Document of The World Bank
Public Disclosure Authorized FOR OFFICIAL USE ONLY
Report No. 40744-BD
INTERNATIONAL DEVELOPMENT ASSOCIATION
SUPPLEMENTAL FINANCING DOCUMENT
Public Disclosure Authorized FOR
PROPOSED SUPPLEMENTAL FINANCING IN THE AMOUNT OF SDR 49 MILLION
(US75 MILLION EQUIVALENT)
TO
THE PEOPLE’S REPUBLIC OF BANGLADESH
FOR Public Disclosure Authorized THE FOURTH DEVELOPMENT SUPPORT CREDIT
September 12,2007
Poverty Reduction and Economic Management Bangladesh Country Management Unit South Asia Region Public Disclosure Authorized Th~sdocument has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. GOVERNMENT FISCAL YEAR
July 1 -June 30
CURRENCY EQUIVALENTS
Currency Unit = Bangladeshi Taka (Tk) US$1= Tk 68.90 (August 2007)
ACRONYMS AND ABBREVIATIONS
ACC Anticorruption Commission MW Mega Watt ADP Annual Development Program MDG Millennium Development Goal ATC Agreement on Textiles and Clothing NCB Nationalized Commercial Bank BADC Bangladesh Agricultural Development Corpn. NGO Non Governmental Organization BWDB Bangladesh Water Development Board OMS Open Market Sale BB Bangladesh Bank O&M Operations & Maintenance BSCIC Bangladesh Small & Cottage Industries Corpn. PFM Public Financial Management CRR Cash Reserve Requirements PRGF Poverty Reduction Grant Facility CPTU Central Procurement Technical Unit PRS Poverty Reduction Strategy CIDA Canadian InternationalDevelopment Agency PLC Public Limited Company CTG Caretaker Government RBL Rupali Bank Limited DPs Development Partners SDR Special Drawing Right DFID Department for International Development SOE State-Owned Enterprise DSC Development Support Credit SLR Statutory Liquidity Requirements EC Election Commission Tk Bangladeshi Taka FY Fiscal Year TSC Transitional Support Credit GNFS General Number Field Sieve UN United Nations GDP Gross Domestic Product UNDP United Nations Development Programme GOB Government ofBangladesh UNICEF United Nations Children's Fund IDA International Development Agency UNFPA United Nations Population Fund IDB Islamic Development Bank USAID United States Agency for Int'l Development IMF International Monetary Fund VRS Voluntary Retirement Scheme IPP Independent Power Producer WEP World Food Program LGED Local Government Engineering Department WHO World Health Organization
Vice President: Praful Patel, SARVP Country Director: Xian Zhu, SACBD Sector Director: Sadiq Ahmed, SASPF Sector Manager: Ijaz Nabi, SASPF Task Team Leaders: Zahid Hussain and Ambar Narayan, SASPR
i FOR OFFICIAL USE ONLY
TABLE OF CONTENTS
I. BACKGROUND ...... 1 I1. THE 2007 FLOODS: SOCIAL AND ECONOMIC IMPACT ...... 3 A . IMPACT OF FLOOD 2007: THE SOCIAL AND HUMANDIMENSIONS ...... 3 B. IMPACT OF FLOOD 2007: THE ECONOMIC DIMENSIONS...... 5 I11. RESPONSE TO THE 2007 FLOODS ...... 9 A . GOVERNMENT SPENDING ON FLOODS ...... 11 B. RESPONSE OF OTHER STAKEHOLDERS ...... 12 IV. BANK’S 2007 FLOOD ASSISTANCE STRATEGY...... 13 V . THE REFORM PROGRAM SUPPORTED THROUGH DSC IV: AN UPDATE ...... 14 A . ECONOMIC PERFORMANCE ...... 14 B. POVERTY AND SOCIAL IMPACT ANALYSIS ...... 16 C. REFORM PROGRESS SINCE THE APPROVAL OF DSC IV ...... 17 VI. RATIONALE FOR PROPOSED SUPPLEMENTAL FINANCING...... 20 VI1. IMPLEMENTATION ARRANGEMENTS...... 21 A . TERMS OF THE SUPPLEMENTAL FINANCING ...... 21 B. FUNDS FLOW AND AUDITING REQUIREMENTS FOR THE SUPPLEMENTAL FINANCING ...... 22 C. ENVIRONMENTAL ISSUES ...... 22 VI11. BENEFITS AND RISKS...... 22 A . BENEFITS ...... 22 B. RISKS...... 22
ANNEXES
ANNEX 1: LETTER REQUESTING BANK SUPPORT TO ADDRESS THE EMERGENCY ...... 24 ANNEX 2: PUBLIC INFORMATION NOTICE: IMF EXECUTIVE BOARD CONCLUDES 2007 ARTICLE IV CONSULTATION WITH BANGLADESH ...... 28 ANNEX 3: BANGLADESHAT A GLANCE ...... 33
TABLES
TABLE 1: IMPACT OF 2007 FLOOD BY REGION...... 3 TABLE-2: KEY FLOOD STATISTICS: A HISTORIC PERSPECTIVE ...... 4 TABLE 3: GOVERNMENT EXPENDITURES ON THE 2007 FLOODS ...... 11 TABLE 4: FLOOD ASSISTANCE COMMITTED BY DEVELOPMENT PARTNERS AND OTHERS 12 TABLE 5: BANGLADESH: SELECTED ECONOMIC INDICATORS. FY03 TO FY07 ...... 15
This document has a restricted distribution and may be used by recipients only in the performance of their official duties . Its contents may not be otherwise disclosed without World Bank authorization .
.. 11 STATISTICAL ANNEX
TABLE 1: FLOOD 2007 DAMAGE BY AFFECTED DISTRICTS...... 35 TABLE 2: BANGLADESH MACROECONOMIC INDICATORS ...... 36 TABLE 3: SUMMARY MACROECONOMIC INDICATORS ...... 37 TABLE 4: TOTAL EXPENDITURE BY FUNCTION/MINISTRY...... 38 TABLE 5: GOVERNMENT OF BANGLADESH FISCAL TRENDS ...... 39 TABLE 6: BANGLADESH - KEY ECONOMIC INDICATORS ...... 40 TABLE 7: BANGLADESH SOCIAL INDICATORS ...... 41 TABLE 8: BANGLADESH: KEY EXPOSURE INDICATORS ...... 42 TABLE 9: BANGLADESH - PROGRESS TOWARD MDGS ...... 43
Task Team This document has been prepared by Zahid Hussain and Ambar Narayan, with contributions from Sakuntala Akmeemana, Zaidi Sattar, Raihan Elahi, Mohammed Iqbal, Zafi-ul Islam, Qaiser Khan, Sandeep Mahajan, Farria Naeem, Sanjana Zaman, Shah Nur Quayyum, Reefat Sultana, and Suraiya Zannath, and assistance fi-om Mehar Akhter Khan and Rita Soni.
Vinaya Swaroop (Lead Economist for Bangladesh) helped in the preparation ofthis document and provided overall guidance to the Task Team. handRajaram (Lead Economist, PRMPS) was the peer reviewer for this operation.
... 111 SUPPLEMENTAL FINANCING AND PROGRAM SUMMARY
THE PEOPLE’S REPUBLIC OF BANGLADESH SUPPLEMENTAL FINANCING FOR THE FOURTH DEVELOPMENT SUPPORT CREDIT
Borrower: The People’s Republic ofBangladesh
Implementing Agency: Ministry ofFinance
Beneficiaries: Ministry ofFinance
Amount: SDR 49 million (US$75 million)
Terms: Standard IDA terms; 40-year maturity, including a 10-year grace period
Disbursements: SDR 49 million (US$75 million) disbursed in a single tranche upon credit effectiveness.
Project ID: P108843
iv
INTERNATIONAL DEVELOPMENT ASSOCIATION
PROPOSED SUPPLEMENTAL, FINANCING TO THE PEOPLE’S REPUBLIC OF BANGLADESH FOR THE FOURTH DEVELOPMENT SUPPORT CREDIT
I. BACKGROUND
1. Bangladesh has made steady social and economic progress in the last several years. Poverty was reduced by an average ofnearly 2 percentage points annually; from 49 percent ofthe population living in poverty in 2000 to 40 percent in 2005. If the current rate of poverty reduction continues, Bangladesh will meet its Millennium Development Goal (MDG) of halving its poverty rate from 57 percent in 1990 to 29 percent by 2015. Rapid poverty reduction is attributable mainly to strong and stable economic growth-annual Gross Domestic Product (GDP) growth has accelerated by 1 percentage point every decade, and is now above 6 percent a year. Despite periodic natural disasters (particularly floods) and frequent political turmoil, Bangladesh is the only low-income country to have maintained stable positive GDP growth since the 1990s.
2. The private sector’s contribution to these developments in Bangladesh has been quite impressive. It is reflected in the rapid growth in manufacturing, acceleration of garment exports; rising remittances from Bangladeshis living abroad; and substantial investment in textiles, banking, and telecommunications. Improvements in broad development outcomes, including education, health, sanitation and gender parity indicators, are also partly attributable to a vibrant civil society and nongovernmental organization (NGO) movement that has played an important role in expanding access to microfinance, and providing basic services and creating awareness on health, fertility and education. Notwithstanding this progress, Bangladesh remains a low-income country, with a per capita GDP ofabout US$490 in 2007 and a poverty rate that is still high. This indicates that the country still has a lot to do to assure a basic minimum living standard for all its citizens.
3. To further accelerate poverty reduction and economic growth, the Government of Bangladesh (GOB) has launched an ambitious program of policy reforms and institutional strengthening, articulated most recently in its 2005 Poverty Reduction Strategy entitled “Bangladesh: Unloclung the Potential.” Moreover, spurred by growing citizen demand for curbing corruption, the fight against weak governance and corruption has become the topmost priority for government policy. The Caretaker Government (CTG)-a nonpartisan Government established under Bangladesh’s Constitution to assist and oversee the conduct of free, fair, and ’ credible elections-has pursued this central mandate with vigor. It has, in addition, pursued a far- reaching agenda of institutional reform that is broadly seen as necessary for democratic consolidation. These include reform of the electoral process, political parties, and campaign financing; separation ofthe judiciary from the executive; and strengthening the independence and neutrality of the Election Commission, Anti-Corruption Commission, and Public Service Commission. At the centre ofthis drive to improve governance is a robust anticorruption effort, which has strong popular support, although some concerns have been voiced about compliance with due process and about the ongoing state ofemergency.
4. The current CTG took office in January 2007 following the declaration of a state of emergency, after a protracted period of political unrest that had caused the parliamentary
1 elections to be postponed. The CTG is being assisted by the country's defense forces in maintaining law and order and preparing for elections. Indicating the CTG's commitment to holding free and fair elections, the Election Commission (EC) released an electoral roadmap on July 15 with the next parliamentary election scheduled for the end of 2008, while local government elections are expected to begin in January 2008. This timetable has been recently reiterated publicly by the CTG, and the preparation ofa digitized voter list has commenced. The EC has announced a schedule ofconsultations on electoral reforms with 15 main political parties starting September 12. To facilitate ths dialogue, the Chief Adviser in his address to the nation on September 9 announced lifting ofban on indoor politics with effect from September 10,2007.' Despite dissatisfaction with the undemocratic behavior of the major political parties in the past, there is a broad consensus among citizens and the CTG about a future return to a system of democratically elected government.
5. Policy and institutional reforms in Bangladesh have been supported by the Bank through a series ofbudget support operations, known as Development Support Credits (DSCs). As part of this series, four credits totaling US$900 million have been provided to Bangladesh since 2003; the last credit, the Fourth Development Support Credit (DSC IV), was approved by the Board in May 2007. These credits have supported Bangladesh's reform efforts to (a) strengthen core governance functions with emphasis on reforms in public procurement, budget formulation and execution, tax administration, and public administration; and (b) improve the investment climate by maintaining macroeconomic stability, deepening domestic deregulation and trade liberalization, and strengthening performance of the banking and energy sectors and of state- owned enterprises. To support the government's deepening ofreform efforts, the Bank has been working with the CTG on a policy and institutional reform program that can be financed by a Transitional Support Credit (TSC) as part of its FY08 assistance program.'
6. As the Bank was moving forward with the implementation of its FY08 assistance program, a devastating flood struck Bangladesh in the months of July and August 2007. The CTGs flood relief efforts are placing severe pressure on its FY08 budget, which in turn may affect its development spending priorities and also adversely affect the macroeconomic situation. Given that floods are not uncommon in this part of the subcontinent, the government budget always has a provision of resources for such emergencies. The amount budgeted for such unforeseen circumstances in the FY08 budget (Tk 8 billion, or 0.2 percent of GDP), however, is much smaller than the preliminary estimates ofthe damage caused by the floods. The real impact offloods will be known by end-September, when the monsoon season normally comes to an end. The flood waters have not yet fully receded, and a committee led by the Planning Secretary is putting together a preliminary need assessment for restoration and rehabilitation. Meanwhile, the pressure on the budget related to immediate relief activities is estimated to be in the neighborhood ofUS$l50 million, as reported by the Ministry ofFinance.
' All political activities (including indoor politics) were prohibited from March 8, 2007, following the proclamation of the current state of emergency on January 11 th~syear to quell political confrontation over the January 22 abortive election. * The World Bank Group's most recent Country Assistance Strategy, discussed by the Board in April 2006, aligns itself with the country's Poverty Reduction Strategy and has envisaged that a series of Poverty Reduction Support Credits would be initiated in FY08 afier the new elected government had come to power. Because ofthe changed political situation and in view of the new schedule for holding parliamentary elections, it was decided that the Bank would support the country's ongoing reform efforts during the almost two-year transition period through a one-off budget support to the CTG in the form of a Transitional Support Credit.
