World Bank, ADB stress reforms for sustainable growth
The World Bank and the Asian Development Bank yesterday emphasised structural reforms of trade policies, public finance management, domestic resource mobilisation and the banking sector in Bangladesh in order to ensure sustainable growth in the upcoming years.
Abdoulaye Seck, country director of the WB for Bangladesh and Bhutan, called for removing the interest rate cap, launching a market-based exchange rate and regulatory reforms in the banking sector.
And Edimon Ginting, country director of the ADB, said: "The ongoing geopolitical crisis offered an opportunity to Bangladesh to increase economic resilience by carrying out key reforms."
Their comments came at separate events in Dhaka: the WB organised a programme to unveil "Bangladesh Development Update: Trade Reform: An Urgent Agenda", while the ADB held an event to publish the Asian Development Outlook April 2023.
In its report, the World Bank said trade has been a driving force behind Bangladesh's economic growth, job creation, and poverty reduction in recent decades. However, recent years have seen a decline in trade performance and an over-reliance on ready-made garment exports, raising concerns about the sustainability of the growth.
The erosion of competitiveness based on low wages and the impending loss of trade preferences due to the expected graduation from the grouping of the least-developed countries (LDC) are challenging the status quo.
Factors such as high import taxes and non-tariff barriers have protected domestic industries at the expense of emerging exports. Bangladesh's progress towards upper-middle-income may waver without diversifying exports by increasing trade competitiveness, the WB said.
According to the WB, trade reforms go beyond tariff modernisation and include comprehensive market liberalisation and regional integration, particularly with South Asia and Southeast Asia.
"This will require policy actions to remove non-tariff barriers, reduce trade costs and ease bottlenecks to trade in services."
The Covid-19 pandemic underscored the risk of over-reliance on a single sector, the ready-made garments sector, which accounts for about 83 per cent of Bangladesh's exports, said Bernard Haven, a senior economist of the WB, and co-author of the report.
"Diversifying exports and improving competitiveness will help Bangladesh achieve the upper-middle income status by 2031. For this, it will be important to reduce both tariff and non-tariff barriers."
He said a comprehensive reform programme can strengthen regional integration, particularly with South Asia and Southeast Asia.
"South Asian countries can find a model to improve regional integration where tariffs should be adjusted in all countries," said Zahid Hussain, a former lead economist of the World Bank's Dhaka office.
Along with the tariff barriers, non-tariff barriers like administrative lingering and illogical conditions on health and quality issues can be removed, he said.
Hussain said import restrictions can continue for a short period.
"If they persist for a long period, they will impact production as most of Bangladesh's imports are either raw materials or capital machinery."
ADB's Ginting said the expected graduation from the LDC status in 2026 and the aspiration to become an upper-middle-income country by 2031 and a high income-country by 2041 have also created an urgent need for carrying out key reforms.
He said the government is managing relatively well against the impact of external adversities and has embarked on the reform programmes as precautionary measures.
"Accelerating key reforms during these difficult times will help the country sustain higher growth in the medium term."
According to Ginting, this is a high time to enhance resilience against the global energy market volatility by creating an enabling environment for rapid expansion of domestic renewable energy supply with a view to reducing dependence on fossil fuels in line with the country's climate agenda.
The recent price hike of fuel has raised inflationary pressure and lowered consumption. But Ginting described the reform as good for the country since it has created more fiscal space.
"The government will get space to invest more in human capital. Reforms always have short-term pains but it ensures long-term gains."
The ADB country chief said any turbulence divulges the weakness of a country. In the case of Bangladesh, the weakness is being realised that its export is heavily dependent on readymade garments and there is heavy reliance on import-based energy.
Ginting recommended going for renewable energy and emphasised human capital development so that people can engage in the IT sector and other export-oriented service industries.
"Once the country graduates to a developing nation, the role of human capital will become even more important."
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