Public Disclosure Authorized

BANGLADESH
Public Disclosure Authorized

MORE AND BETTER JOBS TO ACCELERATE SHARED

GROWTH AND END EXTREME POVERTY
Public Disclosure Authorized

A Systematic Country Diagnostic

October 25, 2015

Public Disclosure Authorized

South Asia Region

 ABBREVIATION
ADM Adaptive Delta Management IRT International Road Transport
ADP Annual Development Programme IWT Inland Water Transport
AGPs Apprenticeship Grants Programs KCT Key Construction Test
AL Awami League KM Kilometer
ALMPs Active labor market programs kW Kilowatt
ASA Association for Social Advancement LDCs Least Developed Countries
BAU Business as usual LFS Labor Force Survey
BBS Bangladesh Bureau of Statistics LGED Local Government Engineering Department
BDT Bangladesh Taka LNG Liquefied Natural Gas
BEPZA Bangladesh Export Processing Zones Authority LPI Logistics Performance Index
BERC Bangladesh Energy Regulatory Commission LSCI Liner Shipping Connectivity Index
BIWTA Bangladesh Inland Water Transport Authority NBR National Board of Revenue
BNP Bangladesh Nationalist Party NGOs Non-governmental organizations
BMET Bureau of Manpower, Employment and Training NFP National Food Policy
BPDB Bangladesh Power Development Board NMCT New Moorings Container Terminal
BR Bangladesh Railways MCF Million Cubic Feet
BRAC Bangladesh Rural Advancement Committee MDGs Millennium Development Goals
BST Bulk Supply Tariff M&E Monitoring and Evaluation
CCT Chittagong Container Terminal MOC Ministry of Commerce
CIP Country Investment Plan MoEF Ministry of Environment and Forests
COEL Center of Excellence for Leather Skill MOU Memorandum of Understanding
CPA Chittagong Port Authority MIC Middle-income Country
CPIA Country Performance & Institutional Assessment MICS Multiple Indicator Cluster Survey
DNCC Dhaka North City Corporation MRAs Mutual Recognition Agreements
DPT Diphtheria-Pertussis-Tetanus MTIR Mid-Term Implementation Review
DSCC Dhaka South City Corporation MW Megawatt
EPB Export Promotion Bureau PCU Passenger Car Units
ERD Economic Relations Division PFM Public Financial Management
ETPs Exchange Traded Products POA Price On Application
EU European Union PPP Purchasing Power Parity
FDI Foreign Direct Investment PPPs Public-Private Partnerships
FP Family Planning PPRC Power and Participation Research Centre
FTA Free Trade Agreement PWC Pricewaterhouse Coopers
FY Fiscal Year RCP Representative Concentration Pathway
FYP Five-Year Plan RMG Ready Made Garments
GBM Ganges-Brahmaputra-Meghna RTI Right to Information
GDP Gross Domestic Product SCD Systematic Country Diagnostic
GDW Greater Dhaka Watershed TB Tuberculosis
GED General Economics Division TEUs Twenty-Foot Equivalent Units
GOB Government of Bangladesh TFP Total Factor Productivity
GON Government of the Netherlands TVET Tech. & Vocational Education and Training
GNI Gross National Income TWH Terawatt hour
GSP Generalized System of Preferences UN United Nations
GTZ German Agency for Technical Cooperation UNDP United Nations Development Programme
GWH Gigawatt Hour UNCTAD UN Conference on Trade and Development
HDRO Human Development Report Office UNIDO UN Industrial Development Organization
HIES Household Income and Expenditure Survey UAE United Arab Emirates
ICD Inland Clearance Depot UK United Kingdom
IDA International Development Association USA United States Of America
IGC Intergovernmental Committee USD US dollar
IFC International Finance Corporation VAT Value Added Tax
IMF International Monetary Fund WDI World Development Indicators
IT Information Technology WBG World Bank Group
IOCs International Oil Companies WTO World Trade Organization
IPPs Independent Power Producers

ii
 Vice Presidents : Annette Dixon (IDA)
Karen Finkelston (IFC)
Country Director : Johannes Zutt
Country Manager (IFC) Kyle Kelhofer
Co-Task Leader (IDA) : Salman Zaidi
Co-Task Leader (IFC) : M. Masrur Reaz
Co-Task Leader (MIGA) : Paul Barbour

iii
 ACKNOWLEDGEMENTS
The team leaders for the SCD were Salman Zaidi (Lead Economist, IDA), M. Masrur Reaz (Program
Manager, IFC), and Paul Antony Barbour (Senior Risk Management Officer, MIGA). Lin Shi (Consultant,
GMFDR) provided invaluable contributions and research support throughout the report preparation process.
A multi-sectoral team comprising staff from all Global Practices and CCSAs (please see table below for
principal contributors from each GP/CCSA) provided extensive contributions and inputs to the SCD.
Global Practice/Cross-Cutting Solution Area Team member(s)
Agriculture Madhur Gautam, Patrick Verissimo, Frauke Jungbluth
Ayesha Vawda, Yoko Nagashima, Syed Rashed Al-Zayed,
Education
Mokhlesur Rahman
Sheoli Pargal, Jie Tang, Zubair Sadeque, M. Anis, Md.
Energy and Extractives
Iqbal, M. Bankuti, Debabrata Chattopadhyay
Shakil Ferdausi, Sebnem Sahin, Kseniya Lvovksy, Lia
Environment and Natural Resources
Sieghart, Ernesto Triana, Abdelaziz Lagnaoui
Niraj Verma, Shah Nur Quayyum, Francesca Lo Re,
Finance and Markets
Priyani Malik, Korotoumou Ouattara
Syed Khaled Ahsan, Zafrul Islam, Jorg Nadoll, Sadia
Governance
Priyanka, Tracey Lane, Suraiya Zannath
Bushra Alam, Veronica Vargas, Sameh El-Saharty, Nedim
Health, Nutrition, Population
Jaganjac
Zahid Hussain, Nadeem Rizwan, Afroza Alam, Simon
Macroeconomics and Fiscal Management
Davies
Faizuddin Ahmed, Dean Joliffe, Monica Pagans, Iffath
Poverty
Sharif, Carlos Sobrado, Nobuo Yoshida
Social Protection and Labor Iffath Sharif, Aneeka Rahman
Alberto Portugal, AKM Abdullah S. Kathuria, V. Palmade
Trade and Competitiveness
M. Haththotuwa, M. Azad, Nusrat Nahid, Sigma Shams
Transport and ICT Matias Herrera, Diep Nguyen, Shigeyuki Sakaki
Ming Zhang, Christopher Pablo, Hyoung Gun Wang,
Urban, Rural, Social Development
Kyungchul Nam, Zahed Khan
Richard Damania, Arif Ahamed, Abed Khalil, Joel Kolker,
Water
Mrinal Sircar, Tahira Syed, Parmeswaran Iyer

Lia Sieghart, Nadia Sharmin, Susmita Dasgupta, David

Climate Change
Rogers, Navid Rahimi, Ana Bucher
Gender Sabah Moyeen, Maitreyi Das, Emcet Oktay Tas
Jobs Lin Shi, Iffath Sharif

The report was prepared under the guidance of Johannes Zutt (Country Director, Bangladesh) and Kyle F.
Kelhofer (IFC Country Manager). The peer reviewers were Messrs./Mdmes. Sadiq Ahmed (Vice Chairman,
Policy Research Institute), Shamsul Alam (Member, General Economics Division, Planning Commission),
Magdi Amin (Manager, CGECF), and Rinku Murgai (Lead Poverty Specialist, GPVDR). Mehar Akhtar
Khan (Program Assistant, SACBD) helped process the report. The SCD team would like to express its
appreciation to Martin Rama (Chief Economist, South Asia Region), Hassan Zaman (Sr. Regional Advisor,
SARVP), Sereen Juma (Country Program Coordinator, SACBN), Christine Kimes (Operations Advisor,
SACBD), Shamsher Singh (Regional Head of Strategy, CGECF), and Kene Ezemenari (Senior Economist,
SARCE) for their valuable guidance and inputs throughout the report preparation process. The team would
also like to thank the members of the Bangladesh Country Team from all Global Practices and IFC, specialists
from Cross Cutting Solutions Areas, as well as all the development partners and stakeholders in Bangladesh,
who have contributed to the preparation of this document. We are very grateful to colleagues and reviewers
in the Government of Bangladesh, especially those in the Economic Relations Division, for their careful
review of an earlier version of this documents and suggestions for changes, and for the generosity exhibited
in providing us with substantive inputs, knowledge, and advice throughout the report preparation process.
 CONTENTS
KEY FINDINGS AND RECOMMENDATIONS ............................................................................ 1 
EXECUTIVE SUMMARY ......................................................................................................... 3 
1.  INTRODUCTION AND OUTLINE ....................................................................................... 17 
1.1 RATIONALE AND MAIN OBJECTIVES .................................................................................................. 17 
1.2 COUNTRY CONTEXT AND DEVELOPMENT ACHIEVEMENTS ................................................................ 17 
1.3 CLIMATE CHANGE-RELATED CHALLENGES ....................................................................................... 21 
1.4 THE GOVERNMENT'S DEVELOPMENT STRATEGY AND FIVE YEAR PLANS .......................................... 24 
1.5 INFORMATION SOURCES .................................................................................................................... 25 
1.6 ROADMAP FOR THE REST OF THE REPORT.......................................................................................... 26 
2.  TWIN GOALS: ASSESSING PROGRESS, CHALLENGES, AND PRIORITIES .......................... 27 
2.1 REDUCING EXTREME POVERTY ......................................................................................................... 27 
2.2 BOOSTING SHARED PROSPERITY........................................................................................................ 31 
2.3 TWIN GOALS: MAIN CHALLENGES FOR BANGLADESH ....................................................................... 37 
2.4 SETTING AND VALIDATING PRIORITIES.............................................................................................. 43 
2.5 KNOWLEDGE GAPS ............................................................................................................................ 47 
3.  FOUNDATIONAL PRIORITIES .......................................................................................... 49 
3.1 MACROECONOMIC STABILITY ........................................................................................................... 50 
3.2 CONSOLIDATING GAINS IN HUMAN DEVELOPMENT .......................................................................... 57 
3.3 SUPPORTIVE INSTITUTIONS AND BUSINESS ENVIRONMENT FOR PRIVATE SECTOR-LED GROWTH...... 67 
4. FIVE POTENTIALLY TRANSFORMATIVE PRIORITY AREAS............................................... 75 
4.1 THE ENERGY SECTOR ........................................................................................................................ 75 
4.2 INLAND CONNECTIVITY AND LOGISTICS ............................................................................................ 82 
4.3 REGIONAL AND GLOBAL INTEGRATION ............................................................................................. 90 
4.4 URBANIZATION: IMPROVING LIVABILITY AND PRODUCTIVITY .......................................................... 99 
4.5 ADAPTIVE DELTA MANAGEMENT .....................................................................................................106 
ANNEX ............................................................................................................................. 117 
IMPROVED SOCIAL PROTECTION SYSTEMS TO MEET CHANGING NEEDS ...................................................117 
ADDRESSING EMERGING ENVIRONMENTAL RISKS AND CHALLENGES .....................................................120 
STRENGTHENING PUBLIC INSTITUTIONS .................................................................................................123 
BIBLIOGRAPHY ................................................................................................................ 125 
ENDNOTES ....................................................................................................................... 151 
 List of Tables
Table 1.1: Social Indicators for Bangladesh and Comparator Countries ...................................................... 18 
Table 1.2: Recent Progress in Reducing Poverty: 2000 – 2010 ................................................................... 21 
Table 1.3: Size and Composition of the Working-Age Population .............................................................. 21 

Table 2.1: Long-Term Poverty Trends: 1990 – 2015 ................................................................................... 27 

Table 2.2: Trends in Basic Assets and Amenities ........................................................................................ 28 
Table 2.3: Sectorial Shares of GDP (percent)............................................................................................... 29 
Table 2.4: Decomposition of GDP Growth .................................................................................................. 29 
Table 2.5: Income Inequality in Bangladesh: 2000 – 2010 .......................................................................... 31 
Table 2.6: Trends in Poverty by Land Ownership in Rural Areas................................................................ 33 
Table 2.7: Female to Male Wage Ratios: 2000 – 2010 ................................................................................ 36 
Table 2.8: Income Levels: Bangladesh and Comparator Asian Countries: 1980 – 2013 ............................. 37 
Table 2.9: Infrastructure Quality in Bangladesh Lags Behind its Regional Competitors ............................. 39 
Table 2.10: Number of Poor People in Rural and Urban Areas ................................................................... 39 
Table 2.11: Total Employment (million) by Sector and Gender .................................................................. 40 
Table 2.12: Summary of Key Priorities for Action Identified by the SCD................................................... 45 

Table 3.1: Forecast of Potential Sources of Fiscal Space for Health: 2015 – 2019 ...................................... 63 

Table 4.1: Rising Unit Cost of Power........................................................................................................... 80 

Table 4.2: Cash and Loan Subsidies for Power and Petroleum Products ..................................................... 80 

List of Figures

Figure 1.1: Trends in GDP Growth Since 1985............................................................................................ 19 

Figure 1.2: Increased Remittance Inflows .................................................................................................... 20 
Figure 1.3: Robust GDP growth over past decade........................................................................................ 20 

Figure 2.1: Trends in the Incidence, Depth, and Severity of Poverty: 1990 - 2010...................................... 28 
Figure 2.2: Decomposition Analysis: Changes in GDP from 2000 to 2010 ................................................. 30 
Figure 2.3: Expenditure Share (% of GDP) .................................................................................................. 30 
Figure 2.4: Investment Rate (% of GDP) ..................................................................................................... 30 
Figure 2.5: Broad-Based Income Growth: 2000 - 2010 ............................................................................... 31 
Figure 2.6: HOI: Bangladesh Compared to other South Asian Countries .................................................... 32 
Figure 2.7: Poverty Incidence by Type of Worker ....................................................................................... 33 
Figure 2.8: Most Bangladeshis Believe Economic Conditions are Getting Better ....................................... 33 
Figure 2.9: Main Drivers of Progress Since 2000 ........................................................................................ 34 
Figure 2.10: Employment Increase: 2002/03 – 2013) .................................................................................. 35 
Figure 2.11: Size of the Workforce by Gender ............................................................................................. 35 
Figure 2.12: Poverty Projections Until 2030 ................................................................................................ 37 
Figure 2.13: Upazila-Level Poverty Map for 2010....................................................................................... 38 
Figure 2.14: High Youth Unemployment Rates ........................................................................................... 40 
Figure 2.15: Labor Force Participation Rates ............................................................................................... 41 

Figure 3.1: Selected Macroeconomic Indicators .......................................................................................... 49 

Figure 3.2: Financial Deepening in Bangladesh: 1980 – 2015 ..................................................................... 50 
Figure 3.3: Tax Revenue (percent of GDP) by Country Income Group: 1994 – 2009 ................................. 53 
Figure 3.4: Human Development Achievements.......................................................................................... 57 
Figure 3.5: School Retention and Quality of Education ............................................................................... 58 
Figure 3.6: Significant Scope for Further Improvements in the Business Environment .............................. 67 
Figure 3.7: Top-Most Concerns of Businesses and Recent Trends in Business Confidence ........................ 68 

iv
Figure 4.1: Population Without Electricity (mln) ......................................................................................... 75 
Figure 4.2: Declining Domestic Gas Production and Projected Shortage .................................................... 77 
Figure 4.3: Power Generation Capacity........................................................................................................ 77 
Figure 4.4: Gas Prices by Country................................................................................................................ 79 
Figure 4.15: Water supply/ demand balance (dry-season, practically available water resources) ...............111 
Figure 4.16: Dhaka's water quality situation in the dry season....................................................................111 
Figure 4.17: Effective Management of Bangladesh’s Delta ........................................................................113 

List of Boxes

Box 1: Climate Change in Bangladesh - Today and Tomorrow ................................................................... 22 

Box 2: Key Strategic Focus Areas of the Sixth Five Year Plan (FY11-FY15) ............................................ 25 
Box 3: Drivers of Improvements in Extreme Poverty .................................................................................. 36 
Box 4: Measuring women’s home-based work ............................................................................................ 41 
Box 5: Jobs as Key Drivers of Future Poverty Reduction ............................................................................ 43 
Box 6: Mid-Term Implementation Review of the Sixth Five Year Plan ...................................................... 46 
Box 7: Measuring Skills to Support Policy Analysis ................................................................................... 60 
Box 8: The German Apprenticeship Model.................................................................................................. 61 
Box 9: Innovation for Universal Health Coverage ....................................................................................... 64 
Box 10: Impact of Improving Connectivity in Bangladesh .......................................................................... 83 
Box 11: Economic and poverty impact of safer roads .................................................................................. 84 
Box 12: Overseas Migration in the Philippines ............................................................................................ 98 
Box 13: Transforming Dhaka into a Globally Competitive Metropolitan Area ..........................................100 
Box 14: Fisheries Sector in Bangladesh ......................................................................................................107 
Box 15: Key Trans-boundary Water Issues and Challenges .......................................................................109 
Box 16: National Social Security Strategy 2015 .........................................................................................118 

v
vi
 KEY FINDINGS AND RECOMMENDATIONS
More and better jobs have enabled millions of Bangladeshis to move out of poverty.
Bangladesh is among a select group of countries worldwide where the pace of GDP growth
accelerated, poverty dropped and inequality fell over 2000 to 2010, as the economy underwent
structural shifts accompanied by 13.8m net new jobs added between 2002/03 and 2013; 10.5m new jobs
better job opportunities for men and outside agriculture vs. only 3.3 in agriculture
women (box). Bangladesh made • share of manufacturing in employment up from 14 to 21 percent;
good use of the deep and elastic share of agriculture now down to 45 percent
Women’s employment up 7m (16.8m in 2013)
demand offered by the global
• gender gap narrowed, particularly among lower ages; women
economy to expand job opportunities working in manufacturing up from 1.7m to 3.8m
in manufacturing. Remittances from In FY14, an estimated 8m Bangladeshis working overseas sent home
workers abroad also emerged as an $14.5b in remittances
important source of income.
Growth in Bangladesh has been broad-based due to improved opportunities in the labor market
coupled with a demographic dividend resulting from earlier successes in reducing population
growth and improving human development, enabling millions to move out of poverty. The pace of
poverty reduction has picked up considerably: the number of poor people fell 17m between 2000
and 2010, compared to less than 1m decline during 1990-2000.
Looking ahead, the creation of millions of new and better jobs in industries where Bangladesh
has a comparative advantage offers by far the most promising exit out of poverty. Economic
growth will likely continue to be spurred by the relocation of labor-intensive production from other
richer fast-growing countries like China. To help realize this potential, Bangladesh must ensure a
policy environment conducive to faster job creation and growth; foundational priorities like
macroeconomic stability, human capital accumulation, and better institutions and an enabling
business environment will be key. In addition, Bangladesh must address the crucial infrastructure
and policy impediments constraining it from moving to a higher growth path.
This SCD identifies five areas where concerted efforts over the next 3-5 years could have a
transformative impact on accelerating the creation of more and better jobs in Bangladesh: (i)
energy, (ii) inland connectivity and logistics, (iii) regional and global integration, (iv) urbanization,
and (v) improved delta management. Power shortages and poor transportation infrastructure—
ports, roads, railroads—make labor
• 40 percent of the population still has no access to electricity
productivity in Bangladesh much
• Road traffic between Dhaka and Chittagong (260km) can take up to
12 hours. lower than in China, India, and
• Trade policies are heavily skewed in favor of domestic production Vietnam. Bangladesh can also take
• Dhaka metropolitan area is ranked among world’s 10 largest cities, better advantage of its location in
but also among the world’s 10 worst cities to live in.
the world’s fastest-growing region
• Climate change and delta management are an existential concern for
Bangladesh and between India and China by
eliminating policy distortions
impeding faster integration with the world economy. The “pull effects” of export sector jobs in
urban areas have created employment opportunities for the poor in construction and transport, but
Bangladesh needs to do more to boost the productivity of its urban spaces, particularly Dhaka,
which accounts for more than one-third of GDP. Finally, given nearly half the labor force continues
to be employed in agriculture, higher land productivity, agricultural diversification, and reduced
vulnerability in the delta region remain important challenges in the short- to medium-term.

1
2
 EXECUTIVE SUMMARY
1. Situated in a fertile low-lying river delta, Bangladesh combines high vulnerability to floods,
tropical cyclones, earthquakes, and climate change with one of the world’s highest population
densities, with around 159 million people living in less than 150,000 sq. km. With the world’s
second lowest per capita income in 1975, it was labeled “the test case for development” in view of
the formidable development challenges it faced. Nevertheless, Bangladesh has proven to be
remarkably resilient, developing well beyond initial expectations, and has made very good progress
with poverty reduction. GNI per capita has grown from around US$100 in 1972 to US$1,314 in
2015, and the country crossed the World Bank threshold for the lower-middle-income group in
2015. Five striking achievements of Bangladesh since its independence merit special mention:
 Impressive achievements of a pro-active family planning program, which helped lower total
fertility from over 6 children per woman in the 1970s to 2.1 in 2011: Even though Bangladesh’s
population increased by about 15 percent between 2000 and 2010, the working age population
expanded even more rapidly, by 25 percent. This “demographic dividend” offers a promising,
albeit short and one-time, window of opportunity for Bangladesh to enact policies and promote
investments to raise human capital and productivity of these citizens entering the workforce.
 Improved food availability: Thanks to the uptake of high-yield varieties, improved availability
of fertilizer and other key inputs, and better irrigation, domestic rice production (the main food
crop) has risen from around 12.3m metric tons in the 1980s to 37.6m metric tons in 2014.
 Stronger disaster-coping mechanisms, as evidenced by reduced impact of recent storms,
cyclones, and floods: The government, with active community participation, has devised
effective strategies to mitigate the damage of natural disasters, including early warning and
response systems and countless cyclone shelters in coastal areas across the country.
 Development of the extensive rural road network built in the 1980s by the Local Government
Engineering Department: This network blurred the rural-urban divide and helped develop a
continuum linking Dhaka, Chittagong, other secondary cities, towns, market centers, and
villages.
 Special initiatives taken to tackle gender inequality and promote women’s empowerment:1 This
included a schooling system that expanded girls’ education, mobilization of women by NGOs,
and—more recently—their proactive recruitment by the readymade garments (RMG) industry.

GOOD JOBS: KEY DRIVERS OF PROGRESS IN THE POST-2000 PERIOD

2. Annual GDP growth in Bangladesh averaged about 6 percent over 2005 to 2015,
notwithstanding the adverse impacts of the global recession, oil price rise, unrest in the Middle East
(an important destination for Bangladeshi migrants) and local natural disasters. Several factors
explain the resilience of the economy to global shocks, including strong macroeconomic
fundamentals at the onset of the crisis, strong growth of exports and remittances, and relatively
under-developed and insulated financial markets. The pace of poverty reduction also picked up
considerably since 2000, and Bangladesh is amongst the select group of countries which have
experienced a modest decline in inequality in the post-2000 period. The main drivers of faster GDP

1 Amartya Sen has attributed Bangladesh’s success in this particular regard to the “general determination in post-
independence Bangladesh to target the elimination of female disadvantage”. What's happening in Bangladesh?
http://www.thelancet.com/journals/lancet/article/PIIS0140-6736(13)62162-5/fulltext

3
growth and poverty reduction observed between 2000 and 2010 have included (i) the ongoing
demographic transition that has led to an increased share of working-age population, (ii) key
structural shifts in the economy, including better wage and salaried employment opportunities for
workers in the manufacturing and services sectors, (iii) higher agricultural incomes, and (iv) higher
remittances. Key factors behind these remarkable improvements include not just economic reforms
and good macroeconomic management, but also special attention to gender equality, education,
health outcomes, and family planning.

Main Drivers of Progress Since 2000

Demographic Dividend: lower population growth has led Most new jobs added recently have been in the
to a higher working-age population share manufacturing and services sectors
Net new employment
Population aged 15-64 years (left)
Population Growth (right) (2002/03 - 2013)
66 2.0 Services Agri-

Annual Growth rate %

1.8 33% culture
24%
% of Total Population

64
1.6 1.5
62
1.2
60 1.0

58
0.5
56 Manu-
Other facturing
54 0.0 industry 37%
6%
2000 2002 2004 2006 2008 2010 2012

Contribution to increased output per worker: 16,000

2000-2010 (sum of all components =100)
14,000
Industry 35%
12,000
USD (million)

Inter-sectoral 10,000
24%
shift
8,000
6,000
Services 23%
4,000

Agriculture 18% 2,000

0
0 10 20 30 40 FY01 FY03 FY05 FY07 FY09 FY11 FY13

Agriculture contributed nearly one-fifth of the higher Remittance inflows from overseas workers have recorded
output per worker in 2010 vs. 2000 double-digit annual growth since 2000

3. The economy has undergone important structural shifts. The manufacturing sector in
Bangladesh has been the largest single contributor to growth, and its share in GDP has risen from
13 percent in 1981 to 17 percent in 2015. Industry’s contribution to growth peaked from about 1
percentage point in the 1980s to 2.7 percentage points in 2015. The share of the services sector has
stabilized at 53-54 percent of GDP, and its contribution to GDP growth has risen from around 2
percentage points in the 1980s to over 3 percentage points in the 2000s. By contrast, agriculture’s
share in GDP has come down from 30 percent in 1981 to 15 percent in 2015, and its contribution
to GDP growth was below 1 percentage point throughout most of the past three decades. Growth
in industry came largely from manufacturing and construction, while that in the services sector was
broad-based, led by wholesale and retail trade and transport, storage and communication.

4
4. These structural shifts have been accompanied by improved job opportunities for both
men and women. Several key changes have taken place in Bangladesh’s labor market since 2000,
including a gradual decline in the share of total employment in agriculture and strong employment
growth in urban areas. Successive labor force surveys confirm that three-quarters of the new jobs
added in Bangladesh between 2002/03 and 2013 were in the non-agricultural sector. Of the
estimated 14m net new jobs created over this period, 10.5m were outside agriculture; accordingly,
the share of the workforce engaged in agriculture fell from 52 percent to 45 percent, while that in
manufacturing rose from 14 to 21 percent. One-half of the net increase in total employment was
due to women’s increased participation in the workforce: the total number of employed women
increased sharply from 9.8m in 2002/03 to 16.8m in 2013 (Figure). The gender gap in labor force
participation rate narrowed, particularly amongst lower age-cohorts, as did the gender gap in wages.
5. Bangladesh has made good use of the deep and elastic demand offered by the global
economy to expand job opportunities in the manufacturing sector. The largely export-driven
readymade garment (RMG) sector in Bangladesh An equal number of men and women joined
has provided very good employment opportunities Bangladesh’s workforce between 2002/03 and 2013
for young women and contributed to their 60
empowerment. While the manufacturing sector 16.8

Aggregate employment
16.2
40 9.8 11.3
overall (i.e., RMG and other industries) continues
(million)
to employ more men than women, the number of
jobs for women in the sector more than doubled 20 36.1 37.9 41.2
34.5
between 2002-03 and 2013. Bangladesh is now the
world’s second largest exporter of readymade 0
2002-03 2005-06 2010 2013
garments after China, making it unique among Men Women
low-income countries in its high share of Source: Labor Force Surveys, various rounds. BBS.
manufactured goods in exports. The share of exports in GDP has more than trebled since 1981. In
FY14, exports of the ready-made garment sector exceeded US$24 billion, and the sector employed
an estimated 4m workers, mostly women, many of whom were from poor rural areas. The potential
rewards of continued export-led job creation and growth are extremely high: if Bangladesh were to
capture 20 percent of China’s current garment exports, its total exports would more than double,
creating millions of new jobs in the economy.
6. Remittances from workers abroad have also emerged as a significant source of income.
In many areas of rural Bangladesh, remittance incomes from family members working abroad
represent both a significant proportion of household income as well as a substantial source of fund
inflows into the local economy. Agriculture is no longer the dominant source of income in rural
areas (Ahmed, forthcoming); instead, rural households now draw a substantially larger proportion
of their incomes from non-agricultural activities and transfers from both local and foreign migrant
workers. With an estimated 8m citizens working abroad, overseas remittances to Bangladesh
exceeded US$14 billion in 2013-14 (FY14), equivalent to about 8 percent of GDP, or nearly double
the share a decade ago. That said, while Bangladesh is among the world’s top ten remittance
receiving countries, it has the lowest remittance per worker amongst this group because of the low
level of education and skills of the typical migrant worker.

