Download What will it take for Bangladesh to reach the Growth

Challenges for Bangladeshi n
Becoming a Middle-Income Country
PRMED Growth Seminar Series
February 27, 2008
Can Bangladesh Become a MiddleIncome Country by 2016?


Gross National Income per-capita of US$470 in
2005 places Bangladesh in the category of lowincome countries as per IDA classification
IDA’s threshold for middle-income countries
was US$870 in 2005.
Can Bangladesh Become a MiddleIncome Country by 2016?

Can Bangladesh become an MIC by 2016?
Yes, if GDP growth increases to 7.5% a year
 If growth falls to the 3% rate seen in the 1980s, MIC
status will happen after 5 decades

Can Bangladesh Become an MIC by 2016?
Reasons to be optimistic

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Good growth record (> 5%) since 1990
Sound economic fundamentals
A young labor force – demographic dividend
Established entrepreneurial culture
Substantial improvements in human
development
An Impressive Growth Record that needs to
be Strengthened
Annual GDP Growth
8
7
5
4
2014
2011
2008
2005
2002
1999
1996
1993
1990
1987
2
1984
3
1981
percent
6
An Impressive Growth Record that needs to
be Strengthened
1700
Per-Capita GDP: Bangladesh Vs. Median LIC
1600
1500
1400
1300
1200
Bangladesh
1100
1000
Median LIC
20
05
20
03
20
01
19
99
19
97
19
95
19
93
19
91
19
89
19
87
19
85
19
83
19
81
19
79
19
77
900
19
75
PPP, Constant International US$
1800
0
China
Indonesia
India
Bangladesh
C. African Rep
1000
Sierra Leone
4000
Niger
Constant 2000 PPP
US$
Growth Record: International Comparisons
6000
5000
2005
3000
2000
1975
Growth Matters Over Long-Run
percentage points per year
6
5
4
3
2
1
0
1981-1992
GDP Growth
1992-2000
2000-2005
Poverty Rate Reduction
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
What Explain Bangladesh’s Growth
Experience?

Growth acceleration in the early 1990s was enabled by
major policy improvements

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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
What Explain Bangladesh’s Growth
Experience?
Contd….



Govt moved early and decisively to avail of
opportunities provided by MFA/ATC quota
systems for garment exports – EPZs, bondedwarehouses, back-to-back LCs etc.
Sharply rising workers remittances fueled
construction and domestic demand
Early emphasis on human development –
especially women’s advancement – proved crucial.
Can Bangladesh Become an MIC by 2016?
Challenges to Consider
Sources of Growth
10.0
8.0
6.0
4.0
2.0
0.0
-2.0
1980-89
1990-06
GDP growth
Labor (quality adjusted) Growth
Source: BBS and staff calculations
2007-16
Capital Stock Growth
TFP growth
Bangladesh’s Transition to MIC Status
Agriculture
Labor-Intensive Manufacturing
Rural
Closed Economy
Urban
Global Integration
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
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

Firm Size and Productivity
140
120
100
80
60
40
20
0
Firm Size
Firm Size
between 1-10 between 1050
Firm size
between 50150
Firm size
between 150500
Productivity measure of firms sized 500+ normalized to 100
Firm size
500+
Transition 2:
Closed 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
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
Main Constraints to Deepening Global Integration
Average Nominal Protection Rate
25
15
10
Bdesh
Pakistan
0
India
5
LICs
percent
20
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

Transition 3:
Rural to Urban

Transition 3 implies emergence of diverse,
dynamic urban centers, with Dhaka
remaining at forefront of urban activity
Managing Rapid Urbanization:
Key Challenges


Absence of balance in urbanization – no viable urban
alternatives to Dhaka
Dhaka fast reaching choking point

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Rising congestion pressures in Dhaka
Provision of infrastructure and urban services far behind demand
Exorbitant real estate prices in Dhaka
Key issues
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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
Long-Term Transitions
40
35
% GDP
30
25
20
15
10
5
0
1980
Manufacturing
1990
Urban Population
2005
Trade
Long-Term Transitions
100
% GDP
80
60
40
20
0
Manufacturing
Bangladesh
Urban Population
China
Indonesia
Trade
Malaysia
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

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.
THANK YOU!