADB assistance in the sector focuses on strengthening municipal management and local resource mobilization, fostering clean urban environments, and improving basic living conditions in secondary towns and cities. Given that the main constraint to fostering sustainable municipal services and infrastructure is the slow progress registered in institutional reform, future ADB investments will be performance based, and designed to reward secondary towns that demonstrate the greatest progress in implementing agreed municipal governance reforms, including participation of local stakeholders in urban planning and management (e.g., citizen awareness and participation, women's participation, and integration of the urban poor) and improved accountability and transparency (financial accountability and sustainability, and administrative transparency) in the management of local government. A special effort will be made to improve access and quality of drinking water and sanitation services in Dhaka. This will complement ADB's ongoing initiatives in urban primary health care to address the needs of the city's rapidly increasing population, particularly the urban poor. By fostering private-public partnerships to improve municipal service delivery, ADB support will contribute to improved management efficiency and institutional strengthening of public utilities so that they can become economically viable and attract the investment required to service the poor and meet growing urban demand.

93. Urbanization has proceeded in a largely unplanned manner, contributing to hazardous and congested living conditions. To foster sustainable urban development, ADB will (i) assist the Government in reviewing and updating the urban water supply, sewerage, and sanitation sector strategy; (ii) support the development of master plans for the water supply, sanitation, and solid waste management sectors; and (iii) assist in developing short-, medium-, and long-term investment plans for urban infrastructure and institutional reform.

94. Parallel to the Government's Health and Population Sector Development Program, which concentrated on improving rural health care service delivery supported by other DPs, ADB's primary focus has been on the delivery of health care services in urban areas through public-NGO partnerships. Building on the positive outcomes of two projects in urban health care, and within the policy framework of the second phase of the Health, Nutrition, and Population Sector Development Program, the main priorities for future ADB support will be to ensure access in the remaining municipal towns to urban primary health care services, improve coordination between local governments and the health ministry, and develop the institutional and financial capacities of local government bodies to sustain efficient and effective primary health care services. To realize these objectives, ADB's strategy for improving health care conditions of the urban poor are to (i) support Government policy for decentralization of health services, communicable disease control, and reproductive health; (ii) develop public-private partnerships for primary health care services; (iii) enhance privatization of health services; and (iv) develop alternative health care financing schemes. To complement assistance by other DPs, ADB will continue to address key human development issues, including trafficking, child labor, and HIV/AIDs,¹⁹ by mainstreaming these in its various lending programs. ADB will also help the Government address 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 agriculture environment.

95. ADB's core governance assistance will support (i) development of an overarching national integrity strategy to provide a strategic policy framework for anticorruption; (ii) operationalization of the ACC; (iii) promotion of judicial independence, including at the lower tier of the courts responsible for trying criminal cases and operationalization of the judicial service commission to complement the ACC; (iv) development of an independent public prosecution and related criminal justice system reforms to ensure a credible systemic deterrent for corruption and law and order concerns; (v) development of governance reviews, audits, and public expenditure tracking surveys for selected line ministries, which will complement existing support by other DPs; and (vi) governance management training and capacity building to foster and create incentives for corruption prevention within Government. Capacity-building support will be provided in selected line ministries to follow-up and monitor governance risk indicators (such as internal audit), to link substantive governance training to promotions policy, and to make greater use of e-governance to improve public sector performance and transparency. ADB's core governance assistance will complement and strengthen its sector-specific operations by encouraging adoption of governance reforms and building capacity to manage the process of governance change.

96. ADB support for separating policy, regulatory, and implementation functions; improved financial management; better procurement practices; and improved organizational arrangements will build on a robust record of steady achievements in the sectors in which ADB is involved. Community and private sector participation will be broadly promoted to make service delivery more competitive and accountable to users. To bolster sector accountability, performance audits will be undertaken in key sectors and in all ADB-financed projects; and institutional capacities will be strengthened to monitor and evaluate sector, program, and project performance. Special measures will be taken to minimize the risk of corruption in ADB-financed projects (Box 3).

97. A governance unit established in the resident mission will provide assistance with policy dialogue, and implementing and updating ADB's country governance strategy in close collaboration with other DPs and stakeholders. The unit will work closely with sector specialists, advising on the design, monitoring, and implementation of good governance initiatives. In addition, the unit will facilitate coordination and adoption of program approaches and performance audits to foster good governance with other DPs. In the areas of sector and local governance, sector specialists will draw on periodic physical inspection, agency reports, and independent audit reports to monitor the governance of ADB-supported initiatives. Where required, violations will be reported to the appropriate authorities, and corrective measures taken to ensure that governance standards meet Government and ADB requirements.

C. External Funding Coordination and Partnership Arrangements

98. The large number of projects and varied aid procedures pose a heavy burden on the Government's limited technical and managerial capacity, and weaken national ownership of external assistance. The NPRS, and its participatory preparatory processes, has galvanized a coordinated response to align external assistance with Government-led poverty reduction efforts. To reduce aid-related transaction costs, the Government has launched reforms in financial management, procurement, and capacity building. ADB, together with the other DPs, are providing support for policy and institutional reform in all of these areas.

99. In line with the Paris Declaration of March 2005, the manner in which ADB is positioning its assistance reflects a desire to strengthen partnership arrangements, align ADB support with the NPRS, make use of national systems, foster joint accountability, and manage for development results. Building on past experience, ADB will continue to play an active role in policy dialogue and institutional reform in the education, energy, transport, urban water supply and sanitation, and urban health sectors. In other sectors, where other DPs are more active in policy dialogue and assisting institutional reform, ADB will play a more supportive role, contributing wherever possible to the achievement of desired results.

100. Implementation of the CSP will deepen progress made in harmonizing and aligning external assistance. In conjunction with the lending program, ADB will continue to actively pursue various forms of partnership arrangements and seek cofinancing from grant and concessional loan sources. Close coordination is being maintained through regular contact and dialogue with the major DPs, and a special effort is being made to involve the DPs early in the identification stage of new projects. Commercial cofinancing will be explored to enhance financial resources from capital markets and to mitigate political and/or credit risk. In addition, ADB's guarantee resources will be utilized as required.

D. Indicative Internal Resource Requirements

101. Adequate delivery of the program for the next 3 years can be accomplished without a substantial increase in staff positions, although existing vacant posts must be filled immediately. While progress review will demand less staff resources than CSP preparation, CSP monitoring and evaluation will be a major undertaking. Developing larger and fewer projects should also help to ease constraints on increasingly limited TA resources. The Government's commitment to use existing loan resources to design major infrastructure investments has also reduced the burden on scarce TA and staff resources. Some change in the ADB staff mix and focus will be required to support CSP implementation: greater capacity in core governance, urban drinking water supply, sanitation, and solid waste management will be required; and greater attention will be needed to issues of efficient and transparent procurement, good financial management, performance audits, monitoring and evaluation, and fostering closer cooperation with civil society.

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