TRIPLE PAYOFF: FASTER GROWTH, FEWER POOR, BETTER HUMAN DEVELOPMENT

7. Bangladesh is among the select group of countries worldwide that have recently
experienced both faster growth as well as a modest decline in inequality. GDP growth has risen

5
from an average of 4.7 percent per annum in the 1990s to 5.6 percent in the 2000s, and to over 6
percent since 2010 (figure). Higher labor incomes and rising remittances have been extremely
important drivers of broad-based growth. Inequality in rural areas, where about 70 percent of
Bangladesh’s population resides, remained more or less unchanged between 2000 and 2010 while
inequality in urban areas trended downwards. With a Gini index of per capita consumption of about
0.3 at the national level, inequality in Bangladesh is lower than in Nepal, India, Sri Lanka,
Indonesia, and most other East Asian countries. Thanks to its much-improved economic
performance since 2000, poverty projections indicate Bangladesh has surpassed the Millennium
Development Goal of halving the incidence of extreme poverty between 1990 and 2015. Between
2000 and 2010, the number of poor based on the national poverty line fell by more than 17 million,
compared to a decline of less than one million between 1991-92 and 2000, making this decade the
most remarkable period in its history in terms of fastest-ever growth and poverty reduction.
GDP growth rate and pace of poverty reduction has picked up appreciably since the 2000s
7 75
Growth rate (% 5-year moving average)

Poverty Headcount Rate (percent)

65
5
55
4
45
3

2 35

1 25

0 15
FY92 FY94 FY96 FY98 FY00 FY02 FY04 FY06 FY08 FY10 FY12 FY14 1980 1985 1990 1995 2000 2005 2010 2015 2020

GDP Growth Per-capita GDP Growth National Poverty Line PPP$1.25 Poverty Line

Note: Poverty estimates based on HIES data except those for 2015 which are based on projections).

8. Significant achievements in human development over the years have contributed towards
improving labor market prospects for workers, which in turn have spurred demand for
education and skills. Bangladesh is world-renowned for its non-governmental organizations
(NGOs) like BRAC and ASA, and microfinance institutions like the Grameen Bank, which have
pioneered innovative mechanisms to provide services to the poor. The country has made
remarkable progress in improving human development indicators, including life expectancy,
fertility, infant and child mortality, education, immunization rates, and sanitation. Successive
governments have exhibited willingness and flexibility to work with NGOs to experiment with
community-based approaches to service delivery, and have achieved notable successes in several
areas. In 1991, the educational attainment of Bangladeshi women was among the lowest in the
world (80 percent illiteracy, 33 percent secondary school enrollment). However, through massive
expansion of schools, targeted stipends to bring the poorest and girls into schools, and continued
investments in education, female primary school enrollment rates are now higher than those in
Pakistan, Nepal, and Bhutan, and about the same as in India. This has helped set in place a virtuous
cycle in Bangladesh whereby better-educated women now have significantly better labor market
prospects than before, and increased labor force participation by women in turn leads to better
human development outcomes as well as higher demand for more and better education and skills.2

2 The vast majority of Bangladesh’s RMG workers are rural women, who were introduced to formal employment through
this sector (Afsar 2001, Kabeer and Mahmud 2004). Increased employment helped improve several key outcomes,
including women’s bargaining power within the household, fertility choices, and investments in children’s education
(Kabeer 2001, Hossain 2012, Heath and Mobarak 2014). Heath and Mubarak (2014) estimate that about 15 percentage

6
 Significant Poverty Reduction Challenges Still Remain
Despite Bangladesh’s noteworthy development achievements, many Asian countries have done much better since
1980 (see Table below) and so Bangladesh remains one of Asia’s poorest countries, with constrained public services
and comparatively weak institutions. Moreover, even if its economy were to continue to grow as rapidly as it has since
2000—i.e. much faster than it ever has before—simulations indicate that the poverty rate in the country would fall to
15-20 percent by 2030—good progress indeed, though nevertheless still well short of what is required to eliminate
extreme poverty by 2030. In 2010, 31.5 percent of Bangladesh’s population (around 48m people) lived below the
national poverty line; about 45 percent still did not have access to electricity. Today, pockets of high poverty persist
across the country, particularly in places with poor infrastructure and where the population has low human capital and
skills. Despite good progress with poverty reduction and other MDGs, Bangladesh’s under-nutrition burden is one of
the highest in the world. Interventions to increase access to water and sanitation, better rural road connectivity, and
improved social services remain very important for poor people.
While Bangladesh has done well, many other countries did much better over the same period
GDP per capita (current US$) GNI per capita (Atlas method, current US$)
1980 2013 % (annual) 1980 2013 % (annual)
China 193 6,992 11.5 220 6,740 10.9
South Korea 1,778 25,998 8.5 1,900 25,870 8.2
Sri Lanka 273 3,281 7.8 280 3,180 7.6
Indonesia 529 3,624 6.0 500 3,740 6.3
India 272 1,455 5.2 280 1,530 5.3
Philippines 685 2,788 4.3 700 3,300 4.8
Bangladesh 223 954 4.5 220 1,010 4.7
Pakistan 303 1,282 4.5 350 1,360 4.2
Source: World Development Indicators (accessed on October 20, 2015).
Despite encouraging recent developments in the labor market, nearly half of all workers remain in agriculture, and an
overwhelming majority still languishes in the informal sector. Unemployment rates are higher among the youth
compared to the overall population. While rural areas continue to account for the bulk of the poor, the share of the
poor population living in urban areas has been
increasing over the past two decades, as more people Considerable spatial variation in poverty incidence
move from rural areas in search of better employment
and income generating opportunities. In 1991, the
urban poor accounted for 10 percent of the national
poor population; in 2000, this share had risen to 14.4
percent, and further to 17.7 percent by 2010. Between
1991-92 and 2010, the number of poor people residing
in urban areas increased by 2.1 million; by contrast,
the total number of rural poor declined by 17 million
over the same period. Rapid urbanization has
adversely impacted economic performance and
general livability of urban settlements. In Dhaka
alone, an estimated 3m people live in urban slums,
where the standard of living and environmental
conditions are generally worse than in rural areas.
Despite Bangladesh’s relatively compact land area,
upazila-level poverty maps reveal considerable spatial
variation in poverty incidence. Mapping the results of
a recently concluded exercise to prepare more
disaggregated poverty estimates reveals considerable
variation in poverty incidence within each division
(see adjacent Figure). For instance, while the poverty
rate in the five poorest upazilas in Rangpur division is more than twice as high as the national average, the poverty
rate in the ten richest upazilas is lower than the national average. Similarly, poverty incidence in selected upazilas in
the ecologically-vulnerable southwest region are much higher than the national average.

point of the national gain in girls’ school enrollment rate can be attributed to the growth of the RMG industry since rural
families kept girls in school due to cognitive skill requirements of garment industry jobs.

7
9. As highlighted in the Seventh Five Year Plan background paper on ending extreme poverty,
the agricultural labor market in Bangladesh tightened significantly in the decade of 2000s,
which led to an increase in the real agricultural wage rate. Three main channels were the primary
contributors: (a) relocation of farm labor to rural non-farm sectors; (b) relocation of rural labor to
urban activities through the “pull effects” of urbanization, creating employment opportunities for
the extreme poor in labor-intensive construction and transport activities; and (c) jobs for the poor
created in the manufacturing sector. Robust inflows of remittances from overseas workers
contributed to spurring the creation of non-farm employment opportunities in rural areas.

MORE AND BETTER JOBS ARE NEEDED FOR FASTER PROGRESS ON TWIN GOALS
10. Looking ahead, accelerating the ongoing employment shift of casual workers and small
farmers engaged in agriculture into salaried employment in more dynamic and remunerative
sectors of the economy offers by far the most promising exit out of poverty. Jobs are atop the
development agenda for both citizens and policy makers in Bangladesh. The labor force is growing
by 3.1 percent per annum—1.3 times the South Asian average and 1.7 times the global average—
and 21m people are projected to enter the workforce between 2015 and 2025. Nearly one-half (45
percent) of the country’s estimated 58m workforce is engaged in the agricultural sector, which
contributes about one-fifth of GDP. About 34 percent is employed in the services sector, which
contributes about one-half of GDP; the rest—i.e., 20 percent—works in the industrial sector, which
contributes over 30 percent of GDP. Gross output per worker is thus nearly four times as high in
industry and services compared to agriculture.
11. Given the importance of creation of more and better jobs in the Bangladeshi
context, the main role of public policy should be to help ensure that the conditions are in
place for strong private sector led job creation and growth, to understand why there are not
enough good jobs, and to remove or mitigate the constraints that prevent the creation of
more of those jobs. The Bangladesh Systematic Country Diagnostic (SCD; see Box)
classifies priority areas for action into two main groups: (i) foundational priorities—i.e.,
those which are pre-requisites for faster job creation and growth, and (ii) key public policy
areas where concerted action over the next 3-5 years could have a transformative impact
on the pace of progress towards eliminating poverty and boosting shared prosperity.
What is an SCD?
Two years ago at the 2013 Spring Meetings in Washington DC, the Board of Directors of the World Bank Group
representing its 188 member countries endorsed ambitious goals to end extreme poverty and promote shared
prosperity. The first goal is a global target of reducing the extreme poverty rate – i.e., the percentage of people living
on less than $1.25 per day in purchasing power parity (PPP) adjusted terms – to 3 percent by 2030. The second goal
is a country level target to promote shared prosperity – i.e., to foster income growth of the bottom 40 percent of the
population in every country.
This Systematic Country Diagnostic (SCD) aims to identify key priorities for Bangladesh to reduce extreme poverty
and boost shared prosperity. In line with the World Bank Group’s new country engagement model, the findings of
this SCD will provide inputs for the preparation of an upcoming Country Partnership Framework, which will outline
the WBG’s engagement to help Bangladesh achieve these twin goals.

12. This report identifies five key areas where concerted efforts over the next 3-5 years could
have a transformative impact on accelerating the creation of more and better jobs: (i) energy,
(ii) inland connectivity and logistics, (iii) regional and global integration, (iv) urbanization, and (v)
delta management. Broad consensus already prevails among key stakeholders in Bangladesh on the
importance of each of these areas, as evidenced by the high priority accorded to them in the

8
government’s latest Five Year Plan as well as the support voiced for each of these in the public
consultations carried out across different parts of Bangladesh as part of the SCD preparation
process. This report goes beyond presenting just a diagnostic per se, and also includes a number of
recommendations and suggestions on how best to tackle these challenges.
13. An extensive body of work clearly shows how access to infrastructure in Bangladesh is an
important determinant of both agricultural and non-farm incomes in rural areas. To date,
Bangladesh has largely neglected investment in infrastructure. Public investment in (hard)
infrastructure was less than 2 percent of GDP, and it lags far behind its regional competitors in
infrastructure quality (Table). By contrast, total investment in hard infrastructure in China,
Thailand, and Vietnam exceeded 7 percent of GDP. Those countries also invested another 7-8
percent of GDP in education, training and health. Unless infrastructure bottlenecks in Bangladesh
are addressed in a timely manner, they risk becoming increasingly important constraints limiting
future growth prospects. WBG estimates indicate that reaching sustained 7.5-8.0 percent growth
rates will require significant increases in investment to at least 33 percent of GDP, including an
increase in infrastructure investments to around 10 percent of GDP per year.
Infrastructure Quality in Bangladesh Lags Behind its Regional Competitors
Country Infrastructure
Country Electricity Roads Railroad Port
Ranking Score (Overall)
China 46 4.7 5.2 4.6 4.8 4.6
Thailand 48 4.6 5.1 4.5 2.4 4.5
Sri Lanka 75 4.0 4.8 5.1 3.7 4.2
Vietnam 81 3.7 4.2 3.2 3.0 3.7
India 87 3.6 3.4 3.8 4.2 4.0
Cambodia 107 3.1 3.0 3.4 1.6 3.6
Pakistan 119 2.7 2.1 3.8 2.5 4.4
Bangladesh 127 2.5 2.5 2.9 2.4 3.7
Myanmar 137 2.1 2.8 2.4 1.8 2.6
Source: World Economic Forum, Global Competitiveness Report 2014-15; Ranking out of 144 countries.

1. THE ENERGY SECTOR

14. Even though electricity generation capacity has doubled since 2009, Bangladesh continues
to need more electricity for its development. In July 2015, Bangladesh generated 7,923 MW of
electricity from an installed capacity of 11,532 MW (excluding captive power), a quantity that is
inadequate to sustain middle- or high-level economic activity for a nation of almost 160m people.
At the same time, only 72 percent of the population had access to electricity, and per-capita
electricity consumption of 348 kWh per year was one of the lowest in the world. In light of these
basic facts, the availability and reliability of power is a key concern for businesses: surveyed on
15 factors that comprise the business environment, Bangladeshi firms rated electricity second
highest as a constraint to their operations (after political instability, and– ahead of finance and
corruption). More specifically, 28 percent of firms surveyed identify electricity as their top obstacle
and 52 percent identify it as a major constraint to doing business. In the 2014 Doing Business report,
Bangladesh was also ranked the lowest out of 189 economies on the "Getting Electricity" indicator.
Domestic firms face ten times as many outages in a typical month as the average for all countries
for which Enterprise Survey data are available, and five times as many as the average for low-
income countries. There was a 22 percent shortfall in meeting peak capacity in FY13, and 13
percent in non-peak demand. At the same time, energy demand is projected to rise nearly five-fold
to over 190 TW hours by 2030.

9
15. Gas is critical for the power sector in Bangladesh, since it fuels 70 percent of generation.
However, World Bank estimates suggest that domestic gas production will peak at 3,000 mmcfd in
2017 and then begin to decline. Exploration of additional domestic gas is now a priority,
particularly offshore. In the meantime, LNG imports will likely be required soon to fuel existing
gas-fired plants as well as those under construction. Given Bangladesh’s over-reliance on natural
gas, power supply diversification is also a key need. Other issues facing the power sector include:
(i) the dual challenge of massive investment in new capacity while simultaneously facing an
increasing cost of supply; (ii) enhancing private sector investment (despite early success in
attracting private investors, only one new large independent power producer has started operation
in Bangladesh in the last decade); (iii) raising current end-user gas prices to parity with prices in
neighboring countries and regional benchmarks (currently they are well below parity); and (iv)
managing the increase in fuel oil use by rental power plants and independent power companies,
which has resulted in a nearly three-fold increase in the average cost of power supply (a cost that
has not been fully passed on to consumers).
16. Chapter 3 of this report provides a number of specific suggestions and recommendations on
priority actions for the energy sector to support Bangladesh achieve sustained growth, enhance
access for the forty percent lacking power, and contribute to faster poverty reduction.

2. INLAND CONNECTIVITY AND LOGISTICS

17. Bangladesh needs to accelerate the economic transformation of its rural areas; and
improving connectivity is key. There is a wealth of evidence on the role of improved inland
connectivity on raising agriculture productivity, promoting the movement of the workforce from
farm to non-farm employment, and reducing poverty. Research using household-level panel data
shows rural road investments in Bangladesh have reduced poverty significantly through higher
agricultural production, higher wages, lower input and transportation costs, and higher output
prices, and also led to higher girls' and boys' schooling. 1 Adequate attention to ensuring this
network is properly maintained and developed and further integrated with the larger transport
network remains an important public policy priority. In particular, Bangladesh needs to move away
from the “build, neglect, rebuild” mindset, and instead ensure enough funding is available for
maintenance. In addition to investments in rural roads, the country also needs to improve east-west
connectivity, particularly connecting the southwest to Dhaka.
18. In addition, Bangladesh can enhance its international competitive edge by improving
logistics. High logistics costs are an implicit tax that biases the economy away from exports, and
limit access to imported inputs and final goods. There is significant evidence on the impact of
logistics costs on trade. Chittagong port, which handles nearly 85 percent of the country’s
merchandise trade, is plagued by labor problems, poor management and lack of modern equipment,
and is the only major port in South Asia that has not implemented the landlord port model.
Similarly, railway and road networks connecting the ports with hinterland are underdeveloped and
beset with logistical problems that impose significant costs on firms. Air transport is also
inefficient, due to congestion and lack of capacity at the air terminal. The Dhaka-Chittagong
corridor is Bangladesh’s most important trade link, but it is extremely congested and its current
performance hinders export growth. The government’s role in the transport sector is worth
reviewing, particularly regarding logistics services. Finally, as the report argues, Bangladesh
should improve physical connectivity with India, but priority should be to remove the policy
constraints to seamless cross-border movement of cargo.

10
3. REGIONAL AND GLOBAL INTEGRATION
19. Export-led growth has served Bangladesh well; there remains significant potential for
further expansion in this crucial area. An extensive body of evidence has documented the
benefits that accrued to Bangladesh’s economy from trade liberalization in the 1990s. There is,
however, still a large unfinished trade reform agenda. Thus far, Bangladesh’s strong success in
exports has primarily been based on low-skill, low-wage-based competitiveness in garments, which
dominate the export basket. However, this strategy does not guarantee continued growth in exports,
given the pressures of global competition and the possible emergence of future competitors with a
better wage-productivity combination. The example of Vietnam shows the benefits of accelerated
export-oriented development, moving in the space of 25 years from being one of the poorest
countries in the world to a lower-middle income one, with FDI and trade playing a dominant role
in the economy: exports and imports each form 90 percent of GDP, with exports more than seven
times as much per capita as Bangladesh today. Bangladesh is well placed to expand manufacturing
exports given its geographic proximity to two of the world’s most populous countries, as well as
other fast-growing economies. Finally, attracting more FDI in the country would help upgrade
technology and improve export market linkages, thereby improving upon an area where Bangladesh
has had only limited success to-date.
20. Bangladesh needs an export-led strategy that builds on existing labor-embedded exports
and focuses on diversifying products, skills, and markets. Faster export growth will require both
consolidating on strengths in RMG through further expansion and moving to higher-value
garments, as well as a gradual diversification into other manufacturing areas such as pharmaceutical
products, non-leather footwear, light-engineering goods, and ship-building, plus other areas such
as information technology and IT-enabled services.2 As elaborated later in this report, the 2013
Diagnostic Trade Integration Study outlines a four-pronged strategy to enhance the integration of
Bangladesh’s economy with regional and global markets: (i) breaking into new markets through
better trade logistics and exploitation of regional trading opportunities, (ii) breaking into new
products through a more neutral and rational trade policy, concerted efforts to spur private
investment, and strategic development and promotion of services trade, (iii) improving worker and
consumer welfare, and (iv) building a more supportive environment for export growth, including
strengthening the institutional capacity for strategic policymaking aimed at increasing international
competitiveness and bringing focus and coherence to the government’s reform efforts.

4. URBANIZATION
21. Urban population growth in Bangladesh has recently been faster than in most other South
Asian countries, with employment opportunities being by far the most important attraction for
incoming migrants from rural areas and other smaller urban settlements. It is well known that urban
density can help businesses to prosper, as long as the agglomeration advantages of network effects
and economies of scale outweigh the disadvantages of congestion, pollution and other negative
externalities. As noted earlier, export-led growth has been a powerful engine for job growth in
Bangladesh’s urban areas. The “pull effects” of export sector jobs in urban areas have also created
additional employment opportunities for the poor in construction and transport, which have been
powerful drivers of poverty reduction. But the adverse consequences of rapid urbanization, such as
the fast-deteriorating living conditions, are now becoming prominent and need to be addressed:
UNESCAP estimates indicate that about 70 percent of the urban population in Bangladesh lives in
slums (twice as high as India), with poor quality housing that is often located in precarious areas.

11
In addition, improving urban transport in response to increasing congestion has emerged as a key
challenge. Both economic performance and general livability of urban settlements has been
adversely impacted due to inadequate and poor quality of urban transport infrastructure and
services. Developing transport systems requires policy and institutional reforms to ensure better
planning, and coordination among the various government departments and agencies entrusted with
their completion. Institutional development programs are required to re-align institutions to urban
transport functions and strengthen their capacity.
22. Improved municipal governance and revenue enhancement will be key to improve
productivity, livability, and inclusiveness of urban settlements. Municipal governments in
Bangladesh are heavily dependent on central government grants, which account for over 85 percent
of their development expenditures. The financial resource for urban development is very limited:
less than 1 percent of GDP is spent on urban infrastructure development, compared to about 4
percent in China during the 1990s when urbanization was comparable to Bangladesh’s current rate.
Even much more developed cities like New York budget 5 percent of their GDP to urban
development. As argued later in this report, local governments in Bangladesh should be granted
greater financial autonomy and responsibility. Moreover, the current municipal service provision
models are worth reviewing, especially service providers’ institutional capacity and performance.
Finally, a key public policy priority is to increase the economic density of Dhaka, which currently
accounts for over one-third of Bangladesh’s GDP, as well as of other urban areas across the country.

5. ADAPTIVE DELTA MANAGEMENT

23. Bangladesh’s major rivers and its long shoreline on the Bay of Bengal have shaped its
comparative advantage and determined the location, nature, and pace of its development.
The rivers have conferred unquestionable benefits to transport, trade, agriculture, and livelihoods,
but also pose significant risk through recurrent floods, erosion and water pollution. The long
coastline has enabled sea-bound trade and created opportunities for Bangladesh to be a
transportation hub for countries in its hinterland—including particularly northeast India, Nepal,
Bhutan and southwest China—but it has also brought the risk of cyclones, storm surges and
tsunamis, saline intrusion, and incessant hydromorphic modification of coastal land areas.
Moreover, the associated risks will grow greater with climate change, raising the frequency and
severity of extreme events. In fact, in 2014, Bangladesh was ranked the most climate-vulnerable
country in the world. For Bangladesh, growth will be sustainable only if it accompanied by better
resource management and particularly adaptive delta management: the threats to the Ganges-
Brahmaputra-Meghna delta, which covers about 100,000 sq. km in Bangladesh and West Bengal
in India, are existential, particularly when they are exacerbated by climate change, and so adaptive
delta management should be integrated in all aspects of planning and sector development—
including agricultural practices, water supply and sanitation, the placement of energy and transport
infrastructure, and indeed the location of all public and private infrastructure.3
24. Although increased investment in infrastructure for land and water management has
reduced vulnerability in rural areas in recent years, strengthening and expanding existing
delta infrastructure is needed to reach optimal levels of resilience. To this end, the government
is preparing the Bangladesh Delta Plan 2100, an integrated and holistic long-term plan to ensure

3Even though Bangladesh’s response to these challenges has achieved some encouraging results, strengthening and
extension of the current delta-infrastructure is required to protect the population, economic assets and future investments.

12
safe living and sound economic development in Asia’s largest and the world’s most populated delta
country. A key aspect of this endeavor will be the adoption of an adaptive delta management
approach to enable robust decisions to be made that affect all aspects of life and livelihood
development, based on several future scenarios. Adaptive delta management will help to ensure
that investments in all sectors anticipate long-term uncertainties in climate change and socio-
economic growth, and limit over- or under- investment. In addition, it is particularly important (i.e.,
in terms of making prudent decisions on resource allocations) that impacts on long-term
developments like climate change and socio-economic growth are fully integrated into delta
management and development planning more generally.
25. One sector that is particularly sensitive to the successes and failures of delta management
is agriculture. Since nearly half of the labor force in Bangladesh continues to be employed in
agriculture, and much of that labor force is poor, for poverty reduction to continue in Bangladesh
delta management needs to continue to support higher land productivity, crop diversification, and
reduced vulnerability. Bangladesh has recently done remarkably well in agricultural productivity
growth – largely on account of technical change. Key drivers have been liberalization of input
markets, adoption of modern varieties, increasing use of machinery, greater access to markets and
price hike of agricultural products. Looking ahead, a top priority for Bangladesh is to shift away
from a relatively narrow focus on staple crop productivity towards meeting the fast-growing
demand of Bangladeshis for a more diverse, sophisticated, and nutritious diet. There is significant
potential to further increase productivity and incomes in agriculture while making it more climate
resilient and nutrition-sensitive. An important part of the economic and ecological sustainability is
to assist farmers in improving the effectiveness in the use of inputs. Farm level evidence shows that
a large share of farmers are overusing fertilizers (well beyond technical recommendation levels,
and to the point of not yielding any additional output). In addition to increased agricultural
productivity and diversification, the main drivers of growth in the rural non-farm sector will likely
remain connectivity and proximity to urban areas.

FOUNDATIONAL PRIORITIES:
26. The previous section discussed five areas (energy, inland connectivity, trade integration,
urbanization, and delta management) where sustained achievement in addressing bottlenecks could
result in transformational growth of 8% or more, creating more and better jobs and lifting greater
numbers out of poverty. But growth and job creation also depend critically on Bangladesh
sustaining and extending its achievements in establishing the foundations for growth. These
foundations include (i) maintaining sound macroeconomic management, (ii) consolidating and
deepening its exemplary achievements in human development, and (iii) further expanding a
supportive environment for increased private investment. In each of these areas, Bangladesh has
done well in the past, but past success cannot be taken for granted or expected to continue without
effort, and so these areas will continue to require sustained policy attention.
27. Strong Macroeconomic Fundamentals: In achieving and sustaining increasing levels of
growth over the past few decades, Bangladesh has benefited from generally prudent management
of fiscal and monetary policy, and the resultant macroeconomic stability it has generated. Looking
ahead, this solid foundation needs to be strengthened and deepened. Key macroeconomic
management challenges for the government include strengthening the tax system, both policy and
administration-related aspects, to make it more efficient, transparent, and fair, improving the health
of the financial sector and enhancing financial intermediation, and better implementation of the

13
Annual Development Program. Successful implementation of the 2011-2016 Tax Modernization
Plan, through which the government plans to increase tax collection by about 3 percent of GDP,
will be key to providing the additional public resources to spur growth, especially much-needed
investments in infrastructure, as will improvements in the income tax and customs code to enhance
equity and efficiency. Improved performance of state-owned commercial banks is also important
and can be achieved in part by implementing the Action Plan the government has developed with
IMF support. Finally, improved public investment management is needed to strengthen the link
between government policy priorities and resource allocation, and in turn between resource
allocation and performance.
28. Human Development Challenges: While Bangladesh has had remarkable success in
enhancing access and equity in education, striving to universalize access for the remaining hard-
to-reach children is an important policy imperative. Notwithstanding notable achievements in
nearing universal access to primary education, attaining gender equity at the primary and secondary
education levels well ahead of the MDG target for 2015, marked reduction in repetition and dropout
rates, and reasonably high levels of completion in primary education, gross enrollment rates of the
poor lag those of the non-poor. Out of 10 primary students who enter school in Bangladesh, only
about 7 or 8 students reach grade 5, and only 5 reach grade 10. Children living in urban slums in
particular suffer from both demand and supply-side constraints.
29. Improving skills and productivity are crucial to Bangladesh’s quest to accelerate economic
growth and create more and better jobs in the formal sector for its expanding workforce. Ensuring
further improvements in the quality of education can help propel the economy into the next phase
of higher productivity-led growth. International experiences show that improvement in quality of
education has a much larger impact on economic and social development than increases in access
without increases in quality. Yet learning achievements continue to be quite low in Bangladesh: for
instance a recent assessment of literacy and numeracy in grade 5 indicates that only 25 and 33
percent of grade 5 students master Bangla and Mathematics competencies, with students from poor
households generally doing much worse. Learning inequities begin early, and continue throughout
students’ lifetimes. Nearly 90 percent of the labor force in Bangladesh is informal and has low
levels of education and less than 5 percent of the current workforce has tertiary education. Due to
lack of standards and limited partnerships with the active labor market, technical and vocational
education and training and the higher education system in Bangladesh are not equipped to respond
to changes in demand and quality standards both in the domestic labor market and overseas where
the vast majority of Bangladesh’s emigrant workers are employed in low-skilled jobs.

