Challenges for Bangladeshi n Becoming a Middle-Income Country

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Challenges for Bangladeshi n Becoming a
Middle-Income Country

• PRMED Growth Seminar SeriesFebruary 27, 2008

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Can Bangladesh Become a Middle-Income Country by
2016?

• Gross National Income per-capita of US470 in
  2005 places Bangladesh in the category of
  low-income countries as per IDA classification
• IDAs threshold for middle-income countries was
  US870 in 2005.

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Can Bangladesh Become a Middle-Income Country by
2016?

• Can Bangladesh become an MIC by 2016?
• Yes, if GDP growth increases to 7.5 a year
• If growth falls to the 3 rate seen in the 1980s,
  MIC status will happen after 5 decades

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Can Bangladesh Become an MIC by 2016?Reasons to
be optimistic

• Good growth record (gt 5) since 1990
• Sound economic fundamentals
• A young labor force demographic dividend
• Established entrepreneurial culture
• Substantial improvements in human development

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An Impressive Growth Record that needs to be
Strengthened
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An Impressive Growth Record that needs to be
Strengthened
Per-Capita GDP Bangladesh Vs. Median LIC
Bangladesh
Median LIC
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Growth Record International Comparisons
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Growth Matters Over Long-Run
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Can Bangladesh Become an MIC by 2016?Challenges
to Consider

• Target of 7.5 growth is an ambitious one. Few
  developing countries have been able to sustain it
• Being an MIC is not just about income levels.
  MICs have more complex and sophisticated economic
  systems which need to be understood

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What Explain Bangladeshs Growth Experience?

• Growth acceleration in the early 1990s was
  enabled by major policy improvements
• macroeconomic stabilization (monetary and fiscal
  discipline, and correction of exchange rate
  misalignment and of external imbalances)
• Easing of trade and exchange restrictions
• Relaxation of restrictions on private investment
  in various Industrial Policy Orders
• Launching of the Financial Sector Reform Program
  (FSRP), deregulating interest rates and
  abolishing credit quotas
• Further deregulation of agriculture markets

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What Explain Bangladeshs Growth Experience?
Contd.

• Govt moved early and decisively to avail of
  opportunities provided by MFA/ATC quota systems
  for garment exports EPZs, bonded-warehouses,
  back-to-back LCs etc.
• Sharply rising workers remittances fueled
  construction and domestic demand
• Early emphasis on human development especially
  womens advancement proved crucial.

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Can Bangladesh Become an MIC by 2016?Challenges
to Consider
Sources of Growth
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Bangladeshs Transition to MIC Status
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Transition 1 Agriculture to Labor-Intensive
Manufacturing

• Transition 1 implies a deeper labor-intensive
  manufacturing base and more productive
  agriculture
• driven by globally competitive manufacturing
  firms productive, diversified, and
  commercially-oriented agriculture sector

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Main Constraints to Deepening Manufacturing Base

• Firm-level analysis suggests that following areas
  need particular attention to boost productivity
  in manufacturing
• Rapidly emerging power supply constraints
• Limited access to FDI for manufacturing
• High remaining anti-export bias
• Deficiencies in worker and mgmt skills
• Limited knowledge economy base
• Concerns over law and order

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Firm Size and Productivity
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Transition 2Closed Economy to Globally
Integrated One

• Transition 2 implies judicious, but not
  complacent, approach to global integration
• Bangladeshi firms plugged into global supply
  chains and country figuring prominently on global
  investment maps

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Main Constraints to Deepening Global Integration

• High levels of anti-export bias hurts non-RMG
  exports and prevents export diversification
• Among the highest trade protection in the world

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Main Constraints to Deepening Global Integration
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Main Constraints to Deepening Global Integration

• High levels of anti-export bias hurts non-RMG
  exports and prevents export diversification
• Among the highest trade protection in the world
• Bonded warehouse facility not available to most
  sectors. With dysfunctional DEDO, this
  discourages export diversification.
• Poor state of trade facilitation inefficient
  port and various bottlenecks at customs and
  related to connectivity with hinterland

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Transition 3Rural to Urban

• Transition 3 implies emergence of diverse,
  dynamic urban centers, with Dhaka remaining at
  forefront of urban activity

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Managing Rapid Urbanization Key Challenges

• Absence of balance in urbanization no viable
  urban alternatives to Dhaka
• Dhaka fast reaching choking point
• Rising congestion pressures in Dhaka
• Provision of infrastructure and urban services
  far behind demand
• Exorbitant real estate prices in Dhaka
• Key issues
• Virtual absence of decentralization
• Lack of devolution of key services to city
  governments
• Lack of city govts revenue sources and admin.
  capacity
• Interregional transport and communication
  networks underdeveloped

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Long-Term Transitions
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Long-Term Transitions
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Enabling Environment for the 3 Long-Term
Transitions

• Strengthening governance and regulatory
  environment
• Addressing infrastructure constraints, with a
  special focus on power
• Addressing acute labor skill shortages
• Creating deeper and more efficient financial
  system
• Maintaining macro policies and liberalizing trade

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Key Summary Messages

• Continued strong private investment and labor
  force growth will help, but productivity
  improvement is key.
• Need to implement 2nd generation reforms, and
  refocus policy attention toward hitherto
  neglected structural areas governance, urban
  management, infrastructure (especially power and
  ports) and labor skills.

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