2 7. The proposed Supplemental Financing envisages reducing the pressure on the government's FYO8 budget arising from the unforeseen flood related spending, which in turn will allow it to continue moving forward on the policy and institutional reform agenda supported by DSCs.
11. THE 2007 FLOODS: SOCIAL AND ECONOMICIMPACT
8. Bangladesh is one of the countries in the world most vulnerable to natural disasters including floods, droughts, and cyclones. Eighty percent of the country consists of floodplains created by more than 300 rivers and channels, including three major rivers: the Ganges, the Brahmaputra, and the Meghna. The floodplains in Bangladesh are home to a large rural and poor population whose life is intricately linked to the flooding regime. Regular annual flooding has traditionally been beneficial to agriculture, the main source of livelihood for the residents, but severe floods occurring less frequently have had adverse impacts on residents and the economy. In the last two decades, major floods occurred in 1988, 1998, and 2004.
9. This year an unusually severe Table 1: Impact of 2007 Flood by Region monsoon season has flooded Bangladesh Divisions 1 Total Area Flooded Percent along with Myanmar, Nepal, Pakistan, and (sq km) Area (sq km) Area northern and northeastern parts of India. Flooded In mid-July, when several districts in the Dhaka 31,119 14,503 46.6 country were experiencing an emergency Rajshahi 34,5 13 8,842 25.6 situation because of a severe monsoon, the SYlhet 12,596 6,362 50.5 major rivers started to swell from rain and Ckttagong 33,771 4,479 13.3 onrushing water from the upstream. In late U~Ulna 22,274 2,096 9.4 July, catastrophic rain in the Brahmaputra Barisal 13,297 712 5.4
A. Impact of Flood 2007: The Social and Human Dimensions
10. Table 2 shows the extent of flooding and associated damage so far in 2007 compared with three previous major floods. The 2007 flood damage to date is less than that from the last three major floods in terms ofthe number ofpeople affected, the proportion ofthe area inundated, damage to housing and infrastructure, and likely output losses, particularly in agriculture. But the human death toll has been high relative to the extent and duration ofthe floods. As ofSeptember 9, 2007, over 830 deaths have been officially reported, which may be an underestimate. It is important to recognize that all estimates for 2007 are preliminary and may change as better information becomes available and the full impact ofthe flood takes hold on the ground. Based on the information currently available, some ofthe critical social and human costs ofthe flood are described below:
Information on total area in each division from http://en.wikipedia.org/wiki/Banglapedia. 4 Based on figures from UNOSAT's map of flood water over Bangladesh as of August 7, 2007, and figures of divisional land areas provided in Banglapedia. Details on flood damages by affected districts are presented in Annex Table 1. 1988 1998 2004 2007 Percent of total area inundated 60 68 38 18 Number ofpeople affected (millions) 45 31 36 10.6 Deaths 2,300 1,100 747 83 1 Number of homes damaged (millions) 7.2 5.0 4.0 1.o Crops damaged (million hectares) 2.12 1.74 1.3 1.5 Number of livestock lulled 172,000 26,564 8,318 40,700 Roads damaged (kms) 13,000 15.927 27,970 28,723 Rice production losses (million metric 1.65 2.1 1.o Not yet assessed tons)
Health risks. Hunger and disease have become the order of the day in the affected areas. There is an outbreak of diarrhea in almost all the affected districts. Filthy flood water spreading diseases across the flood-affected areas is compounding the misery. About 65,000 people have been affected by diarrhea and other water-borne diseases, particularly respiratory problems, skin diseases, and eye complications. There is also a strong risk of outbreak of further ailments, as a result ofunsafe water and sanitary conditions created by the flood.
Impact on water and sanitation. Groundwater extracted by hand pumps is the main source of drinking water in both rural and urban areas. A majority ofhand pumps in the 39 severely flood affected districts have gone under water. On the sanitation fi-ont, a majority oflatrines in affected areas have reportedly been badly affected. The greatest worry is the serious lack of safe water supply, flooding of latrines and the attendant spread ofpathogens in flood water, and a breakout ofwater-borne disease.
0 Loss of livelihoods. The human toll of the floods goes well beyond the immediate health problems suffered by the victims. Several hundred thousand individuals have been displaced, and many thousands have lost their job or business. Although all flood victims are facing traumatic losses, certain groups are more vulnerable than others. Areas severely affected by the flood included some that were already among the poorer areas in the affected divisions. These include districts like Sunamgonj and Hobigonj in the Sylhet division; Sirajgonj, Kurigram and Gaibandha districts in the Rajshahi division; and Jamalpur and Sherpur districts in the Dhaka division, all of which suffered serious losses. Those who were poor and vulnerable before the floods will be the most adversely affected by the loss oflivestock and other household assets. Loss oflivestock can also adversely affect access to credit and repayment of existing loans, since livestock is the collateral for most microfinance loans. The poor, who rely on labor as their primary asset, are also especially vulnerable to job losses in the self-employed, small, and micro enterprise sectors, which are in the informal sector with no job security or access to insurance. The vulnerability of the poor has been exacerbated by the fact that inflation in the country, particularly food inflation, has reached a nine-year high (more on this in the next subsection).
Loss of housing. The flood has washed away homes, and sometimes even the land the homes had been standing on as a result of severe erosion. Many ofthe affected people have taken shelter in
4 their relatives’ homes or in schools, religious institutions, or other community buildings and flood shelters. A majority ofthe damaged homes meet minimal human needs and do not have in-house water and sanitation facilities. There is uncertainty regarding the estimate of the number of heavily and partly damaged units, but the current estimate is around 1 million (see table 2). A major problem is the impact of floods on access to land for rebuilding homes. When land goes under water, families need a new place to (re)build their homes, and the problem is compounded by the fact that many poor families have insecure tenure to the land on which their home was built.
11. A major flood, particularly in a flood-prone country like Bangladesh, can have a large poverty impact in affected areas, some ofwhich were poorer than average even prior to the 2007 flood (as seen above). While these effects are especially strong in the immediate aftermath of a major flood, they may also persist in the longer run-in terms ofhigher poverty rate and greater depth ofpoverty in flood-prone areas. The longer-term effects on poverty occur because severe shocks often compel the economically vulnerable to cope with their immediate needs through measures like selling productive assets (e.g., livestock), accumulating high-interest loans, and removing children fkom school-that adversely affect their long-term economic potential. In Bangladesh, there is evidence that while borrowing from informal sources protected the consumption of many during the 1998 floods, it also left a large number of the poor highly indebted, which negatively affected their ability to access future loans for income generation.’ Effective social protection programs (like cash grants) that address the immediate needs of the vulnerable are important to mitigate the likely long-term poverty impact ofthe 2007 flood.
B. Impact of Flood 2007: The Economic Dimensions
12. Past experience suggests that floods tend to: (a) reduce GDP growth, in particular by dampening growth in agnculture, construction, small-scale manufacturing, and transport and communication; (b) increase inflation, particularly by increasing food prices as a result of supply shock and disruptions in transportation; (c) reduce export growth, increase remittances and imports (the latter resulting from the emergency need for food and items needed for reconstruction); and (d) increase fiscal deficits by depressing revenue growth and increasing unforeseen expenditures. Past experience also shows that these adverse effects are temporary. The Bangladesh economy has time and again proved its resilience in recovering from the effects ofnatural disasters in reasonably quick time.
13. Before the 2007 floods, the Bangladesh economy was poised to grow in the range of 6.5 to 7 percent in FY08, propelled by a recovery in agriculture after a weak performance last year, robust manufacturing growth, and services growing at the usual trend growth rate. Buoyant garment exports and remittance flows as well as the possibility of higher aid and private flows were expected to sustain investment, including in power infrastructure. The year also began with a comfortable foreign exchange reserve position of more than US$5 billion (equivalent to 3.2 months of imports ofgoods and nonfactor services). Amidst the positive economic environment and optimism about the immediate future, one concern was inflation, which had been aggravated by rising prices of essential food items such as rice, wheat, edible oil, and fish. The following paragraphs summarize the movement ofkey economic variables and how they have been affected by the ongoing floods and the policy stance adopted by the CTG to respond to the movements.
For recent evidence on Bangladesh, see Dasgupta, A. (2007), “Floods and Poverty Traps: Evidence from Bangladesh.” Economic & Political Weekly, July 28.
5 14. Inflation. Increasing both in rural and urban areas, inflation has accelerated to 9.2 percent (annual point-to-point) in June, which is a nine-year high. Food inflation, which accounts for 58.8 percent of the Consumer Price Index in Bangladesh, surged to 9.8 percent and nonfood inflation to 8.3 percent. This surge in inflation obviously preceded the onset of the flood, and is attributable mainly to international price increases and growth in domestic demand. There are signs that floods have made it worse with inflation soaring further to 10.1 percent in July-the last month for which data are availablehven entirely by food inflation, which increased to 11.4 percent. Non-food inflation decreased slightly to 8.2 percent.
15. The damage to crops and transport infrastructure caused by the ongoing floods is likely to exacerbate the situation by increasing supply-side inflationary pressures. Moreover, prices of essential food items generally increase during the month of Ramadan, which this year starts on September 14. Thus, in all likelihood, inflation could rise further in the next couple of months.
16. In cases where monetary management is prudent, inflation produced by a supply shock typically subsides after some lag. This was evident for the 1998 post flood inflation, which rose from 7 percent in July, 1998 to 13 percent in December 1998, declined to 8 percent by June 1999, and to 3 percent by December 1999. The 1998 inflation could be characterized as a pure supply- shock inflation that literally cured itself as a result of a bumper Boro harvest in Spring 1999. Inflationary pressures were kept in check by prudent monetary management during this period, with money supply growth averaging 9-10 percent during FY98-2000.
17. Defining high food prices as one of the main economic problems facing the country that most affects the poor; the CTG has taken a number of steps to tackle the problem. More specifically, it has
Lowered import duty on essential items-rice, wheat, edible oil, and onion-to zero Established numerous fair price shops (in both rural and urban areas operated by Bangladesh Rifles) and toll-free markets; imported food through a number of government agencies. Encouraged private commercial banks to lower Letter of Credit margins for food imports Decided to impose zero duty on items in high demand during the month ofRamadan Decided to supply seeds and fertilizer in the post flood period in a timely manner and in adequate quantity Decided to import 350,000 metric tons of rice and 200,000 metric tons of wheat on an emergency basis. Interest rate on import of essential items lowered temporarily.
Monetary growth declined to 17 percent in June this year, compared to 22.3 percent in December 2006, reflecting primarily sharp declines in credit to the private sector and central government. Growth ofcredit to the private sector declined from 19.4 percent in December 2006 to 14 percent in June 2007, while growth of credit to the central government declined from 35.9 percent to 12.7 percent during the same period. This decline did not necessarily constitute a deliberate tightening ofmonetary policy, but perhaps reflected a slowdown in economic activities in the first half of 2007. While supply shocks, particularly international commodity price increases, have played an important role in the upsurge of inflation, the persistently high rate of monetary growth (hovering around 20 percent) since February 2006 accommodated the supply shocks, leading to their persistent impact on inflation. However, in its Monetary Policy
6 Statement released on July 12, 2007, Bangladesh Bank announced its commitment to a cautious monetary stance in the second half of 2007, including review of Cash Reserve Requirements (CRR), Statutory Liquidity Requirements (SLR), and policy interest rates.
19. Economic growth and employment. In the past couple of months there have been some signs-mostly anecdotal-that private sector business confidence has suffered in the country,6 which in turn, may have some impact on the FY08 economic growth rate. The floods may aggravate this ~ituation.~In the immediate aftermath of the flood, its adverse impact is likely to occur in the following sectors:
Agricultural production. Preliminary estimates by the Department of Agricultural Extension suggest that crops worth between Tk 18 to 20 billion (US$250 to 300 million) have been damaged by the ongoing floods. The damaged crops include rice, jute, vegetables, and spices on around 469,000 hectares of land constituting about 26 percent ofthe total cultivated crops in the affected areas. Aman has been the worst hit4amage to 250,000 hectares has caused a loss of an estimated Tk 10 billion (roughly US$140 million).
Livestock andfisheries. This sub sector has suffered damage worth Tk 150 million (US$2.35 million). According to the initial estimates provided by the Ministry of Fisheries and Livestock, some 32,620 metric tons of fish, 583 metric tons of shrimp, and 462.2 million fry were washed away as 186,307 ponds and large water bodies across the country were submerged by floodwaters. These figures, however, reflect losses in fisheries only and exclude losses in other types of livestock (chicken, goats, among others, commonly owned by Bangladeshi households) that are likely to be considerable.
Flood control and irrigation infrastructure. Extensive damage has been caused to the flood embankment and regulators of the Bangladesh Water Development Board (BWDB)-managed water schemes, and irrigation infrastructure managed by the BWDB, Bangladesh Agncultural Development Corporation (BADC) and Local Government Engineering Department (LGED) in most of the 39 flood-affected districts. This may have indirect adverse effects on agncultural production.
Manufacturing. The small-scale manufacturing sector appears to be the most seriously hit, particularly the textile industry concentrated in the Sirajgonj and Pabna districts, causing losses of more than Tk 1.5 billion (about $22 million) and rendering more than 800,000 loom workers jobless. At least 40,000 handloom and powerloom units out of more than 53,000 have been submerged, damaging looms, stock of raw materials, and finished goods and disrupting production activities completely. About 50 to 70 thousand weavers have been directly affected, and all the 0.8 million weavers are financially vulnerable. Bangladesh Small and Cottage Industries Corporation (BSCIC) industrial estates in some areas are also likely to have been affected.
One possible reason for kscould be the vigorous pursuit ofthe anticorruption drive launched by the CTG. Many questions are being asked by tax officials and the banks in their dealings with the private sector. On its part, the CTG has publicly assured that it is taking steps to check any unnecessary harassment to the business community. 7 Although experience has shown that the impact of floods on growth tends to be temporary and the economy’s normal growth momentum revives as the flood recedes, reform efforts continue, and the investment climate improves.