14
30. Institutions and Business Environment: Bangladesh has experienced a variety of forms of
government since its independence in
1971, including military rule. Following
the reintroduction of the parliamentary
system in 1991, power has, until
recently, alternated between the two
main political parties, the Awami
League and the Bangladesh Nationalist
Party. While successive governments
have generally exhibited strong
commitment to poverty reduction and
human development, divisive and
confrontational politics have created
policy uncertainty and hampered efforts to address critical problems requiring long-term
engagement. A comparative analysis of the Bangladesh Enterprise Surveys in 2007 and 2013
reveals that political instability has secured the position of top-most concern of businesses (figure).
Looking ahead, many Bangladeshi institutions are not adequately equipped to address key
challenges the country faces as it fast approaches middle income status, as they were established
when it was at much lower levels of income. Stronger public sector institutions are needed to
manage Bangladesh’s larger and more complex economy. Moreover, accelerating
economic progress will require going into a more complicated phase of reforms that
address a whole range of factors adversely affecting investment incentives and production
efficiency, including corruption. Difficulties faced by investors in gaining access to
serviced land is one of the key such obstacles and constraints impeding higher private investment.
31. This SCD aims to identify why there are not enough good jobs in Bangladesh, what
conditions would help to promote strong private-sector-led growth and job creation, and
what can be done to remove or mitigate the constraints that prevent those conditions from
obtaining. To this end, it divides priority action areas into two main groups: (i) foundational
priorities, which are pre-requisites for faster growth and job creation, and which Bangladesh has
addressed reasonably well in recent years; and (ii) transformational areas, where concerted action
over the next 3 to 5 years could have a transformative impact on the pace of progress towards
eliminating poverty and boosting shared prosperity—but also where Bangladesh has tended to lag
behind its Asian peers. These latter include (i) energy, (ii) inland connectivity and logistics, (iii)
regional and global integration, (iv) urbanization, and (v) delta management. Key stakeholders in
Bangladesh already largely agreed on the importance of each of these areas, and they feature
prominently in the government’s Seventh Five Year Plan (completed in 2015). The remaining
sections of this SCD delve into each of these foundational and transformative areas in greater detail,
presenting not only a diagnostic of each area but also suggestions on how best to tackle the
challenges identified.

15
 1. INTRODUCTION AND OUTLINE
1.1 Rationale and Main Objectives
1.1 Two years ago at the 2013 Spring Meetings in Washington DC, the Board of Directors
of the World Bank Group representing its 188 member countries endorsed ambitious goals
to end extreme poverty and promote shared prosperity. The first goal is a global target of
reducing the extreme poverty rate – i.e. the percentage of people living on less than $1.25 per day
in purchasing power parity (PPP) adjusted terms – to 3 percent by 2030. The second goal is a
country level target to promote shared prosperity – i.e. foster income growth of the bottom 40
percent of the population in every country (Figure). Since 6 percent of the world’s poor live in
Bangladesh, good progress here will be very important to attain the first WBG goal. Both goals are
also highly relevant for the country: in 2010 over two-fifths of Bangladesh’s population lived in
extreme poverty (i.e. below $PPP1.25 per person per day): thus in the short run a focus on ending
extreme poverty is the same as that on promoting shared prosperity—the two goals come together.
Ending Extreme Poverty Promoting Shared Prosperity

Twin
WBG
Goals

Reduce Extreme Poverty to 3 percent or less by 2030 Improve Income Growth of the Bottom 40 percent

1.2 The main objective of this Systematic Country Diagnostic is to help identify the most
critical constraints and opportunities facing Bangladesh as it works to end poverty and boost
shared prosperity. In addition to serving as a public good for the government, civil society,
research and academic community, and local and international development partners, the findings
of the SCD will be used as key inputs in the preparation of the WBG strategy, the Country
Partnership Framework, which will outline how the Bank Group’s engagement in Bangladesh can
best contribute towards achieving the twin goals. The report draws upon wide-ranging analysis
carried out on Bangladesh not just by the World Bank but also by other institutions and individuals,
including the various background papers commissioned by the Planning Commission for the
Seventh Five Year Plan. A series of consultations were also conducted for the SCD in November
2014 to solicit views of different stakeholders, and to help validate the main findings of the report.

1.2 Country Context and Development Achievements

1.3 Situated in a fertile low-lying river delta at the confluence of the mighty Jamuna, Padma,
and Meghna rivers, Bangladesh combines high vulnerability to floods, tropical cyclones,
earthquakes, and climate change with one of the world’s highest population densities, with around
159 million people living in less than 150,000 sq. km. The Sundarbans mangrove forest covers
about 6,000 sq. km. of southwest Bangladesh, while some hilly tracts flank its northeastern and
southeastern borders with India and Myanmar. The salinity-prone southern region, whose 710 km
coastline includes the world’s longest unbroken natural beach in Cox’s Bazaar, provides around 30
percent of its total cultivable land. About 31 percent of Bangladesh’s population resides in urban
areas; about 5 percent lives in the national capital Dhaka and around 2 percent in Chittagong, the
main port city. However, the country’s high population density means that the distinction between

17
urban and rural areas is often quite fuzzy; cultivable landholdings are small (0.7 acres on average),
and even households living in exclusively rural localities rely on non-farm incomes for their
livelihood, particularly during the two lean seasons (September to mid-November and mid-January
to February) when many rural residents move to other nearby areas in search of work.

1.4 Bangladesh has experienced a variety of forms of government since its independence.
The Awami League (AL) and Bangladesh Nationalist Party (BNP) have largely dominated the
political landscape. Bangladesh returned to electoral democracy in 1991 after the fall of a military
government, following which the AL and the BNP have rotated power through mostly free and fair
polls. Until 2014, elections since 1991 were held under a caretaker government system that was
adopted as part of the Constitution in 1996. In 2011, the ruling AL amended the Constitution,
abolishing the system of having a caretaker government to oversee national elections. Demanding
the restoration of the caretaker government provision, the opposition BNP boycotted the national
elections in January 2014. Consequently, largely unopposed, the Awami League won the election
for the second consecutive term. Whilst in power, both parties have generally exhibited strong
commitment to the country’s long-term development agenda, but its implementation has, at times,
been driven by short-term opportunistic decisions.

1.5 Bangladesh has proven to be remarkably resilient and developed well beyond
expectations at the time of its independence. The adverse impact of the protracted and deadly
war it experienced at its birth in 1971 was exacerbated by a devastating famine in 1974, with
estimates of losses due to starvation and disease ranging from 500,000 to 1.5m people. With the
world’s second lowest per capita income in 1975, the country was labeled “the test case for
development” in view of the formidable development challenges it faced. However, Bangladesh
has sustained accelerating growth for the past three decades, and has made excellent progress in
human development. It is world-renowned for its non-governmental organizations like BRAC,
ASA, and microfinance institutions like the Grameen Bank, which have pioneered innovative
mechanisms to provide services to the poor. Successive governments have exhibited willingness
and flexibility to work with NGOs to experiment with community-based approaches to service
delivery, and have achieved notable successes in several areas. Despite starting well behind India
in 1971, Bangladesh today, with less than 60 percent of India’s income per capita, ranks above it
in most human development indicators, as well as above many other low- and lower middle-income
countries with similar or better initial conditions at the time of its independence (Table 1.1).

Table 1.1: Social Indicators for Bangladesh and Comparator Countries

Low-income Lower middle-
Bangladesh India
Indicator countries income countries
1971 2013 1971 2013 1971 2013 1971 2013
GDP per capita (constant US$ 2005) [1971-2013] 304 713 272 1,164 376 402 441 1,202
Life expectancy (years) at birth [1971-2013] 47 71 50 66 46 59 52 67
Infant mortality rate [1971-2013] 149 34 141 41 151 56 129 43
Total fertility rate [1971-2013] 6.9 2.2 5.4 2.5 6.7 5.0 5.6 2.3
Mean years of schooling of adults [1985-2013] 2.4 5.1 2.4 4.4 2.3 4.0 3.1 5.4
DPT child immunization rates (%) [1985-2103] 2 95 18 83 28 77 25 82
Access to improved sanitation (%) [1991-2013] 36 59 17 39 13 27 30 51
Prevalence of undernourishment (%) [1991-2013] 33 17 24 15 40 27 25 14
Source: WDI (accessed on Oct 20, 2015). Mean Years of schooling: Barro and Lee (2013) UNESCO (2013b) and
HDRO estimates. Low and lower middle income groups comprise countries with per-capita GNI <$1,045 and $1,046-
$4,125 respectively in 2015.

18
1.6 Five striking achievements of Bangladesh since independence merit special mention:
 Improved food availability: thanks to uptake of high-yield varieties, improved availability of
fertilizer and other key inputs, and better irrigation, domestic rice production (the main food
crop) has risen from around 12.3m metric tons in the 1980s to 37.6m metric tons in 2014.3
 Stronger disaster-coping mechanisms, evidenced by reduced impact of recent storms, cyclones,
and floods; the government, with active community participation, has devised effective
strategies to mitigate their damage, including early warning and response systems and countless
cyclone shelters.4
 Development of the extensive rural road network built in the 1980s by the Local Government
Engineering Department, which blurred the rural-urban divide and helped develop a continuum
linking Dhaka, Chittagong, other secondary cities, towns, market centers, and villages.5
 Impressive achievements of the pro-active family planning program, which helped lower total
fertility from over 6 children per woman in the 1970s to 2.1 in 2011;
 Special initiatives taken to tackle gender inequality and promote women’s empowerment, 6
including a schooling system that expanded girls’ education, mobilization of women by NGOs,
and—more recently—their proactive recruitment by the fast-growing readymade garments
(RMG) industry.
Figure 1.1: Trends in GDP Growth Since 1985
7

6
Percent change (five-year moving average)

2010s
Average GDP Growth 6.3%
5 Per Capita growth 4.9%

2000s
3 Average GDP Growth 5.6%
Per Capita growth 4.2%
1980s 1990s
2 Average GDP Growth 4.7%
Average GDP Growth 3.7%
Per Capita growth 1.0% Per Capita growth 2.8%

0
FY85
FY86
FY87
FY88
FY89
FY90
FY91
FY92
FY93
FY94
FY95
FY96
FY97
FY98
FY99
FY00
FY01
FY02
FY03
FY04
FY05
FY06
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14

GDP Growth Per-capita GDP Growth

Source: World Bank staff estimates based on data from the Bangladesh Bureau of Statistics.

1.7 GDP growth in Bangladesh has accelerated during the past three decades. Annual
growth of gross domestic product (GDP) has risen from 3.7 percent in the 1980s to 4.8 percent in
the 1990s and 5.6 percent in 2000s, and over 6 percent since 2010 (Figure 1.1). Bangladesh’s gross
national income (GNI) per capita has grown more than tenfold, from around US$100 in 1972 to
US$1,314 in 2015, and is now poised to pass the threshold currently used to classify countries into
the middle-income country group. While growth in GNI in the 1980s and 1990s came almost
entirely from growth in GDP, remittances from workers abroad have emerged recently as a
significant source of income for Bangladeshis during the past decade (Figure 1.2).

19
 Figure 1.2: Increased Remittance Inflows
16,000
14,000
12,000
USD (million) 10,000
8,000
6,000
4,000
2,000
0
2000-01

2001-02

2002-03

2003-04

2004-05

2005-06

2006-07

2007-08

2008-09

2009-10

2010-11

2011-12

2012-13

2013-14
KSA U.A.E. UK Kuwait USA Qatar Oman Singapore Bahrain Malaysia Others
Source: Bangladesh Bank

1.8 Bangladesh’s economy has performed well over the past decade. Annual GDP growth
averaged about 6 percent (Figure 1.3), notwithstanding the adverse impacts of the global recession,
oil price rise, unrest in the Middle East (an important destination for migrants) and local natural
disasters. Several factors explain the resilience of the economy to global shocks, including strong
macroeconomic fundamentals at the onset of the crisis, strong growth of exports and remittances,
and relatively under-developed and insulated financial markets. Bangladesh’s exports have doubled
their world market share between 1995 Figure 1.3: Robust GDP growth over past decade
and 2012. The RMG sector has been a 7.5
7.1
key contributor, with its share of total 7.0 6.7
exports rising from 53 percent in FY95 6.5 6.5 6.5
6.5
to more than 80 percent in FY14. 6.0 6.0 6.1
6.0
Garments exports reached a high of 5.6
US$24.5 billion in FY14. Bangladesh is 5.5
5.0
now the world’s second largest garment 5.0
exporter, making it unique among low- 4.5
income countries because of the high
4.0
share of manufactured goods in its FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 F15*

exports (90 percent vs. ~20 percent in

Source: Bangladesh Bureau of Statistics. *Provisional
comparator countries in 2012). With an
estimated 8m citizens working abroad, overseas remittances exceeded US$14 billion in 2013-14
(FY14), equivalent to about 8 percent of GDP (i.e. nearly double their share a decade earlier). The
agriculture sector has also been a useful contributor to economic growth in Bangladesh, accounting
for nearly one-fifth of the higher output per worker in 2010 vs. 2000.

1.9 The country has achieved very good progress since 2000 in reducing extreme poverty
and boosting shared prosperity. Based on PPP$1.25 global poverty measure, the number of poor
in Bangladesh fell from around 77m to 65m—a drop of 12 million (Table 1.2)—at a rate that was
60 percent faster than in the rest of the developing world, excluding China. As elaborated later in
this report, Bangladesh is one of the few countries in South Asia where inequality fell between
2000 and 2010. Increases in the share of the working population along with rising labor incomes
were the two most important contributors to the decline in poverty over the past decade.

20
 Table 1.2: Recent Progress in Reducing Poverty: 2000 – 2010
Poverty line 2000 2010 Poverty Decline
Upper national poverty line 48.9 percent 31.5 percent 17.4 percentage pts.
(Tk. 1,600 per person per month) (65 million people) (48 million people) (17 million people)
Lower national poverty line 34.3 percent 17.6 percent 16.7 percentage pts.
(Tk. 1,300 per person per month) (45 million people) (27 million people) (18 million people)
International poverty line 58.6 percent 43.3 percent 15.3 percentage pts.
(PPP$1.25 per person per day) (77 million people) (65 million people) (12 million people)
Source: WBG staff estimates based on population data for Bangladesh from WDI (updated 04/14/2015).

1.10 Population growth has slowed considerably during the past thirty years, falling from
an average of 2.7 percent per year in the 1980s to around 1.4 percent in the 2000s.7 Consequently,
even though the country’s population increased by about 15 percent (19m people) between 2000
and 2010, the working age population rose even faster by 25 percent. The beneficial impact of
lower dependency rates was augmented by increases in women’s labor force participation rates,
which rose from 25 percent in 2000 to 34 percent in 2010. WBG estimates indicate that
demographic factors—i.e. changes in the age, gender, and regional composition of the workforce—
contributed at least 25 percent of the poverty decline. 8 This “demographic dividend” offers a
promising, albeit short and one-time, window of opportunity to enact policies and promote
investments to raise human capital and productivity of the expanding workforce.

1.11 Growth in labor incomes was an important contributor to the faster poverty
reduction observed over the past decade. Even though the 15+ years working-age population of
Bangladesh rose by more than 22m people between 2002-03 and 2013, the employment rate (i.e.
the share of employed among the working-age population) actually increased during the same
period (Table 1.3), testament to the strength of labor demand, which more than kept up with the
large increase in supply. Bangladesh underwent rapid expansion in job creation in industry and
services, which helped usher important structural changes in the economy, including a gradual
decline in the relative size of the agricultural sector and a corresponding rise in importance of the
services and industry sectors. This structural shift was also accompanied by movements away from
daily and self-employed work towards increased salaried employment.

Table 1.3: Size and Composition of the Working-Age Population

2002-03 2005-06 2010 2013
Total population 15+ years of age (millions) 80.9 84.6 95.6 103.3
Inactive (not in the labor force) (millions) 34.5 35.1 38.9 42.6
Economically active (million) 46.4 49.5 56.7 60.7
Employed (million) 44.3 47.4 54.1 58.1
Unemployed (millions) 2.1 2.1 2.6 2.6
Employment rate (percent) 54.8% 56.0% 56.6% 56.2%
Source: Labor Force Surveys, various rounds. Bangladesh Bureau of Statistics

1.3 Climate Change-Related Challenges

1.12 Bangladesh’s location at the tail-end of the Ganges-Brahmaputra-Meghna delta
renders it especially vulnerable to the adverse impacts of climate change. Two thirds of the
country is less than five meters above sea level, hence susceptible both to sea level rise and tidal
flooding during storms (Box 1).9 Climate change will cause significant changes in river salinity in
the southwest coastal area by 2050, and will like lead to significant shortages of drinking water in
the coastal urban areas, scarcity of water for irrigation for dry-season agriculture, and significant
changes in the coastal aquatic ecosystems.10 By 2050, estimates indicate that the number of poor
affected will increase by between 2.9 million and 5.2 million, depending on the scenario.11

21
 Box 1: Climate Change in Bangladesh - Today and Tomorrow
The Global Climate Risk Index 2010, covering the period 1990 – 2008, assesses Bangladesh as the most
vulnerable country to extreme climate events; it estimates that, on an average, 8,241 people died each
year in Bangladesh while the cost of damage was US $ 1,189 million per year and loss of GDP was 1.8%
during the period. According to the Ministry of Environment and Forests, the country currently loses
1.5% of its GDP due to increased frequency and intensity of natural disasters as a result of climate change.
The climate of Bangladesh can be characterized by high temperatures, heavy rainfall, high humidity, and
fairly marked three seasonal variations like Hot Summer, Shrinking Winter and Medium to Heavy Rains
during the Rainy season. The likely implications for Bangladesh due to climate change include:
Sea Level Rise (SLR) and Coastal Inundation: Bangladesh is vulnerable to current coastal hazards and
anticipated Sea Level Rise (SLR) because of its low elevation. Drainage congestion and water logging
are already an alarming problem in Bangladesh and likely to be exacerbated by SLR and increased river
flooding. It is reported that inundated areas might increase up to 3 percent (2030s)and 6 percent (2050s)
primarily in coastal low lying areas (0 – 30 cm, Khan et al., 2006, using upper estimates of SLR). Large
uncertainties are associated with regional to district level estimates of inundation which is due to the
compounding effects of the variable rates of uplift and sedimentation, river flooding and erosion. Siltation
is gradually increasing due to SLR. As a result of reduced upstream flow, the silt flocculate/deposit in
the riverbed which restricts removal of excess water from the countryside and causes drainage congestion.
Tidal Flooding: A recent study ‘Climate Change Impacts on Food Security in Bangladesh’ assessed
future flooding scenarios for Bangladesh (Yu et al., 2010). In this study, MIKE 11 and MIKE BASIN
models were used for generating river flow, discharge and finally flooding. The figure below illustrates
the percentage changes in flooded area in each sub region due to climate change in the 2030s and 2050s.

22
Salinity Intrusion: Saline water intrusion is highly seasonal in the coastal area of Bangladesh. In 2007,
Institute of Water Modelling (IWM) and CEGIS jointly carried out a study on “Investigating the Impact
of Relative Sea-Level Rise on Coastal Communities and their Livelihoods in Bangladesh” and assessed
that in base condition about 10 percent of coastal area is under 1 part per thousand (ppt) salinity and
16 percent area is under 5 ppt salinity and this area will increase to 17.5 percent (1 ppt) and 24 percent (5
ppt) by 2050 considering 88 cm sea level rise. So, there will be an increase of around 8 percent in the
area under 5 ppt salinity levels due to sea level rise.
Cyclones and Storm Surges: Tropical cyclones accompanied by storm surges are among the major
disasters that occur in Bangladesh and severely damage lives and standing crops in the study area.
Roughly, three to seven severe cyclones hit the coastal area each decade. Tropical cyclones and surges
are the major threats to the coastal areas, causing loss of human lives and livestock and severe damage to
crops and properties. During last 125 years, more than 42 cyclones had hit the coastal areas and 16
cyclones have occurred in the last 25 years.
Rainfall, Drainage, and Water logging: The rainfall is likely to increase by about 26 percent in the
month of March - May; and 13 percent in the month of June- August (4th IPCC). As a consequence,
flooding inundation will change demanding efficient drainage for crops. Almost 80% of the total area of
the country is prone to flooding.
Increasing Temperature: Average monsoon-season maximum and minimum temperatures have been
increasing at the rate of 0.05°C and 0.03°C, respectively. Between 1985 and 1998, an increasing trend of
about 1°C in May and 0.5°C in November has been observed. By 2050, mean temperatures across
Bangladesh is projected to increase somewhere between 1.4°C and 2.4°C. The warming is projected to
get more pronounced between the months of December and February. Seven out of 10 summers will be
abnormally hot. Heat waves will break record temperatures, above 45oC. Northern Bangladesh will shift
to a much hotter climate regime.

23
1.13 The cascading effects of more variable rainfall and higher temperatures will impact most
aspects of life and the economy,12 including leading to (i) reduction of yields of major crops; (ii)
growing scarcity of water, with the need to balance more variable water supplies with increased
demand; (iii) economic losses and damage to high-value infrastructure, particularly in the cities
and vulnerable coastal belt; (iv) an increase in the incidence of heat-related, water-borne and vector-
borne diseases; (v) increased social disparities among vulnerable groups; and (vi) loss of
ecosystems—for instance, hazard mapping indicates that a 45cm rise in the sea level would destroy
75 percent of the Sundarbans.

1.14 Despite efforts to increase resilience, climate related disasters continue to result in
large economic losses. Bangladesh was affected by 228 weather-related hazards between 1994 and
2013. Losses caused by specific events can have a huge impact on the economy and individual
livelihoods. Cyclone Sidr in 2007, for example, resulted in damages of US$1.7 billion, or 2.6
percent of GDP. About half the losses were in the housing sector, followed by agriculture and
infrastructure.13 Cyclone Aila in 2009 affected 3.9m people with an estimated damage of assets of
US$270 million. 14 Seasonal droughts in Bangladesh most commonly affect the northwestern
region, which receives lower rainfall than the rest of the country. These droughts have a devastating
impact on crops and thereby also affect the food security of subsistence farmers. Seasonal hunger
or ‘Monga’ caused by them last until the rice harvest in November-December. Rainfall during this
season is expected to decrease further due to climate change, resulting in increasing droughts.
Consequently, the moderately drought affected areas will become severely drought-prone areas
within the next 20-30 years. Between 1960 and 1991, there were 19 drought years, which affected
up to 47 percent of Bangladesh’s land area and 53 percent of its population.15

1.4 The Government's Development Strategy and Five Year Plans

1.15 The management of public finances in Bangladesh is concentrated in the hands of two
central agencies, the Ministry of Finance which is responsible for the recurrent budget and the
Planning Commission which prepares the Five-Year Plan (FYP) and Annual Development Plan
(ADP). FYPs are indicative in nature, as ADP allocations are done annually to ensure consistency
with available resources, effectiveness of implementation, and evolving global environment.16 The
Planning Commission also has the lead responsibility for the national development strategy, and
for ensuring that a robust set of cross-sectoral and sector strategies are in place.

1.16 The present government’s Vision 2021 and associated Perspective Plan 2010-2021 aim to
transform Bangladesh to the first stages of a middle income economy, and to reduce the incidence
of poverty from 40 percent in 2005 to 15 percent by 2021. The Sixth FYP covers FY11-15, is the
government’s main instrument for the implementation of the Vision 2021 and Perspective Plan. It
highlights the importance of developing strategies, policies, and institutions to enable Bangladesh
to accelerate growth and reduce poverty, which it argues in turn will require sustainable productive
employment for the growing labor force, and a substantial increase in investment. Other key
strategic elements of the Plan are to pursue an environmentally sustainable development process,
and to also tackle the challenges of ensuring good governance for sustainable development (Box
2). The government will soon publish its Seventh FYP to help guide its ADP starting July 2015.
The Planning Commission is leading the preparation of this report, for which it has commissioned
28 thematic background studies that have recently been completed.

24
 Box 2: Key Strategic Focus Areas of the Sixth Five Year Plan (FY11-FY15)
Employment
 Strategies and actions on both the labor demand (driven primarily by economic growth) as well as
the supply side (labor force growth and quality);
 Jobs for new entrants + enable substantial labor transfer to formal sector (nearly 4/5ths of the labor
force employed in low-income low productivity jobs in the informal sector).
 Labor-intensive manufacturing is key (domestic + export markets); emphasis on sub-contracting &
small rural enterprises (furniture, toys, footwear, consumer durables).
 Reduce trade barriers (e.g. like China, Korea, India, Vietnam, Thailand), plus foster greater and
more effective regional cooperation.
 Enhance income-earning opportunities in agriculture by raising land productivity and increased
diversification of production (crop + non-crop). 2008-15 National Food Policy
 Employment abroad and remittances: continue support for export of low-skills manpower, plus also
direct efforts towards improving skills through education & training
 Harness ICT to improve total factor productivity: Digital Bangladesh initiative; technology transfer
from abroad through strategic partnerships with foreign investors.
 Better land-use policies & administration; develop rural townships; tackle problems of unplanned
urbanization,
 Problem of lagging regions & high inequality: build assets of the poor, increase returns to these
assets, along with complementary infrastructure and better safety nets; gender dimension.
Investment
 Raise rate of investment from 24.4 percent to 32.5 percent of GDP to tackle infrastructure
constraints (power, transport), and finance HD (one-fifths public, four-fifths private);
 Most financing (90:10) to come from domestic sources (higher national savings); also need critical
financing from foreign sources (1/3 FDI), including PPPs.
Environmentally sustainable development
 Conservation and maintenance of natural resources; reduce air and water pollution; liberate
encroached rivers, water bodies, forest areas and khas land.
 Climate change: melting of Himalayan glaciers, intensified natural calamities, water scarcity: loss
of livelihood, coastal submergence (17% of BD) leading to large-scale displacement of people.
Good governance
 Capacity constraints in public administration, occasional weaknesses in economic management,
corruption: Need reforms of core institutions, public administration capacity-building, strong anti-
corruption strategy.
 Four main pillars: (i) strengthen civil service; (ii) promote devolution to local governments; (iii)
strengthen PPPs; (iv) reform planning and budgetary processes.
Source: Sixth Five Year Plan: Part 1: Strategic Direction and Policy Framework, Planning Commission,
Ministry of Planning, Government of Bangladesh.

1.5 Information Sources

1.17 This report draws upon information and analysis from a wide range of different sources.
Bangladesh has a fairly robust national statistical system, which publishes poverty and inequality
estimates every 4-5 years. The Bangladesh Bureau of Statistics (BBS) conducts the Household
Income and Expenditure Survey (HIES), the main data source for official poverty related statistics.
This report makes extensive use of the poverty and inequality analysis from various World Bank

25
Poverty Assessments for Bangladesh, in particular the 2002 and 2013 reports from which the
poverty estimates and welfare-aggregate based analysis presented in this report are taken.17 The
analysis has been supplemented using latest Poverty Maps prepared to obtain more geographically-
disaggregated poverty estimates using a combination of household survey and census data, a quick
assessment of recent developments in the labor market using preliminary data from the labor force
survey conducted in 2013 and earlier rounds, and the main findings of the ongoing WBG study on
recent changes in the rural economy to help identify the key drivers behind the emerging trends.18

1.18 The report also extensively draws upon (and updates) the key findings of the World Bank’s
2012 Growth Report, 19 the World Bank’s 2013 Diagnostic Trade Integration Study (DTIS)
prepared in collaboration with the Ministry of Commerce, the Education Sector Study, as well as
the World Bank’s Dynamics of Rural Growth study (forthcoming).

1.19 Finally, the report also draws upon various other country and regional studies by the World
Bank and other development partners in Bangladesh, the background papers commissioned by the
Planning Commission for the Seventh Five Year Plan, as well as other books, reports, papers, and
articles on Bangladesh by local and international researchers.

1.6 Roadmap for the Rest of the Report

1.20 Chapter 2 reviews Bangladesh’s progress in reducing extreme poverty and boosting shared
prosperity, and summarizes the key challenges that the country faces in its quest to attain the twin
goals. Grounding in this diagnostic, the chapter outlines the key priorities for action identified by
the SCD (i) areas where concerted action over the next 3-5 years could have a transformative impact
on progress towards achieving the twin goals, and (ii) foundational priorities that are pre-requisites
for a policy environment conducive to faster job creation and growth.

1.21 Chapter 3 reviews various areas where Bangladesh has already done quite well in the past,
but which nevertheless require sustained attention because of they are foundational prerequisites
for a policy environment conducive to faster job creation and growth. These include (i) key
macroeconomic and fiscal management challenges, (ii) consolidating gains in human development,
and (iii) better institutions and a supportive business environment.

1.22 Finally, Chapter 4 concludes by presents the five key areas identified by the SCD—energy,
transport, regional and global integration, urbanization, and adaptive delta management—where
concerted efforts over the next 3-5 years could a transformative impact on accelerating the creation
of more and better jobs in Bangladesh. Broad consensus prevails among key stakeholders in
Bangladesh on the importance of each of these five key areas. The biggest-value added of this
chapter is likely that it goes beyond presenting just a diagnostic per-se, and also includes a number
of specific recommendations and suggestions on how best these challenges can be tackled.

