Driven by strong domestic demand, Bangladesh’s economy remains among the fastest growing economies in the developing world and it would grow at an even faster pace if it implemented economic reforms, says a new World Bank report launched today.
The latest Bangladesh Development Update: Powering the Economy Efficiently, says that growth will remain resilient, underpinned by strong domestic demand and structural transformation, but there is no room for complacency. To achieve its growth aspirations, Bangladesh needs to create more and better jobs by boosting private investment, diversifying exports and building human capital. The country also needs to make doing business easier, complete its mega-projects on a fast track, improve financial sector governance and ensure a reliable supply of electricity. Further, sustaining its export and remittance growth will be important. It also needs to focus on improving infrastructure, urban management, and environment conservation.
Picture – Ashim Benedict Palmer
“Bangladesh is known for its remarkable progress in reducing poverty and creating opportunities for its citizens. It is among the 10 fastest growing economies in the world and has made commendable progress on human development,” said Qimiao Fan, World Bank Country Director for Bangladesh, Bhutan, and Nepal. “To maintain the current growth trajectory, it needs to promote entrepreneurship, innovation and structural transformation. Bangladesh should also focus on improving education, skills, nutrition and adaptability to enable its workforce to thrive in an environment of rapidly changing technology and global demands.”
The report stresses the importance of increasing resilience to a possible slowdown in major export markets or a decline in donor support to address the influx of Rohingya refugees. The country also needs to improve financial sector governance, including banking sector performance, especially the high share of non-performing loans (NPLs), which reached 10.4 percent of all loans in fiscal year (FY) 2018. These are concentrated disproportionately in the six state-owned commercial banks that accounted for 48 percent of total NPLs, while the 40 private commercial banks accounted for 44 percent of NPLs.
“To realize its goals of achieving upper-middle income status, Bangladesh must make sure its economic fundamentals are sound,” said Zahid Hussain, World Bank Lead Economist and author of the report. “As immediate measures, the country needs policies to contain inflation, correct the exchange rate, and remove interest rate distortions.”
For the first time since FY2011, Bangladesh faces a deficit in the overall balance of payments, putting pressure on the exchange rate and international reserves. This has resulted from a substantial widening of deficits on the trade, services and income accounts.
The report recommends expanding reliable electricity supply to meet the needs of a growing economy. Much progress has been made in recent years, with access to electricity increasing from 47 percent of the population in 2009 to 80 percent in 2017. But by 2030, electricity demand is expected to grow to 34 gigawatts, more than double the country’s current installed capacity.
Picture – Ashim Benedict Palmer
This requires comprehensive reforms in the power sector, including addressing inefficiencies at different stages of power supply and distribution, and reducing dependency on imported fossil fuels. The report urges more efficient pricing and use of gas. By prioritizing more efficient plants, Bangladesh can reduce idled gas capacity by 8 percent and electricity shortages by 15 percent a year. Further, the government needs to focus on smarter pricing of electricity through a cost-based pricing mechanism, better load management, and increased efficiency in electricity generation. Better load management alone could save $1.65 billion annually in fuel cost. Bangladesh can also benefit from boosting regional trade and strengthening the cross-border electricity transmission network.
The World Bank was among the first development partners to support Bangladesh following its independence. Since then, the World Bank has committed more than $29 billion in grants and interest-free credits to the country.