Bangladesh PRSP Forum Economic Update

35469 Bangladesh PRSP Forum Economic Update Public Disclosure Authorized Recent Developments and Future Perspectives Public Disclosure Authorized The World Bank Office, Dhaka November 2005 Public Disclosure Authorized Public Disclosure Authorized Document of the World Bank GOVERNMENT FISCAL YEAR July 1 – June 30 CURRENCY EQUIVALENTS Currency Unit = Bangladesh Taka (Tk.) US$1 = Tk. 66.1 (October 23, 2005) ABBREVIATIONS ACC Anti-Corruption Commission MDG Millennium Development Goal ADB Asian Development Bank MFA Multi-Fibre Arrangement ADP Annual Development Program MoF Ministry of Finance ATC Agreement on Textiles & Clothing MOU Memorandum of Understanding BAC Bangladesh Anti-corruption MTEF Medium-Term Expenditure Framework Commission NBFI Non Bank Financial Institution BPC Bangladesh Petroleum Corporation NBR National Board of Revenue BTRC Bangladesh Telecommunication NCB Nationalized Commercial Bank Regulatory Commission NGO Non-Government Organization BTTB Bangladesh Telegraph and Telephone NPL Non-Performing Loan Board NTRCA Registration and Certification Authority C&AG Comptroller and Auditor General PEDP-II Primary Education Development CAO Chief Accounting Officer Project CGA Controller General of Accounts POL Petroleum, Oil, Lubrication DFID Department for International PPR Public Procurement Regulations Development PRGF Poverty Reduction and Growth Facility CRR Cash Reserve Ratio QR Quantitative Restriction ERC Energy Regulatory Commission REB Rural Electrification Board FMRP Financial Management Reform Program RHD Road and Highways Department GDP Gross Domestic Product RMG Ready-Made Garments HNP Health, Nutrition and Population ROSC Report on Observance of Standards and HNPSP Health, Nutrition and Population Sector Codes Program SEF Small Enterprise Fund IAS International Accounting Standards SLR Statutory Liquidity Requirements ICT Information and Communication SME Small and Medium Enterprise Technologies SOE State Own Enterprise IMF International Monetary Fund VAT Value-Added Tax LTU Large Taxpayer Unit VAW Violence Against Women PRSP Interim Poverty Reduction Strategy VRS Voluntary Retirement Paper This report was prepared for the PRSP Implementation Forum (November 15-17), in Dhaka, Bangladesh. It covers recent macroeconomic developments and draws on recent and ongoing World Bank research and analysis undertaken in the areas of Governance, Finance and Trade, Public Administration, Infrastructure and Human Development. The report was prepared by Catherine Tovey in collaboration with Sandeep Mahajan, Zaidi Sattar, Zahid Hussain, Alma Kanani, Sarwar Lateef, under the overall guidance of Christine Wallich. Helpful comments and inputs were also received from Shamsuddin Ahmad, Anthony Bottrill, Raihan Elahi, Qaiser Khan, David Hughart, and Hassan Zaman. The charts and Annex tables were prepared by Nermeen Rouf and Aneeka Rahman. Susan Ellison-McGee, Mansoor Kabir, Nasreen Begum, Babinton Dias, and Rehnuma Amin provided invaluable administrative support. TABLE OF CONTENTS I. THE COUNTRY CONTEXT.......................................................................................................................... 1 Bangladesh: Some impressive and sustained socio-economic trends – which outperform many South Asian and other developing countries............................................................................................ 1 Formidable challenges remain, notably on governance issues ............................................................... 1 Small, incremental reforms support positive outcomes .......................................................................... 2 II. RECENT ECONOMIC DEVELOPMENTS................................................................................................5 Economic growth remains robust ............................................................................................................. 5 Potential macroeconomic risks.................................................................................................................. 6 Fiscal management continues to be prudent............................................................................................ 7 The FY06 Budget........................................................................................................................................ 7 Monetary expansion is consistent with growth and inflation targets thus far. ..................................... 8 Balance of payments experiences some pressure..................................................................................... 9 Inflation continues to creep up................................................................................................................ 11 Overall macroeconomic status remains healthy, with latent pressures............................................... 11 III. PROGRESS ON THE GOVERNANCE AGENDA ................................................................................. 11 A. STRENGTHENING CORE GOVERNANCE.................................................................................. 12 Improving Transparency and Efficiency of Public Expenditure - Financial Management ...... 12 Toward a More Responsive and Efficient Public Administration............................................... 15 Strengthening and Modernizing Revenue Mobilization............................................................... 15 Establishing and Operationalizing an Independent Anti-Corruption Commission................... 16 Reforming the Civil Justice System................................................................................................ 16 B. REDUCING SECTORAL GOVERNANCE IMPEDIMENTS TO IMPROVE INVESTMENT CLIMATE................................................................................................................................................. 17 Ensuring Continued Macroeconomic Stability ............................................................................. 17 Reducing Opportunities for Corruption by Reducing and Streamlining Trade Restrictions... 17 Streamlining and Reducing Scope for Discretion in the Regulatory Environment ................... 18 Improving Financial Sector Accountability, Transparency, and Performance.......................... 19 Reducing State Role in State-owned Enterprises and Strengthening Their Financial Performance ..................................................................................................................................... 20 Addressing Governance Constraints to Infrastructure: Power, Energy, and Transport.......... 20 C. EMPOWERING THE POOR ............................................................................................................ 23 Improving Governance of Social Service Delivery........................................................................ 23 D. OVERALL STATUS OF POLICY REFORMS ............................................................................... 26 IV. IMPLEMENTING THE PRSP AND BEYOND....................................................................................... 27 A. THE GOVERNMENT’S POVERTY REDUCTION STRATEGY ................................................ 27 B. PRELIMINARY PRSP IMPLEMENTATION MEASURES ......................................................... 28 Operationalizing the PRSP via a Medium Term Expenditure Framework (MTEF) ................ 28 Monitoring and Evaluation ............................................................................................................. 28 C. DEVELOPMENT CHALLENGES AHEAD..................................................................................... 29 V. A SPECIAL FOCUS ON BANGLADESH’S EXPORT GROWTH AND COMPETITIVENESS ....... 30 The real costs to export competitiveness ................................................................................................ 30 Strategy for Sustained Economic Growth and Export Competitiveness............................................. 32 TABLE OF TABLES : Table 1 : Selected World Development Indicators............................................................................................ 2 Table 2 : Reforms in Sector and Core Governance and their Impact........................................................... 12 Table 3 : Non-performing loans (NPLs) as percentage of GDP..................................................................... 19 Table 4 : Bangladesh Power Sector Performance Indicators......................................................................... 22 Table 5 : Recommended Actions for Improving Bangladesh’s Transport and Trade Logistics................. 33 TABLE OF BOXES : Box 1 : A Mixed Record of Governance............................................................................................................. 3 Box 2 : Is Bangladesh on track to meet the MDGs in 2015? ............................................................................ 4 Box 3 : Policy Support for Textiles and RMG in the Post-MFA Era ............................................................ 34 TABLE OF FIGURES : Figure 1 : Real GDP Growth & Annual Average Inflation.............................................................................. 5 Figure 2 : Revenue, Expenditure & Fiscal Deficit............................................................................................. 8 Figure 3 : Average Monthly Interbank Rate..................................................................................................... 8 Figure 4 : Export Growth.................................................................................................................................

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