26
 2. TWIN GOALS: ASSESSING PROGRESS, CHALLENGES, AND PRIORITIES
2.1 This chapter reviews Bangladesh’s progress in reducing extreme poverty and boosting
shared prosperity, and summarizes the main drivers that have contributed to these trends. To help
illustrate the key challenges that the country faces in its quest to attain the twin goals, it also presents
a profile of the poor, along with projections of the expected decline in poverty incidence up to 2030
assuming the present growth rates continue into the future. Grounding in the diagnostic presented,
the chapter also summarizes the key priorities for action identified by the SCD to accelerate
progress towards the twin goals. These priorities are classified into three main groups: (i)
foundational priorities—i.e. those which are a pre-requisite for an environment conducive to
growth, (ii) key areas where concerted action over the next 3-5 years could have a transformative
impact on progress towards achieving the twin goals, and (iii) other supporting priorities.

2.1 Reducing Extreme Poverty

2.2 Bangladesh is on-track to achieve the Millennium Development Goal of halving the
incidence of extreme poverty between 1990 and 2015. Projections based on the elasticity of
poverty reduction to GDP growth calculated using the latest available 2010 HIES data indicate the
national poverty rate fell to around 25 percent in 2015, less than half the 58.8 poverty headcount
rate in 1991-92 (Table 2.1). Survey-based estimates of poverty incidence show that the pace of
poverty reduction in Bangladesh has picked up considerably during 2000–2010 compared to that
observed during the 1990s, making this decade the most remarkable period ever in the country’s
history. The number of poor people in Bangladesh (upper poverty line) fell by more than 17 million
during this decade, compared to a decline of less than one million between 1991-92 and 2000.

Table 2.1: Long-Term Poverty Trends: 1990 – 2015

Poverty Headcount Rate (percent)
1991-92 1995-96 2000 2005 2010 2015*
Upper Poverty Line
National 58.8 51.0 48.9 40.0 31.5 24.8
Urban 44.9 29.4 35.2 28.4 21.3
Rural 61.2 55.2 52.3 43.8 35.2
Lower Poverty Line
National 42.7 34.4 34.3 25.1 17.6 12.9
Urban 23.3 13.7 19.9 14.6 7.7
Rural 46.6 38.5 37.9 28.6 21.1
PPP$1.25 Poverty Line 70.2 60.6 58.6 50.5 43.3 35.7
Source: 2002, 2013 Poverty Assessments, World Bank. PPP$1.25 estimates are from PovcalNet. * 2015: Poverty
projections using the PPP$1.25 poverty line are WBG estimates, while the poverty projections based on the
national upper poverty line and lower poverty line are from the Draft 7th Five Year Plan document (page 8).

2.3 Measures of the depth (poverty gap) and severity of poverty (squared poverty gap)
reveal a similar pattern of improvement.20 Trends in these measures broadly mirror observed
changes in the poverty headcount rates, suggesting that even among the poor, a greater share of
people were closer to the poverty line in 2010 than they were at the beginning of the decade. The
ratio of the depth of poverty to the headcount rate (i.e. 6.5/31.5) in 2010 indicates that, on average,
the poor fell nearly 21 percent short of the poverty threshold—i.e. the poor consume at a level equal
to only 79 percent of the cost of basic needs. However, the same ratio was ever larger earlier: 26
percent in 2000 and 29 percent in 1991-92. At the national-level, the depth of poverty in 2010 was

27
 less than one-half that in 1991-92 while the severity of poverty was less than one-third its 1991-92
level—significant improvements have occurred in Bangladesh since 1991-92 with respect to the
incidence, depth and severity of poverty (Figure 2.1).

Figure 2.1: Trends in the Incidence, Depth, and Severity of Poverty: 1990 - 2010
Incidence Depth Severity
60 60 60
50 50 50
40 40 40
30 30 30
20 20 20
10 10 10
0 0 0
1991‐92 1995‐96 2000 2005 2010 1991‐92 1995‐96 2000 2005 2010 1991‐92 1995‐96 2000 2005 2010

Source: 2002, 2013 Poverty Assessments, World Bank.

2.4 Other corroborating evidence of improvement in material well-being: Comparing

basic asset and amenity indicators from the 2000 and 2010 HIES shows significant improvements
for both the overall population and the poor (Table 2.2). As the data show, housing conditions have
improved substantially, in particular the proportion of households having walls and roofs made of
corrugated iron sheets and cement and those using sanitary latrine facilities. Improvements for roofs
and safe latrine facilities were more substantial among poor households. Finally, more households
had access to a phone line, electricity services, and owned a television set in 2010 than in 2000.
The HIES data also show that 38.4 percent of Bangladesh’s population was moderately calorie
deficient in 2010, down from 40.4 percent in 2005; the percentage of people suffering from severe
calorie deficiency declined even faster from 19.5 percent in 2005 to 16.1 percent in 2010.21

Table 2.2: Trends in Basic Assets and Amenities

All households Bottom 5 Deciles Bottom 3 deciles
2000 2010 2000 2010 2000 2010
Livestock ownership (%) 35.2 39.8 33.6 41.7 31.6 42.9
Wall of dwelling* 37.7 63.6 21.4 53.1 17.4 47.5
Roof of dwelling* 76.4 91.9 68.1 88.4 64.5 86.4
Safe latrine use (%) 52.0 75.1 35.2 64.7 29.4 59.1
Electricity connection (%) 31.2 55.2 14.6 39.1 10.0 28.5
TV ownership (%) 15.8 35.8 3.6 18.1 1.8 10.8
Phone ownership (%) 1.5 63.9 0.1 46.2 0.0 36.3
Source: HIES 2000 and 2010. * Percent with cement / CI sheet.

Trends in GDP growth

2.5 Key structural shifts: As noted earlier annual GDP growth in Bangladesh has risen from
3.7 percent in the 1980s to 4.8 percent in the 1990s and over 6 percent since 2010. This acceleration
in economic activity has been accompanied by important structural shifts in the economy. The
manufacturing sector has been the largest single contributor to growth in the past two decades, and
its share in total GDP has risen from 12.8 percent in 1981 to 16.9 percent in 2015 (Table 2.3).
Industry’s contribution to growth peaked from about 1 percentage point in the 1980s to 2.7
percentage points in 2015. The role of services in the growth process has also been quite important
in the period up until 2010, after which its share in total GDP has stabilized at around 53-54 percent.
The contribution of services to GDP growth rose from around 2 percentage points in the 1980s, on

28
average to 2.2 percentage points in the 1990s and further to over 3 percentage points in the 2000s.
Wholesale & retail trade; transport, storage and communication; and financial services together
account for nearly half of the service sector GDP. A stable share of services and rising share of
industry brought down the share of agriculture from 29.9 percent in 1981 to 14.8 percent in 2015.
The contribution of agriculture to aggregate growth in GDP remained below 1 percentage point
throughout most of the past three decades. Growth in industry came largely from manufacturing
and construction, while that in the services sector was broad-based, led by wholesale & retail trade
and transport, storage and communication. In agriculture, crops and horticulture were the dominant
(albeit volatile) source of growth.

Table 2.3: Sectorial Shares of GDP (percent)

FY81 FY90 FY00 FY10 FY15
Agriculture 29.9 27.8 22.7 17.0 14.8
o/w Crops & horticulture 21.5 18.2 12.7 10.2 8.4
Industry 18.7 19.0 22.3 25.0 26.6
o/w Manufacturing 12.8 12.1 14.0 16.1 16.9
Construction 4.8 4.7 5.7 6.2 6.8
Services 48.9 49.8 50.6 53.5 53.7
o/w Wholesale and Retail Trade 12.8 12.1 12.7 13.4 12.8
Financial Services 1.3 1.3 1.7 2.9 3.7
Transport and Communication 9.8 9.1 7.8 10.1 9.5
Import Duty 3.3 3.4 4.4 4.5 4.8
Source: Bangladesh Bureau of Statistics

2.6 GDP growth has been driven by growth in labor productivity resulting from capital
deepening and human capital accumulation. GDP growth can be decomposed into growth in
GDP per working-age person; demographic changes; and population growth. While population
growth in Bangladesh has slowed, the proportion of working-age population has continued to
increase due to faster population growth in the earlier decades. As a result, changes in the ratio of
working-age-to-total population have contributed to growth since the 1980s. However, population
growth and demographic change have accounted for only a small part of the variation in GDP
growth over the past three decades. Instead, Bangladesh’s economic growth over this period has
been driven by growth in GDP per working-age person. The post-1990 acceleration in growth is
almost entirely driven by changes in labor productivity (Table 2.4). Using growth accounting to
decompose increases in output per worker (labor productivity) to ascertain the contributions from
accumulation of physical and human capital per worker and residual measure of the change in total
factor productivity (TFP), WBG estimates show that both capital deepening and (to a much lesser
extent) TFP were important for growth. Human capital accumulation was also a contributory factor.

Table 2.4: Decomposition of GDP Growth

1981-85 1985-91 1991-96 1996-2003 2003-06 2006-09 2009-13
Growth in:
Real GDP per capita 3.3 6.7 13.2 21.7 14.9 15.5 21.1
Labor Force Participation 2.4 3.2 -8.7 * 12.8 2.7 5.1 7.8
Labor Productivity 0.9 3.4 23.9 7.9 11.9 9.9 12.3
Source: Bangladesh Bureau of Statistics and Sixth Five Year Plan. *This reflects Changes in the definition
of labor force that was later reversed.

2.7 As the 2013 Poverty Assessment shows, a simple decomposition of changes in per-capita
GDP attributable to (i) changes in share of the working age population, (ii) the overall employment
rate, and (iii) output per worker reveals some interesting insights into the relative importance of

29
each of these factors. Higher productivity (i.e. output per worker) contributed 71 percent of the per-
capita GDP growth between 2000 and 2010 (Figure 2.2A), changes in the share of the working-age
population accounted for 21 percent, and changes in the employment rate for the reset. While the
increase in output per worker was especially large in the industrial sector (Figure 2.2B), agriculture
and services also experienced significant increases.22 About 24 percent of the increase in output per
worker was associated with inter-sectoral shifts in the workforce, in particular the outflow of
workers from low-productivity daily wage work in agriculture to jobs in services – a phenomenon
related to rural-urban migration and the expansion of non-farm employment. The share of
agriculture in total employment fell from 51 percent in 2000 to less than 47 percent in 2010.

Figure 2.2: Decomposition Analysis: Changes in GDP from 2000 to 2010

A. Contribution to Changes in GDP per capita B. Contribution to Growth in Output per Worker

Inter‐ Agriculture 
Working age
population sectoral  (18%)
share (21%) shift (24%)

Employment
share (8%)

Output per Services 

worker
Industry 
(23%)
(71%) (35%)

Source: HIES 2000, 2010. World Development Indicators

2.8 Exports and private investments were the key drivers of expenditure growth. The
share of consumption in total expenditure has declined, though it still accounted for over 75 percent
of GDP in FY15 (Figure 2.3). The share of private consumption declined from 81.4 percent in 1981
to 72.3 percent in 2015, while the share of exports in GDP increased from 4.6 percent to 17.2
percent over the same period. The share of private investment in GDP increased from 14.5 percent
in 1981 to 17.3 percent in 2000 and the share of public investment increased from 4.1 percent to
6.6 percent in the same period. While private investment continued to rise in the succeeding decade,
albeit at a much slower pace, public investment declined to 4.7 percent in 2010 (Figure 2.4).
However, it has started to rise since, and reached 6.9 percent in 2015.
Figure 2.3: Expenditure Share (% of GDP) Figure 2.4: Investment Rate (% of GDP)
100 35
86.3 85.9
80.0 79.2 77.7 30
80
25
60 20

40 15
26.2 29.0
23.8
18.6 17.1 16.0 17.2 10
20 12.3
4.6 5.4 5
0 0
FY81 FY90 FY00 FY10 FY15 FY80 FY85 FY90 FY95 FY00 FY05 FY10 FY15
Consumption Investment Export Total Private Public
Source: Bangladesh Bureau of Statistics

30
2.2 Boosting Shared Prosperity
2.9 Bangladesh is amongst the select group of countries worldwide that experienced a
modest decline in inequality between 2000 and 2010, as measured by the Gini index of real per-
capita consumption (Table 2.5). Inequality in rural areas, where about 70 percent of the population
continues to reside despite relatively rapid urbanization recently, remained more or less unchanged
during this period, while inequality in urban areas trended downwards. With a Gini index of about
0.3 at the national level, inequality in Bangladesh is lower than in Nepal, India, Sri Lanka,
Indonesia, and most other East Asian countries.

Table 2.5: Income Inequality in Bangladesh: 2000 – 2010

2000 2010
Gini (National) 0.307 0.299
Rural 0.271 0.273
Urban 0.368 0.330
Population share
Rural 80% 74%
Urban 20% 26%
Source: HIES 2000 and 2010

2.10 Growth incidence curves (GIC) display growth rates at each percentile of the
consumption distribution and are a useful tool to examine whether growth was shared across the
spectrum of rich and poor. The GIC for Bangladesh reveals that the growth in per-capita
consumption between 2000 and 2010 was equitably distributed across the income distribution, and
in fact shows that real per capita consumption of the segment of the population up to the 60th
percentile grew at a faster rate than the average pace across all income groups (Figure 2.5). This in
turn is another way of illustrating the decline in the Gini index of per-capita consumption between
2000 and 2010.

Figure 2.5: Broad-Based Income Growth: 2000 - 2010

Growth Incidence Curve - Bangladesh

2.5 2
Growth Rate
1.5 1
.5

0 20 40 60 80 100
Percentiles

GIC Growth rate in mean 95% CI

Source: WBG staff estimates based on 2000 and 2010 HIES data.

31
 … and resulted in lower poverty rates across all divisions, and in both urban and rural areas.
60
2000 2010
50
Poverty Rate (percent)

40
30
20
10
0
Rajshahi Barisal Dhaka Chittagong Khulna Sylhet Rural Urban Overall
Source: WBG staff estimates based on 2000 and 2010 HIES data.

2.11 Other indicators also suggest that inequality in Bangladesh is lower than in many
other South Asian countries. According to various human opportunity indices (HOI), widely used
measures of inequality in access to services, opportunities in education, health, and sanitation in
Bangladesh are generally better than in India, Pakistan, Nepal, and Afghanistan, though not as good
as in Sri Lanka and the Maldives (Figure 2.6). Access to health and education has improved over
the past decade, particularly so in the case of access primary education. Moreover, synthetic panels
based on household surveys conducted between 2005 and 2010 indicate that upward economic
mobility in Bangladesh is quite high—similar to that in the United States and Vietnam.23

Figure 2.6: HOI: Bangladesh Compared to other South Asian Countries

Source: World Bank (2014) Addressing Inequality in South Asia based on latest available DHS data.

2.12 The beneficial impact of robust broad-based growth between 2000 and 2010 is
evidenced by significant reduction in poverty incidence for all major occupational groups.
For instance, while the poverty rate among daily wage workers (39 percent) was higher than all
other major occupational groups in 2010, it declined considerably between 2000 and 2010 (Figure
2.7). Non-poor workers in 2010 tended to be salaried employees or self-employed outside of
agriculture, where poverty rates were 22 percent and 24 percent, respectively. Poverty headcount
rates among the agricultural self-employed declined from 45 percent in 2000 to 23 percent in 2010.
With regard to poverty by sectors of employment, most poor workers were still employed in the
agricultural sector, while another one-quarter were employed in the services sector. Similarly, even
though the incidence of landlessness in rural areas rose between 2000 and 2010, poverty rates
declined for all classes of households—i.e. regardless of how much land they owned (Table 2.6).

32
 Figure 2.7: Poverty Incidence by Type of Worker
80%
67%
70%
57% 2000 2005 2010
60%
50% 45%
39% 36% 37%
40%
26% 27% 24%
30% 23% 24% 22%
20%
10%
0%
Daily Farm Self-employed Non-farm Self Employed Salaried
Source: HIES 2000, 2005, and 2010.

Table 2.6: Trends in Poverty by Land Ownership in Rural Areas

Poverty Rate (Percent) Population Distribution
Size of Landholding
2000 2010 2000 2010
Landless (<0.05 acres) 63.5 45.6 48.0 50.9
Functionally landless (0.05-0.5 acres) 59.7 34.6 13.0 15.9
Marginal (0.5-1.5 acres) 47.2 25.0 17.5 18.0
Small (1.5-2.5 acres) 35.4 16.8 9.2 6.8
Medium/large (2.5 acres or more) 20.7 9.7 12.4 8.4
Overall 52.3 35.2 100.0 100.0
Source: 2013 Poverty Assessment, World Bank.

2.13 Good progress with economic growth and poverty reduction is also reflected in
considerable optimism about the future, as revealed by the Gallup Poll. When asked whether
they believed economic conditions were getting better, more than two-thirds of the respondents
interviewed in Bangladesh agreed, a higher proportion than in all other South Asian countries,
except Sri Lanka. Similarly, when asked about their assessment of future well-being versus the
present, average scores for Bangladesh were amongst the highest in South Asia (Figure 2.7).

Figure 2.8: Most Bangladeshis Believe Economic Conditions are Getting Better

33
Main drivers of progress with reducing poverty and boosting shared prosperity
2.14 The drivers of faster GDP growth and poverty reduction during the new millennium have
included (i) higher remittance transfers from overseas workers, (ii) key structural shifts in the
economy, including better wage and salaried employment opportunities for workers in the
manufacturing and services sectors, (iii) higher agricultural incomes, and (iv) the ongoing
demographic transition that has led to an increase in the share of working-age population.

Figure 2.9: Main Drivers of Progress Since 2000

Remittance inflows from overseas workers have Most new jobs added recently have been in the
recorded double-digit annual growth since 2000 manufacturing and services sectors
16,000 Net new employment
14,000 (2002/03 - 2013)
Services Agri-
12,000 33% culture
24%
10,000
USD (million)

8,000
6,000
4,000
2,000 Manu-
Other facturing
0 industry 37%
FY02 FY04 FY06 FY08 FY10 FY12 FY14 6%

Contribution to increased output per worker: Population aged 15-64 years (left)
2000-2010 (sum of all components =100) Population Growth (right)

Annual Growth rate %

66 2.0
Industry
% of Total Population

35% 1.8
64
1.6 1.5
Inter-sectoral
24% 62
shift 1.2
60 1.0
Services 23%
58
0.5
56
Agriculture 18%
54 0.0
0 10 20 30 40 2000 2002 2004 2006 2008 2010 2012

Agriculture contributed nearly one-fifth of the higher Demographic Dividend: lower population growth has
output per worker in 2010 vs. 2000 led to a higher working-age population share
Source: Bangladesh Bank, WBG staff estimates based on LFS, National Accounts and population data from BBS.

 In FY14 an estimated 8m Bangladeshis overseas sent home $14.5 billion in remittances

(equivalent to about 8 percent of GDP); these remittances contribute a large share of household
income for many, and are also a significant source of inflows into the local economy.
 Bangladesh’s economy has undergone important structural shifts, including a gradual rise in
the importance of services and industry; agriculture’s share in total employment fell from
around 52 percent in 2002-03 to 45 percent in 2013. These changes have been accompanied by
a shift away from daily and self-employed work towards wage and salaried employment.24
 Even though most households now draw a much larger share of incomes from non-agricultural
activities,25 farming remains an important source of livelihood for Bangladesh’s rural poor,
many of whom have benefitted from higher agricultural incomes due to better farm-to-market
access resulting from improved road infrastructure and rural-urban connectivity, better input

34
 supply and higher crop yields, as well as improved terms of trade for agriculture.
 A higher share of the population is now in the 15-59 years working-age group, a shift that
explains over one-fifth of the increase in GDP per capita between 2000 and 2010. The
employment rate has also risen (i.e. a higher share of this age-group is now working),
accounting for nearly one-tenth of the observed GDP per-capita increase.

Recent developments in the labor market

2.15 Net employment in the non-agricultural sector rose by more than 10m between 2002-
03 and 2013, far outstripping the 3.3m increase in agriculture. Consistent with the rapid growth
in the industry and service sectors, several important structural changes have occurred in the labor
market since 2000, including a gradual Figure 2.10: Employment Increase: 2002/03 – 2013)
decline in share of total employment in 12
agriculture; employment growth in urban 10

New employment (million)

8
areas; and a movement away from
6
agriculture, toward industry and services.
4
As successive LFS rounds confirm, three- 2
quarters of the new jobs added in 0

Agriculture
Other non-agri work

services, real estate

Manufacturing
Trade, hotel,
Construction

Non-agriculture
Transport, storage,
Bangladesh between 2002/03 and 2013

Finance, business

restaurant
communication
were in the non-agricultural sector (Figure
2.7). Of the estimated 14m net new jobs
created over this period, 10.5m were
outside agriculture; accordingly, the share
of the total workforce engaged in this Source: 2002/03 and 2013 Labor Force Surveys, BBS.
sector fell from 52 percent to 45 percent, while that in manufacturing rose from 14 to 21 percent.

2.16 One-half of the net increase in total employment over this period has been due to
women’s increased participation in the workforce. The total number of gainfully employed
women increased sharply between 2002/03 and 2013 (up 7m to 16.8m in total in 2013; Figure 2.8).
The gender gap in labor force
Figure 2.11: Size of the Workforce by Gender
participation rate narrowed, particularly 70
amongst lower age-cohorts, as did the
60
gender gap in wages. Hossain, Sen and
Aggregate employment

50 16.8
Sawada (2013) attribute these 16.2
40 9.8 11.3
(million)

improvements to a combination of factors,

including the spread of microfinance and 30
garment industry jobs that facilitated 20
34.5 36.1 37.9 41.2
women’s self-employment and wage 10
employment, respectively. While the 0
manufacturing sector continued to employ 2002-03 2005-06 2010 2013
more men than women, the number of Men Women
jobs for women in this sector more than Source: Labor Force Surveys, various rounds. BBS.
doubled between 2002-03 and 2013 (up 2.1m to 3.8m in total in 2013). The RMG sector has
provided a vibrant venue for employment of young women (various estimates suggest 66-90
percent of all RMG workers are female) and contributed significantly to their empowerment and
voice. 26 The proportion of female workers has increased across several other off-farm sectors,

35
including mining and quarrying, health and social work, wholesale and retail trade, real estate,
transport, storage and communication, construction, and banking and finance.

2.17 Gender wage differentials have narrowed. While both male and female real wages
increased steadily during 2000-2010, the relative increase in the real wages of men has generally
been smaller than that of women, therefore narrowing the gender gap. In 2010, females still made
only 86-88 percent of men’s wages (Table 2.7).27

Table 2.7: Female to Male Wage Ratios: 2000 – 2010

Rural Peak Season Rural Off-peak Urban Areas
2000 2010 2000 2010 2000 2010
Male 70 194 56 155 113 270
Nominal
Female 48 142 40 113 72 232
Wages
Ratio 0.69 0.73 0.71 0.73 0.63 0.86
Male 165 194 131 154 250 253
Real Wages
Female 113 141 94 113 159 223
(BNPI)
Ratio 0.69 0.73 0.72 0.73 0.64 0.88
Source: WBG estimates based on 2000 and 2010 HIES

2.18 This summary of the main drivers of Bangladesh’s good progress with reducing poverty
and boosting shared prosperity is consistent with the conclusions of the background analysis
commissioned by the government for its Seventh FYP (Box 3).

Box 3: Drivers of Improvements in Extreme Poverty

In Bangladesh, agricultural labor market has tightened significantly in the recent decade of 2000s, which has led to
an increase in real agricultural wage rate. The rice wage per day remained stagnant for the most part in the 1980s and
increased only modestly in the 1990s (from 3.5 kg in 1990/91 to 4.5 kg in 1999/90). The real breakthrough, however,
came in the second half of the 2000s, when rice wage per day rose to the 8-10 kg range during 2008-13.
The tightening of the agricultural wage labor market witnessed in the 2000s has been contributed principally by three
channels: (a) relocation of farm labor to rural non-farm sectors; (b) relocation of rural labor to urban activities through
the “pull effects” of urbanization, creating employment opportunities for the extreme poor in labor-intensive
construction and transport activities; and (c) jobs for the poor created in the manufacturing sector.
Creation of additional non-farm employment opportunities, via non-farm diversification in rural areas and rapid
urban growth sustained by robust flows of overseas remittance and manufacturing export growth, led to increased
out-migration (seasonal and permanent) of labor.
Migration contributed to the rise in agricultural/rural wages for workers who remained behind in agriculture/rural
areas. The evidence is also indicative of considerable indirect positive well-being effects of international migration
for those who remain behind in rural areas.
International migration is recognized as a key driver of economic growth. Remittances from abroad together with
manufactured exports have been instrumental in supporting the above structural shifts in national output.
Source: Excerpts from Ending Extreme Poverty in Bangladesh. Background paper prepared for the Planning
Commission for the Seventh Five Year Plan.

36
2.3 Twin Goals: Main Challenges for Bangladesh
2.19 Despite Bangladesh’s remarkable development achievements, significant challenges
remain in its quest to eliminate extreme poverty. It remains one of the poorest countries in the
region, with constrained public services and comparatively weak institutions, and though it has
done fairly well in recent years, many others, e.g. China, Sri Lanka, and Vietnam, have done much
better (Table 2.8). Moreover, even if Bangladesh’s economy were to continue to grow as rapidly
as it has since 2000—much faster than it ever has before this period—simulations indicate that the
poverty rate would fall to 15-20 percent by 2030—good progress indeed, though nevertheless still
well short of what is required to eliminate extreme poverty by 2030 (Figure 2.12).

Table 2.8: Income Levels: Bangladesh and Comparator Asian Countries: 1980 – 2013
GDP per capita GNI per capita, Atlas method
(current US$) (current US$)
1980 2013 % (annual) 1980 2013 % (annual)
China 193 6,992 11.5 220 6,740 10.9
South Korea 1,778 25,998 8.5 1,900 25,870 8.2
Sri Lanka 273 3,281 7.8 280 3,180 7.6
Vietnam 239* 1,909 7.7 220** 1,740 9.0
Thailand 683 5,741 6.7 710 5,320 6.3
Indonesia 529 3,624 6.0 500 3,740 6.3
India 272 1,455 5.2 280 1,530 5.3
Philippines 685 2,788 4.3 700 3,300 4.8
Bangladesh 223 954 4.5 220 1,010 4.7
Pakistan 303 1,282 4.5 350 1,360 4.2
Source: World Development Indicators (accessed on Oct. 20, 2015). *Data for 1985; ** 1989.

Figure 2.12: Poverty Projections Until 2030

Source: WBG staff estimates based on poverty-GDP elasticities from the 2013 Poverty Assessment.

2.20 Despite Bangladesh’s relatively compact land area, upazila-level poverty maps reveal
considerable spatial variation in the incidence of poverty. The BBS, WBG, and World Food
Program have recently completed work on deriving poverty estimates for key sub-national
administrative units (zilas and upazilas) using data from the 2010 HIES and 2011 Population
Census. Mapping the results reveals that, in addition to differences in poverty rates between

37
divisions, there is also considerable variation within each division (Figure 2.13). For instance, while
the poverty rate in the 5 poorest upazilas in Rangpur division is more than twice as high as the
national average, the poverty rate in the 10 richest upazilas is lower than the national average. More
worryingly, preliminary analysis based on comparing the poverty map obtained from the 2010
HIES and 2011 Population Census with the poverty map prepared using the 2000 HIES and 2001
Population Census suggest that poverty rates may in fact have increased in a few districts in
Bangladesh in the south-west (Satkhira, Bagerhat, Jessore, and Jhalokati) as well as in the north
(Sherpur) and east (Comilla, Narayanganj) between 2000 and 2010.28 Further work is needed to
verify and better understand these spatially disaggregated trends.

Figure 2.13: Upazila-Level Poverty Map for 2010

Source: Poverty Maps of Bangladesh, 2010. Key Findings, World Bank, BBS, WFP (2014).