7 Transport and Communication. Road transport infrastructure appears to have suffered extensive localized damage in most of the 39 flood-affected districts. Damage has been caused to the primary roads network managed by the Roads and Highways Department and to the secondary roads network managed by the LGED. Damage is particularly severe where incidents of flash flooding led to wave action and the erosion of embankments. Inland waterways and airports are only marginally affected, as is typically the case.
20. Balance ofPayments. The overall impact of the floods on balance of payment (BOP) position is likely to be marginal. Export growth in FY07 slowed to 15.7 percent, compared with 21.6 percent in FY06. Import growth was also fairly strong at 16.4 percent. Combined with a strong 24.5 percent remittance growth, the external current account balance in FY07 had a surplus equivalent to 0.5 percent of GDP, the same as in FY06. Floods could affect exports somewhat, particularly exports of frozen food. In addition to emergency food imports (including a recent decision by the government to import 350,000 tons ofrice and 200,000 tons ofwheat to add to its foodgrain stock), post flood relief and rehabilitation is likely to require the import of selected products, particularly some construction materials. Aided food imports are also likely to be higher than they otherwise would have been in the absence offloods. On the other hand, a fall in real income growth could depress import demand. Historically, however, import growth in dollar terms has tended to increase in the aftermath of floods. This, together with some adverse effects on exports, may result in a bit larger narrowing ofthe current account surplus than expected at the onset of FYOX. Fortunately, this year Bangladesh has a foreign exchange reserve level of over US$5 billion (equivalent to 3.4 months of GNFS imports), compared to pre flood levels of US$3.1 billion (2.8 months) in 2004 and US$1.8 billion (2.8 months) in 1998. This, together with the floating exchange rate regime, will help absorb the pressure arising from the deterioration in the trade balance resulting from emergency import of food, agricultural inputs, and construction materials.
2 1. Fiscal Variables. The fiscal impact of the floods is likely to be significant. The relief effort, expansion in food-assisted safety nets, repairs to public property, and the impact of the flood on economic growth are likely to put pressure on both the revenue and expenditure sides of the budget.
22. In the first half of 2007, the government had taken several initiatives to improve fiscal management. It launched a dnve to collect taxes, which resulted in income tax collection exceeding the FY07 original budget target, and significantly cut back development spending to remain within the budgeted deficit. In April, it made large adjustments in petroleum prices, which helped contain growing quasi fiscal losses. The floods may, however, reverse the positive impact ofthese fiscal measures.
23. Past experience shows that current expenditures tend to rise significantly in the aftermath of a flood. The FY08 target for food distribution through the Public Food Distribution System is 1.67 million metric tons, which may need to be revised upward to take into account additional flood relief needs. The government will have to help the flood-affected farmers commence production. The most immediate need would be to replant rice for the winter crops under the transplanted Aman rice cultivation program, for which the farmers will need seeds, fertilizer, farm machines, and fuel. The government will also need to ensure that adequate supplies of seeds of maize, pulses, wheat, vegetables, and Boro are available. The farmers will also need assistance with the health of their cattle, since the surviving cattle in the affected areas are likely to suffer from malnutrition and diseases. Other costs likely to increase current expenditures include the need to provide assistance to the small-scale manufacturing sector for rehabilitation, grants to
8 dislocated people, and other increased operations and maintenance (O&M) expenditures to repair infrastructure damage.
24. Given these multidimensional needs, revenue expenditure may overshoot the original FY08 budget target despite the provisions that exist in the FY08 Revenue Budget and the Food Account. These include Tk 8 billion for unforeseen expenditures and Tk 6.2 billion for programs funded from the Revenue Budget. There is also Tk 17.5 billion provision as VGF, GR and other relief activities in the Revenue Budget and Tk 4.1 billion for non-ADP FFW. However, the unforeseen flood expenditures can only be managed in part from these provisions as well as expenditure restructuring. Moreover, the immediate cash financing needs (for emergency food, seeds, and fertilizer imports) cannot be met entirely from own resources, since only a limited amount ofresources can be freed up right away by restructuring other expenditures.
25. It should be possible to redirect expenditures from the Annual Development Plan (ADP), which is the capital expenditure budget, toward the repair of damaged infrastructure. Floods tend to reduce ADP implementation shortfall by augmenting demand for fast-disbursing expenditures. Considering this, and assuming that the government will achieve significant reallocation of ADP funds to finance nonfood imports and repair damage to public assets, it is reasonable to assume that the actual ADP expenditures can still be contained within the FYO8 budget target ofTk 265 billion. Implementation shortfall last year, an unusual year, was 17 percent, whereas normally it tends to be within the 10-15 percent range relative to the original budget target. The CTG is taking measures to reduce the normal implementation shortfall, which, together with the impact of floods, may bring it down to less than 10 percent. The Planning Commission is currently in the process identifying potentials for pruning the FY08 ADP and this exercise is expected to be completed by end-September.
26. Thus, the challenge of containing the FY08 budget deficit within the original target has become all the more formidable. Historically, growth in revenue collection declines in the flood year in particular. Combined with expenditure increases, this could lead to the FY08 budget deficit overshooting the pre flood 3.6 percent projection.8 This would be bearable if it is accompanied by an increase in concessionary external financing. Otherwise, there would be pressure on domestic financing, particularly financing from the bankmg system, and especially the Bangladesh Bank. The ongoing flood relief efforts of the government have been mostly financed by borrowing from the banking system, which has significantly increased in July 2007. Concessionary external financing will also mitigate any worsening of BOP position that may result from emergency import needs for rice and other items.
111. RESPONSE TO THE 2007 FLOODS
27. Bangladesh has in the past experienced natural disasters, including floods, and has built up a response system that has improved over time. The government budget includes disaster response lines items that include cash grants that are distributed through a combination of local governments and community targeting. The effectiveness of the flood response system in Bangladesh has been evaluated in several international studies and found to be effe~tive.~
Table 3 in Section I11 below provides information on government spending that has already been incurred on the 2007 floods. See, for example, Dorosh, P., C. del Ninno and Quazi Shahabuddin Eds., 2004. The 1998 Floods and Beyond-Towards Comprehensive Food Security in Bangladesh. The University Press Limited, Dhaka and IFPRI, Washington DC.
9 28. Responding to the 2007 floods, the CTG has already taken measures to distribute relief materials and help the affected people. Its flood assistance strategy is being implemented by the National Disaster Management Committee in close cooperation with the Inter-ministerial Coordination Committee.. Moreover, coordination committees have been formed at the district and upazila levels with representatives from the government, private organizations, and NGOs, and have now started functioning. Key actions taken by the CTG to tackle the floods include:
Authorization to eight line ministries to carv out flood emergency work using their regular maintenance budget. The total amount authorized for flood related work is Tk 21 billion (roughly US$300 million). This accounts for 81.8 percent ofthe total FY08 nonwage O&M budget, which means that most of the regular maintenance will have to be deferred to FY09 unless the amount reallocated from nonwage O&M is restored this year.
The decision to import 350,000 tons of rice and 200,000 tons of wheat to augment its food grain stock. In a meeting on August 16, 2007, the Advisers Committee on Purchase decided to procure another 100,000 tonnes of rice from local importers to further supplement the government’s rice stock. The estimated cost of both imports and local procurement is Tk 1.23 billion (about US$18 million).
The decision to launch an open market sale (OMS) of rice from September 9, 2007, for one month in order to keep rice prices tolerable during the forthcoming Ramadan. Under this program, 118,000 tons ofrice will be sanctioned to 15,440 dealers, each distributing 5 10 kg. The government also plans to import 650,000 tons of urea this year, of which 312,000 tons have already been imported.
Housing and livelihood support through direct cash transfers to flood victims. On August 25, 2007, the CTG allocated Tk. 320 million (about $5 million) from the Chief Adviser’s Relief and Welfare Fund for an immediate cash transfer to the flood victims to help repair damaged homes. These will be distributed through the local administration after assessing actual damage or losses caused by the floods. Each family will get Tk 10,000 if their house is completely damaged and Tk 5,000 if partly damaged. The government is also considering providing a one-time relief cash grant for livelihood support to flood victims, the details of which-including the amount of assistance, the institutional arrangements for delivery, and the criteria for eligibility-are yet to be decided. It is important to recognize that, over time, Bangladesh has increasingly employed cash transfer programs as a means to assure food security+specially during periods of natural disasters-and this policy has generally been successful. 10
Assuring availability of Aman seedlings in the affected areas. The government has initiated a Tk 650 million (about $ 9.5 million) post flood program to rehabilitate about 700,000 small and marginal farmers in the affected districts and has already allocated Tk 300 million. Late variety Aman rice seedlings and seeds for dry season crops are to be distributed among the farmers under this program.
29. The focus at the moment is on relief and the immediate rehabilitation needs of flood victims in areas where flood water has receded, which includes social protection to help displaced persons and other vulnerable groups return to productive lives as soon as possible. A full damage
lo A recent World Bank study ofthe effectiveness ofcash transfer programs in Bangladesh found these to be quite successful and cost-effective in reaching the needy. See World Bank, (2006) Safety Nets in Bangladesh.
10 assessment is only possible after the flood waters recede completely. The possibility of severe flooding for a second time has become very real in recent days as 23 districts have been inundated till September 9 with water levels in all major rivers rising and continuing to flow above danger mark. Once these exigencies and uncertainties are resolved the CTG will be in a position to prepare a medium- to long-term flood recovery program, which is expected to include additional social programs, support to affected farmers and enterprises, and a medium-term reconstruction and disaster mitigation program. Meanwhile, the CTG has requested the World Bank's assistance to help meet these and other emergency flood-related expenditures.
Table 3: Government Expenditure on the 2007 Floods (Taka in million) I.Restoration and Rehabilitation Expenditures 20926.9 Ministry of Food and Disaster Management 17,801.30 Cash for housing 625.00 Food import 17,156.30 Contingency 20.00 Ministry of Health and Family Welfare 245.20 Local Government Division 1,110.00 Chief Adviser's Office 497.80 Ministry of Water Resources 550.00 Ministry of Agriculture 315.50 Ministry of Communication 400.00 Ministry of Fishery and Livestock 6.60 11. Relief Expenditures 1,264.8 Cash Transfers 466.5 Food 553.10 Medicine 245.20 111. Total Expenditure 22191.7 In equivalent US$ million 324.0 As percent of FY08 Budgeted Expenditure 2.8 Notes: These numbers are as of September 9,2007 and reflect the amounts released by the Ministry of Finance. Source: Finance Division, Ministry ofFinance
A. Government Spending on Floods
30. The government has so far incurred about Tk 22 billion (roughly US$ 324 million, about one-fourth of which will be covered by supplemental IDA funds) expenditures on account of floods (see table 3). These expenditures have been financed from provisions for nonwage O&M and various block allocations in the revenue budget. The flood-related expenditure incurred to date constitutes 3.4 percent of the total FY08 expenditure budget. Restoration and rehabilitation activities account for nearly 94 percent of the total and relief for the rest. Food import and budgetary support to agncultural credit account for the bulk of the rehabilitation expenditures. Actual cash transfers for housing through the Ministry of Food and Disaster Management amounted to Tk 625 million (UStS9.l million). Food supplied through the various safety net
11 programs of the Government (Vulnerable Group Feeding and Food for Works) constitutes the largest relief expenditure. Emergency cash grants for relief amounted to Tk 466.5 million (US$6.8 million).
B. Response of Other Stakeholders
31. Some of the NGOs have also started providing relief support to the affected people. International organizations based in Dhaka are having similar coordination meetings facilitated by UNDP. As initial response, DFID, CIDA, USAID, Norway, Germany, UNICEF, WHO, WFP, UNFPA, and UNDP have already offered financial assistance and some have started to mobilize relief materials. A US$50 million emergency commodity grant from Saudi Arabia has started arriving. While the government did not directly appeal for foreign assistance in his address to the nation on August 5, 2007, the Chief Adviser mentioned that the government will “cordially accept spontaneous help and assistance from development partners at home and abroad.”
Table 4: Flood Assistance Committed by Development Partners and Others
Development Partner Amount Committed (in US$ million) Saudi Arabia 50.0 India 10.0 UN 6.0 UK-DFID 4.0 EU and International Red Cross 3.4 China 1.3 Aus AID 1.28 Kuwait 1.o IDB 0.28 OPEC Fund 0.25 Canada 0.25 South Korea 0.2 Turkey 0.1 us 0.14 WFP 0.12 CIDA 0.24 Germany 0.89 Sweden 0.30 Others (Canada, Sri Lanka, 0.08 Netherlands) Total I 78.8 Source: Disaster Management Bureau, September 9,2007
32. DFID is still focusing on the immediate relief as well as considering the support requested by UNDP, which is worhng on a short-term recovery and rehabilitation plan for UN interventions. UN Central Emergency Fund has allocated US$ 6 million towards flood relief. At the same time, DFID is looking at the opportunities within its programs for redirecting the already
12 committed resources for flood purposes. ADB and Japan are exploring ways of providing support.
IV. BANK’S2007 FLOODASSISTANCE STRATEGY
33. The Bank is regularly monitoring the flood situation and conferring with the government, other development partners, and UN agencies about the emergency response. Since the onset of floods this season, the Bank has been preparing a biweekly “Flood Situation Update” for its Senior Management. As a part of the Bank’s role in coordinating development partners, the Bank‘s Country Director co-chaired (with the Secretary of the Economic Relations Division, Ministry of Finance) a Local Consultative Group Plenary on August 19 to discuss the flood situation with government officials. At this meeting, the Finance Secretary indicated that the government would need US$150 million of additional budgetary support to meet flood-related expenses based on the flood situation at the present time.
