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Countries and Regions Country Partnership Strategies Document
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Country Strategy and Program Update 2006-2010: Bangladesh
Executive SummaryDuring the last decade, Bangladesh's economic and social development achievements have been impressive. Gross domestic product (GDP) growth averaged 5% per annum with fiscal and current account imbalances contained at manageable levels, low rates of inflation, sustainable public debt, and stable interest and exchange rates. During the 1990s, income poverty fell from 59% to 50%, infant mortality was halved, and life expectancy increased from 56 to 65 years. Over the past 5 years, average economic growth exceeded 5% and poverty incidence continued to decline. The vast majority of children attend primary school, and gender parity has been achieved in primary and secondary education with a committed Government policy for girls' education. Although the overall governance setting is marked by poor law and order, systemic corruption, and declining quality of the civil service, several positive aspects of governance explain Bangladesh's success in accelerating growth and poverty reduction. Since the 1990s, the Government has increasingly supported private sector development through sound macroeconomic management and measures to open up the economy. Macroeconomic stability and an increasingly open trade environment have contributed to vigorous annual export growth of 11% with substantial employment generation, especially in the ready-made garment sector. The sustained use of public resources to support technological progress in agriculture, rural infrastructure, health, and education, combined with progressive policies to ensure participation and strong partnerships with nongovernment organizations (NGOs) to deliver grassroots public services, have helped Bangladesh make a strong start in meeting the Millennium Development Goals (MDGs). Open labor market policies have resulted in income from remittances and peacekeeping equivalent to 50% of export earnings, much of which directly benefits the rural poor. However, nearly half of the population remains poor and per capita GDP remains extremely low at $418 in fiscal year 2004. Maternal and child mortality rates are extremely high, the quality of education is poor, gender discrimination continues, and efforts to overcome poverty face numerous constraints. Broad-based growth and social development is needed to create the opportunities and capacities required to accelerate poverty reduction. Although the investment climate in Bangladesh compares favorably with many Asian countries, the cost of doing business is high, due to the combination of poor infrastructure, corruption, burdensome regulation, and limited access to finance. Government revenues (at only 10.6% of GDP compared with a regional average of 19%) remain far too low to meet growing demand for infrastructure and social services. In addition, the country's garments exports could be affected by the phase-out of the Multi-Fiber Arrangement, although no obvious adverse effects have been experienced so far. A dynamic private sector, a growing skilled labor force, a capable network of NGOs, and dedicated elements of the public service have drawn on their respective resources, talents, and capacities to address the tremendous array of constraints that have kept Bangladesh from realizing its full economic and social potential. But the country faces even more formidable challenges: the urgent need for improved law and order, better infrastructure, sound financial markets, quality social services that are accessible and affordable, clean urban habitats, and an enabling environment for private sector development. The national poverty reduction strategy (NPRS) reaffirms that reducing poverty and accelerating the pace of social development are the most important long-term strategic goals. Fully consistent with the MDGs, the NPRS aims to halve the number of poor people by 2015 and to achieve substantial improvement in almost all aspects of human development, built on the policy triangle of growth, human development, and governance. The NPRS tackles difficult issues: combating corruption, restoring rule of law, and according governance a prominent place in the strategy. To support the NPRS implementation, the country strategy and program (CSP) has been developed as a landmark harmonization initiative jointly with the Department for International Development (DFID) of the United Kingdom, Government of Japan, and World Bank, which together provide about 80% of all development assistance to Bangladesh. This harmonization initiative follows the commitments made at the Paris High-Level Forum on Aid Effectiveness in early 2005 by a number of developing country governments including the Government of Bangladesh and the development partners. The four partners' joint strategy is aligned with the NPRS vision, strategies, and priorities. The strategy is built on (i) improving the investment climate for private sector-led growth and employment, (ii) advancing the social development agenda to empower the poor so that all benefit from growth, and (iii) addressing key governance issues to enable growth and social development. The joint approach enables the Asian Development Bank (ADB) to be more selective and focused, building on its experience and sector strength. The joint approach also enables ADB to strengthen engagement in sectors where reforms are difficult but are fundamentally important to growth of the national economy. ADB will play a major role in supporting policy and institutional reforms to increase sector efficiency in the energy, transport, education, urban health, and urban water supply and sanitation sectors. In other areas such as agriculture (i.e., agribusiness), water resource management, and the financial sector (including small- and medium-sized enterprise development), ADB will play a supportive role to initiatives led by other partners. Building country capacity and ensuring community participation (especially by women and disadvantaged groups) in designing and implementing projects will remain a key feature of ADB operations during the CSP period. Disaster mitigation, regional cooperation, and environment will be addressed as other key crosscutting issues. Furthermore, ADB's private sector operations will be aligned/oriented to complement public sector operations to address critical infrastructure and policy constraints to mobilizing private investment, both domestic and foreign. The cumulative effects of decades of poor governance cannot be overcome on all fronts at once. Building on in-depth understanding and long-standing support in key sectors, ADB will continue to play a key role in fostering incremental improvement in sector governance. Likewise, to help prepare for progressive devolution of responsibilities to local governments and communities, ADB will increase its assistance in improving local governance by building local government capacities in planning and delivering local services through partnerships with the private sector and civil society. These will be complemented by catalytic support to address critical constraints to core governance, including measures aimed at combating corruption, improving access to justice, and building governance management capacity in cooperation with other development partners. Lastly, the CSP proposes measures to address corruption risks in ADB's own programs, through enhanced disclosure, strengthened supervision, performance auditing, independent auditing, and better enforcement. ADB will draw on its full range of lending and nonlending instruments, including the recent pilot financing instruments and modalities being considered under the innovation and efficiency initiative, such as the multi-tranche financing facility (e.g., for large ordinary capital resources-financed infrastructure projects in the energy and transport sectors), technical assistance, economic and sector work, policy dialogue, private sector operations, and aid coordination to contribute to the delivery of the results targeted in the NPRS. The CSP gives special emphasis to the sector development program modality, by combining programs of incremental reform with capacity building and investment support, to foster an integrated and long-term approach to sector needs and enhance ADB's leverage for promoting policy and institutional reforms. External assistance can only generate results if implementation improves. The NPRS highlights the urgent priority of improving the implementation of the annual development program. The Government has taken several key steps to improve project implementation. Major progress has been made in streamlining Government project documentation and approval procedures. Good progress has also been made in enhancing transparency and efficiency in procurement following implementation of the 2003 Public Procurement Regulations, which is being enacted into a law. In line with lessons learned from the past and ongoing portfolio, the CSP emphasizes designing projects that are better prepared for implementation, i.e., that are simpler; have a high degree of preparedness; take into consideration capacity constraints; and include covenants that are realistic, focused, and properly sequenced. To accelerate implementation of ongoing projects, intensive reviews and constant monitoring and follow-up will continue following the agreed project- and sector-specific actions plans and results framework. Robust monitoring and evaluation systems are required to track progress and assess NPRS and CSP implementation, and to actively manage ADB assistance to Bangladesh. To do so, ADB will make use of and assist in building the capacity of the Government's monitoring and evaluation systems. A process of joint monitoring and managing for results, together with the Government, will help maintain the momentum and spirit of harmonization and alignment to support poverty reduction in Bangladesh.
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