2.21 To-date Bangladesh has neglected investment in infrastructure. As elaborated in more

detail later in this report, an extensive body of work clearly shows how access to infrastructure in
Bangladesh (in particular electricity and roads) is an important determinant of both agricultural and
non-farm incomes in rural areas, and is an important factor explaining the high spatial variation in
poverty incidence across different parts of the country.29 In Bangladesh, public investment in (hard)
infrastructure was less than 2 percent of GDP, and it lags far behind its regional competitors in

38
infrastructure quality (Table 2.9). By contrast, total investment in hard infrastructure in China,
Thailand, and Vietnam exceeded 7 percent of GDP. Those countries also invested another 7-8
percent of GDP in education, training and health. Unless infrastructure bottlenecks in Bangladesh
are addressed in a timely manner, they risk becoming increasingly important constraints limiting
future growth prospects. WBG estimates indicate that reaching sustained 7.5-8.0 percent growth
rates will require significant increases in investment to at least 33 percent of GDP, including an
increase in infrastructure investments to around 10 percent of GDP per year.30

Table 2.9: Infrastructure Quality in Bangladesh Lags Behind its Regional Competitors
Country Infrastructure
Country Electricity Roads Railroad Port
Ranking Score (Overall)
China 46 4.7 5.2 4.6 4.8 4.6
Thailand 48 4.6 5.1 4.5 2.4 4.5
Sri Lanka 75 4.0 4.8 5.1 3.7 4.2
India 87 3.6 3.4 3.8 4.2 4.0
Cambodia 107 3.1 3.0 3.4 1.6 3.6
Pakistan 119 2.7 2.1 3.8 2.5 4.4
Bangladesh 130 2.8 2.5 2.9 2.4 3.7
Myanmar 137 2.1 2.8 2.4 1.8 2.6
Source: World Economic Forum, Global Competitiveness Report 2014-15; Ranking out of 144 countries.

2.22 The poor have in Bangladesh become more urbanized due to rapid and increasing
rural-to-urban migration over the past two decades. Bangladesh’s urban population has recently
grown faster than all other South Asian countries barring Nepal. Greater internal migration in
response to better job opportunities was by far the most important factor behind this phenomenon.31
While rural areas continue to account for the bulk of the poor, the share of the poor population
living in urban areas has been increasing over the past two decades, as more people move from
rural areas in search of better employment and income generating opportunities. In 1991, the urban
poor accounted for 10 percent of the national poor population; in 2000, this share had risen to 14.4
percent, and by 2010, they accounted for 17.7 percent of the national poor. Between 1991-92 and
2010, the number of poor people residing in urban areas increased by 2.1 million; by contrast, the
total number of rural poor declined by 17 million over the same period (Table 2.10).

Table 2.10: Number of Poor People in Rural and Urban Areas

1991-1992 2000 2010
National Poor (million) 61.7 61.7 46.8
% of total population 56.8% 48.9% 31.5%
Rural Poor (million) 55.5 52.7 38.5
% of national poor 90.0% 85.4% 82.3%
% of total population 51.1% 41.8% 25.9%
Urban Poor (million) 6.2 8.9 8.3
% of national poor 10.0% 14.4% 17.7%
% of total population 5.7% 7.1% 5.6%
Source: Bangladesh Bureau of Statistics.

2.23 Rapid urbanization has adversely impacted economic performance and general
livability of urban settlements, 32 which suffer inadequate and poor quality of services, in
particular housing, transport, water supply, and sanitation. The annual outputs of Dhaka and
Chittagong fall well short of what would be expected for metropolitan areas with such high

39
population densities. According to UNESCAP estimates, about 70 percent of Bangladesh’s urban
population lives in slums (twice as high as in India), often in poor quality housing located in
precarious areas.33 Increased urban congestion has also emerged as a key challenge. Apart from the
well-known problems besetting Dhaka and Chittagong, other second-tier cities and municipalities
also pose important policy challenges: unlike Dhaka and its peri-urban areas which have emerged
as important garment centers, they have yet to find their comparative advantage and their
economies remain reliant on the services sub-sector, with weak industrial bases.

2.24 Unemployment among youth is considerably higher than the national average. The
2013 Labor Force Survey shows that unemployment rate is much higher among those aged 15 to
29 years (8.1 percent) compared to other age
Figure 2.14: High Youth Unemployment Rates
groups (Figure 2.14). A majority of the youth in 9.0
Bangladesh are trapped in low-wage, labor 8.0

intensive, and insecure informal work.34 This is

Unemployment Rate (percent)

7.0
6.0
especially the case for poor youth since having
5.0
formal secondary education—which is largely 4.0
out of their reach—is a key determinant of 3.0
accessing remunerative wage employment.35 An 2.0

interesting feature of the labor market is that 1.0

-
informal employment is also prevalent in formal 15-29 yrs 30-64 yrs 65+ yrs Overall
sector enterprises, i.e. some formal sector Source: 2013 Labor Force Survey, BBS.
workers accept employment without formal
contracts. Once locked into informal employment, there are limited opportunities to upgrade skills
or to access job placement services to break out and enter the formal sector. Increasing the
employability of the youth to join the formal sector would lead to even more significant gains in
labor productivity and thereby generate growth in labor income and reduce poverty.36

2.25 Despite encouraging developments in the labor market in recent years, nearly half of
the workforce remains engaged in agriculture, and an overwhelming majority continues to
languish in the informal sector. According to the 2010 LFS, 7 out of every 8 workers in
Bangladesh were employed in the informal sector, with the proportion being over 90 percent in the
case of female workers. 37 In 2013, about 45 percent of Bangladesh’s workforce was gainfully
employed in the agricultural sector (Table 2.11), contributing about one-fifth of GDP. About 34
percent was employed in services, which contributed about one-half of GDP; the rest—i.e. 20-21
percent—worked in the industrial sector, which contributed 30 percent of GDP. Gross output per
worker in the industrial and services sectors was nearly four times as high as in agriculture.

Table 2.11: Total Employment (million) by Sector and Gender

2002-03 2013
Men Women Total Men Women Total
All Sectors 34.5 9.8 44.3 41.2 16.8 58.1
Agriculture 17.2 5.8 22.9 17.2 9.0 26.2
Non-agriculture 17.3 4.1 21.4 24.0 7.8 31.9
Manufacturing 2.6 1.7 4.3 5.7 3.8 9.5
Other Industry 1.6 0.1 1.7 2.4 0.2 2.6
Services 13.1 2.3 15.3 16.0 3.8 19.8
Source: 2002/03 and 2013 Labor Force Surveys, BBS.

40
Gender and Jobs
2.26 Even though women’s participation in the workforce has risen since 2003, the gender
gap remains quite large. The female labor force participation rate (FLFPR) in 2013 was less than
half that for men (34 vs. 82 percent); the gender gap in participation between men and women is
lowest in city corporations, followed by rural areas, and widest in other urban areas (39, 48, and 54
percentage points respectively).38 Gender gaps
Figure 2.15: Labor Force Participation Rates
in participation are lowest among the youth, but For Men and Women
rise sharply among older age groups (Figure 100
2.15) and warrant further investigation to

Participation Rates (percent)

understand the causes. One explanation could
be the systematic underreporting of women’s 50
home-based work. Other explanations focus on
social and cultural factors that traditional labor
supply models cannot explain. For example, 0
15-17 yrs 18-24 yrs 25-29 yrs 30-64 yrs 64+ yrs
marriage has a depressing effect on FLFPR, and
Rural Men Urban Men
age at marriage in Bangladesh has changed Rural Women Urban Women

very slowly (Shuler and Rottach 2010). Source: 2013 Labor Force Survey, BBS.
Similarly, despite the fact that overall fertility
decline in Bangladesh has been associated with a range of positive outcomes (e.g., early education
and sex preference), it has had a limited impact on FLFPR and other deeply rooted practices such
as dowry. Norms of status and seclusion and the pressure to marry off daughters so that the
responsibility of their safety shifts to the husband continues to be a binding constraint.

Box 4: Measuring women’s home-based work

One explanation for the low FLFPR in Bangladesh is that women’s work is underreported in labor force surveys, an
issue that has received increased attention in recent years. Mahmud et al. (2011) show that the official statistics
collected by BBS tend to underreport economic activities performed by women, mainly because of social perceptions
about what constitutes “work.” The authors argue that the official definition BBS uses is designed to capture adult
male full-time economic activity, where home-based work typically performed by women) is not easily classifiable
into the occupational codes, employment status or industry categories used. Further, LFS enumerators typically
interview male household heads, who might be unaware of women’s home-based work or how long each activity
takes, while the time provided for conducting the interviews is often insufficient to capture a large number of home-
based activities on which women spend “only a few hours” per day. Although the official definition of paid work
does not explicitly exclude home-based work,1 discretionary use of terms such as “sufficient number of hours per
day” and “work on a regular basis” prevent home-based work from being counted. Women’s paid work on livestock
and poultry rearing, crafts and kitchen gardens, and unpaid work for own consumption, gets underreported.
In recent years, civil society in Bangladesh has taken steps toward developing more inclusive and socially accepted
definitions of work (ILO 2006, Huq 2013). In order to illustrate the extent to which the BBS’s FLFPR estimates
excludes women’s work, Mahmud et al. (2011) conducted a sample survey in eight districts of Bangladesh. Using
the same definition used by the BBS, they found FLFPR in 2010 to be over 30 percentage points higher than the one
suggested by the official labor force survey, at 67 percent. The authors found considerable variation in the nature of
FLFP across districts, with the gap between their findings and the official LFS estimates of FLFPR being the largest
in districts where home-based expenditure-saving and seasonal work were common. Interestingly, they found that
underreporting was partly caused by women respondents, who were reluctant to report market work performed inside
the home, work for household consumption or work that took short periods of time (such as an hour’s work), because
they considered these to be regular, insignificant activities. This highlights the need for redefining the perceptions of
what constitutes “work,” not only among researchers who enumerate labor market outcomes, but also among the
female workforce itself.  
Source: Mahmud et al. 2011, ILO 2006, Huq 2013.

41
2.27 Participation of women in the labor market in Bangladesh does not automatically
result in a higher status for them. For instance, women’s participation in nontraditional roles may
open up new areas of risk and vulnerability. 39 As highlighted earlier, most employment in
Bangladesh continues to take place in the informal sector where female workers are
overrepresented.40 Even women employed in formal sector jobs are more likely than men to be
stuck in low paying jobs due to occupational segregation.41 The share of working men in each
employment category (regular, self-employed, day laborers, employer) has generally been about
twice as large as the share of working women. The only exception is unpaid work where a much
larger share of women are classified as an unpaid family member relative to men. According to the
Time Use Pilot Survey (BBS 2013), an average employed women spent 3.6 hours on household
work and 5.2 hours on paid work on a typical day, whereas an average employed men spent only
1.4 hours on household work and 6.9 hours on paid work. Amongst the unemployed, women spent
6.2 hours on household work and 1.3 hours on leisure, while men who spent only 1.2 hours on
household work and 2.2 hours on leisure. Such differences in favor of men held across all
occupations, education levels, divisions, and urban/rural.42 These patterns draw attention to the
double burden faced by women in the productive economy and the reproductive economy.43

2.28 Bangladesh would benefit from both better research on female employment as well
as pilots to understand what works. Significant gaps remain in our understanding of what would
increase women’s employment in Bangladesh. While there is greater evidence of women’s labor
supply decisions, there is hardly any information on the demand for female labor, other than in the
garment sector. For instance, the fact that unemployment rates for educated women are so high
indicates that these women do want to work, but for some reason, find it difficult to get the jobs
they want. The chances that in addition to wages, women may be more likely to enter the labor
market if they had access to housing and safe transportation are quite high. Similarly, their care
responsibilities, especially childcare, can often be overwhelming for them; childcare facilities in
Bangladesh are very limited, and institutional child care is practically non-existent. Finally, while
age at marriage is an important correlate of women’s market decisions and in Bangladesh women
are married early, what would increase age at marriage is not very well understood.

42
2.4 Setting and Validating Priorities
2.29 Looking ahead, accelerating the employment shift already underway of casual
workers and small farmers engaged in agriculture to salaried employment in more dynamic
and remunerative sectors of the economy offers by far the most promising exit out of poverty.
Jobs are atop the development agenda for both citizens and policy makers in Bangladesh. The labor
force is growing by 3.1 percent per annum—1.3 times the South Asian average and 1.7 times the
global average—and 21m people are projected to enter the workforce over the next decade. About
45 percent of the country’s estimated 58m workforce is engaged in the agricultural sector, which
contributes about one-fifth of GDP. About 34 percent is gainfully employed in the services sector,
which contributes about one-half of GDP; the rest—i.e. 20 percent—works in the industrial sector,
which contributes over 30 percent of GDP. Gross output per worker is thus nearly four times as
high in industry and services compared to agriculture.

2.30 More and better jobs are atop the development agenda for both citizens and policy
makers in Bangladesh. Jobs remain a critical concern in the country: the labor force is growing
by 3.1 percent per annum—1.3 times the South Asian average and 1.7 times the global average—
and 21m people are projected to enter the working age population over the next decade. Looking
ahead, accelerating the employment shift already underway in Bangladesh of casual workers and
small farmers engaged in agriculture to salaried employment in more dynamic and remunerative
sectors of the economy offers by far the most promising exit out of poverty (Box 5). The main task
for the SCD, therefore, is to identify those key areas where concerted efforts by the government
and other stakeholders would yield the highest payoffs through accelerated job creation in the more
dynamic off-farm and urban manufacturing and services sub-sectors of the economy.

Box 5: Jobs as Key Drivers of Future Poverty Reduction

Potential welfare effects for the farm workers in switching to urban jobs are far greater than in case of switch to rural
non-farm jobs. While diversification within rural areas, of course, continues to be important for rural extreme poverty
reduction, the other factor of the “pull effects” of the urban sector both as a growth accelerator and a source of jobs
for the extreme poor is going to be increasingly more important compared to the rural non-farm sector.
First, the extreme poverty reduction proceeded on a faster pace in urban areas than in rural areas. The 2013 Economic
Census indicates much greater diversity and depth of economic activities in urban areas, with indication of significant
growth of business and industrial establishments in peri-urban areas and secondary towns beyond just the
Metropolitan areas. Rising Fixed (land) costs in megacities, improved inter-city connectivity and availability of cheap
labor (including female wage labor) are contributing to this process. Economic growth unleashed demand for real
estate sector/construction and transport activities, which, in turn, generated demand for domestic (migrant) labor,
benefiting the extreme and chronic poor. In short, urbanization has already played an important role in overall fast
decline in rural incidence of poverty, including rural extreme poverty.
Second, the challenge policymakers need to face is to provide policy support to rural extreme-poverty reduction
through sustainable urbanization. The latter demands putting emphasis on enhancing temporary migration
opportunities by improving inter-city connectivity and within-city multi-modal transport, and by encouraging
relocation of urban jobs increasingly outside of the growing Metropolis to the secondary cities. The latter would be
important to reduce congestion costs while at the same time exploiting agglomeration economies associated with
rapid urbanization. Policy emphasis should be on building urban futures for the rural poorest through “extension of
the urban sector itself”. This requires, among others, prioritizing urban infrastructural development for improved
connectivity, and investing in human capital of the rural poorest and their families.
Third, the rural-urban relocation of labor also benefitted from the growth of export-oriented manufacturing such as
the ready-made garments sector, which employs about 4m workers (75 percent of which are first-generation women
workers mostly from poor families). Export-led industrialization has a very important role to play in rural poverty
reduction, including extreme poverty reduction, an aspect that has remained inadequately studied in the literature.
Source: Excerpts from Ending Extreme Poverty in Bangladesh. Background paper prepared for the Planning
Commission for the Seventh Five Year Plan.

43
2.31 An extensive body of work clearly shows how access to infrastructure in Bangladesh
is an important determinant of both agricultural and non-farm incomes in rural areas. To-
date Bangladesh has neglected investment in infrastructure. Public investment in (hard)
infrastructure was less than 2 percent of GDP, and it lags far behind its regional competitors in
infrastructure quality (Table). By contrast, total investment in hard infrastructure in China,
Thailand, and Vietnam exceeded 7 percent of GDP. Those countries also invested another 7-8
percent of GDP in education, training and health. Unless infrastructure bottlenecks in Bangladesh
are addressed in a timely manner, they risk becoming increasingly important constraints limiting
future growth prospects. WBG estimates indicate that reaching sustained 7.5-8.0 percent growth
rates will require significant increases in investment to at least 33 percent of GDP, including an
increase in infrastructure investments to around 10 percent of GDP per year.

Infrastructure Quality in Bangladesh Lags Behind its Regional Competitors

Country Infrastructure
Country Electricity Roads Railroad Port
Ranking Score (Overall)
China 46 4.7 5.2 4.6 4.8 4.6
Thailand 48 4.6 5.1 4.5 2.4 4.5
Sri Lanka 75 4.0 4.8 5.1 3.7 4.2
India 87 3.6 3.4 3.8 4.2 4.0
Cambodia 107 3.1 3.0 3.4 1.6 3.6
Pakistan 119 2.7 2.1 3.8 2.5 4.4
Bangladesh 130 2.8 2.5 2.9 2.4 3.7
Myanmar 137 2.1 2.8 2.4 1.8 2.6
Source: World Economic Forum, Global Competitiveness Report 2014-15; Ranking out of 144 countries.

2.32 The SCD prioritization has relied on a thorough review of the main obstacles and key
constraints impeding faster job creation. The team has drawn upon information from various
sources, including a review of existing reports on Bangladesh by the WBG and other development
partners, in-depth analysis of the latest available household- and firm-level surveys, background
papers commissioned by the Planning Commission for the Seventh Five Year Plan along with other
work by local researchers. The main role of public policy is to help ensure that the conditions are
in place for strong private-sector-led growth, to understand why there are not enough good jobs for
development, and to remove or mitigate the constraints that prevent the creation of more of those
jobs. As the 2013 World Development Report has noted, “Jobs are the cornerstone of economic
and social development”. The report provides useful guidance on assessing priorities for sustained
job creation by outlining a three-layered policy approach:44
 Fundamentals: Because jobs improve with development, providing higher earnings and
benefits as countries grow rich, a prerequisite is to create a policy environment conducive to
growth. Macroeconomic stability, an enabling business environment, and human capital
accumulation are among the key such fundamentals.45
 Labor and other supportive policies: The government should strive to avoid two cliffs:
distortionary interventions that impede the creation of jobs in cities and in global value chains,
and the lack of mechanisms for protection for the most vulnerable workers.46
 Priorities: Policies should remove the market imperfections and institutional failures that
prevent the private sector from creating more good jobs for development.47

2.33 The Bangladesh SCD classifies priority areas for action into two main groups: (i)
foundational priorities—i.e. those which are pre-requisites for faster job creation and growth, and

44
(ii) key policy areas where concerted action over the next 3-5 years could have a transformative
impact on the pace of progress towards eliminating poverty and boosting shared prosperity. Table
2.12 summarizes the five key areas where concerted efforts over the next 3-5 years could have a
transformative impact on accelerating the creation of more and better jobs: (i) energy, (ii) inland
connectivity and logistics, (iii) regional and global integration, (iv) urbanization, and (v) improved
delta management. Chapter 4 goes beyond presenting just a diagnostic per-se, and also includes a
number of recommendations and suggestions on how best to tackle these challenges.

Table 2.12: Summary of Key Priorities for Action Identified by the SCD

Policy Area
PRIORITY AREAS WITH POTENTIALLY TRANSFORMATIVE IMPACT ON TWIN GOALS
Energy sector: key challenges include constrained electricity and natural gas supply, unsustainable short-term
solutions, poorly targeted subsidies and significant fiscal burden, and distorted market signals. Priority
reforms pertain to increase generation capacity and enhance access to those lacking power.
Inland connectivity and logistics: key priorities include upgrading and integrating key transport corridors (in
particular the Dhaka-Chittagong highway), improving management of the port, reviving inland water
transportation, and better maintenance of existing assets.
Regional and global integration: considerable untapped/unexploited potential to capture higher share of
manufacturing sector jobs moving out of higher income countries by reviving stalled trade reform agenda;
help make migration more remunerative, affordable, inclusive, and safe.
Urbanization: key policy challenges include addressing binding constraints to competiveness and livability,
especially for the poor (e.g. connectivity, efficient land use, public services and amenities); reduce
environmental externalities (air and water pollution)
Adaptive delta management: promote higher agricultural productivity and greater diversification; long-term
planning needed for better land and water use, natural resource management; revitalize and strengthen key
infrastructure to protect the population, reduce vulnerability, and secure growth.
FOUNDATIONAL PRIORITIES
Macroeconomic stability and related cross-cutting challenges: Key challenges include higher revenue
mobilization through tax policy and tax administration reforms; better implementation of the Annual
Development Program; improve health of the financial sector and enhance financial intermediation.
Human development: Address next generation challenges related to malnutrition, quality of public service
delivery, skills of the workforce; increase public funding for health and initiate pragmatic agenda for
achieving universal health coverage; extend coverage of the social protection programs to the urban poor
Institutions and business environment: Stronger institutions needed to manage the larger more complex
economy, meet the aspirations of a more diverse and heterogeneous population, and to ensure that the
prevailing business environment is conducive to higher investment and growth.

2.34 Some areas where Bangladesh has already done well nevertheless require sustained
policy attention, as they are pre-requisites for ensuring an environment conducive to growth
and faster job creation. For example, even though the government has done quite well with
macroeconomic and fiscal management, key challenges ahead include strengthening the tax system
to boost revenue generation and make it more efficient, transparent, and fair; improving the health
of the financial sector and enhancing financial intermediation; and improving public investment
management and implementation of development projects. While Bangladesh has made very good
progress in improving overall access to elementary education and basic health services, the next set
of challenges pertain to tackling the more difficult issues of reaching the remaining hard-to-reach
excluded population and improving service quality, as well as tackling more complex challenges,
such as malnutrition, that require multisectoral interventions. A plentiful supply of food will not

45
nourish a person whose water is contaminated and who is infected by a disease environment
propagated and sustained by inadequate water quality and sanitation facilities. With regard to the
business environment, accelerating economic progress will require going into a more complicated
phase of reforms that address a whole range of factors that adversely affect investment incentives
and production efficiency. Chapter 3 discusses such “foundational priorities” in more detail.

2.35 Broad consensus prevails among key stakeholders in Bangladesh on the importance
of each of the five transformational priorities identified by the SCD. For instance, the
government’s Sixth FYP accords very high priority to employment generation, and highlights the
critical importance of raising the rate of investment to tackle infrastructure bottlenecks, particularly
in the power and transport sector. Citing the examples of China, Korea, Vietnam and Thailand, it
also stresses the importance of reducing trade barriers to foster greater and more effective regional
cooperation. The Plan also highlights the need for better land-use policies and administration to
tackle the problems of unplanned urbanization and develop rural townships. The FYP also
discusses the importance of ensuring environmentally sustainable development and tackling the
challenges posed by climate change. The Mid-Term Implementation Review (MTIR) of the Sixth
FYP was completed in 2014 to evaluate the interim results achieved against quantitative
benchmarks. Its findings confirm the continued relevance of each of these five main areas (Box 6).

Box 6: Mid-Term Implementation Review of the Sixth Five Year Plan

The MTIR highlights Bangladesh’s progress in transforming its rural-based agrarian economy to a more
modern urban-based manufacturing and services based one, but also acknowledges the shortfall in targets
to accelerate GDP growth to 8 percent by FY15. It notes with concern the large rise in marginal cost of
electricity, and the failure to diversify sources of primary fuel by increasing domestic production of gas
and coal. It calls for the future program to be based on least-cost expansion path, along with renewed
efforts to institute a national coal policy and invest more resources in gas exploration and production.
The MTIR acknowledges that performance is lagging in all areas of transport (roads, bridges, railways,
and ports). Finally, it also emphasizes that further efforts are needed to strengthen resilience and minimize
the adverse impacts of natural disasters on people’s livelihood. Long-term planning through the proposed
Delta Region Project, along with substantial public investment will be needed to achieve these objectives.
For more details, please see Mid-Term Implementation Review of the Sixth Five Year Plan of Bangladesh General Economics
Division, Planning Commission, Government of Bangladesh (March, 2014).

Consultations for the SCD:

2.36 The World Bank Group office in Bangladesh organized a series of consultations in Dhaka,
Sylhet, Chittagong, and Jessore with different stakeholders in November 2014. The main purpose
of the consultations was to solicit the views of different stakeholders for the SCD, which in turn
would help inform the formulation of a new WBG Country Partnership Framework for Bangladesh
for the period FY 2016-2020. Various types of groups were consulted in different locations,
including representatives of civil society, non-governmental organizations, the media, the private
sector, members of the local chambers of commerce, and other such groups.

2.37 In every consultation, irrespective of its location, some common issues emerged as
priorities. The stakeholders stressed on infrastructure development to sustain growth, emphasizing
in particular the completion of the Dhaka-Chittagong four lane highway which they considered as
lifeline of the economy. Stakeholders also gave paramount importance to improve rail and inland
water connectivity. Modernization of Chittagong port was viewed as a priority area. Lack of urban

46
management, specially the traffic in Dhaka is viewed as a bottleneck to Bangladesh’s growth. For
Bangladesh to benefit from its demographic dividend, many stakeholders talked about the
importance of investing in quality of education and creating a skilled labor force.

2.38 A centralized administration, lack of capacity of government institution and insufficient

results-orientation in bureaucracy, and the debilitating role of corruption were also highlighted as
major impediments to development. The stakeholders, especially those outside Dhaka, stressed the
importance of decentralization and strengthening local government. Throughout the consultations,
the need for creating more growth poles beyond Dhaka became apparent. Apart from the common
priority issues for Bangladesh, some unique to specific stakeholder groups or locations were also
discussed. For example, the private sector representatives in Dhaka urged to create Economic
Zones. In Jessore, the stakeholders spoke about the importance of agricultural marketing
infrastructure to increase farmers’ incomes and promote diversification into high value crops.

2.5 Knowledge Gaps

2.39 This SCD identifies five key knowledge gaps that warrant policy attention and work:
related to (i) labor markets, (ii) fiscal challenges, (iii) land markets, (iv) public service delivery,
and (v) gender-related issues.

 Information on labor market: Higher frequency and better quality data are needed on the labor
market, including on unemployment, underemployment, earnings, working conditions, as well
as richer firm-level data and analysis to better-understand the dynamics of the labor market;
 Fiscal challenges: Further work is needed to quantify and better understand how Bangladesh
should address the fiscal challenges it faces (i.e. increase tax revenues plus mobilize private
financing needed for higher investment in physical infrastructure, health, education, etc.);
 Land markets: Given that land markets in Bangladesh are characterized by significant hurdles
and large transaction costs (both formal and informal), more analytical work is needed both to
better-understand how these various obstacles and constraints manifest themselves, and how
best can they should be tackled to enable new manufacturing units and better jobs to emerge;
 Quality of public service delivery: While Bangladesh has made good progress in improving
access to public services, better data are needed to assess variations in the quality of public
service delivery as a first step to devising effective strategies to tackle prevailing inequalities;
 Gender assessment: As the SCD argues, Bangladesh would benefit from both better research
on female employment as well as pilots to understand what works. Further work is needed in
this regard to better understand core issues of gender inequality and social inclusion.

47
 3. FOUNDATIONAL PRIORITIES
3.1 As noted in Chapter 2, the main role of public policy is to help ensure that the right
conditions are in place for strong private-sector led growth, to understand why there are not enough
good jobs for development, and to remove or mitigate the constraints that prevent the creation of
more of those jobs. While Bangladesh has done well in the past in ensuring the right conditions are
in place for strong sustained growth and poverty reduction—i.e. (i) good macroeconomic
management of the economy, (ii) laudable human development achievements, and (iii) a business
environment conducive to increased private investment—each of these foundational areas continue
to require sustained policy attention. For example, even though the government has done quite well
with macroeconomic and fiscal management, key priorities looking ahead include strengthening
the tax system; improving the health of the financial sector and enhancing financial intermediation;
and improving public investment management and implementation of development projects.
Similarly, while Bangladesh has made excellent progress in improving access to elementary
education and basic health services, the next set of challenges pertain to reaching the remaining
hard-to-reach excluded population and improving service quality, plus tackling more complex
challenges, such as malnutrition that require multisectoral interventions. Finally, with regard to the
business environment, accelerating economic progress will require, as discussed in more detail later
in this chapter, going into a more complicated phase of reforms that address a whole range of factors
that adversely affect investment incentives and production efficiency at present.