34. The Bank has designed an interim flood assistance strategy to help the country cope with the situation, with the understanding that the floods are not yet over this year. Learning from its experience of a similar flood situation in 2OOLthough the magnitude of damage was much higher then-the Bank‘s financial assistance strategy has the following two elements:
0 Budget Support: A quick-disbursing US$ 75 million budget support operation to reduce (a) the fiscal pressure on the government that is arising out of non-programmed flood-related spending; and (b) any unforeseen pressure on the foreign exchange reserves that may be arising as a result of emergency imports, particularly those related to food. This quick- disbursing fiscal support is to be funded from the FY08 IDA allocation to Bangladesh. This component is the proposed Supplemental Financing to the recently approved Fourth Development Support Credit. These resources, among other things, will restore a part ofthe regular nonwage operation and maintenance budget of several line ministries that is being used for flood-related restoration and rehabilitation activities. Most of the regular maintenance work programmed for this year will suffer if this is not done, with adverse developmental consequences particularly for the roads, public works, education, and health sectors.
0 Restoration and Rehabilitation: A list of restoration and rehabilitation activities associated with the floods is planned to be financed from reallocating resources from the existing Bank projects that face imminent cancellations and/or have disaster management components built into their design. Immediate post flood rehabilitation of infiastructure will address some urgent connectivity needs that will need to be carried out over a longer period of time. Existing project funds will be redirected to provide support in agriculture, health, communications, and water and sanitation. This part of the strategy will be based on a post- flood assessment that will be undertaken after September, once the floods are over. A separate program to support these activities will be designed once a needs assessment has been put together. In the event this requires formal project restructurings, or a new credit, Board approval will be sought. As mentioned earlier, the Ministry ofPlanning is engaged in a needs assessment exercise and its report is likely to be available by end-September.
The ongoing multi donor Health Nutrition Population Sector Program, which is supported by a large group of donors some ofwho have pooled their resources in a multi donor trust fund managed by the Bank, has a component for financing emergencies and disasters-roughly US$10 million over five years. Priority health supplies and operations related to the floods
13 including drugs, water purification tablets, and costs for mobilizing relief teams, are being financed through this program. The World Bank received a request from the Health Ministry to approve emergency supplies worth US$l.57 million, which has been already approved. The Bank has also allowed for national /international shopping to speed up delivery of the commodities.
35. This strategy has been discussed with the CTG and has its endorsement. The strategy was also discussed with key development partners and fits into the overall plan for external assistance for flood recovery.
v. THE REFORM PROGRAM SUPPORTED THROUGH DSC Iv: AN UPDATE
36. The Development Support Credit (DSC) series” has supported Bangladesh’s reform efforts along two pillars: (a) strengthening core governance functions, with emphasis on reforms in public procurement, budget formulation and budget execution, tax administration, and public administration; and (b) improving the investment climate, by maintaining macroeconomic stability, deepening domestic deregulation and trade liberalization, and strengthening performance ofthe banking and energy sectors and ofstate-owned enterprises.
37. The DSC IV program was closely aligned with the reform pillars outlined in the GOB’S Poverty Reduction Strategy (PRS) that was presented to the boards of the International Development Agency (IDA) and the International Monetary Fund (IMF) in early 2006. The PRS stresses the links among investment growth, job creation, and poverty reduction. It identifies key areas where reforms are needed, public investments are required, and public policies merit improvement. To generate broad-based growth and reduce poverty, the PRS focuses on employment generation, nutrition, maternal health, quality ofeducation, safe water and sanitation, the criminal justice system, and local governance. It acknowledges that progress in these areas requires creating an open and competitive environment conducive to private sector development. Other priority areas outlined in the PRS include: improving the ability of poor people to participate fully in the growth process through access to nutrition, better quality education, health, water, and sanitation; and ensuring that governance issues are addressed by, among others, tackling corruption, enhancing access to justice for the poor, and improving security and public order.
38. A description of the reform efforts-past, ongoing and needed in the future-that underpin the country’s development vision is provided in the DSC IV document.12 The following paragraphs provide a briefing of the country’s economic and social performances as well as an update on the reforms since the approval ofDSC IV by the Board in May 2007.
A. Economic Performance
39. Bangladesh’s economic performance has been fairly impressive in recent years. The economy grew by 6.6 percent in FY06, the highest rate in over two decades, and despite prolonged political turmoil growth was 6.5 percent in FY07, the fourth consecutive year of at least 6 percent growth (table 5). Growth has been broad-based, cutting across all major economic
11 The DSCs have complemented a parallel Special Drawing Right (SDR) 347 million Poverty Reduction Grant Facility (PRGF) program of the IMF, which ended in June 2007. Discussions are starting on a new PRGF arrangement. l2 World Bank, 2007, Program Document for the Fourth Development Support Credit to the People’s Republic of Bangladesh, Report No. 39595-BD, Washington, DC.
14 sectors and benefiting from robust demand in both domestic and export markets. The manufacturing sector grew at an impressive 11.4 percent in FY07, its strongest performance in over a decade. Garment exports, which account for about 75 percent of manufacturing exports, grew by 1 1.6 percent (in nominal dollar terms) in FY07. This was despite enhanced competition from other low-cost producers after the dismantling of the Agreement on Textiles and Clothing (ATC) on January 1, 2005, and disruption of normal economic life for more than two months because of intense political turmoil. Construction, fueled by strong manufacturing growth as well as large amounts of remittance inflows, grew by an estimated 7.1 percent, maintaining its 7-8 percent growth record since FY94. Remittances through formal channels were recorded at nearly US$6 billion, which is about 9 percent of GDP and half of merchandize exports (gross), compared with US$l.9 billion in FYO 1.
40. Macroeconomic stability has been broadly maintained (table 5). The fiscal, monetary, and external indicators have remained mostly within the thresholds of the macroeconomic framework agreed with the IMF under the PRGF program, although there have been some temporary deviations. One key indicator-revenue mobilization-has persistently fallen short of its targets. In FY08, the government borrowed Tk 5.33 (net) billion from the banlung system till August 16, 2007, against the FY08 target ofTk 79.8 billion. The government is also planning to take some austerity measures, including cutting entertainment allowance and transportation costs and delaying implementation of low-priority ADP projects. As mentioned earlier, inflation continues to be a problem with prices showing an upward trend. While part of this is due to rising food prices (which has been aggravated by the floods), non-food inflation has also been rising. In the past several months, the Bangladesh Bank has not effectively used the monetary policy instrument to tackle the non-food or structural part ofinflation.
Table 5: Bangladesh: Selected Economic Indicators, FY03-07 (in percent of GDP, unless otherwise indicated) ~~~~ ~ 2002103 2003104 2004105 2005106 2006107 Real GDP growth ( percent change) 5.3 6.3 6.0 6.6 6.5
Per capita GDP Atlas method (US$) 395.1 418.0 446.4 469.1 487.7
Consumer prices 4.4 5.8 6.5 7.2 7.2 (percent change, 12 month average) Overall Budget balance -3.4 -3.1 -3.3 -3.2 -3.6 (before grants) Overall Budget balance -2.4 -2.6 -3.0 -2.8 -3.1 (after grants) Revenues (incl. grants) 11.3 10.7 10.8 11.1 11.0 Tax revenues 8.3 8.2 8.5 8.5 8.4 Expenditures 13.7 13.3 13.8 13.9 14.1 Current account 0.1 0.2 -1 .o 0.8 0.7 (excluding official transfers) Gross reserves in US$ millions 2,471.0 2,714.0 2,930.0 3,471.0 5,001.0 (in months of imports) (2.9) (2.8) (2.5) (2.7) (3.2)
15 B. Poverty and Social Impact Analysis
41. As mentioned earlier, Bangladesh has made remarkable progress in reducing poverty over the last 15 years. In early 199Os, close to 60 percent ofthe population was living in poverty, which declined to 49 percent in 2000 and 40 percent by 2005. The 1.8 percentage point annual decline in the poverty rate from 2000 to 2005 was a significant improvement over the 1 percentage point annual decline during the 1990s. The fall in poverty rate was in fact large enough to significantly reduce the number of people in poverty (with a growing population) by nearly 6 million people between 2000 and 2005. The reduction in poverty is attributable mainly to a 3.3 percent annual average growth in real GDP per capita during 2000-05, which translated into significant poverty reduction because of almost no increase in inequality-the Gini index of consumption remained stable at around 0.3 1 since 1996. Between 2000 and 2005, consumption growth was equitable across the distribution, and in fact slightly higher than the national average for the bottom 30 percent of the population. Improvements in quality of life between 2000 and 2005 were not limited to consumption, but were also seen for a variety of indicators, including housing conditions, access to electricity, sanitation, and telephone connections.
42. If the current trends in growth and inequality were to continue, Bangladesh will meet its MDG of reducing the poverty rate by half from 1990 to 2015, that is, 29 percent by 2015. Progress has also been good toward several other MDGs. Bangladesh is on track to meet its MDG on gender parity, having already achieved the goal in primary and secondary schooling. Significant gains have also been achieved in reducing child mortality. The under-five mortality rate has fallen from 136 deaths per 1,000 live births in 1990 to 66 today. This rate is considerably lower than in neighboring India, even though Bangladesh’s per capita GDP is about half the size of India’s. Attaining the MDGs relating to child malnutrition and those in education relating to universal net primary enrollment and primary completion remains challenging but within reach. Bangladesh had also nearly achieved the safe water MDG, with 97 percent of its population having access to pathogen-free water, before arsenic contamination posed a new round of challenge^.'^
43. Analysis of poverty reduction suggests that a lot of the economic gains during 2000-05 among households took place as a result of improving returns to their endowments, in other words as a result of higher incomes generated from available assets and occupations, which in turn indicate the beneficial impact of economic growth. Poverty reduction is linked to wage and productivity increase in the industry sector, along with substantial employment growth in the service sector; increased inflow ofremittances is also likely to have played an important role.
44. Substantial challenges, however, still remain. Around 56 million Bangladeshis remained in poverty in 2005. Disaggregated poverty trends show that regions in the west and southwest (Rajshahi, Barisal, and Khulna divisions) have fallen significantly behind the east (Dhaka, Chittagong, and Sylhet divisions). Dhaka and Chittagong contributed nearly 80 percent of national poverty reduction between 2000 and 2005, with just over half the population, while Khulna and Barisal had no contribution, with about one-fifth of the population. Lack of economic growth in the lagging regions is related to a number of factors, including poor connectivity to the main growth centers of the country (most importantly, Dhaka), inadequate
l3 For more information on MDG progress, see Government of the People’s Republic of Bangladesh and United Nations, 2005, “Millennium Development Goals: Bangladesh Progress Report,” Dhaka; and World Bank, 2007, “To the MDGs and Beyond: Accountability and Institutional Innovation in Bangladesh,” Washington, D.C.
16 infrastructure, and lower inflow ofremittances. Closing this regional economic divide would be an important area of focus for public policy, as the CTG has recently indicated publicly on repeated occasions.
45. Poverty estimates since 2005 are not available and must await the next Household Income and Expenditure Survey (2008-09). While economic growth has been strong during the last two years and is likely to have reduced poverty further below the 2005 level, there is some cause for concern with regard to the recent spike in inflation (see Section 1I) that may have had an adverse short-term impact on poverty. As mentioned earlier, not only is the flood likely to exacerbate the poverty situation in the short term in the affected areas, these effects can also persist to some extent in the longer run-in terms of higher poverty rate and greater depth of poverty in flood prone areas.
C. Reform Progress since the Approval of DSC IV
46. The progress made as part of the DSC N-supported initiatives in strengthening the banking sector, liberalizing the trade regime, strengthening of tax administration, and reforms to improve the functioning of core governance institutions has been encouraging. Appropriately under the current conditions, and also consistent with the emphasis in the poverty reduction strategy, the CTG has accorded its highest priority to maintaining essential law and order conditions and strengthening key institutions of accountability. The CTG also remains committed to deepening reforms in public expenditure and financial management, public procurement, tax administration, economic deregulation, public administration, state-owned enterprises, banlung, trade, and power.
47. The following paragraphs provide updates on reform progress by specific areas:
(i)Macroeconomic Stability
With the implementation ofeconomic reforms envisaged in the PRS, growth is expected to be sustained at around 6.5 to 7 percent over the medium term, with the industrial sector continuing to be the main driver. While the impact of the flood on economic sectors, as discussed in Section 11, is likely to reduce current year growth (by possibly 0.2 to 0.3 percentage point relative to the pre flood projection of 7 percent), the growth in subsequent years is likely to be minimally affected, as similar natural disasters in Bangladesh and other countries have shown. The strength ofthe external sector should sustain double-digit export growth, with firming growth prospects in the key European market in FY08. High and rising inflation is the main concern on the macro front, particularly in view of the continued unfavorable international price developments. The flood is likely to increase the inflationary pressure, particularly because of its disruption to food production and transportation, but these effects are likely to be temporary with prudent monetary management. With the corrective measures taken by the government to smooth the flow of food supply and the commitment by the Bangladesh Bank to take a cautious monetary stance in the second half of 2007, the pressure on consumer prices should ease somewhat after the flood induced shocks peter out. Of course this depends upon no further sharp and continued rise in global commodity prices, oil in particular, and no reversal of the decline in monetary growth since December 2006.
17 (ii)Banking: Corporatizatioflrivatization of National Commercial Banks (NCBs)
0 The three new banlung companies have already been formed and given commercial banking licenses by the Bangladesh Bank. The technical part ofthe corporatization process has been completed and the Vendor’s Agreements to transfeddivest the entire assets, liabilities and capital of the NCBs to the new banks is expected to be signed soon. The new banlung companies will start operating as soon as the Finance Division issues a Gazette Notification. The government has already issued a Letter ofIntent (LOI) and formally invited the preferred bidder to take over the 93 percent stake of the largely state-owned Rupali Bank Limited (RBL) for US$458 million. It has also taken all necessary initiatives to resolve the major disputes hindering the formal sale/transfer of RBL. However, it still awaits a concrete positive response from the prospective buyer for signing of the Sales and Purchase Agreement (SPA).
