The Program will help mitigate the impact of the global economic crisis on Bangladesh through two components: (i) the Public Expenditure Support Facility Program (PESF) will support reforms for enhancing economic and social policies essential for long-term growth as well as scaling up of social safety net programs (SSNPs); and (ii) the ojective of the Countercyclical Support Facility Support Program (CSF) is tol help the Government implement its countercyclical development program for coping with the effects of the global crisis.
Sound economic management enabled Bangladesh to withstand major external shocks while sustaining its growth momentum. The economy was severely tested in FY2008 when it experienced repeated floods and the catastrophic cyclone Sidr, with major loss of life and destruction of property and crops; and the external shock resulting from surging petroleum and other commodity prices.
Although Bangladesh reduced poverty significantly between 1991 and 2005, the country still remains poor with an estimated 56 million people or 40% of population in poverty in 2005. While Bangladesh is on track to achieve the 2015 Millennium Development Goals target of reducing income poverty by half, income inequalities widened especially in the 1990s. Progress in poverty reduction has also been highly uneven across regions.
Even without the global economic crisis, the development challenges in Bangladesh are daunting. Growth in exports and remittances decelerated significantly since October 2008 (the second quarter of FY2009). The economic slowdown is also affecting revenue collection. With more than 2.2 million workers directly engaged in the ready-made garments sector, and an equal number of workers employed in ancillary activities, the slowdown in exports translates into widespread poverty in both urban and rural areas. Further, slowdown in the growth of remittances will cause hardship for recipient households and deepen poverty. The decline in the number of workers leaving for overseas jobs will also create pressure on the already slack domestic job market.
The Government's development agenda, which pays particular attention to economic stability, elimination of poverty, energy security, combating corruption, and good governance, reflects its concerns about the economic and social implications of the crisis, the prevailing high poverty incidence, and the effect of recent natural disasters. The Government established a task force to monitor national and global events, and provide prompt advice to enable decisions for mitigating the impact of the crisis. In April 2009, the Government announced a fiscal stimulus package for Tk34.2 billion ($495 million) for exports, agriculture, power, and SSNPs.
The FY2010 budget affirms the Government's commitment to maintaining macroeconomic stability and undertaking fundamental policy and institutional reforms to attain pro-poor inclusive growth. A countercyclical development program in the form of additional fiscal expenditures was announced in the FY2010 budget in June 2009. The Government's countercyclical development program has four broad components: (i) a fiscal stimulus package; (ii) an expansion of the SSNPs; (iii) a substantial increase in the Annual Development Program; and (iv) introduction of a new public-private partnership (PPP) scheme.
The Government is aware that putting the economy on a higher growth trajectory, and achieving rapid and sustainable poverty reduction will require large-scale investments well beyond what the Government can provide. More investment-enabling policy measures will clearly be needed to induce large-scale domestic and foreign investment. To ensure timely implementation of development programs, the capacity of line ministries will also need to be enhanced. In addition, ensuring continued flows of credit to the private sector, and strengthening the capital market, would help attract investors to close the investment gap. More support to small and medium-sized enterprises (SMEs) and the housing sector would also contribute to making growth more inclusive.
In mitigating the adverse impact of the global economic crisis, the Government's emphasis is on protecting investments in human development through enhanced and effective spending on SSNPs. The crisis has prompted the Government to undertake policy reforms to ensure development momentum well into the future and to preempt hardships. Accordingly, support to the Government to deal with the impact of the global crisis, while also helping to address some institutional limitations, is proposed to be provided through the PESF and the CSF. The objective of the PESF is to accelerate reforms that are essential for higher long-term economic growth, while also improving service delivery for social protection. The CSF will supplement the PESF by providing support to scale up the Government's countercyclical development program