Figure 3.1: Selected Macroeconomic Indicators

Fiscal management has been prudent Inflation has generally been in single digits
22
Fiscal Deficit (% of GDP) Inflation (percent)
6.0
17
5.0

12
4.0

3.0 7
General Index Food Non-food
2.0 2
FY93 FY96 FY99 FY02 FY05 FY08 FY11 FY14 FY08 FY10 FY12 FY14

55 Total Public Debt (% of GDP) 20 Foreign Exchange Reserves (US$ billion)

50
15
45
40 10
35
5
30
25 0
FY00 FY02 FY04 FY06 FY08 FY10 FY12 FY14 FY93 FY96 FY99 FY02 FY05 FY08 FY11 FY14

The debt-to-GDP ratio has declined Foreign exchange reverves have risen steadily
Source: Ministry of Finance, Bangladesh Bank, and IMF

49
3.1 Macroeconomic Stability

3.2 Generally prudent management of fiscal and monetary policy, and the resultant
macroeconomic stability Bangladesh has enjoyed over the past decade, has served it well in
its quest for higher growth. Bangladesh has received favorable ratings from international agencies
like Moody’s and Standard and Poor’s, reflecting its good track record in macro-economic
management (Figure 3.1)). Inflation was contained well below double-digits most of the time.
Bangladesh is the only country in South Asia with positive public savings. In addition, the overall
budget deficit has been financed through prudent external borrowing that has kept the effective
interest rate on public debt at less than 5 percent. Recourse to monetary financing of deficit has
been used as a very short-term measure that has typically been quickly reversed. The public debt-
to-GDP ratio declined throughout the last decade. Since adopting the floating exchange rate regime
in 2003, the Bangladesh Bank has followed a market-based exchange-rate policy that ensured
smoothing out exchange-rate volatility and building up foreign exchange reserves. Monetary policy
allowed monetary aggregates to expand in line with growth in demand for credit in the private
sector and price stability.

3.3 Rising levels of financial development in Bangladesh (Figure 3.2) have caused higher
investment rates and per capita GDP by enhancing both the level and efficiency of investment.48
Moving away from a financial system that relies heavily on nationalized banks, administered
interest rates and directed credit helped channel national savings into investment, thus fostering
growth. Rahman (2007) has studied the association of financial development with investment as a
share of GDP and per capita income and found that they broadly moved together, reflecting a close
association among financial development, investment and per capita income during the period.49
The study showed that financial development has a positive and statistically significant long-term
impact on both the investment-GDP ratio as well as on per capita GDP in Bangladesh. A one
percent positive shock to financial development (credit-to-GDP ratio in this case) generates about
0.7 percent positive impact on investment-GDP ratio and about 0.6 percent positive impact on per
capita income, meaning more domestic credit to the private sector generates more investment
activities and hence more per capita income.

Figure 3.2: Financial Deepening in Bangladesh: 1980 – 2015

60 M2-GDP Ratio Private Sector Credit- & Deposits-to-GDP Ratio

50 50

40 40

30 30

20 20

10 10
Private Sector Credit to GDP Ratio
0 0
FY81 FY85 FY89 FY93 FY97 FY01 FY05 FY09 FY13 FY81 FY85 FY89 FY93 FY97 FY01 FY05 FY09 FY13
Source: Bangladesh Bank.

3.4 Looking ahead, key macroeconomic and fiscal management challenges include
improving the health of the financial sector and enhancing financial intermediation, strengthening
the tax system to make it more efficient, transparent, and fair, and better implementation of the
Annual Development Program (ADP).

50
 Continued implementation of the Action Plan developed by the government with IMF support
will be needed to improve the performance of state-owned commercial banks; in particular
through strengthening corporate governance, human resources, and risk management
capacities, installing professional management from the private sector, and bringing these
banks under Bangladesh Bank’s full control and supervision.
 Successful implementation of the 2011-2016 Tax Modernization Plan, through which the
government plans to increase tax collection by about 3 percent of GDP, will be key to provide
the additional public resources to spur growth, especially much-needed investments in
infrastructure (see Chapter 4).
 Improved public financial management, in particular better implementation of public
investment through the ADP and enhanced fiscal risk management of state-owned enterprises,
is needed to strengthen the link between policy priorities and resource allocation, between
resource allocation and performance, and for efficient use of resources for service delivery.

Strengthening financial stability and enhancing financial intermediation

3.5 There is well established literature that shows the importance of a strong financial
sector and economic growth. A strong financial sector is essential to support private sector
competitiveness, sustain growth, economic diversification, and job creation. Conversely, instability
in financial markets can have high costs, as evidenced in the costs of financial crises – the global
financial crisis of 2008 pushed 120 million people below the poverty line and created 22 million
new unemployed persons in just one year in the aftermath of the crisis. Disruptions in the banking
sector can: have a negative impact on the real economy; lead to a credit squeeze; cause a ‘flight to
safety’ of deposits; and enhance the risk of contagion within parts of the financial system. Similarly
lack of adequate financial intermediation, constrains productivity, entrepreneurship and growth.

3.6 For Bangladesh, a well-functioning financial sector is critical - whether it is access to

finance for its exporting and small and medium sized firms that account for a significant share of
employment, savings, credit and insurance services for its farmers or financing of its infrastructure
projects in the energy or transport or other critical sectors. While broadly financial markets have
developed over the years, key concerns remain in particular, strengthening financial stability and
enhancing financial intermediation. Not addressing these will lead to significant challenges in
achieving progress in the priority areas of the SCD.

3.7 Financial stability: In terms of financial stability, Bangladesh’s financial sector faces risks
on account of weaknesses in the state-owned commercial banks (SOCBs) which account for a
quarter of the assets of the banking system. With over 70 percent of financial system assets in the
banking system, banking assets to GDP at 77 percent and deposits to GDP at 60 percent, risks in
the SOCBs are systemically significant. While these risks have not materialized yet, the health of
the SOCBs is such that this remains a possibility. The overall governance and asset quality of the
financial sector also pose threat to the financial sector stability. Integrity of the financial sector has
been compromised by banking sector loan scams and embezzlements, weaknesses in the regulatory
and supervisory frameworks continue and while regulators have built capacity over the years, there
is a need to enhance this further.

3.8 Confidence of the public in SOCBs remains high, perhaps due to strong implicit
government backing assumed by actors. There was an initial phase of liquidity crunch in late

51
2012, but SOCBs now continue to operate normally (with some checks on lending imposed by
Bangladesh Bank) and attract deposits which have grown by around 10 percent over the past year.
Moreover, SOCBs have once again become net lenders in the interbank call money market.
However, this situation masks potential liquidity issues that may arise due to possible future shocks.
Consequently, allowing the current situation to continue without taking steps to address underlying
problems is fraught with risks. Deposits of tens of millions of Bangladeshis are ultimately at stake,
including many from rural areas and the lower income segments that the SOCBs have reached out
to. Recent financial sector crises have taught us that pre-emptive measures are more effective and
less costly than the more reactive, ex-post, crisis response measures during bank rescues.

3.9 Financial intermediation: Alongside poorly performing public banks, access to credit has
been identified as one of the top barriers for doing business in Bangladesh (Doing Business 2015).
Only 31 percent of adults in Bangladesh have access to a bank account (Findex, 2014). In addition,
financial inclusion remains particularly daunting for certain groups including women, small and
medium enterprises (SMEs), and farmers. Further, undeveloped insurance (insurance premiums are
only 0.94% of GDP) and pensions markets, and long term capital markets, means that sources of
long term financing – so critical to meet the country’s infrastructure needs – are limited and
constitute severe impediments to creating jobs, financing Bangladesh’s crippling infrastructure
deficit, managing risks and vulnerabilities.

3.10 Recommendations: On stability, strengthening SOCBs, including their governance, and

enhancing overall supervisory and regulatory capacity are critical initiatives to be undertaken.
Capitalization of banks – which has been pursued in recent years, likely needs to be continued,
together with deep reforms. These would include reforms to strengthen corporate governance in
the SOCBs and bring them out of political influence and under the full supervision and control of
Bangladesh Bank, strengthen risk management, internal control mechanisms, and human resources.

3.11 On access, formulating a national financial inclusion strategy and increasing access to
financial services is key. For that to happen, several constraints need to be addressed. They include:
creating an enabling environment for facilitating access to finance among neglected segments, such
as women entrepreneurs; alleviating supply-side institutional capacity constraints to foster the
development of a diverse and appropriate set of financial products especially for MSMEs;
increasing the capacity of enterprises to operate and access credit; promote the scaling up of digital
financial services through mobile banking, e-wallets, and digital payments. Fundamental financial
infrastructure bottlenecks (such as an underdeveloped payment and settlement systems, credit
information bureau and collateral registry) also need to be overcome to foster financial inclusion.

3.12 Developing a sustainable long-term financing market will require concerted efforts to (i)
increase financial institutions’ appetite and capacity to make their foray into long-term financing
businesses; and (ii) ensure the availability of funds for financial institutions to develop their long-
term finance portfolio. The latter calls for the development of well-functioning insurance, pension
and bond markets since commercial banks expose themselves to asset-liability mismatch in their
balance sheets (in extending long-term financing) due to lack of investment opportunities.
Moreover, the weak regulatory and supervisory framework in the insurance sector needs to be
tackled to provide adequate risk management opportunities for a more diverse financial system.

52
Upgrading both tax policy and tax administration
3.13 The level of tax collection in Bangladesh was 10.4 percent of GDP in 2012, up from the
average of 8.3 percent of GDP during 2004-2009. Despite this improvement, Bangladesh is below
other low income countries—only Afghanistan (tax-to-GDP ratio of 6.7 percent), Myanmar (3.2
percent), Central African Republic (6.2 percent) and Ethiopia (8.1 percent), are performing worse
(Figure 3.3). At this level, tax revenue provides an insufficient and unstable base of domestic source
revenues to finance higher investments to build human capital and improve physical infrastructure.

Figure 3.3: Tax Revenue (percent of GDP) by Country Income Group: 1994 – 2009

Source: World Bank classification and World Development Indicators.

3.14 Tax Policy Reform: As announced in the Finance Minister’s FY15 budget speech last
year, recent tax policy reforms, which will be deepened in the coming years, include enactment and
implementation of the new VAT law, development of a new Income Tax law and the revision of
the Customs Act during the tenure of this Parliament. As the NBR Modernization Plan notes, the
Income Tax Ordinance of 1984 has become out of date and complicated over time due to several
amendments through successive Finance Acts. The VAT Act of 1991 is badly in need of reform to
move it from an excise based system towards a true VAT. The Customs Tariff is also in need of
restructuring and the Customs Act, 1969 needs to be modernized. The envisaged tax policy reforms
will be crucial to improve both the progressivity of the tax system as well as increase collections.

3.15 Weak Tax Administration: As in many other countries, tax compliance risks in
Bangladesh are high and weaknesses in tax administration contribute to this problem. The National
Board of Revenue (NBR) is organized along three administrative wings (“type of tax”): Income
Tax, Value Added Tax, and Customs, which historically have operated almost independently and
provide little support to each other. These rigid structures do not encourage an integrated approach
to different categories of taxes and segments of taxpayers. NBR is staffed by poorly trained and
low paid officials. Low salaries, in combination with paper and administrative based assessment
system with little oversight or differentiation of functions, provide incentives for corruption and
tolerance of tax evasion. Staff dealing with large taxpayers or multinational companies engaged in
aggressive tax planning are frequently considered and paid on par with other tax administrators,
and equipped with only basic IT infrastructure, although requirements of this type of positions are
highly complex and specialized. This is in spite of the fact that when dealing with large taxpayers,

53
mistakes by tax administrators, or inclination to corruption motivated by low pay, can be extremely
costly when auditing tax returns that run into the tens or hundreds of millions of dollars.

3.16 Low level of automation and weak IT systems: The current business model characterized
by low level of automation is unsustainable in a climate in which the government counts on better
revenue collections and lower compliance costs to ensure fiscal stability and promote a more
internationally competitive economy. The range of electronic services provided to taxpayers is
underdeveloped, while the existing information system and governance of financial information is
weak, fragmented, and inadequate to effectively support operations. IT systems are not supportive
of all core business processes, nor adequate to support new functionalities or developments.

3.17 Main recommendations to help improve the system include:

 Introduce the “function-based” organizational structure and taxpayer segmentation approach.
Modern tax administrations have moved towards streamlined and function-based organizations
and have introduced taxpayer segmentation approach, i.e. develop different strategies for
administering different categories of taxpayers in order to better utilize and allocate resources.
 Address the human resource gap as a key factor of success in modernizing tax administration.
Addressing human capacity gap implies that a tax administration reform should include
significant amount of training. Consequently, the capacity building strategy of the NBR needs
to be aligned with the reform priorities, the current conditions of the organization, business
reengineering processes and the IT developments.
 Introduce and enhance Information Technology improvement. The NBR is planning to put in
place a series of IT operational tools which encompass inter alia IT systems for an Integrated
VAT Management System, e-filing, e-payment, e-audit, etc. Some institutional underpinnings
need to be implemented in parallel to set the institutional basis for efficient and reliable use of
the IT operational tools. They include changes in NBR’s organizational structure with a special
focus on the reengineering of core processes, improvement of human resource management,
and monitoring mechanisms. This would allow NBR to better match IT systems and capacity
with current maturity levels of the organization.
 Align business process reengineering with upgrading of information technology capabilities.
The rapid spread of the IT is enabling tax administration to be more efficient in processing
information in a more reliable and timely way and providing taxpayers with a wide array of
electronic services. The NBR is conducting a substantial process reengineering and
standardization of tax procedures particularly for the VAT, which will lead to the design and
implementation of a new institutional and governance framework. It will be important to align
IT improvements with the governance change produced by the business process reengineering
efforts, ensuring that IT improvements are integrated into the broader reform efforts and
become a reliable and efficient support tool.

Improving public investment management

3.18 Increasing the scale, quality, and efficiency of public investment will be important for
Bangladesh to achieve sustained economic growth. The government has set itself the target to
increase the investment rate to at least 33 percent of GDP, including an increase in infrastructure
investments to around 10 percent of GDP per year during the period 2011-2021. However,

54
increasing the quantity of public investment will only have the desired effect if efficiencies in the
public investment management (PIM) systems are enhanced concurrently. Despite the well-
documented significance of investment levels to sustain economic growth, Bangladesh devotes a
smaller percentage of GDP to investments than other countries in South Asia. Over time, different
governments have allocated public resources broadly in accordance with Bangladesh’s
development priorities of improving social services and advancing rural development. However,
while broad inter-sectoral allocations of resources reflect strategic priorities, the country has not
made significant enough investments in infrastructure to support higher economic growth.
Infrastructure deficits constrain returns to private investment. Scaling up investments, in particular
in infrastructure, could therefore be an important means of achieving sustained economic growth.

3.19 Limitations in its PIM systems and practices may prevent Bangladesh from reaching
its growth targets. The efficiency of PIM is constrained by fragmented institutional arrangements
with limited coordination. The regulatory framework for PIM comprises a diverse set of laws,
ordinances, executive orders, and some constitutional provisions: parts of it are inconsistent and
outdated and would benefit from revisions. The government’s capacity to undertake proper project
design and selection, implementation, and evaluation is limited, resulting in a range of problems,
including: (i) limited links between the ADP and strategic development objectives; (ii) the
development of a project pipeline based on an approval process outside of the budget cycle that
does not reflect the budget and capacity constraints; (iii) substantial delays in project execution,
resulting in time and cost overruns; (iv) persistent under execution of the ADP; and (v) insufficient
allowance for the cost of operations and maintenance in project planning.

3.20 The connection between various existing strategy documents, the development
budget, and individual investment projects is not strongly developed. Currently, the national
priorities outlined in the Five Year Plan are not systematically translated into sectoral or ministry-
level operational plans. This can result in disconnects between higher-level multi-annual
development plans and actual programming and budget decisions. This issue is further exacerbated
by the fact that the Executive Committee of the National Economic Council (ECNEC), the highest
national body overseeing public investment, focuses strongly on individual investment projects,
while dedicating less time to fulfilling a high-level, strategic and portfolio-based oversight role.

3.21 While formal project preparation processes are well-documented and understood
within the government, they are not fully adhered to, particularly in terms of timing. They
can also often be undermined by informal practices. There is currently no system of preliminary
screening of initial project proposals and the technical capacity to design and appraise high quality
projects is generally limited (though there is variation both within and across sectors). The political
context in which project selection and approvals take place further limits incentives to produce
technically high quality projects.

3.22 The ADP, the main instrument for public investment, is assembled in an incremental
manner, with limited consideration of strategic priorities, portfolio consistency, availability
of resources and future cost implications. Project selection is conducted throughout the year
without systematic regard to the impact of newly-approved projects on the medium-term cost of
the ADP portfolio. Guidance provided to Line Ministries and agencies to aid in the preparation of
their ADP submission does not effectively focus new project proposals on high priority areas. A
lack of medium-term planning in the ADP process has limited efficiency in resource allocation and

55
project implementation, resulting in the under-funding of ongoing projects for the sake of adding
more projects to the portfolio. Insufficient attention is given to the future costs of operations and
maintenance and of completing the implementation of ongoing projects. A system of Forward
Baseline Estimates, within which many of these issues could potentially be addressed, is planned
but has not yet been introduced. The quality and effectiveness of the ADP, which averages more
than one thousand projects/programs annually, has significant potential for improvement.

3.23 Reform Opportunities: Drawing on the experiences of other countries, the government
could consider focusing its reform efforts initially on a small number of priority areas considered
most critical for reform outcome. In this respect, three areas are proposed as possible starting points.

 Introduce a multi-year Public Investment Program to ensure a closer match between

approved investment projects and the availability of financial resources. This shift could
also improve the linkage between ADP and revenue budget, especially with respect to ensuring
adequate funding for operations and maintenance and appropriate trade-offs between
maintenance and new projects. A multi-year PIP based on three key elements: (i) top-down
ceilings/resource envelope at ministry level; (ii) bottom-up project proposals from MDAs; and
(iii) a prioritization process, which results in the approval and selection of the highest value
projects within the funding constraints, could reinforce the alignment between longer-term
planning, one-year programming and budget preparation. To ensure efficient allocation of
resources among projects, and an overall reduction in the project portfolio, the ADP could be
reviewed and rationalized prior to introducing the Multi-Year PIP. The rationalization exercise
could result in low priority and low performing projects being discontinued. This could create
fiscal space for higher priority projects.
 Strengthen project design, appraisal, and approval capacities and systems to increase the
quality of the investment portfolio and ensure timely achievement of development targets.
This reform is essential to the successful introduction of a multi-year PIP. With the demand
generating factors in place, well-designed and systematically appraised investment projects are
more likely to generate positive economic returns within the envisioned timeframe. To this end,
guidelines governing the design, approval and revision of project documents should be revised
to ensure consistency with procurement guidelines that are generally perceived as being of high
standard. Restricting the financing of new projects through a stringent approval process would
prevent the investment program from being overloaded and thereby ensure a better utilization
of the available fiscal space.
 Institutionalize the PIM reform agenda by establishing effective consultation and
coordination mechanisms could be considered a prerequisite for successful reform. Any
reform effort requires a clear strategy, a political champion supported by a capable reform team
and well-established consultation and coordination mechanisms to ensure a high level of
coordination among all relevant stakeholders. To achieve this objective, establishing a
dedicated PIM Reform Unit within the Programing Division merits consideration, along with
a joint technical committee between the Planning Commission and the Ministry of Finance.

56
3.2 Consolidating Gains in Human Development
3.24 Bangladesh has had remarkable success since independence in 1971 in improving various
human development indicators, including life expectancy, fertility, infant and child mortality,
access and equity in education, immunization rates, and access to sanitation (Figure 3.4).

Figure 3.4: Human Development Achievements

Life Expectancy at Birth (years) Infant Mortality Rate (deaths per 1,000 live births)

1971 2012 1971 2013

149 145
70 141
66 66
62 124

52
50
47 46

53
41 44
33

BANGLADESH INDIA LOW‐INCOME  LOWER MIDDLE‐ BANGLADESH INDIA LOW‐INCOME  LOWER MIDDLE‐

COUNTRIES INCOME COUNTRIES COUNTRIES INCOME COUNTRIES

Total Fertility Rate (births per woman) Mean Years of Schooling of Adults (years)
1971 2012 1985 2013
5.4
6.9 6.7 5.1
4.4
5.4 5.6
4.0

4.1 3.1
2.4 2.4 2.3
2.9
2.5
2.2

BANGLADESH INDIA LOW‐INCOME  LOWER MIDDLE‐ BANGLADESH INDIA LOW‐INCOME  LOWER MIDDLE‐

COUNTRIES INCOME COUNTRIES COUNTRIES INCOME COUNTRIES

DPT Child Immunization Rates (percent) Access to Improved Sanitation (percent)
1985 2013 57 1991 2012

97 47
80
76 36 37
72 35
30

22
18
24 27
2 18

BANGLADESH INDIA LOW‐INCOME  LOWER MIDDLE‐ BANGLADESH INDIA LOW‐INCOME  LOWER MIDDLE‐

COUNTRIES INCOME COUNTRIES COUNTRIES INCOME COUNTRIES

Source: WDI. Mean Years of schooling: Barro & Lee (2013) UNESCO (2013b) HDRO estimates. Low- and
lower-middle income countries: those with per-capita GNI <$1,045 and $1,046 - $4,125 respectively (2015).

Education: Access, Quality, and Skills

3.25 Building on Laudable Achievements: Bangladesh’s education system is large, catering
to over 30m students. The country has done remarkably well in enhancing access and equity in
education, with notable achievements in nearing universal access to primary education, attaining
gender equity at the primary and secondary education levels well ahead of the MDG target for
2015, marked reduction in repetition and dropout rates, and reasonably high levels of completion
in primary education. In 1991, the educational attainment of Bangladeshi women was among the
lowest in the world (80 percent illiteracy, 33 percent secondary school enrollment). However,
through massive expansion of schools, targeted stipends to bring the poorest and girls into schools,
and continued investments in education, female primary school enrollment rates are now higher
than those in Pakistan, Nepal, and Bhutan, and about the same as in India.

57
3.26 Key challenges: Given its remarkable success in enhancing access and equity in basic
education and economic growth pattern of labor-intensive manufacturing and remittance-led
growth, Bangladesh is at a crossroads. Ensuring further progress through improving access to
higher education and skills development training as well as enhancing the quality of education can
help propel the economy into the next phase of higher productivity-led growth, and sidestep the
low wage/low productivity trap. Striving to universalize access for the remaining hard-to-reach
children, to reform the examination system to improve quality of education and to ensure strong
foundational skills for the labor force will go a long way to help realize these aspirations.

3.27 Access and Equity: Even though inequity in primary enrollment fell by half from 2000 to
2010, gross enrollment rates of the poor lag those of the non-poor by 6 and 31 percentage points at
the primary and secondary levels respectively. Repetition and dropout rates have fallen recently,
but remain high: out of 10 primary students who enter school, only about 7 - 8 students reach grade
5, and only 5 students reach grade 10 (Figure 3.5a). About 5m children of primary school age are
still out of school, either because they did not enroll or dropped out early, mostly due to poverty.
Children living in urban slums in particular suffer from both demand and supply-side constraints.

Figure 3.5: School Retention and Quality of Education

Distribution of School Average Test Scores (Grade 5 Math)
150

140
Rangpur
130 National Rajshahi
average Khulna
score: 118.6
120 Dhaka
Chittagong
110 Barisal
Sylhet
100

90

Source: 2009 Multiple Indicator Cluster Survey. Source: National Student Assessment, 2011.

3.28 Quality: International experiences show that improvement in quality of education has a
much larger impact on economic and social development than increases in access without increases
in quality. Learning achievements continue to be quite low: a recent assessment of literacy and
numeracy in grade 5 indicates that only 25 and 33 percent of students in grade 5 master Bangla and
Mathematics competencies respectively. Learning inequities begin early, and continue throughout
students’ lifetimes. While students from poor households do worse than those from wealthier
backgrounds, the study found larger performance disparities among schools rather than among
students within a school (Figure 3.5b). Most quality issues are attributable to factors within the
purview of policy reform—e.g. an important determinant of learning within schools is the quality
of the teacher. The current teaching style of lecturing and reading textbooks rewards rote learning
rather than encouraging creative thinking and problem-solving skills. Many teachers do not have
much training and suffer poor morale due to low prestige and career progression opportunities.

3.29 Skills Development: Improving skills and productivity are crucial to Bangladesh’s quest
to accelerate economic growth and create more and better jobs in the formal sector for its expanding
workforce. Yet, 88 percent of labor force is informal and has low levels of education and less than
5 percent of the current workforce has tertiary education. Labor market demand for more educated

58
and better skilled workers has led to rapid increase in the demand for post-secondary education
(tertiary colleges, universities and technical and vocational education and training (TVET)). In
2010, about 0.5m students were enrolled in 2,800+ TVET institutions. About 70 percent (3m) of
tertiary students were enrolled in 1,731 private and public colleges affiliated with the National
University, while the rest study in public and private universities. The higher education system is
not equipped to respond to changes in demand and quality standards in the labor market for a variety
of factors including limited finance and weak collaboration with the labor market. 50 While
international migration has become increasingly important for Bangladesh’s economy, the vast
majority of emigrant workers continue to be employed in low-skilled jobs.

3.30 Policy Directions: To attain universal access, the government should identify the
remaining hard-to-reach primary school-age population and develop specific policies and programs
to address their needs, in particular by (i) addressing the needs of children in urban slums; (ii)
scaling up successful stipend schemes, and (iii) partnering with non-government organizations to
expand provision of early childhood development services through public financing. Reducing
repetition and dropout rates and improving transition rates will require a two-pronged approach of
improved quality and relevance of education along with support for disadvantaged children.

3.31 Examination reforms will be crucial to improve quality and send a clear message about
what the system values in learning: strong literacy, numeracy, and problem-solving skills. The
government should consider setting national learning goals, monitoring these goals consistently,
and using results of high-quality learning assessments to enhance accountability and inform
policies. Articulating and consistently measuring standards of performance for service delivery by
institutions and teachers will also be important, along with devolving centralized authority and
promoting school-based management. Improving the quality of the teaching force (through
adequate deployment, development, incentives for performance, enhanced ability to innovate, etc.)
will need to be at the center of this reform. Improved coordination is crucial and could be attained
through inter-ministerial and/or inter-agency task forces with clearly specified responsibilities.

3.32 The priority for Bangladesh’s skills-development agenda is to develop strong foundational
cognitive and non-cognitive skills, through a high quality early child development and basic
education system, as well as to improve the quality and relevance of teaching-learning in higher
education and TVET institutions. Promoting research and innovation in higher education
institutions remains critical in ensuring the system’s and its graduates’ relevance in the global
knowledge economy (Box 7). Smoother transition between schooling and the labor market, and use
of tracer studies to check relevance of skills developed and measure progress in acquiring non-
cognitive skills are also required. Support for continuous and targeted skills-building for current
employees in formal and informal employment is crucial. Jobs and skills are interrelated and the
direction of influence is mutual: one way to describe the relationship between them is “Jobs need
skills, pull skills, and build skills.”

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 Box 7: Measuring Skills to Support Policy Analysis
The Skills Towards Employability and Productivity (STEP) program provides a set of core surveys and implementation
materials to build comparable country databases on skills that can be used for country-level policy analysis. STEP
consists of two survey instruments that collect information on the supply and demand for skills. Both surveys drew on
similar surveys fielded in Peru, Lebanon, the United States, and other OECD countries and on extensive consultations
with a panel of experts. They were developed, piloted and fine-tuned over a period of one year before being
implemented in a first wave of seven countries in 2012 and a second wave of six countries in 2013.
An important aspect of the STEP surveys is the use of a multi-dimensional concept of skills that goes beyond
educational attainment to capture human capital more comprehensively. Three broad types of skills are measured.
Cognitive skills are defined as the “ability to understand complex ideas, to adapt effectively to the environment, to
learn from experience, to engage in various forms of reasoning, to overcome obstacles by taking thought.” Literacy,
numeracy, and the ability to solve abstract problems are all cognitive skills. Socio-emotional skills, sometimes referred
to in the literature as non-cognitive skills or soft skills, relate to traits covering multiple domains (such as social,
emotional, personality, behavioral, and attitudinal). Job-relevant skills are task-related (such as computer use) and
build on a combination of cognitive and socio-emotional skills.
STEP’s goal is also to measure human capital stocks, that is, skill supply. All adults, whether they work or not, are
therefore asked a similar set of questions to measure labor force potential as well as skills used. The STEP household
survey therefore collects background information on a participating household as well as detailed information on a
randomly selected individual within the household (ages 15 to 64) regarding his or her skills acquisition history,
educational attainment, work status and history, family background, and health. (Under skills acquisition history, the
survey gathers detailed information on the individual’s field of study of all reported degrees and certificates and any
participation in apprenticeships, continuing education, or training). The household survey includes three unique
modules to measure different types of skills: (i) an assessment of reading literacy designed to identify levels of
competence at accessing, identifying, integrating, interpreting, and evaluating information; (ii) a battery of self-reported
information on personality traits and behavior (conscientiousness, extraversion, self-control, decision making, and
aggressive behavior) as well as risk and time preferences; and (iii) a series of questions on task-specific skills that the
respondent possesses or uses in his or her job.
On the employer’s side, STEP measures both work requirements and reported skill difficulties as indicators of the
demand for skills, potential skill shortages, and work performance for sampled sectors of activity. National economic
well-being is the outcome of the relative quality of the levels and match between the population and employment
opportunities. The employer survey gathers information from a random sample of employers on hiring, compensation,
and termination and training practices, as well as enterprise productivity. The survey includes questions to identify (i)
employers’ skill needs and utilization; (ii) the types of skills employers consider most valuable and the hiring
mechanisms; and (iii) the tools used to screen prospective job applicants. The survey uses the same skills concepts and
definition as those used in the household survey, a feature intentionally designed to facilitate analysis of skills gaps and
mismatches.
The simultaneous measurement of skill stocks and job demands on both household and employer surveys is designed
to give some indication of the levels of skill utilization and mismatch using comparisons of parallel measures relating
to persons and jobs. Thus, both the household and employer surveys contain detailed measures of required education
and experience and of the required skills in reading, writing, math, problem solving, interpersonal/socio-emotional
traits, technology use, and manual work required by jobs. Comparing the worker- and job-side results will give some
indication of the extent of any mismatch between the skills workers possess and those demanded by employers.
Source: Gaëlle Pierre, Maria Laura Sanchez Puerta, Alexandria Valerio and Tania Rajadel STEP Skills
Measurement Surveys. Innovative Tools for Assessing Skills . Social Protection and Labor Discussion Paper
1421, The World Bank, Washington DC.