(iii)State-Owned Enterprises: Restructuring
BIMAN Bangladesh Airlines became a Public Limited Company on July 23,2007, as part of the government’s effort to rescue the loss-making national carrier. An international operator will be appointed through public tender bidding to run the new airline. The government will retain 100 percent share for the time being, gradually offloading up to 49 percent of the shares ofthe airline to the private sector. The first board ofdirectors ofthe company has been formed with six government officials headed by the Cabinet secretary and the present BIMAN Managing Director as its Chief Executive Officer. The airline has recently released 1876 personnel through a Voluntary Retirement Scheme (VRS), reducing its workforce by about 44 percent. BIMAN has also undertaken a number of short-term reform actions such as closing down some loss-malung international and domestic routes.
0 The government has closed four loss-malung jute mills in July-one in Khulna, one in Sirajgonj, and two in Chittagong. It has also started clearing arrear payments to the retrenched jute mill workers as part of the Social Protection Package for Retrenched SOE workers.
(iv) Power Sector
The least-cost generation development plan has been adopted though its implementation continues to lag behind. Work is also underway on a generation financing strategy, which is designed to integrate least-cost selection of projects within an overall public and private financing framework. This plan is expected to be finalized by November 2007. The government has appointed Transaction Advisors for three large base-load power plants. The Transaction Advisor for Bibyana 450 MW Independent Power producer (IPP) has held road shows in Dhaka, Dubai, and Singapore. Prequalification documents for this IPP are expected to be issued in September 2007. Six sponsors have been selected, through a transparent and competitive process, to install about 200 MW of small power plants, which range between lOMWand 30 MW. The government has adopted the Financial Restructuring Plan, in principle, and has further agreed to start restructure the balance sheets of all power utilities. Implementation Consultants to restructure the balance sheets will be appointed by October 2007. Provision of Tk 6 billion has been made in the FY08 budget to provide financial support to the power
18 sector as its current tariff is below cost. Arrears from government and private sector consumers have been reduced. Notwithstanding the desirability of adjustment, it is unlikely that electricity tariff could be increased in the next couple ofmonths, particularly in view ofthe existing inflation situation in the country. A small upward revision in the tariff rates was implemented by the CTG in March 2007.
(v) Trade and Tax Administration
Average nominal protection was reduced by 2.4 percentage points in the FY08 budget, from 24.3 percent to 21.9 percent. The tariff structure was simplified by collapsing one para-tariff (Infrastructural Development Surcharge), with customs duty, eliminating most zero tariffs, and recasting tariff slabs. The government has initiated the separation of tax policy work and from tax administration work, and has agreed to review the VAT and Income Tax legislations as part of simplifying its tax system. The government is consolidating the key functions ofHuman Resources, ICT, and Audit under a single member or Chairman ofthe National Board ofRevenue.
(vi) Public Financial Management and Procurement
The government and six development partners have agreed to a public financial management (PFM) reform program in consultation with the government. An Identification Mission Report has been prepared as a basis for designing the next steps ofthe PFM reform program, which is to be effective no later than October 2008. An appropriate legal framework providing the C&AG more financial and administrative authority is being initiated. The Public Accounts Committee (PAC) strengthening project was approved and became effective from July 2007. The government has initiated establishing an Ad-hoc PAC while PAC is in abeyance, as an interim mechanism to continue the work ofthe defunct PAC. The government has formed four independent procurement review panels, as per the provisions ofthe public procurement regulations; the panels are functioning reasonably well. The panels, as of July 2007, handled 15 cases, and the government acted in conformity with the views and decisions ofthe panels in all but three cases. Transparency of the system is improving further with the beginning of posting procurement performance data in the Web site of Central Procurement Technical Unit (CPTU). The Rural Electrification Board and LGED were selected for this purpose. For these two organizations an initial annual report for FY06, instead of quarterly as planned, has been posted in CPTU’s website for contracts valued at Tk. 10 million and above. Based on the newly passed Procurement Act, the government has finalized the rules, and after endorsement ofthe Finance Adviser, it is now waiting for placement to the Ministry ofLaw for final approval. The act will become effective as soon as the rules are gazetted after Ministry of Law’s approval. The process has been delayed by a few months, but the reform agenda is on track.
19 (vii) Governance and Anticorruption
All of the legal processes for separating the judiciary from the executive have been completed. The related administrative requirements, including the creation of and appointments to new posts, and the provision ofinfrastructure, are on track. The Public Service Commission has a new chairman, and a set of new members, and has commenced with internal reforms. The Chief Advisor has convened a committee on civil service reform, including a number ofCabinet members and secretaries. The government has announced that it is planning to promulgate freedom ofinformation legislation. Corruption cases against a number of former politicians and businessmen have been proceeding. The Anticorruption Commission's jurisdiction has been amended through amendments to the ACC Act. A new organogram of 1,281 staff has been approved by the National Implementation Committee on Administrative Reform. Prosecutions rules have been promulgated and have come into operation.
VI. RATIONALE FOR PROPOSED SUPPLEMENTAL FINANCING
48. The magnitude and devastation of the flood and the required response from the government are creating pressure on the government's FY08 budget. While the budget has a small provision for handling such uncertainties, the havoc created by worse-than-usual monsoons requires additional resources. The government has already redirected some of its budgetary resources for flood relief. Grants or concessionary financing from development partners to finance at least a portion of the additional resource requirement is perhaps the best economic option for the country. In this context, the World Bank is well placed to provide budget support quickly in this hour of need. For its part, the government remains committed to the implementation ofthe reform program supported under the DSC series.
49. A formal damage and needs assessment is expected after the flood waters recede completely, which will provide an estimated measure of total economic losses. From available information, it is already clear that the human, social, and economic impacts are sizeable. Preliminary and incomplete figures indicate an estimated 11 million people affected (with nearly 600 deaths so far), and damages to 1 million homes, 1.1 million hectares of crop, and more than 23,000 hlometers ofroad (see table 2, Section 11). The impact on growth and employment in the short run is likely to occur as a result ofsetbacks in agncultural production; losses in fisheries and livestock assets; loss of production in the small-scale manufacturing sector; and damage to irrigation infrastructure, transport, and communication (see Section 19. Relief and reconstruction costs are likely to be high. Early estimates suggest that the reconstruction costs of the lost and damaged infrastructure are likely to be at least half that of the 2004 floods, implying more than US$ 1 billion. Emergency import needs, particularly in rice and other food items, and inputs for agriculture and construction can adversely impact the BOP position.
50. The proposed Supplemental Financing would help finance part ofthe FY08 resource gap incurred as a result ofthe floods. The activities for which the emergency expenditures have been incurred and will continue to be incurred in the short run include food relief, assistance to farmers on apcultural inputs, cash grants to the affected population, assistance to the small-scale manufacturing sector for rehabilitation, and increased O&M expenditures to repair infrastructure damage. Financing the resource gap arising out of these emergency needs (by the proposed Supplementary Financing) will allow the government to continue implementation ofthe DSC IV- supported macroeconomic and budget framework. In the absence of the proposed financing,
20 government would need to cut further into its existing O&M budget, reduce planned capital spending allocations (ADP), or support to recurrent expenditure activities will have to be significantly scaled down; alternatively the government will have to take recourse to domestic borrowing, which is three times more expensive relative to concessionary external financing, or use monetary financing, which will fuel already high and rising inflation.
51. The proposed operation is consistent with Bank policy as reflected in OP 8.60. According to this policy, supplemental financing may be provided for a development policy operation for which an anticipated gap in financing jeopardizes a reform program that is otherwise proceeding on schedule and in compliance with the agreed-on policy agenda. More specifically, the proposed Supplemental Financing, meets requirement for Supplemental Financing under OP 8.60 as follows:
(a) The program is being implemented in compliance with provisions of the Credit Agreement. Bangladesh is currently implementing a reform program supported by the DSC series in compliance with all covenants.
(b) The borrower is unable to obtain suf$cient funds from other lenders on reasonable terms or in a reasonable time. Under government leadership, the Bank and other development partners are coordinating the flood relief efforts. The proposed operation would be the second significant financing package from external sources to help the government face immediate needs.I4 Other development partners have pledged additional resources, which, along with the Supplemental Financing, would contribute to closing the financing needs of the government for urgent rehabilitation, social support programs, and critical reconstruction investments in the flood- affected areas. To this date the pledges have totaled only US$78.8 million; they also typically take more time to come through and often lack flexibility in terms of their use. The proposed operation will therefore fulfill financing needs that are unlikely to be met by other donorsAenders.
(c) The time available is too short to process a further freestanding Bank credit. The use of a Supplemental Financing option can enable the Bank to deliver program support in a timely manner to respond to the urgent financial needs ofthe country resulting from the floods. Even a regular emergency project requires a comprehensive needs assessment, which is not possible right now because the floods are not over yet. Timely response from the Bank will help the people of the affected areas rebuild their lives. Another planned budget support operation-the Transitional Support Credit (TSC), a development policy credit as a follow-up to the DSC series-is currently under preparation and is expected to be presented to the Board in early 2008.
(d) The borrower is committed to the program and the implementing agencies have demonstrated competence in carrying it out. The government has consistently shown commitment to pursuing prudent macroeconomic policies over the medium and long term and implementing needed structural reforms in line with its Poverty Reduction Strategy.
VII. IMPLEMENTATIONARRANGEMENTS
A. Terms of the Supplemental Financing 52. Besides a legal opinion, there are no other requirements to this proposed Supplemental Financing. There will, however, be an overall requirement that the government continue to maintain a satisfactory macroeconomic policy framework as was required under the DSC series.
14 As mentioned earlier, Saudi Arabia has provided a grant of US$50 million.
21 Continued close engagement with the IMF will help the country in this effort. The closing date for the Supplemental Financing is March 3 1,2008.
B. Funds Flow and Auditing Requirements for the Supplemental Financing 53. Supplemental Financing proceeds will be disbursed in a single tranche and will be deposited into a designated account maintained by the Bangladesh Bank. The taka equivalent of the financing proceeds from this account will then be credited into the Consolidated Fund ofthe GOB. Transactions and balances of the government account will be fully incorporated in the government’s accounting records and financial statements. Disbursements from the Consolidated Fund by the government shall not be linked to any specific purchases, and no special procurement requirement is needed. While IDA disbursements will not be linked to specific expenditures, the proceeds ofthe Supplemental Financing shall not be used for excluded expenditures as set out in the legal agreement.
54. A review ofthe institutional arrangements for public expenditure, financial management, and procurement (followed by the PEFA assessment) concludes that the country system in place does provide reasonable safeguards for reliance on government financial accountability to ensure that funds are used for the purposes intended.
C. Environmental Issues 55. Policies supported by the proposed Supplemental Financing are not expected to have any significant negative effects on the environment, natural resources, or forests.
VIII. BENEFITS AND RISKS
A. Benefits 56. Timely program support will contribute to assisting the GOBin covering immediate needs for relief, livelihood support, and reconstruction by accessing financial assistance necessary to mitigate the impact of the floods. The proposed Supplemental Financing (SF) will be an important source ofresources for the government, as it will provide financing at a time when the full impact of the disaster on government revenues is unknown, and there is an urgent need for additional government expenditures. Donor pledges to date have been roughly US$72 million. Pledges typically have a longer gestation lag than desired and so flexible financing of the type being proposed is necessary to speed up the rehabilitation process. The proposed SF is quick disbursing and would contribute to timely provision of support to affected populations. It will also complement the support for medium- and long-term rehabilitation that is being planned through restructuring and reprogramming ofongoing operations in the Bank’s portfolio.
57. Finally, the Supplemental Financing will contribute to minimizing the risks to the overall reform program that is being supported through the DSC series, and maintain the integrity ofthe transition to a Transitional Support Credit planned for 2008.
B. Risks 58. Based on experience from other countries, there are risks involved with this type of assistance, relating primarily to the government’s limited administrative capacity to implement relief and reconstruction operations. This risk in Bangladesh is, however, partly mitigated by recent evidence that indicates the country has a growing capacity for managing natural disasters. The response so far to the 2007 flood emergency reflects these improvements, in particular taking into consideration the difficulties of reaching remote communities when communications are
22 interrupted and means are limited. The macroeconomic and social impact ofnatural disasters has been greatly reduced, and the resilience ofthe poor has increased. The factors contributing to this improvement include greater nonfarm incomes, policies that have reduced leakages in food distribution and allowed private sector imports, the highly effective and well-targeted Vulnerable Group Feeding program, the construction of cyclone shelters, and the establishment of early warning systems. Recent experiences also indicate that Bangladesh has been increasingly successful over time in providing assistance through cash grants in emergency situations, distributed through a combination oflocal governments and community targeting. The response capability ofcivil administrations has markedly improved, and government campaigns to educate households on food and water safety precautions during floods and cyclones have proved effective. In addition, the state has made space for and forged partnerships with NGOs to deliver public services, and these organizations play a major role in disaster prevention, recovery, and relief, enabling governments to respond promptly to disasters.
