News and Events

News Release

ADB Welcomes Government Commitment to Fiscal Discipline and Urges Accelerated Structural Reforms

DHAKA, BANGLADESH (12 JUNE 2002) - An Asian Development Bank Mission led by Dr. Sultan Hafeez Rahman, Director of Operations, South Asia Department, held high level meetings this week with the Ministers of Finance, Commerce, Shipping, and State Minister for Energy and senior Government officials. The discussions focused on the overall macroeconomic situation, proposed FY2003 budget, reform initiatives and issues relating to ADB's medium term operations in Bangladesh.

The ADB Mission was pleased to note that the overall macroeconomic situation has remained stable despite the adverse external environment and that there has been considerable improvement in social indicators. Meanwhile, although poverty indicators have improved in recent years, there is a need for further progress and a more focused approach to reducing poverty. The ADB appreciated the Government's present effort at developing its poverty reduction strategy.

The ADB Mission expressed satisfaction at the measures already taken by the Government in a short span of time towards reducing the budget deficit, and welcomed the emphasis placed by the Government on domestic revenue mobilization and on reducing the fiscal deficit to 4 percent of GDP in FY2003. In the context of extremely low revenue/GDP ratio , this is a critically important policy initiative. This is an ambitious target. Dr. Rahman urged the Government to make every effort to achieve the target. The projected size of expenditure, particularly the ADP, appears to be on the high side. This would require a careful review and continued monitoring. Formation of the Public Expenditure Review Commission, and the Revenue Reforms Commission is a timely step to ensure a sound fiscal framework.

There nevertheless remain some key structural challenges that need to be addressed with strong commitment. These include, in particular, the losses incurred by the state-owned enterprises (SOEs), the large percentage of the non-performing assets of the banking system, and the reforms required in the energy sector.

Dr. Rahman urged the Government to accelerate SOE reforms to reduce the stress on the budget and also to address management reforms to ensure economic viability of these entities. ADB being the lead donor in the energy sector, Dr. Rahman urged the Government to accelerate the pace of reforms in this sector so that ADB could maintain its continued support.

Considering that the financial sector is the backbone for private sector-led growth initiatives, Dr. Rahman said, "we would like to see major reforms including adoption of best practices in the financial sector to enable it to support rapid growth in the real sector, increased participation of the private sector in the growth process and faster reduction in poverty".

In addition, Dr. Rahman emphasized the need for improving the law-and-order situation for creating a conducive environment for development.

Dr. Rahman indicated ADB's continued stong commitment to support and assist Bangladesh in implementing the critical reforms and in addressing the complex development challenges it faces.