Youth Employment: The Case for Active Labor Market Programs

3.33 The lack of basic literacy, numeracy and non-cognitive skills limit the ability of young
people in the informal sector to be gainfully employed by the formal sector. A second constraint is
the lack of information on available jobs, required qualification, and expected earnings. Workers
often have to rely on informal network to obtain such information. Insufficient information not only
incurs large search costs but also lowers matching quality due to adverse selection. Women face an

60
additional constraint emanating from social and cultural norms that help to maintain gender
segregation in formal sector jobs. On the supply side, key constraints include insufficient demand
for workers due to a mismatch between industry needs and skills of the new entrants into the labor
force, and high employer costs associated with identifying the right workers based on needs.

3.34 The segmentation between skills/training programs and labor markets prevent matching of
industry demands with appropriate supply of workers. Improving employability of the youth
requires multiple platforms to facilitate school-to-work transition. Just as skills training needs to be
closely linked with employers’ demand, intermediation services are required to help with job
placement. Currently there are very limited efforts in Bangladesh between industry and education
or training providers to match student skills with jobs. Recent analysis suggests less than 1 percent
of students find jobs through employment support provided by educational institutions, and less
than 1 percent find jobs through jobs fairs. The majority of workers, including those who migrate
overseas, find jobs through informal networks with little or no matching with their education or
skills. These constraints suggest that increasing gainful formal sector employment among young
people will involve a combination of labor market interventions traditionally found in Active Labor
Market Programs (AMLPs) and the involvement of the private sector.51

3.35 Such interventions need to be customized to country context and needs. In the case of
Bangladesh this implies having a two-pronged strategy with customized interventions to overcome
barriers to entry into the domestic and overseas labor markets respectively. Apprenticeship
programs (Box 8), which help to impart competency-based skills to fulfill qualifications required
for specific jobs,52 is one type of AMLPs that has the potential to promote youth employability in
the domestic formal sector. The advantages of apprenticeship programs is that by combining skills
training with placement, they help overcome informal asymmetries and reduce transaction costs
associated with identifying the right workers. Despite legislation in place that promotes
apprenticeships in enterprises with more than 50 employees via tax incentives (Chapter XVIII of
the Labor Act 2006), very few enterprises appear to avail of this opportunity. Such programs are
essentially offered by large firms through their own initiatives, thereby undermining the
competitive edge of smaller firms that are less able to incur the costs of locating workers.

Box 8: The German Apprenticeship Model

Apprenticeships are an integral part of Germany's dual education system. Finding employment without
having completed an apprenticeship is almost impossible. For some particular technical university
professions, apprenticeships are often mandatory. There are 342 recognized trades (Ausbildungsberufe)
where an apprenticeship can be completed in Germany. They include for example doctor's assistant,
banker, dispensing optician, plumber or oven builder.
The dual system means that apprentices spend about 50-70 percent of their time in companies and the
rest in formal education. Depending on the profession, they may work for three to four days a week in
the company and then spend one or two days at a vocational school (Berufsschule). This is usually the
case for trade and craftspeople. For other professions, usually which require more theoretical learning,
the working and school times take place blockwise e.g. in a 12–18 weeks interval. These Berufsschulen
have been part of the education system since the 19th century.
In 2001, two thirds of young people aged under 22 began an apprenticeship, and 78 percent of them
completed it, meaning that approximately half of all young people under 22 have completed an
apprenticeship. One in three companies offered apprenticeships in 2003. In 2004 the government signed
a pledge with industrial unions that all companies except very small ones must take on apprentices.

61
3.36 Given the nascent nature of a number of industries and high worker turnover, collective
apprenticeship programs may be one option to develop the kind of skilled workers industries
require. For example, the leather industry in Bangladesh has developed its own apprenticeship
program, the Center of Excellence for Leather (COEL), which serves as one point service center
for skills development and productivity enhancement. 53 Other such industry-led apprenticeship
projects could help overcome the current segmentation between the demand and supply of industry-
specific skills while enhancing the employability of workers. Setting up similar initiatives will
require public investments to develop a tiered system of apprenticeship focused on a range of
industries spanning from semi-skilled to highly skilled professions. Bringing together businesses,
educational institutions and government, practical study courses will have to be developed to allow
people to combine skills training/academic knowledge from a university with practical on-the-job
experience.54 The costs of such programs will have to be shared by the government and employers.

3.37 Since the curricula are developed by both employers and educational institutions, these
types of “Apprenticeship Grants Programs” (AGP) help to overcome the segmentation between the
demand and supply side while having a welfare impact on the apprentices.55 Developing a flagship
AGP for Bangladesh could begin with identifying certain common skills that all industries need
both at home and abroad. Lessons from such successful initiatives as COEL suggest that for AGPs
to be successful, the demand for setting up a particular type of apprenticeship will depend on market
demand and the willingness of employers to invest in building their own skilled workforce. This
suggests that such an initiative should be based on a three-way collaboration between the
government, an employers’ platform (e.g. employers’ federation) and education and technical
training centers to develop a set of technical and degree apprenticeships to help meet demand for
the top ten skills sought by the domestic labor markets.

3.38 ALMPs targeted for promoting employment in overseas markets could involve a
customized skills training and migration information system to facilitate overseas job
intermediation. Improving safer and more remunerative overseas migration will require providing
potential migrant workers the necessary means to (i) make accessing skills easier as well as make
their skills and qualifications recognizable in destination countries, and (ii) match the skill needs
of the overseas employers. This requires targeting a set of job markets in a set of overseas
destinations where the demand for these jobs exist. Given the education profile of the Bangladeshi
labor force, in the immediate term focusing on a set of low skilled professions coupled with life
skills and language training would be an appropriate start. The important aspect would be ensure
that these training programs are provided by institutions with the necessary accreditation based on
common competency standards that is recognized by the destination countries. Once potential
migrant workers complete these training, a BMET web portal containing information on them could
help to match their skills with the demand as generated through the main overseas recruitment
platform, Bangladesh Association of International Recruiting Agencies (BAIRA).56

The Health Sector: Main Issues and Challenges

3.39 During the last few decades, Bangladesh has made remarkable progress on most health
outcomes, especially maternal and child health, and is on track to achieve the MDG goals 4 (reduce
child mortality) and 5 (improve maternal health). The maternal mortality ratio has declined by 40
percent since 2001, to 194 deaths per 100,000 live births in 2010. The under-five child mortality
rate has declined by 29 percent since 2004, to 53 deaths per 1,000 live births in 2011 (NIPORT

62
2011). These achievements are the result of health policies related to immunization, oral
rehydration salt therapy, and family planning, and can also be attributed to non-health policies and
interventions, such as the increase in female literacy, access to microcredit, access to safe drinking
water, and rural infrastructure development (Chowdhury et al. 2013).

3.40 However, health outcome gaps vary considerably by income group, plus the health system
now faces new challenges due to rapid urbanization, shifts in the burden of disease, and climate
change. For example, the percentage of children who are stunted among the poorest quintile (above
50 percent) is much higher than the national average. As noted earlier, the share of the poor living
in urban areas has been rising rapidly. Moreover, in contrast to many other countries, health
outcomes for the poor in Dhaka are worse than they are for the rural poor, especially among those
living in urban slums. Changing patterns of employment also pose new challenges—for instance,
the RMG work environment exposes workers to health hazards that may result in injuries,
respiratory diseases, cancer, musculoskeletal disorders, and communicable diseases, since factories
often house scores of women in poorly ventilated areas filled with textile dust (Saha et al. 2010).57
Communicable diseases such as respiratory infections and tuberculosis were among the
predominant causes of death in Bangladesh in 2010. However, the country is undergoing a rapid
demographic and epidemiological transition, with an increasing adult and elderly population and
the associated increase in chronic or non-communicable diseases, including injuries (El-Saharty
2013). Six of the top 12 causes of death in 2010 were chronic diseases,58 and they are on the rise.

3.41 Total public and private health expenditure, as a share of GDP, is one of the lowest in the
region. Bangladesh spent 3.5 percent of its GDP on health in 2012, much lower than the average
for low-income countries (5 percent). Government health expenditure comprised just one-third of
total expenditures and has been stagnant over the past decade, at about 0.9 percent. Using the rating
system proposed by Ajay and Cashin (2010), Table 3.1 presents an overview of likely prospects
for increasing fiscal space for health over the next 3-5 years.59Out-of-pocket (OOP) expenditure in
Bangladesh are about three times higher than the 20 percent limit suggested by World Health
Report 2010 to ensure financial protection. Most of this private spending finances the provision of
care by private providers, with the bulk of spending going to private pharmacies and medicine
retailers, and the rest going to a diverse range of medical providers, including traditional birth
attendants, unqualified medical practitioners, physicians’ clinics, and private hospitals.

Table 3.1: Forecast of Potential Sources of Fiscal Space for Health: 2015 – 2019
GDP growth projected to increase to 7 percent in 2019. Counterfactual
Macroeconomic
scenario projects a significant increase in public resources for health in Moderate
Conditions
absolute terms, but a reduction in relative terms.
Public revenue as a percent of GDP is assumed to grow, as tax collection Limited/
Fiscal Policy
efficiency improves, by 0.5 percent increase per year. Moderate
Re-prioritization of The government’s allocation to the health sector has been about 4.3 percent of
Limited
health in the budget the public budget and is expected to remain at that level.
Creating fiscal space through efficiency gains in the delivery system via low-
Efficiency gains via hanging fruit is limited. Overall, the absenteeism rate is low, procurement of
Limited
“low-hanging fruit” drugs and maintenance of equipment is above 60 percent, and occupancy rates
at hospitals are high.
Targeting health interventions to bottom 40 percent may generate efficiency
gains if resources are redirected based on cost-effectiveness. Allocative Moderate
Efficiency gains from formulas/payment models based on need will be required.
targeting and pooling Fiscal space may further be created by encouraging prepayment/insurance
schemes for the population above the poverty line, for example, the top Moderate
quintiles and the formal employed sector.
Source: World Bank (forthcoming) Fiscal Space for Health in Bangladesh.

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 3.42 The background paper on health strategy for the preparation of the Seventh FYP highlights
the government’s vision to achieve universal health coverage as part of the upcoming Sustainable
Development Goals, and outlines the Ministry of Health and Family Welfare’s mission to promote
and sustain health and nutrition, with containment of the population. In a paper prepared for a
special issue of The Lancet on innovation for Universal Health Coverage, a number of public health
experts have called for “a second generation of health-system innovations” in Bangladesh “to
develop a multipronged strategic approach that: responds to existing health-care needs in a way
that assures affordable, equitable, high-quality health care from a pluralistic health system;
anticipates health-care needs in period of rapid health and social transformation; and addresses
underlying structural issues that otherwise might hamper progress” (Box 9).60

Box 9: Innovation for Universal Health Coverage

A pragmatic reform agenda for achieving universal health coverage in Bangladesh should include development of a long-term
national human resources policy and action plan, establishment of a national insurance system, building of an interoperable
electronic health information system, investment to strengthen the capacity of the Ministry of Health and Family Welfare, and
creation of a supra-ministerial council on health. Greater political, financial, and technical investment to implement this reform
agenda offers the prospect of a stronger, more resilient, sustainable, and equitable health system.
Action 1: Develop a Encourage investment in training institutes for non-physician health-care workers (midwives, nurses, and paramedics)
national human and increase their deployment
resources policy and Reorganize tasks and responsibilities to make more effective use of nurses and community health workers, especially in
action plan health promotion and prevention services
Implement incentives to rectify health workforce shortages and target hard-to-reach areas and disadvantaged
populations—e.g., link postgraduate admission with service in rural areas, ensure sufficient financial and social support,
set up training facilities in poorly served areas, and encourage high-quality private-sector provision
Action 2: Establish a Raise public expenditure on health to 2% of the gross domestic product from the present 1%
national insurance Enable large-scale pilots of health insurance schemes in the NGO sector
system Introduce insurance-based prepayment for poor people (up to 100% subsidized) and formal-sector workers (mandatory,
including the ready-made garments sector) and offer non-poor people the opportunity to enroll
Introduce user fees in public and non-governmental organization (NGO)-run secondary and tertiary facilities to
incentivize participation in the national insurance scheme
Establish a strong regulatory body for health insurance that is independent of the Ministry of Health and Family Welfare
and also acts as a purchaser of health services
Continue government purchasing of non-existent services by contracting out to the private or NGO sector
Develop policies and regulations to enable public-sector facilities to compete with private-sector providers within the
health insurance system in supplying high-quality secondary and tertiary services
Create an independent body for mandatory licensing and accreditation of all facilities in the public, NGO, and private
sectors (incl. diagnostic centers and pharmacies), and where appropriate, link with mentoring and supervision system
Action 3: Build and Introduce electronic individual medical records
interoperable Strengthen and ensure interoperability of medical information systems in the public and NGO sectors, and encourage
electronic health use in the private sector
information system Bring the entire country under an effective vital statistics registration system based pm lessons from existing projects
Provide Ministry of Health Family Welfare and district and sub-district managers with geographical information system-
based applications to track and monitor service provision and ensure effective coverage
Establish a personnel management system to ensure transparency and efficiency in human resources management
Action 4: Invest to Develop and implement a national health package that includes highly effective and cost-effective interventions as the
strengthen the capacity core of the shift to comprehensive health care
of the Ministry of Strengthen quality and coverage of facility services with pay-for-performance systems, task shifting, and contracting out
Health and Family Establish effective regulatory mechanisms under the Ministry of Health and Family Welfare to ensure accountability,
Welfare coordination, and quality of health service provision
Action 5: Create a Clarify constitutional obligations of the state with respect to health care (e.g. what services should be available for free)
supra-ministerial Promote research and innovation around effective intersectoral action
council on health Create intersectoral goals, policies, and laws that promote complementary health actions needed in different sectors
Undertake periodic reviews of budgetary needs to achieve national health goals

Source: Alayne M Adams, Tanvir Ahmed, Shams El Arifeen, Timothy G Evans, Tanvir Huda, Laura Reichenbach, for
the Bangladesh Lancet Team Innovation for universal health coverage in Bangladesh: a call to action. The five actions
above are proposed for implementation over the next 1-5 years.

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Towards a multi-sectoral approach to improving nutrition security
3.43 Given the significant economic costs of under-nutrition and its potential to slow
development, the government should take urgent action to raise nutrition levels and support related
investments. The prevalence of stunting and underweight in Bangladesh has fallen over the last two
decades, and it now has lower rates of stunting than several of its neighbors (India, Nepal, Bhutan,
Pakistan, and Afghanistan). Nevertheless, the stunting rate is still one of the highest in the world,
and MDG nutrition targets will likely stay out of reach under current practices and policies. About
43 percent of children under the age of 5 are stunted (low height-for-age); 41 percent are
underweight (low weight-for-age); and 17 percent are wasted (low weight-for-height). In addition,
one in five infants is born with low birth weight—i.e. below 2.5 kg (UNICEF, 2009). Even in the
richest households, over one quarter of children are undernourished (2007 DHS). Investing in
nutrition is the “best buy” for economic development. There is ample evidence that nutrition
interventions, particularly targeting pre-school age children, rank amongst the top investment
priorities to confront long-term development challenges (Copenhagen Consensus, 2008, 2012).

3.44 Vitamin and mineral deficiencies impact wellbeing and are widespread in Bangladesh, but
have simple remedies. For instance, one-fifth of preschool aged children and one-quarter of
pregnant women are deficient in vitamin A, which can be eliminated through supplementation and
dietary diversification. Similarly, 47 percent of preschool aged children and pregnant women are
anemic; providing iron-folic acid supplementation of pregnant women and multiple micronutrient
supplements to infants and young children are effective strategies to improve the iron status of these
vulnerable subgroups. While around 84 percent of households in Bangladesh now consume iodized
salt, over half a million infants remain unprotected from iodine deficiency disorders.

3.45 Key factors contributing to under-nutrition include:

 Low birth weight: Approximately 40 percent of babies are born with a low birth weight and
are more likely to continue to be malnourished during childhood.
 Poor water and sanitation: In Bangladesh, poor water and sanitation affects personal hygiene,
latrine use, insufficient hand-washing, the inability to keep food clean, and unsafe refuse
disposal. These all increase the burden of disease.
 Low status of women is a central factor in malnutrition. Women generally have less freedom
to make decisions about what, how, and when to feed their children. Social values about
independent behavior and social interactions also compromise the quality of childcare.
 Dietary quality: Though Bangladesh is now self-sufficient in rice, improvements in food
availability have not translated into positive effects on maternal health and child nutrition. Low
dietary diversity and lack of equitable distribution of food has led to vitamin and mineral
deficiencies and under-nutrition.
 Sub-optimal feeding practices: Fewer than half of all newborns receive breast milk within
one hour of birth; less than half of all infants under six months are exclusively breastfed. During
the important transition period between six and nine months of age, one-quarter of infants are
not fed appropriately with both breast milk and other solid foods.
 High disease burden: Close to 1 in 5 child deaths are due to diarrhea. Under-nutrition
increases the risk of falling sick. Moreover, undernourished children who fall sick are much
more likely to die from illness than well-nourished children.

65
3.46 The economic costs of under-nutrition include direct costs such as the increased burden on
the health care system, and the indirect costs of lost productivity. Children who are undernourished
between conception and age two are at high risk for impaired cognitive development, and are more
likely to die before the age of 5, which can adversely affect the country’s productivity and growth.
Childhood anemia alone is associated with a 2.5 percent drop in adult wages (Horton, S. and Ross,
J., 2003). Bangladesh loses over US$700 million annually to vitamin and mineral deficiencies.
Scaling up core micronutrient interventions would cost less than US$65 million per year. Returns
on investment are as high as 8–30 times the costs (Horton, S. et al, 2009).

3.47 Nutrition is a multisectoral problem with multisectoral solutions. The immediate

causes of high malnutrition are related to food and nutrient intake and to health. The underlying
causes are embedded in the household and community level context in which nutrition occurs.
Issues such as agricultural practices and climate change, lack of access to and availability of clean
water and sanitation, health services, girl’s education and gender issues, social protection, and
social safety nets further impact these underlying causes. The basic causes of under-nutrition are
rooted in institutional, political, and economic issues. Direct actions to address the immediate
causes of under-nutrition can be further enhanced by intervening into some of the underlying
causes. For example, in addition to supporting improved infant and young child feeding practices,
addressing gender issues through health, agriculture or education programs can have a powerful
impact in preventing under-nutrition, by reducing women’s workloads and allowing them more
time for child care. Similarly, in addition to providing micronutrient supplements to address vitamin
and mineral deficiencies, improving food security, and enhancing hygiene and environmental
issues can improve nutrition outcomes among children.

3.48 Policy recommendations to scale up nutrition: While line ministries need to implement
their own programs, there needs to be joint, or at least well-coordinated, evidence-based planning
to achieve complementary nutrition interventions aimed at particular geographic areas.

 Establish and resource a high-level mechanism (i.e. above line ministries) to coordinate, plan
and monitor progress in all nutrition programming.
 Develop a multi-sector National Nutrition Strategy and a fully costed Plan of Action for
Nutrition with a common results framework.
 Scale-up well-designed, convergent programs by focusing nutrition-specific and nutrition-
sensitive interventions, which are complementary across sectors, for targeted geographical
areas (lessons from Peru and Brazil).
 Mainstream nutrition-sensitive interventions in the agriculture sector (including livestock and
fisheries) and in the social protection sector (cash transfers and safety net programs).

Improved social protection to meet changing needs

3.49 A high share of poor households continue to rely on agricultural labor or petty informal
sector activities for their livelihood, and remain vulnerable to seasonal fluctuations in output and
other such risks. As workers move to more formal jobs in the expanding manufacturing and services
sectors, they will gradually be less vulnerable to such risks— higher wage incomes and earnings
means greater ability to save and build assets to serve as a safety cushion—but they will face new
challenges: jobs in the non-agricultural sector, especially those in the private sector, are more
vulnerable to economic downturns. Bangladesh will need a stronger social protection system

66
 designed to meet these new challenges. An important policy challenge will be to extend the
coverage of social assistance programs, which are presently only in rural areas, to the urban poor.
Planning for fiscally responsible pension reform to support an aging population should also be
accommodated in the design of a comprehensive social protection system (see Annex).
3.3 Supportive Institutions and Business Environment for Private Sector-led Growth
3.50 Policy reforms in Bangladesh have helped unleash private-sector initiatives in several
sectors over the past three decades. These reforms toward creating a more market-based economy
had a varied pace of implementation across sectors and over different periods. The experiment with
the state-controlled economy after independence was reversed from the mid-1970s through gradual
deregulation and liberalization to foster a process of private sector-led development. Bangladesh
embarked on market-oriented liberalizing policy reforms towards the mid-1980s, with a more
comprehensive reform program introduced in the early 1990s, coinciding with the transition to
parliamentary democracy from semi-autocratic rule. Successive governments since then have on
balance built on these reforms, representing a significant departure from the historical stance that
favored government ownership and market intervention.
3.51 Looking ahead, accelerating economic progress will require going into a more
complicated phase of reforms that address a whole range of factors adversely affecting
investment incentives and production efficiency. As an illustration, despite several recent reform
initiatives, Bangladesh continues to secure lower positions in Doing Business rankings. In 2015,
Bangladesh has not only slipped 3 positions (ranking 173 out of 189 countries) compared to
previous year, it also recorded negative progress in terms of Distance to Frontier. Its overall DB
performance in Distance to Frontier (46.84) is lower than India (53.97), Pakistan (56.64), Sri Lanka
(61.36) and South Asian Regional Average (54.56). Many Bangladeshi institutions are not
adequately equipped to address key challenges the country faces (see Annex) as it fast approaches
middle income status, as they were established when it was at much lower levels of income.
Stronger institutions are needed to manage the country’s larger and more complex economy.
Figure 3.6: Significant Scope for Further Improvements in the Business Environment
Bangladesh: Doing Business 2015 Bangladesh: Global Competiveness Index

Registering
Institutions
Property
Protecting Market size Innovation
Getting
Minority43
Electricity
Investors Macroeconomic
Infrastructure
Environment
Starting a Enforcing
Business 184 Contracts
115 188
Goods market Technological
188
efficiency readiness
Dealing with 144 140
Trading Across
Construction 147 Financial Higher
Borders market education and
Permits
131 development training
83 Health and
Resolving Labor market
Paying Taxes Primary
efficiency
Insolvency Education
Business
Getting Credit Sophistication

Source: WBG Doing Business; Global Competitiveness report 2014-15, World Economic Forum.

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3.52 Bangladesh ranked 110 out of 148 countries in the Global Competitiveness Report,
and 131 out of 178 countries in the Index of Economic Freedom for being ‘mostly unfree’ and
lagging in effective rule of law and protection of property rights. According to GCI, Bangladesh’s
competitive strengths of a large market, stable macro-economy, and efficient and improving
markets for goods, finance and labor, coupled with improving health and education – are all drivers
or preconditions for investment growth. However, the growth potential of investment is constrained
by the weaknesses – weak institutions, poor infrastructure, and a difficult environment for
technology and innovation – represented by the upper right quadrant of the graph. While regulatory
environment is important, it is also imperative to take a deeper look into these enablers which all
underscore the need for Bangladesh to improve a number of factors before it takes off.

3.53 A comparative analysis of the Bangladesh Enterprise Surveys in 2007 and 2013 reveal
that political instability has secured the position of top-most concern of businesses. Getting
electricity still remains the key obstacle, followed by access to finance and corruption in obtaining
licenses and utility connections. The Business Confidence Survey (BCS) by the private sector led
platform BUILD reports a decline in business confidence over the past year. The decline in business
confidence is again associated with political instability leading to higher cost of transportation and
dip in investments by private sector. This has resulted in poor perception of businesses about legal
and business environment. While private sector perceived access to finance in a more favorable
way compared to previous period, businesses eventually changed their investment decisions though
businesses seemed to have an improved perception about trade facilitation and taxation. This
largely stems from a number of reforms in the recent years such as improved/electronic tax payer
services, a number of tax policy improvements in both in direct tax and VAT, and introduction of
streamlined trade clearance procedures such ASYCUDA world.

Figure 3.7: Top-Most Concerns of Businesses and Recent Trends in Business Confidence

Business Confidence Indices

10.2
9.96
10
9.8
9.6
9.35 9.37
9.4
9.2
9
8.8
Jan‐June 14 Jul‐Dec 14 Jan‐June 15

Source: Bangladesh Enterprise Surveys; Business Confidence Survey 2014, BUILD.

3.54 Excessive regulations and weakness in institutional frameworks affect business

environment. Weaknesses related to Institutional framework are reflected in outdated and at-times
conflicting rules, laws and regulations that govern the interfaces between government and
businesses. The complexity of laws and regulations is evident in BOI’s online inventory of business
law, which lists 56 laws relevant to the private sector. Of these, 26 were enacted before the year
2000 – 3 date back to the 19th century, and 12 predate the independence of Bangladesh. Even laws

68
enacted in the 1990s and 2000s are minor updates – the Companies Act was amended in 1994 to
include a few new provisions related to audits, but the fundamental sections of the law remain from
the original Act from 1913. New laws also remain only partially implemented. For example, the
Competition Act was enacted in 2012 – however, this Act, which impacts anti-competitive practices
and therefore directly relates to consumer wellbeing, remains unimplemented. This outdated legal
framework leads directly to a complex licensing environment for business.

3.55 The weak institutional framework impacts not only business to government interfaces, by
increasing the time and cost burdens of regulatory compliance, but also has an indirect impact on
business operations. Due to the high time and cost burdens of compliance, many firms tend to
remain informal, and these informal firms pose
a challenge to the business practices of the
formal private sector – in fact, practices of
informal firms are the 9th top constraint to
business as measured by the WBG 2013
Enterprise Survey. In addition, informal
businesses result in many significant economic
and social costs for a wide range of economic
actors. An easier compliance environment and
regulatory incentives are needed to encourage greater rate of formal enterprise formation.

3.56 Paying tax in Bangladesh is plagued with numerous policy and administrative
complexities. Doing Business 2015 reports that, on average, firms in Bangladesh make 21 tax
payments a year, spend 302 hours a year filing, preparing and paying taxes and pay total taxes
amounting to 32.5 percent of profits. Globally, Bangladesh stands at 83 in the ranking of 189
economies on the ease of paying taxes and performs better (73.98) on distance to frontier as
compared to India (55.53), Sri Lanka (55) and South Asia Regional average (63.4). This is also
reflected in Business Confidence Survey, 2015 where the firms have expressed their confidence
with a hope of simplified taxation rates and reform in Value Added Tax system. Recently the
Government of Bangladesh has introduced electronic tax registration system, which has made tax
registration possible in less than 1 day and at no cost. This has further impacted the starting business
indicator of Doing Business, where firms can register faster than before due to automated tax
registration system. Nevertheless, the legal status of firms and the Tax Perception and Compliance
Cost Survey, 2012 (WBG) validate the fact that there would have further rooms for investment and
growth and more firms would have become formal enterprises if tax regime was simplified.