59. Bangladesh is inherently vulnerable to flooding in the wet season, which is far from over. There is the risk of repeated flooding in 2007-as was the case in 1954 and 1955 and again in 1987 and 1988--even if there is no further heavy rainfall. Floodwaters could come from heavy rains in Nepal and India. Monsoon is still active over the Ganges-Brahmaputra-Meghna basins (both the Indian part and Bangladesh). The Brahmaputra-Jamuna has started rising rapidly afresh. Meteorological Departments of Bangladesh and India forecast heavy to very heavy rainfall over the country and sub-Himalayan areas in the coming weeks, and that rainfall ultimately drains through Bangladesh. While the proposed Credit does not address these risks, the multipronged strategy of which it is a part will aim at assisting the long-term mitigation of flood damage. In addition, the World Bank, ADB, WAC,other specialized UN agencies, and several donor countries are also providing more medium term support to further strengthen the government’s capacity to respond and mitigate future flood damage.15
60. The political situation continues to remain fluid in the country. In late August, an incident at Dhaka University (which started over a trivial incident at a soccer match) triggered protests at a number of universities throughout Bangladesh and spilled into the streets in some locations. These protests were seen as the most serious threat yet to political stability since the current CTG took office, with calls from some for an end to the emergency rule. While the CTG controlled the law and order situation quickly by imposing a curfew in several cities, there continues to be a risk of such outbursts. Any prolonged period of protests may change government priorities quickly and as a result the economic reform program may suffer. The proposed operation is assisting the country to manage the economic and social problems created by the ongoing floods.
15 The proposed Water Management Improvement Project of the World Bank has a component for medium term water management and early warning that would further contribute to government’s technical capacity for reducing flood damages.
23 Annex 1
ME ROW3. Zoelfick President International Devcfqment Associakion Washington DC 20433 WSA
Dear MT.Zoellick,
Please allow rnc to congmulau: you on pur assumption of the high ofkc of the President of the WorM Bank. Itrust that under your able loridership the World Bank will k able to reach new threeholds of czKtperation between the Bank and its tncmbcr countries, Imst Banglad& will continue to got active su;upport and coopmiion from the Bank in years to come.
Since January 2003, Bwahftas gone through several difficult phascs. She latest king the floods which hit Bangladesh in July-August causing serious damages 10 fives. livelihood and propr&y.With help and cooperation of all sections of sscicty, wt‘ are dealing with this problem in m earnest manner. I am very pleased to know that tho Warld Bank, one of our most important development partners, has also decided 10 contribute to this effort in tiis how ofneed.
Bangladesh has made consistent prop55 in its social indicators, including thosu on education, health and gender parity, and the percentage of Bangladesh’s population living in poverty has fallen by 9 pmcmtage points between 2000 and 2005. In this contcxt, Xct me reaffirm the CaretakErt Gcivemmcnt’s (CTG) ongoing commitment la the Povaty Reduction Strategy, “Bangladwh: Wnloccking the Potential”.
Core Governance Refmns
The CTC is alsv committed to cansalidatling the policy and inatirutionol wfurnir in Bangladesh that have been supported by the World Bank with a view lo improving the govcmancc. The Election Commission. Anti-Conuption Comission and Public Sew icc Commission itre operating under ~IEWleadership in a neutral and indcpcndmt rnanncl-. The legal stqs for the separation of thc judiciary fmrn thc executive have bcon completed, and thc proem ofrrxmiting new judicial officers is undcr way,
On July 15, the Election Cornmissjon (EC) released an clcction road map, aiith local government elections scheduled to commence in uary 2W8 and the nalional
24 Annex I
parliamentary eiectiod scheduled before the end of 2008. Thc pmcms of preparing thc digitized voter list commmd st month ago and is pmgxssing at P satisfactory pice dwpitc the floods. The EC has also sdxduled a series of consultations on clectcrral reforms with the main politid parties Irom Sqtemkr 12,2007. The CTG is dacrmind to lend unqrralified support to the Election Cornmid its efforts to hold the elechs Bs schaduiad.
Maemcmomic Stability
Floods fhis year far excemhd normal Flooding both in tcms of he extent of inundation and duration. It has claimed mom thm 600 lives and forced the cvacuarion ul" millions of popfe. The Ministry of Pfanning is cumtfy working on a comprehensive dmage and need aswssmtnt, which is expected to be compietod by end-September. We do not mvisage any long-term impact atl growth and macroeconomic stabilily. In fact, we stili expect economic growth to be at least the meas in FWT, which was 6.5 perccnt. However, with the high pre-flbdd inflation, the inflationary pressurut may increw further, albeit tmpoSarily, which would expose rtrc extreme poor to more hardships. Tbrc may also be some pressure on Ihe bdance vf payments duc to flood induced imports and fiscal deficit is Ikely to increase well-above our initial projccmns for FYO8.
The mwt immediate conccm is inflation, which increucd to IO,] percent In July, driven entirely by continued increast: in food prices, dce and wheat in particular. Stabilizing rice and wheat prices will contribute significsntly lo taming inflation, The governeat has taken several steps to msum adequate supply of these two items keeping in mind the rise in demand during the fortfhcoming Ramadan, These include cmcrgmcy import to increase the stock of fwd gains in the Pubfic Food Distribution System (PFJXj, mcouraging private import of Food grains t is beginning to yield rcsults and ensuring adequate supply of agricultural inputs for &e late hanand subsequent Born crops. The government has also au~rn~~~cash transfers through various safety net programs to help the poor cope with she floods and inflation. ktbut not the least, B~~l~d~hBank's monetary policy will main cautious and restrained in ordcr to cower inflationary pressures.
As part of our strategy to cape with the floods, we we using our regular operdtton and maintenance budget to meet tRc immediate relief and r~~~bi~i~~i~ntiwds. Replmishments of funds diverted from the Operation & Maintenance (O&M) budget would be critical for ensuring that the programmed rcgu?ularoperation and maintenance work in mads, public wotkq agriculture, education and health in FYO8 do not get derailed-which will have cansequenccs for service delivery while at the Sanie timc
Page 2 of Q
25 Annex 1
~~~~~n~ a prudent budgetmy framework, The Government would thwcfon: highly appreciate I quick disbursing budget support for urgent post-flood rehabilitarion. This will hclp avoid rccortrse to mmwsthat would uradmine fiscal ility and exacerbate infli\tio~laryprr?ssures,
The bnomkReform Prqgnrm
Notwithstanding severel external and intmal Bh&sr the CTG has moved ahead with implementing major structud md institutional refoms to support vibrant private sector growth and poverty reduction. Theso reforms cover, among others, taxihon and public cxpmditun; trade; the financial sector; the energy smtor; state owncd mtelprisics; and telccommunications.
The following lists some key wfonn %donsby sectors that are in the process of king implmented:
a Further review of exigtiaY nominal protection rate. a A detailed review of tax le@lat5on, with assistance from the Fund. a Combining the two Large Taxpayers' Unit. * Separation of tax policy fram tax adminimtion.
Time-bound and phased implementstion of the Public Financial Manapael~t Improvement Plan, * Piloting e-Cavemmmr procuremmnt system at Central Procurement 'Tcehnical Unit ( CP'J'U) and mekey agenciw such a Local Government Enginctying Department (LGED), Raads & Highways Department I RHIS). Rural Etcctrificafion &rard (REB), Bangladesh Watw Developrncnt Board (BWDB).
0 Privatizationof Agrani Bank . Kevamp~~gthe boards of the corporatized NCBs based strictly on the "fit and proper" criteria of Bangladesh Bank.
26 Annex 1
Corporatization of Bangldesh Binam. Refom of SOE o om in tho jute sector. * Enhancing effrcimy of sea porn by involving privatd stxtor in various &ag~s a€opmation.
0 Completion of Gmaatian Finaxhg Strategy. Enabling priwrte investmeat in powcr gencltarion through a fair, transparent. and competitive bidding pms,adhering to least cost principles. Review of administered prices of power, gas and pvolelun sector pnxlucls for making the mtevmt SOEs financially viabb.
Despitu domestic constraint$ and the unfavarablt impact of high and rising global commodity prices, Bangladesh is moving ahcd with the impkmcntation of a broad range of poficies to enhance growth and reduce poverty. Support frani our devdopment pmcm including &he World Bank, has facilitated this process, Floorls have crealcd both financial and ~~ini~tjv~pressure on the Gavcmmenl. hut It is not going to dent the CTG’s d&ermina&ionto putsue reforms for the benefit of all our people. We are working with the Wortd Bank on a Transitional Support edit alhich, we believe, will erahanstnec our ability to spccdify move the rcfom agenda furward before handing over power to m elected Government before the cnd of 2OO8
Page 4 of4
27 Annex 2
IMF Executive Board Concludes 2007 Article IV Consultation with Bangladesh
Public Information Notice (PIN) No. 07/75 June 29,2007
On June 22,2007, the Executive Board ofthe International Monetary Fund (IMF) concluded the Article N consultation with Bangladesh.16
Background Bangladesh's growth outlook and external position remain robust, but inflation has picked up. The economy continued to grow at over 6% percent in the fiscal year ending June 2006 (FY06) spurred by strong exports and investment. GDP growth is expected to continue at around 6% percent in FY07 despite some supply-related disruptions, with lower agricultural growth offset by strong manufacturing and service activities. Inflation has recently picked up to over 7 percent reflecting increases in both food and nonfood prices.
The exchange rate has been relatively stable and international reserves have increased throughout the period ofpolitical upheaval. Reserves have reached beyond US$4 billion (approaching three months of imports) on the back of continued strong remittances and exports, which are growing at 25 and 21 percent, respectively.
Overall macroeconomic stability has been maintained, but fiscal performance continues to suffer from structural weaknesses. Revenue performance has consistently been below budget targets. In addition, spending accelerated early in FY07 causing a surge in domestic financing of the government while delays in external disbursements further aggravated the situation. This forced expenditure cuts later in the year to contain the overall deficit and domestic financing. As a result, development expenditure was significantly underexecuted.
The growth in monetary and credit aggregates increased considerably in FY07. Broad money growth reached a high of22 percent in December and private credit growth has been close to 20 percent for much of the year. Reflecting better control of government finances since January
~~
l6Under Article IV ofthe IMF's Articles ofAgreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country's economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board. At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country's authorities.
28 Annex 2
2007, the growth in monetary aggregates has declined somewhat, but still remains above targeted levels. With ample liquidity, bank lending and deposit interest rates have seen only modest increases.
Petroleum prices have not kept pace with international prices leading to a deterioration of finances of state-owned enterprises. After the April fuel price adjustments, domestic prices of diesel and kerosene are around 80percent of their breakeven level and below prices in neighboring countries. The losses accumulated in the past have been financed through loans from the nationalized commercial banks, and about two-thirds ofthese loans are overdue contributing to the weak financial health ofthese banks.
The Bangladesh Bank has further advanced reforms aimed at deepening financial markets. The regulatory framework has been strengthened, off-site and on-site supervision has been enhanced and steps taken to restructure, corporatize, and privatize the large nationalized commercial banks. These reforms have contributed to reducing the share ofthe large nationalized banks and strengthening the banking system. However, interest rate spreads are high and point to inefficiencies in the domestic banking system that detract fi-om efficient financial intermediation.
The current transitional government has moved to address several areas where reforms had stalled. These include adjustments in fuel and electricity prices, introduction of a Financial Intelligence Unit, reconstituting the Anti-Corruption Commission, and separating the judiciary from the executive branch.
Executive Board Assessment Executive Directors welcomed that macroeconomic stability with strong growth has been maintained for several years, and that most of the objectives of the Poverty Reduction and Growth Facility-supported program were achieved. Inflation was largely contained, poverty has been reduced, and good progress has been made toward achieving the Millennium Development Goals. The shift to a flexible exchange rate strengthened the external sector, helping to support double-digit growth in exports and remittances and a significant improvement in international reserves. Although fiscal discipline was maintained, revenues fell short. Looking forward, growth is expected to remain healthy, underpinned by buoyant exports, strong remittance flows, and continued reform efforts. At the same time, weak revenue collections, poor infrastructure, low skill levels, and governance issues remain important impediments to sustained growth and further poverty reduction.
Directors observed that revenue collections are insufficient to meet development needs or to support the desired reductions in.tariffs and supplementary duties. They called for a fundamental reform of the tax system by broadening the tax base, separating the responsibility for tax policy and collection, simplifying VAT and income tax legislation, and consolidating and strengthening the institutional structure of tax administration. Directors welcomed the recent steps to consolidate import taxes, but observed that the rate ofeffective protection remains high.
Directors welcomed the planned reforms in the area of public financial management and the adoption by major ministries of the medium-term budget framework, but drew attention to the underexecution of development spending. They hoped that the adoption of a regulatory framework for the Public Procurement Act would raise the efficiency ofproject implementation.
29 Annex 2
Directors supported the authorities' efforts to stem state-owned enterprise losses and ease infrastructure bottlenecks. They welcomed the fuel price adjustments by the state-owned petroleum company, but called for more timely adjustments through an automatic pricing formula. Directors recommended adjusting the price of domestically produced natural gas to encourage efficient gas usage and raise government revenue.
Directors commended the authorities for their progress in strengthening central bank operations and improving the institutional fkamework for monetary policy, and the steps taken to develop a secondary market for government securities. They recommended further monetary tightening in the face of strong inflows and higher inflation, and with money and credit aggregates above targeted levels. The recent pickup in inflation could become entrenched in the absence of corrective policies.
Directors considered that the flexible exchange rate regime has helped maintain competitiveness, and remains appropriate. With reserves now at a more comfortable level, exchange market intervention should be confined to alleviating disorderly conditions, and thus allowing greater flexibility in the nominal rate to support stabilization objectives. Directors urged the authorities to remove the remaining exchange restriction on the transferability of funds in nonresident taka accounts.
Directors commended the authorities for improving financial sector surveillance, and recommended that they build on recent financial sector reforms. They welcomed the corporatization of the remaining state-owned banks, hoped for a successful privatization of Rupali Bank, and encouraged the authorities to prepare the other state banks for eventual divestment. Directors called on the authorities to bring banking sector prudential guidelines more in line with international standards and strengthen monitoring, particularly in the context ofrapid credit growth. Directors commended the authorities for implementing many of the recommendations of the 2003 Financial Sector Assessment Program (FSAP), and welcomed the authorities' request for an FSAP update.
Directors supported the recent reforms to promote transparency, good governance in public administration, fair elections, and the prevention of money laundering and terrorist financing. These reforms, if sustained, will improve overall efficiency and boost the investment climate.
Directors noted that data are broadly adequate for surveillance purposes, but called for continued efforts to improve data quality, including banking soundness indicators, and national accounts, fiscal and debt statistics.
Directors looked forward to continued close cooperation and dialogue between the authorities and the staff in support of Bangladesh's reform objectives, possibly in the context of a Fund- supported program.
IMF EXTERNAL RELATIONS DEPARTMENT Public Affairs Media Relations Phone: 202-623-7300 Phone: 202-623-7100 Fax: 202-623-6278 Fax: 202-623-6772
30 Annex 2
Bangladesh: Key Economic Indicators, FY03-07 1/ FY03 FY04 FY05 FY06 FY07 Proj . National income and prices (percent change) Real GDP 5.3 6.3 6.0 6.6 6.7 GDP deflator 4.5 4.2 5.1 5.2 6.3 CPI inflation (annual average) 2/ 4.4 5.8 6.5 7.2 7.2
Central government operations (percent of GDP) Total revenue 10.3 10.2 10.5 10.7 10.4 Tax 8.3 8.2 8.5 8.5 8.3 Nontax 2.0 1.9 2.0 2.2 2.1
Total expenditure 13.7 13.3 13.8 13.9 14.0 Current expenditure 8.1 7.8 8.4 8.4 9.0 Ofwhich: Interest payments 1.9 1.6 1.7 1.8 1.9 Of which: Subsidies 2.3 2.4 2.8 2.6 3.0 Annual Development Program 5.4 5.0 5.0 4.7 4.3 Other expenditures 31 0.1 0.5 0.4 0.8 0.7
Overall balance (excluding grants) 4/ -3.4 -3.1 -3.3 -3.2 -3.5 Primary balance 4/ -1.5 -1.4 -1.7 -1.4 -1.6 Financing (net) 3.4 3.1 3.3 3.2 3.5 Domestic 4/ 5/ 1.2 1.8 1.7 2.1 2.3 External 2.1 1.3 1.6 1.2 1.2
Total central government debt (percent of GDP) 51.1 51.0 50.1 49.3 46.9
Money and credit (end of fiscal year; percent change) Net domestic assets 12.2 13.5 17.1 19.6 13.4 Credit to private sector 12.6 17.5 17.0 18.3 15.1 Broad money (M2) 15.6 13.8 16.7 19.3 17.5
Balance of payments (in billions of US. dollars) 6/ Exports, f.0.b. 6.5 7.5 8.6 10.4 12.5 (Annual percent change) 9.5 15.9 14.0 21.6 19.9 Imports, f.0.b. -8.7 -9.8 -1 1.9 -13.3 -16.0 (Annual percent change) 13.1 13.0 20.6 12.1 20.0 Current account 0.2 0.2 -0.6 0.6 0.5 (Percent of GDP) 0.3 0.3 -0.9 0.9 0.8
Gross official reserves (in billions of U.S. dollars) 2.5 2.7 2.9 3.5 5.0 In months of imports of goods and nonfactor services 2.9 2.8 2.5 2.7 3.2
Memorandum item: Nominal GDP (in billions of taka) 3,006 3,330 3,707 4,157 4,715 Sources: Data provided by the Bangladesh authorities; and Fund staff estimates and projections. I/Fiscal year begins July 1. 2/ CPI uses FY96 weights. 3/ Consists ofother capital, net lending, food account balances, check float and discrepancy. 4/ Includes assumption of BPC liabilities of 1.6 percent ofGDP in FY08. 5/ Includes estimated privatization receipts of 0.5 percent of GDP in FY07. 6/ Balance ofpayments is presented on the basis ofBPMS.
31 Annex 3
STRUCTURE of the ECONOMY 1986 1996 2005 2006 1 Growth of capital and GDP (%) (% of GDP) T Agriculture 31 9 257 20 z 19 5 115 Industry 21 5 249 272 2a i i10 Manufactunng 140 154 16 5 17 2 Services 465 495 526 524 1 Household final consumption expenditure 858 a32 764 76 1 Generat gov't final consumption expenditure 43 44 55 56 Imports of goods and services 122 187 230 244
1986-96 199606 2005 2006 Growth of exports and imports (%) (average annual growth) ' Agriculture 23 36 22 45 Industry 65 70 83 96 Manufactunng 67 63 82 104 Services 38 55 64 65 Household final consumption expenditure 32 36 51 60 General gov't final consumption expenditure 40 83 78 79 Gross capital formation 67 86 10 7 80 BOO~~S-Ollrngorts Imports of goods and services 75 58 19 1 14 1
Note 2006 data are preliminary estimates Group data are €or 2005 The diamonds show four key indicators in the country (in bold) compared with its income-group average If data are missing, the diamond will be incomplete
32 Annex 3
Bangladesh
PRICES and GOVERNMENT FINANCE 1986 1996 2005 2006 Domestic prices (% change) Consumer pnces 6.7 6.5 7.0 Implicit GDP deflator 8.0 4.2 5.1 5.2 Government finance (% of GDP, includes current grants) Current revenue 9.5 9.0 10 5 10.7 Current budget balance 4.1 2.2 21 2.2 Overall surplus/deficit -3.1 -4.5 -3 8 -3.3
TRADE 1986 1996 2005 2006 Export and import levels (US$ mill.) (US$ mdhonsj Total exports (fob) 81 9 3,884 8,573 10,422 E Raw lute 124 91 96 117 Leather and leather products 61 241 22 1 269 Manufactures 486 3,205 7,819 9,506 Total imports (cif) 2,364 6,947 11,870 13,301 6 OW Food 356 570 1,607 1,801 4 000 Fuel and energy 342 274 1,602 1,795 Capital goods 1,003 1,918 1,794 2,010 lo 00 01 02 03 04 05 Export price index (2000=100) 46 85 119 122 €2 Exports S Imports Import price index (2000=100j 48 79 134 141 iI Terms of trade (2000=100j 96 108 89 87
BALANCE of PAYMENTS 1986 1996 2005 2006 ~ Current account balance to GDP (x) (US$ mdhonsj Exports of goods and services 1,043 4,437 9,750 11,718 Imports of goods and services 2,587 7,604 13,917 15,707 I’T Resource balance -1,544 -3,167 4,167 -3,989 Net income -126 55 -680 -786 Net current transfers 586 1,821 4,290 5,347 Current account balance -1,084 -1,291 -557 572 Financing items (net) 1,212 274 624 -207 Changes in net reserves -128 1,017 -67 -365 Memo: Reserves including gold /US$ milhonsj 1,878 2,929 3,488 Conversion rate (DK, loca//US$) 29.9 40 9 61 8 67.2
EXTERNAL DEBT and RESOURCE FLOWS 1986 1996 2004 2005 1 Composition of 2005 debt (US$ mill.) (US$ millionsj Total debt outstanding and disbursed 8,062 15,341 20,129 18,935 IBRD 61 46 0 0 i IDA 2,450 5,713 8,895 8,688 I F 528 Total debt service 448 672 671 791 IBRD 5 8 8 0 IDA 28 92 208 223 B 8,688 Composition of net resource flows Official grants 553 596 822 671 Official creditors 843 548 557 339 Private creditors 55 -30 -1 6 -9 Foreign direct investment (net inflows) 2 14 449 802 Portfolio equity (net inflows) 0 -117 4 1 c 308 World Bank program Commitments 383 168 707 500 A - IBRD E - Bilateral
Disbursements 337 279 61 5 547 B .IDA D - Other mullilateral F ~ Private Principal repayments 8 54 148 153 j C - IMF G - Short-term Net flows 330 225 467 394 Interest payments 25 45 68 70 Net transfers 305 180 399 325
33 Statistical Annex ~~0~y000~y000"0000"00w00r4000000000000~ z 8 0 * 0 N 0 0 0 0 - 0 m 0 m m 0 0 0 - 0 0 w 0 0 e m 0 0 0 0 0 0 0 0 0 m 0 oltl
t < i t e3 P z I < e .rm aE c c e .- aE - Table 2: Bang1 conomic dicators Description FY03 FY04 NO5 FY06 NO7(P) Growth Rates (YO) GDP Growth 4.4 5.3 6.3 6.0 6.7 6.5 GDP Growth Per Capita 2.5 4.0 4.9 4.6 5.4 5.2 Per Capita GDP Atlas Method (US$ ) 386.9 395.1 418.0 446.4 469.1 487.7 Per Capita GDP Growth Atlas Method (US$ ) 4.3 2.1 5.8 6.8 5.1 4.0 Saving & Investment (YOof GDP) Gross Domestic Saving 18.2 18.6 19.5 20.0 20.2 20.5 Gross National Saving 23.4 24.9 25.4 25.8 27.7 29.2 Private Investment 16.8 17.2 17.8 18.3 18.7 18.7 Public Investment 6.4 6.2 6.2 6.2 6.0 5.6 Central Govt. Budget (YOof GDP) Total Revenue 10.1 10.3 10.2 10.5 10.7 10.5 Total Expenditure 14.8 13.7 13.3 13.8 13.9 14.1 Overall Budget Deficit 4.7 3.4 3.1 3.3 3.2 3.6 Balance of Payments (YOof GDP) Trade 33.3 34.2 36.3 39.7 36.1 39.7 Exports (f.0.b.) 14.3 14.2 15.5 16.6 15.8 17.4 Imports (f.0.b.) 19.0 20.0 20.8 23.1 20.2 22.4 Services & Income (net) -1.7 -2.2 -2.2 -2.4 -2.6 -3.1 Current Transfers 6.0 6.5 6.6 7.0 8.3 9.4 Current Account Balance ( including transfers) 0.3 0.3 0.3 -0.9 1.3 1.4 External Indicators External Debt (US$ bill) 16.3 17.4 18.5 18.8 19.4 19.8 Ext. Debt as YOof GDP 34.4 31.9 29.5 29.3 28.6 29.0 BB Gross Reserves (US$ bill) (end of period) 1.6 2.5 2.7 2.9 3.5 5.0 BB Gross Reserves (in months of imports) 2.1 2.9 2.8 2.5 2.7 3.2 External Debt Service Ratio (YOof total foreign 6.3 5.8 4.9 4.5 4.1 3.7 exchange earnings)* Money and Credit M2Growth (%, year on year) 13.1 15.6 13.8 16.7 19.3 17.0 Net Domestic Asset Growth (%, year on year) 11.9 12.2 13.5 17.1 19.6 12.6 Ratio of Private Sector Credit to GDP (%) 24.7 25.8 28.4 29.9 31.5 32.3 Exchange Rate Nominal Period Average (TKLJSS) 57.4 57.9 58.9 61.5 66.5 69.1 Nominal End of Period (TKiUS$) 57.9 58.5 60.4 63.7 69.7 68.8 Real Effective Exchange Rate Index 101.5 97.0 93.4 91.7 86.9 84.6 Rate of Inflation (YO)(year on year)** 2.8 4.4 5.8 6.5 7.2 7.2 Total Public Debt (YOof GDP) 52.9 51.1 51.0 50.1 49.3 46.9 Memorandum Items GDP at Current. Prices (Taka bill) 2732.0 3005.8 3329.7 3707.1 4161.5 4675.0 GDP at Current. Prices Atlas Method (US$ bill) 51.1 53.0 56.9 61.7 65.8 69.4 Population (mill.) 131.6 133.4 135.2 137.0 138.8 140.6 Population growth Rate 1.9 1.4 1.3 1.3 1.3 1.3 Source: BangladeshL Economic Review 2005 b. 296): i~ istry of F: nce. Note: * Total foreign exchange earnings include commodity earnings, workers' remittances, and invisible receipts. ** CPI was rebased from FY98 using FY96 weights. P = Provisional. The Atlas Method was not used for calculating average per capita GDP and GDP at current market prices in the 1980s, in FY04 and FY05. 36 Actual Provisional Projections NO2 I FY03 I FY04 I FY05 I FY06 NO7 NO8 I FY09 I FYlO Output and Prices Real GDP Growth 4.4 5.3 6.3 6.0 6.6 6.5 6.7 7.0 7.0 CPI 2.8 4.4 5.8 6.5 7.2 7.2 6.5 5.0 4.0 External Outlook Exports (f.0.b) (billion $) -5.9 6.5 7.5 8.6 10.4 12.1 15.0 17.1 19.5 Annual % Change -7.6 9.5 15.9 14.0 21.5 15.8 24.5 14.0 14.0 Imports (c.i.0 (billion $) 7.7 8.7 9.8 11.9 13.3 15.5 19.3 21.8 24.4 Annual % Change -8.7 13.1 13.0 20.6 12.1 16.6 24.4 13.0 11.9 Current Account Balance 0.3 0.3 0.3 -0.9 1.3 1.4 0.3 (% of GDP) -0.2 -0.5 Gross Official Reserves 1.6 2.5 2.7 2.9 3.5 5.0 5.7 (billion $) 6.9 8.1 In months of GNFS 2.1 2.9 2.8 2.5 2.7 3.2 3.0 imports 3.2 3.4 Public Finance Percent of GDP Total Revenue 10.1 10.3 10.2 10.5 10.7 10.5 10.7 11.1 11.5 Total Expenditures 14.8 13.7 13.3 13.8 13.9 14.1 15.9 14.3 14.8 Overall Balance -4.7 -3.4 -3.1 -3.3 -3.2 -3.6 -5.2 (excluding grants) -3.3 -3.3 Domestic Financing" 2.5 1.2 1.8 1.7 2.1 2.3 3.7 1.7 1.6 Public Debt 52.9 51.1 51.0 50.1 49.3 46.9 46.4 44.6 43.1 Money and Credit Net Domestic Assets 11.9 12.2 13.5 17.1 19.6 12.6 14.2 16.0 14.2 Private Sector 13.9 12.6 17.5 17.0 18.3 15.1 14.5 14.3 13.5 Broad Money (M2) 13.1 15.6 13.8 16.7 19.3 17.0 15.0 17.7 15.7 Source: IMF & GOB. a. includes estimated privatization receipts of 0.5 percent of GDP in FY07. 37 Table 4: Total Expenditure by FunctionMinistry (percentage of GDP) FYO8 Ministryrnivision FY02 FY03 FY04 FY05 FY06 FY07@ (B) General Administration 3.3 3.3 3.4 3.5 3.3 3.4 3.7 General Public Services (GPS) 1.4 1.5 1.5 1.6 1.3 1.3 1.8 Defense 1.2 1.1 1.1 1.1 1.1 1.2 1.o Public Order and Safety (POS) 0.7 0.7 0.7 0.8 0.8 0.9 0.9 Social Services 3.9 3.9 3.8 3.6 4.1 4.1 4.2 Education 2.2 2.2 2.0 1.9 2.2 2.3 2.3 Health 1.o 0.9 1.o 0.9 1.o 1.1 1.o Social Security and Welfare (SSW) 0.6 0.6 0.6 0.7 0.7 0.6 0.7 Recreation, Culture, and Religious Affairs (RCW 0.2 0.2 0.2 0.2 0.2 0.2 0.2 Economic Services 1.2 1.1 2.5 2.9 2.8 2.8 2.8 Agriculture, Fisheries, and Livestock (ML) 1.o 0.9 0.9 1.2 1.1 1.1 1.3 Mining, Manufacturing, and Construction (MMC) 0.1 0.1 0.1 0.1 0.1 0.0 0.1 Rural Development & Cooperative Division (RDC) 0.1 0.1 1.4 1.4 1.5 1.5 1.3 Ministry ofChittagong Hill Tracts Affairs (CHTs) 0.1 0.1 0.1 0.1 0.1 0.1 0.1 Ministry ofCommerce, Labour & Employment (CLE) 0.1 0.1 0.0 0.0 0.1 0.1 0.1 Infrastructure Services 4.2 4.1 3.1 3.2 2.6 2.1 2.3 Ministry of Science & Technology (ST) 0.0 0.1 0.0 0.0 0.0 0.0 0.0 Fuel and Energy (FE) 0.9 1.o 1.2 1.2 0.9 0.6 0.9 Transport and Communication (TC) 1.9 1.8 1.7 1.8 1.5 1.3 1.3 Housing and Community Services (HCS) 1.4 1.3 0.2 0.2 0.2 0.1 0.1 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Interest 1.7 1.9 1.8 1.8 1.8 2.0 2.0 Total 14.4 14.3 14.5 15.0 14.5 14.4 15.1 Source: Ministry of Finance. R-evised; B= budgeted. 38 Privatization Receipts 0.0 0.0 0.0 0.0 0.0 0.5 0.0 0.0 0.0 Total Central Government 52.9 51.1 51.0 50.1 49.3 46.9 46.4 44.6 43.1 Debt 39 Table 7: Bangladesh Social Indicators Same RegiodIncome Latest SingleI Year Group South Low- 2003-04 2004-05 Asia Income 1991-92 1995-96 1999-2000 2002-03 a Population Total population end of the year (millions) 113.3 122.1 129.8 133.4 135.2 137.0 1425.0 2312.0 Growth rate (% annual average for period) 2.1 1.8 1.4 1.4 1.3 1.3 1.8 1.9 Urban population (% ofpopulation) 18.0 19.0 25.0 27.0 ... 28.0 30.0 Total fertility rate (births per woman) 4.2 3.4 3.1 2.9 3.0 3.1 3.7 (99 ofpopulation) National headcount index 42.7 34.4 33.7 ... 25.1 ...... Urban headcount index 23.3 13.7 19.1 ... 14.6 ...... Rural headcount index 46.0 38.5 37.4 ... 28.6 ...... GNI per capita (uS$)at constant prices 283.0 343.5 381.0 400.0 420.0 440.0 510.0 440.0 Consumer price index (1995/96=100) 100.0 124.3 136.0 143.9 153.2 136.0 142.0 Food price index (1 995/96=100) 100.0 128.5 137.0 146.5 158.1 ...... IncomeKonsumptionDistribution Gini co-efficient 0.4 0.4 0.5 ... 0.5 ...... Lowest quintile (% of income or consumption) 6.5 5.7 6.2 ... 5.3 ...... Highest quintile (% of income or consumption) 44.8 50.1 52.0 ... 52.7 ...... Public Expenditures Health (9A of GDP) 0.6 0.7 1.o 1.o 1.o 1.9 0.9 1.2 Education (99 of GDP) 1.7 2.1 2.2 2.2 2.1 0.9 3.1 3.3 Social security and welfare (% of GDP) ...... 1.0 0.6 0.6 0.7 ...... Gross Primary School Enrollment (% of age group) Total 76.0 95.0 96.6 97.3 97.0 97.0 95.0 Male ... 97.0 97.0 97.0 97.0 108.0 103.0 Female 70.0 93.0 97.0 98.0 98.0 89.0 87.0 Access to an ImDroved Water (% ofpopulation) Total ... 97.0 97.0 97.0 84.0 76.0 Urban ...... 92.0 88.0 I (% under 12 months)’ Measles 68.0 69.0 71.0 76.0 75.7 77.0 63.0 64.0 DPT ... 77.0 ... 83.0 87.0 75.0 70.0 Child malnutrition (% of under 5 years) 73.0 66.0 49.1 48.0 47.5 47.0 ... Life Expectancy at Birth (years) Total 56.3 58.9 61.5 62.1 65.1 63.0 59.0 Male 55.0 57.0 61.0 ... 64.4 62.0 58.0 Female 56.0 59.0 62.0 ... 65.7 63.0 60.0 Mortality Infant (per I,000 live births) 88.0 77.0 ... 66.7 65.0 56.0 74.0 77.0 Under 5 (per 1,000 live births) ... 112.0 ... 84.6 88.0 77.0 99.0 116.0 Adult (15-69) Male (per 1,000population) ...... 278.0 262.0 ...... Female (per 1OOOpopulation) ...... 272.0 252.0 ...... Maternal (per 100,000 live births) 4.7 4.4 ... 3.2 3.2 300.0 ...... Births attended by skilled health staff 7.0 ... 14.0 11.6 13.0 13.0 ...... Source: Unlocking the Potential-Poverty Reduction Strategy Paper (GOB) ,Bangladesh Bureau of Statistics and World Bank. a. Some data correspond to 2000-01 and 2001-02. b. The immunization rates in 2003/04 are for children 12-23 months old. . 41 Table 8: Bangladesh: Key Exposure Indicators fin US$ million unless ot mise stated) Ac al Esti ate Pro1 tion -2002 2003 2004 2005 2006 2007 rota1 Debt Outstanding and 17,061.0 18,778.0 19,321.0 20,364.0 21,379.0 22,354.0 lisbursed (TDO) Vet Disbursements 217.0 337.0 543.0 1,010.0 1,0 15.0 975.0 rota1 Debt Service (TDS)a 727.0 672.0 958.0 1,018.0 1,039.0 1,107.0 Debt and Debt Service Indicators (?!) TDO/XGS~ 182.6 178.8 162.6 160.9 161.1 158.9 TDO/GDP 35.9 36.2 34.0 33.5 34.0 33.3 TDS/XGS 7.8 6.4 8.1 8.0 7.8 7.9 ConcessionaYTDO 92.8 93.2 ...... IBRD Exposure Indicators (%) IBRD DSPublic DS 0.9 1.1 0.8 0.0 0.0 0.0 Preferred Creditor 55.2 63.9 39.5 41.7 45.0 48.6 DSPublic DSC IBRD DS/XGS 0.1 0.1 0.1 0.0 0.0 0.0 IBRD TDOd (USJmill) 13.0 7.0 0.0 0.0 0.0 0.0 Share of IBRD portfolio 0.0 0.0 0.0 0.0 0.0 0.0 IDA TDO~(us$miii) 7,063.0 8,062.0 8,208.0 8,805.0 9,480.0 10,099 .o IFC Loans 88.0 94.0 116.0 98.0 ...... Equity and Quasi-equitye 13.0 13.0 12.0 12.0 ... 1.. MIGA MIGA Guarantees 64.0 61.0 46.0 ...... a. Includes Dublic and oubliclv auaranti debt, Driva ionauaranti , use of IM redits and net short-term c tal. b. “XGS” denotes exports of goods and services,.including workers’ remittances. c. Preferred creditors-are defined as IBRD, IDA, the regional multilateral development banks, the IMF, and the Bank for International Settlements. d. Includes present value of guarantees. e. Includes equity and quasi-equity types of both loan and equity instruments. 42 Table 9: Bangladesh - Progress Toward MDGs 1980 1990 2000' 2002 2004-05d 2015 PRSP MDG targetb target Poverty Headcount Ratec ... 58.8 49.8 ... 40.8 25.0 29.4 Fertility Rate (children per woman) 5.0 4.3 3 .O 3.0 3 .O Infant Mortality (per 1,000 live 101.4 94.0 66.3 53.0 56.0 18.0 31.0 births) Crude Birth Rate (per 1,000 33.4 32.8 19.9 20.1 20.8 population) Crude Death Rate (per 1,000 10.2 11.3 4.8 5.1 5.7 _.population) Life Expectancy (years) 56.9 56.0 60.6 62.0 63.5 73.0 73.0 Gross Primary Enrollment (%) 61.0 72.0 96.6 86.7 97.0 100.0 100.0 Gross Secondary Enrollment (%) 18.0 19.0 42.0 52.8 44.0 95.0 Adult Illiteracy (%) 71.0 65.0 55.0 50.4 41.1 10.0 Source: Unlocking the Potential-Poverty Reduction Strategy Paper (GOB) ,Bangladesh Bureau of Statistics. a. Some data are for 1999. b. Based on the progress rate of 1990-02. c. The poverty headcount rate refers to the upper poverty line. d. 2004 Crude birth rate and crude death rate figures. 43 IBRD 33368 To Gangtok 88°E89°E90BHUTAN °E91°E BANGLADESH DISTRICT CAPITALS DIVISION CAPITALS To Dispur Panchagar NATIONAL CAPITAL To PPANCHAGARANCHAGAR RIVERS Patna BANGLADESH LALMONIRHALALMONIRHAT MAIN ROADS 26°N Thakurgaon NILPHAMARI RAILROADS THAKURGAON Nilphamari Lalmonirhat T DISTRICT BOUNDARIES Kurigram Rangpur DIVISION BOUNDARIES To KURIGRAM Katihar RANGPUR Dinajpur INTERNATIONAL BOUNDARIES DINAJPUR To Goalpara To INDIA Katihar Gaibandha To 92°E To Dispur Dispur GAIBANDHA JOYPURHAJOYPURHATT SERPUR Sunamganj Joypurhat SYLHET 25°N 25°N NAOGAON Serpur NETROKONA Jamalpur SUNAMGANJ Sylhet Naogaon BOGRA Bogra JAMALPUR Netrokona RAJSHAHI Mymensingh SYLHET NOWNOWABGANJABGANJ To J Silchar a MYMENSINGH Nowabganj mmuna u n RAJSHAHI a DHAKA Kishorganj MOULMOULVIVI BAZAR Serajganj HABIGANJ Moulvi Bazar G Rajshahi Natore KISHORGANJ an SERAJGANJ TTANGAILANGAIL ges NATORENATORE Habiganj TangailTangail GAZIPUR PPABNAABNA Pabna Gazipur NARSINGDI a 24°N n 24°N Narsingdi h g INDIA e Brahmanbaria Manikanj DHAKA INDIA KUSHTIA Kushtia M BRAHMAN BARIA Meherpur MANIKGANJ Rajbari NARANARAYNGANJYNGANJ MEHERPUR Chuadanga RAJBARI DHAKA Naraynganj Faridpur CHUADANGA COMILLA Jhenaidah Magura MUNSHIGANJ G Munshiganj JHENAIDAH FFARIDPURARIDPUR ange MAGURA s Comilla To SARIASARIATPURTPUR CHANDPUR Calcutta Sariatpur Narail Jessore Madaripur Chandpur Khagrachhari MADARIPUR NARAIL JESSORE GOPGOPALGANJALGANJ KHAGRACHHARI 23°N Gopalganj Feni 23°N KHULNA LUXMIPUR Luxmipur NOAKHALI FENI Khulna BARISAL Noakhali RANGAMARANGAMATITI Satkhira KHULNA PEROJPUR Jhalukathi Barisal Bhola CHITTCHITTAGONGAGONG Bagerhat JHALUKAJHALUKATHITHI Rangamati To SASATKHIRATKHIRA KarKarnalinali Calcutta BAGERHABAGERHATT Perojpur ReserReservoirvoir BARISAL CHITTCHITTAGONGAGONG Patuakhali BHOLA l t a PPATUAKHALIATUAKHALI Chittagong D e Barguna g e s Bandarban G a n BARGUNA 22°N 22°N e s Mt. Mowdok a n s n g (957 m) a r b G a d e BANDARBAN S u n t h o f COXCOX’S’S t h s BAZAR M o u Cox's Bazar 0 10 20 30 40 50 Kilometers Bay of Bengal 0 10 20 30 40 50 Miles MYANMAR This map was produced by the Map Design Unit of The World Bank. 21°N The boundaries, colors, denominations and any other information 21°N shown on this map do not imply, on the part of The World Bank Group, any judgment on the legal status of any territory, or any endorsement or acceptance of such boundaries. To 89°E90°E91°E92°E Sittwe SEPTEMBER 2004