69
3.57 Emerging sectors get the brunt of excessive regulations and “curse of the innovator”.
Institutional frameworks are generally weak for the private sector as a whole, with problems more
pronounced at the sector-specific level. Different sectors face differing regulatory burdens, which
further encourage informality; a few sectors with powerful voice such as RMG have managed to
advocate their way into a simpler regulatory environment, many other sectors and their
representative associations do not have access to the knowledge of best practices, experience or
ability to identify/advocate reforms to their regulatory environments. Uneven and non-coordinated
regulations hamper not only domestic market growth, but also impede export market expansion for
several ‘next to RMG’ sectors. In addition, there is a “curse of the innovator”: innovative industries
first suffer not only from the absence of a clear regulatory framework under which they are
governed, but instead are subject to motley of other sectors’ frameworks when they start operations.
Once they start demonstrating profit and scaling up, these sectors again come under the microscope
of the regulator, who often seek to develop new regulations to guide their operations.

3.58 One of the major infrastructural constraints faced by investors is access to land. The
complicated process of registering purchased land requires an extensive overhaul of the land
records management processes within the government. The absence of land banks means that
investment promotion agencies do not have accurate records or information on available chunks of
land that could be used for commercial/industrial purposes. The Government addressed this issue
by establishing economic zones, starting with Export Processing Zones (EPZs), followed by
Industrial Estates under the Bangladesh Small and Cottage Industries Corporation (BSCIC) and
recently by Special Economic Zones (SEZs). However, the productive EPZs are already full and
have long waiting lists. On the other hand BSCIC estates were established due to political
considerations instead of feasibility studies, and the vast majority lies empty with a wealth of
serviced industrial land that investors cannot access. Finally, the difficulty in procuring sufficient
swathes of land for SEZs means that it is often difficult to package SEZs for investors to develop
and operate. Land allocation also has a societal implication: because of the growing population and
its food requirements, agricultural land cannot be sacrificed for industry. Therefore, there is no
alternative to providing serviced industrial land to ensure investment can take place – the challenge
lies in identifying the land parcels and allocating them effectively.

3.59 Poor enforcement of contracts bundled with higher regulatory compliance cost and
issues with electricity shuns away FDI. Bangladesh has a burdensome commercial court litigation
process that most businesses find frustrating, costly and a key impediment to business operations.
According to DB 2015, on average it takes 1,442 days to enforce a contract and the financial cost
of enforcement is as high as 67 percent of the claim. As compared with this, it takes only 400 days
in Vietnam and 453 days in China to enforce a contract; the financial cost is 29 and 16 percent
respectively. The performance gap between Bangladesh and the best performer is commensurately
much larger: 150 days to resolve a conflict involving only 9 percent of the cost of claim. The high
transaction costs of compliance with the regulatory regime in these three areas are a fundamental
reason for the very low ease of doing business ranking and the relatively low inflow of FDI in
Bangladesh. Bangladesh amended the Code of Civil Procedure (CPC) back in September 2012
where mediation was made mandatory for all civil cases including commercial cases, but to
operationalize the concept an administering mediation rule is required. Successful implementation
of the court-annexed mediation would also require building necessary capacity of the judiciary and
creating required pool of ADR service providers.

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3.60 An area of particular concern in Bangladesh relates to current scenario regarding
debt resolution and business exit. IMF data on aggregate non-performing loans and Doing
Business recovery rates illustrate that loan recovery is limited and value destruction is high.
Moreover, in light of the overburdened courts, Doing Business data also demonstrates that it takes
over four times longer to close a business in Bangladesh than it does on average in OECD countries.
This means that it takes years for distressed businesses to fully exit the market, and for creditors to
be repaid. Methods for debt recovery that are out-of-court therefore provide potentially faster and
more cost-effective alternatives, something that is particularly essential for SMEs that cannot afford
overly bureaucratic and financially onerous procedures.

3.61 Weakness in institutional capacity undermines sustainability of reforms and makes

interoperability a concept yet to be fully materialized. Institutional capacity failures manifest
themselves in various ways. On one hand, the government’s capacity to engage the private sector,
understand their constraints and take steps to remove these constraints is limited not only by the
presence of mistrust between government and business, but also by the inability of the private sector
firms to elucidate their problems and advocate effectively for their needs. Weak capacities manifest
themselves in various other ways. Coordination failures exist within the government when
implementing complex multi-agency reforms. These can prolong the time required to implement
reforms, but also can derail or mitigate reform efforts altogether. Poor implementation capacities
also mean that even the best of reform intentions can get derailed – without strategic diagnostic and
implementation support, reform efforts can result in incomplete or ineffective reforms.

3.62 Recently, many Government agencies have taken steps to simplify, streamline and
automate a variety of G2B processes; the current Government’s Digital Bangladesh initiative
provided a significant impetus towards these efforts. However, a lack of process reengineering
knowledge within the government may mean that automation of business processes results in the
current process moving to a digital form, thereby not removing the opportunities for rent-seeking
but more importantly meaning that the private sector does not experience the benefits of reform.
An example of such a reform is the automation of the Factory Registration process – although the
application process was moved online, the submission form did not function properly – as a result,
all users had to revert to the original offline system, which itself was fraught with corruption.

3.63 Finally, capacities to attract strategic investments remain poor. The Board of
Investment, established originally as an Investment Promotion Agency, focuses most of its effort
on regulation, meaning that identifying priority sectors, designing a shelf of projects, targeting
priority investors and converting investor interest into actual investment is very poor.

3.64 Regulatory enforcement remains a major hurdle making implementation of laws and
regulations challenging. As demonstrated by the recent tragedies in the garments sector, such poor
enforcement can have a significant impact on not just business and investor perceptions, but more
importantly on labor and environmental standards. This challenge is exacerbated by an unclear and
uncertain inspections regime. The current regime does not comply with the principles of risk-based
inspections and therefore focuses not on actual risk posed on society but rather on the convenience
of inspectors. As a result inspections become tools for rent-seeking, creating regulatory burdens on
business and delivering negative impacts on society, citizen and business. Recent accidents not
only cost the nation invaluable human lives, but also endanger competitiveness and access to the

71
important US and Europe markets, foreign investment into the sector and continuity of facilities
such as GSP, which has already been withdrawn by the US for certain products.

3.65 Trading across borders is burdened with high cost and time for trade. According to
Doing Business report, it took about 28.3 days to export (costing USD 1281) and 33.6 days to
import (costing USD 1515 per container) considering time required for document preparation,
customs and port processes. In contrast, the best performers could complete the processes in 6 days
and 4 days respectively for export and import with their containers costing around USD 400. A
detailed diagnosis (T&C, WBG 2014) of Chittagong Port indicates that it takes about 11 days 9
hours and 45 minutes from the time the vessel arrives to the time the imported good is released.
Similarly, it takes 4 days 22 hours and 38 minutes from the time the cargo reaches the port to the
time it is released for export and loading on the ship. A significant amount of time is taken in
dealing with other government agencies. Typically, these delays arise from obtaining relevant
certifications, for example SPS, TBT and other certifications, rules of origin, valuation, etc. These
certification processes can benefit from process simplification and automation, to conform to
relevant agreements or international best practices. These delays impede Bangladesh from
participating effectively in global value chains. The government has recently rolled out ASYCUDA
World, an efficient automated system for customs assessments, which has resulted in some
improvement. However, significant improvement will require introducing National Single
Window, and more streamlined trade related regulatory procedures.

3.66 Infrastructural constraints are rooted in absence of strategic planning and investment along
with conducive policies for private sector participation. Infrastructure remains critical in
competitiveness of Bangladesh. While getting electricity has its unique issues, other infrastructure
have their due share of problems. The following graph from the Enterprise Survey captures the
delays in obtaining infrastructure services in Bangladesh as compared to South Asian and low

income countries. The number of outages and shortage of water supply per months are also serious
obstacle for businesses in contrast with other South Asian and low income countries.

72
3.67 The high hidden costs remain a major hindrance to doing business. Bangladesh ranked
139 out of 140 countries on irregular payments and bribes in the Global Competitiveness Index
rankings 2015-16. Around 60 percent of
respondents in the 2013 BES indicated that an
informal gift or payment was requested when
obtaining an operating license. Similarly,
almost 50 percent of firms experienced at least
one bribe payment request among six possible
regulatory or utility transactions. The fact that
despite automation of export and import
registration, the concerned authority wants to
keep the process manual can be easily
associated with 77 percent of firms reporting a bribe solicitation when obtaining an import license
which is the highest percentage amongst all countries.

73
 4. FIVE POTENTIALLY TRANSFORMATIVE PRIORITY AREAS
4.1 The SCD identifies five key areas—(i) energy sector, (ii) inland connectivity and logistics,
(iii) regional and global integration, (iv) urbanization, and (v) improved delta management—where
concerted efforts by the government and other stakeholders would yield the highest payoffs through
accelerated job creation in the more dynamic off-farm and urban manufacturing and services sub-
sectors of the economy. Broad consensus already prevails among key stakeholders in Bangladesh
on the importance of each of these areas, as evidenced, for instance, by the high priority accorded
to them in the Sixth FYP. This chapter goes beyond presenting just a diagnostic per-se, and also
includes a number of recommendations and suggestions on how best to tackle these challenges.

4.1 The Energy Sector

4.2 Numerous studies in Bangladesh have clearly established how the availability of
electricity boosts growth, reduce poverty, and improve living conditions (Khandker et al. 2012,
2013, and 2014; and Barkat et al., 2002). Access to electricity increases economic development
opportunities through improved lighting, permits the use of household appliances, and, for
industries and agriculture, increases productivity by allowing the use of electric tools, machinery,
and grid-powered irrigation. A 2012 study showed that access to electricity increased rural
households’ incomes by as much as 21 percent, resulting in a corresponding drop in the poverty
rate of about 13 percentage points in Bangladesh over a nine year period. A 2009 study showed
that gross income of electrified commercial units in rural areas (shops, small businesses) increased
2.8 times between 2005 and 2009 compared with little change in non-electrified commercial units.
A positive impact has also been found on women’s mobility, employment, and participation in
decision-making processes in Bangladesh (Barakat et al., 2002). A 2005 evaluation of the impact
of grid electrification has shown that increased access to electricity in rural areas has increased
income opportunities and enabled better education, particularly for females, and increased women’s
social awareness and sense of security.

4.3 Access to electricity in Bangladesh was only around 60 percent in 2014, and per-capita
electricity consumption of 294 kWh per year is one of the lowest in the world. While access in
urban areas is close to complete coverage, only Figure 4.1: Population Without Electricity (mln)
about 42 percent of rural households have access India 303
to electricity, leaving 13m rural households Nigeria 82
without power. Industry and the commercial Bangladesh 67
Ethiopia 64
sector accounted for almost half of power Congo, DR 56
consumption in FY13, while agriculture Tanzania 38
accounted for a relatively small share of Kenya 31
Sudan 31
electricity consumption (3 percent). Hence, the Uganda 29
availability of power and the quality of supply Myanmar 25
largely impact industry and the commercial Source: International Energy Agency
sector, which are also the sectors responsible for the bulk of value-added for the economy.

4.4 The availability and reliability of power supply is a key concern for businesses. Of the
15 areas of the business environment, firms in Bangladesh rated electricity second highest as a
constraint to their operations after political instability -- ahead of finance and corruption. In fact,
28 percent of firms surveyed consider electricity their top obstacle; and 52 percent identify

75
electricity as a major constraint to doing business.61 In the latest Doing Business report (2014)
prepared by the World Bank, Bangladesh was ranked the lowest out of 189 economies on the
"Getting Electricity" indicator. Firms in the country face ten times as many outages in a typical
month as the average for all countries for which Enterprise Survey data are available and five times
as many as the average for low income countries. Bangladeshi manufacturing firms and service
providers reported that they experienced 68 outages per month in 2013 with an average duration of
one hour per outage, implying that businesses on average suffered from power outages for 70 hours
per month or 840 hours per year.

4.5 Back up generation imposes a significant cost. Firms report significant output losses due
to inadequate electricity supply: in 2013 manufacturers and the service sector reported losses of 3.8
and 3.5 percent of annual sales respectively. Consequently, most Bangladeshi firms invest in back-
up generation: 63 percent own or share a generator. This mitigates some of the actual impact of
power outages on output, but the additional expense impacts the firms’ cost of production. The cost
of electricity generated using diesel or fuel oil is higher than that of electricity generated from
imported coal or gas fired plants and this cost could be avoided had planned grid-connected
capacity come online. Investment in Liquefied Natural Gas (LNG) or imported coal-based grid-
connected electricity generation to replace the back-up generation requirement of manufacturers
and service providers could potentially result in US$135 -US$190 million in economy-wide
savings.62 Data from the World Bank Enterprise Survey of 2013 indicate that outages resulted in
an output loss of nearly 3 percent of GDP in Bangladesh that year. A rough back-of-the-envelope
calculation indicates that outages resulted in output losses of US$ 4,300 million and unemployment
of about 1.4 million people.

Despite a significant increase in power generation capacity in the past 5 years, the gap
between demand for power and the available supply is growing.
4.6 Generation capacity has doubled since 2009 and both availability of electricity and
the number of consumers served have grown steadily over the last decade. Generation capacity
grew from approximately 5 giga watts (GW) in 2009/2010 to about 10.6 GW in late 2014. A
significant part of this increase came from short term contracts with ‘rental’ power plants as well
as the coming on-line of investments in generation capacity made early in the decade. Power sales
to rural consumers have grown by about 11.7 percent annually over the last ten years with an
average of 425,000 new consumers per annum getting access to the grid over the last three years
alone. A large reduction in system losses has contributed to this, with transmission and distribution
losses going down from 28 percent in 2002 to 14 percent in 2013.

4.7 However, the country continues to face a significant shortage of power. In FY13, there
was a shortfall in peak capacity of 22 percent and 13 percent in terms of meeting non-peak demand
– the highest level of demand served in 2013 was only 6,675 MW. Energy requirements are
projected to rise nearly five-fold to over 190 tera watt hours (TWh) by 2030 from the 2013 level as
efforts to increase access to grid electricity (presently only 53 percent of the population) bear fruit
and in view of 6 percent per annum projected economic growth. This means Bangladesh would
need nearly 30 GW of reliable and efficient base-load generation capacity by 2030.

4.8 Electricity supply is constrained for several reasons, the most important of which
being limited investment in new base-load generation capacity and inadequate fuel supply.
Many power plants are decades old and operate below their rated capacity due to inadequate

76
 attention to operations and maintenance, and with reduced output of electricity per unit of fuel.
Efficient, combined-cycle gas power plants make up only 2.4 GW of the approximately 7 GW of
gas–fired capacity. The average efficiency of the aging gas generation fleet is 34 percent, well
below the 50-60 percent efficiency of new build plants. Historically, natural gas accounted for 70
to 90 percent of power generation in Bangladesh since it had relatively abundant onshore gas
reserves. World Bank estimates suggest that domestic production will peak at 3,000 mmcfd in 2017
and then begin to decline. Currently operating fields will not be able to meet existing demand let
alone supply sufficient fuel to sustain the 10 percent growth in power demand seen between 2006
and 2011. Even today, many plants do not operate at full load due to a shortage of gas; around 1.5
GW of gas-fired capacity cannot run to its full dispatch potential.

Figure 4.2: Declining Domestic Gas Production and Projected Shortage

3500
5,000
3000 4,500

Million cubic feet per day

4,000
Million cubic feet per day

2500
3,500
2000 3,000
1500 2,500
2,000
1000
1,500
500 1,000
0 500
2012 2014 2016 2018 2020 2022 2024 2026 2028 2030 0
Titas Habiganj Rashidpur Kallashtilla 2012 2015 2018 2021 2024 2027 2030
Jalalabad Bibiana Rest of the Fields

Gas Production from Operating Fields Projected Gas Shortage

Source: Consulting Services for Preparation of Implementation and Financing Plan for Gas Sector Development, Dorsch
Consult (India) Private Limited 2012. World Bank Estimate

4.9 Short-term solutions for power supply have been unsustainable. As many of the large
Independent Power Plants that were contracted since 2008/09 have not yet been commissioned and
many have been delayed in reaching financial closure, as an interim measure, the government
signed 3-5 year contracts with private suppliers for 2,300 MW of generation capacity in diesel or
furnace-oil fired ‘rental’ plants. While these plants came on line quite rapidly, liquid-fuel based
power generation is much more expensive than that generated by large coal or gas fired plants. This
has pushed up the average cost of power produced, from which the government has tried to protect
consumers to some extent at a large fiscal cost. Though these were supposed to be short-term plants,
the contracts for all existing rental plants were renewed in late 2014 for another 3-5 years as the
large base load plants are yet to come into operation.

4.10 Gas is critical for the power sector Figure 4.3: Power Generation Capacity
since it fuels 70 percent of current  10,000

generation. Looking ahead and noting that  8,000 Gas

despite the lack of substantial reserves natural Fuel Oil
Megawatts

 6,000
gas consumption accounts for 56 percent of Heavy Fuel Oil

total energy supply, gas will remain an  4,000 High Sulphur Diesel

Coal
important element of the fuel mix in the  2,000 Hydro
foreseeable future, initially to fuel the base- Imported
 ‐
load capacity that would otherwise be stranded 2011 2012 2013 2014
and later to fuel peaking plants. In the absence Source: Power Development Board (Der-rated year-end)
of domestic gas, the country will need to import LNG and invest in the necessary infrastructure for

77
imports while continuing to depend on the supposedly temporary expedient of liquid fuel rental
plants in the short term. This is also an opportunity to re-think gas pricing policies and improve
incentives for investment in exploration and production of domestic gas as well as plan for an
accelerated diversification of sources of power supply away from domestic gas. An additional
priority is upgrading the existing gas fleet to even 50 percent efficiency – World Bank estimates
indicate this could create up to 3GW of additional capacity at a cost of US$1100/kW.

4.11 Exploration for additional domestic gas is now a priority, particularly offshore. Given
the magnitude of the investment required for gas exploration and the high risks and specialized
technical expertise needed, International Oil Companies (IOCs) would be expected to be involved
both onshore and offshore. However, till recently, IOCs were restricted to offshore exploration
based on the rationale that the national exploration company (BAPEX) is technically capable of
onshore exploration itself. BAPEX has very limited technical, human resource, and financial
capacity, which has constrained onshore exploration. Partly as a result, Bangladesh has not been
able to substantially increase the onshore reserve base since 1998. IOCs have been invited to bid
for offshore (shallow and deep-water) exploration blocks (more risky and 4-5 times more expensive
than onshore), but contract terms are considered unattractive. In fact, IOCs have said that under
these terms their operations are financially unviable. With maritime boundaries having recently
been agreed, the government has initiated contracting for a seismic survey of Bangladesh’s
territorial waters in order to generate information on locations with potential and is reviewing the
standard production sharing contracts it offers prior to announcing a new bidding round for
exploration and production. Deep-water offshore exploration by IOCs has thus far yielded slightly
more than 2 trillion cubic feet of additional gas reserves.

4.12 LNG imports are likely to be required in the near future to fuel existing gas-fired
plants as well as those in the pipeline. Availability of LNG will release idle gas capacity and
permit the government to retire some of the rental plants which rely on fuel oil, which is not only
polluting but also more expensive than LNG. Importing LNG will also warrant a re-examination
of pricing policies in view of the fiscal implications of shielding consumers from the full cost of
imported gas. It should be noted that the import of 500mmcf/d of LNG will likely cost between
US$2 to $3 billion or more per year, depending on the price of gas, which is substantially more
than the US$1.3 billion consumers paid for 2,300mmcf/d of gas in 2011.4

4.13 The government has expressed its intention of exploring all options to address the
current shortage of power and get onto a sustainable path for power sector development.
These options range from import of power from neighboring countries; implementation of demand
side energy efficiency measures; the conservation of domestic gas; exploration and development
of new domestic gas fields; import of LNG; and even the use of coal in super critical thermal plants.
Each of these options brings its own set of implementation considerations including relating to
potential policy and institutional changes.

4.14 Given the over-reliance on natural gas, power supply diversification is a key solution.
Because non-renewable energy is limited in Bangladesh, it is critical to ensure energy security by
increasing the use of renewable energy, which is more environmentally friendly. Moreover, the
expansion of the use of renewable energy might reduce the importation of energy: this would have

4
Bangladesh Natural Gas Pricing Framework. AECOM 2012.

78
a positive impact on the country’s balance of payments and the overall economy. However, there
is limited potential for large scale renewable energy generation given land constraints (for solar
PV) and moderate resource availability (for wind). Bangladesh has been selected in the second
phase of the Scaling up Renewable Energy (SREP) Program for Low-income Countries and an
investment plan is currently being drafted looking at the resource potential and the barriers for
scaling up renewable energy. While the application of large-scale renewable energy technologies
has been limited so far, Bangladesh has done remarkably well in renewable energy based
distributed generation with more than 3.5 million solar home systems (SHS) installed as of May
2015 providing access to electricity to more than 18 million people in remote rural Bangladesh
where grid electricity network is difficult or expensive to extend.

Challenges: Investment, Procurement, Costs and Pricing

4.15 Bangladesh’s power sector faces the dual challenge of massive investment in new
capacity while simultaneously facing an increasing cost of fuel. In order to meet the
“Government Policy” target of 33 GW peak demand in 2030, generation capacity has to reach at
least 40 GW.63 This implies a three-fold increase in capacity, i.e., maintaining the same growth rate
of capacity development achieved in the last 5 years over the next 15 years. World Bank estimates
indicate that meeting even a 25 GW peak demand target will require $11-46 billion in new
generation capital expenditure, depending on the supply options chosen. In view of the country’s
endowments, future base-load electricity generation will depend on expanding (onshore/offshore)
domestic gas production and some form of imported energy – coal, LNG, or imported electricity.
In addition to the capital expenditure requirement noted above, the operating expenditure for
purchasing imported fuel/electricity will be significant for all three options and even new offshore
gas is likely to be considerably more expensive than the current price of domestic gas.

4.16 Despite early success in attracting private investors, only one new large independent
private producer has started operation in the last decade. Private investment and commercial
financing are recognized as important complements to government efforts to increase generation
capacity. Still, several large projects promoted by private sponsors have failed to reach financial
closure and others have been considerably delayed, forcing continued reliance on rentals. Among
other issues, concerns about the award process and quality of sponsors have colored market
perceptions of the viability of many of the IPPs offered. It is critical to improve the process to
ensure that competent sponsors with proven track records and strong financial capacity are selected.

4.17 Current end-user gas prices remain well

Figure 4.4: Gas Prices by Country
below those in neighboring countries and
14
regional benchmarks and far from the
12
opportunity cost of gas (Figure 4.4). This not only
10
limits incentives to conserve gas and implement
US$/cubic feet

8
efficiency measures but it does not provide the
6
right signals for use of gas in the highest value
4
sectors, reduces producer interest, and fails to
2
generate income for the government. While global
0
gas prices have been on the decline since the Bangladesh Pakistan India Malaysia Thailand Indonesia Singapore

middle of 2014, LNG imports will still likely cost Source: Asian Development Bank (2013)

79
 at least US$8 to US$10/mcf which is significantly higher than the current average price of
US$1.65/mcf that consumers pay for natural gas.

4.18 The increase in fuel oil use by rental plants and independent power companies has
resulted in a nearly threefold increase in the average cost of power supply, which has not been
fully passed on to consumers. The change in the generation fuel mix over 2010-2013, with liquid
fuel moving up from 5 to 28 percent of peak generation, has significantly increased the average
cost of electricity. The real cost of power will eventually decline as the large gas- and coal-fired
power plants come online, but that is still a few years away, and tariff increases will continue to be
necessary until then. The government has demonstrated a commitment to such increases: there have
been regular adjustments in power tariff following a process of public hearings that is conducted
by the regulator, BERC, as part of the tariff setting process. However, the tariff is still below cost
recovery levels. The increase in average cost of power has been handled by the government
allowing a gap to form between the bulk supply tariff that the distribution utilities pay to the
Bangladesh Power Development Board (BPDB), the single buyer in the sector, and the price that
BPDB pays to generate and purchase power, and then compensating BPDB with a subsidy to make
up the difference. The gap between the cost of service and consumer payments is unlikely to go
down until the short-term rentals are replaced by low cost base load power plants and/or retail
tariffs are adjusted to reflect the cost of electricity services.

Table 4.1: Rising Unit Cost of Power

FY2008 FY2009 FY2010 FY2011 FY2012 FY2013
Average per unit cost of power
(BDT/kWh) 2.36 2.55 2.62 4.20 5.36 6.70
Source: Bangladesh Power Development Board

4.19 The fiscal cost of protecting consumers from the true cost of power is high. Despite
increasing the BST by a total of 80% in phases since February 2011, the direct budgetary transfer
to BPDB from the government of Bangladesh was BDT60 billion (around $800 million) in FY14,
approximately 0.7% of GDP and 5% of total government budgetary spending. This is a nine-fold
increase from the transfer of approximately $90 million per year from FY07 to FY09. Petroleum
products, used by the rental plants, are also subsidized with the total budgetary transfer to the
Bangladesh Petroleum Board amounting to around $1 billion per annum in FY12-14.

Table 4.2: Cash and Loan Subsidies for Power and Petroleum Products
FY2008 FY2009 FY2010 FY2011 FY2012 FY2013 FY2014
Actual Actual Actual Actual Actual Actual Revised
US$ million 89.1 148.8 145.4 549.7 789.1 584.0 799.6
Bangladesh Percent of
Power current 1.13% 1.62% 1.48% 5.16% 7.21% 4.50% 5.26%
Development spending
Board
US$ million 534.7 221.6 131.7 549.7 1061.3 1764.9 963.4
Bangladesh Percent of
Petroleum current 6.79% 2.41% 1.34% 5.16% 9.69% 13.60% 6.34%
Corporation spending
Source: Ministry of Finance. “Medium Term Macroeconomic Policy Statement from 2014-15 to 2016-17” Table
3.7A: Cash and Loan Subsidies (Billion Taka)

80
Priority actions for the sector to be able to support Bangladesh in achieving sustained growth,
enhancing access to the forty percent lacking power and contributing to poverty reduction.
 Fast track options that are either already in implementation, or can be initiated with minimal
effort in the short term. This includes releasing 1,400-1,700 MW of additional supply capacity
(by mid-2017) through re-powering, demand side management and power imports to augment
new generation capacity. An additional priority is to accelerate the first 500 mmcfd of LNG
imports since that can free up most, if not all, of the existing stranded gas- fired power
generation capacity.

 Form a concrete implementation plan to achieve the 20 percent Energy Efficiency Target.
This has the potential to save $15 billion in system costs over 2015-2030. A World Bank/GTZ
study in 200964 identified a number of promising residential and industrial energy efficiency
measures for both power and gas. Even the most basic five options for power could shave 440
MW off the peak and over 1,500 GWh off the energy requirement annually. Rolling load
shedding and the high investment and operating costs of back-up diesel generation units would
suggest that a proper demand side management program would pay for itself and get ready
acceptance from consumers. Reduction of existing high levels of auxiliary consumption from
power stations through a basic audit, refurbishment and modernization program is also a win-
win solution.

 Prioritize investment in domestic gas exploration activities. This can add 400 TWh over
baseline projections between 2015 and 2030. The opportunity cost of not having sufficient gas
means potentially greater reliance on LNG ($19 billion in additional (discounted) supply costs
over the next 15 years) or imported fuel oil. A Gas Sector Master Plan that weighs options and
develops a road map for sector investment should be prepared.

 Diversify fuel mix to enhance energy security. Bangladesh’s dependence on natural gas for
two-thirds of generation and the projected depletion of proven gas reserves together make it
imperative for Bangladesh to obtain more gas, both through imports and through ramped up
exploration, and to diversify the mix of fuels used for generation. A policy for exploiting other
thermal resources (e.g. coal) should be developed in concert with a strategy to harness
renewable sources of power—a start has been made through the off-grid renewable energy-
based access program. The recent import of power from India is a welcome development
(discussions are also underway with Nepal and Bhutan). Bangladesh is also looking to
Myanmar as a source of gas and power, and can play a critical role in championing the
development of a regional market and power pool.

 Large-scale (3-12 GW) power imports as a first stage in the development of a Regional Power
Market should form the core of the power system master plan. A key early activity is
identification of transmission routes from Bhutan, Nepal and Myanmar and investment in the
same. As the power exchange between Bhutan and India and now the initial year of operation
of the India-Bangladesh link show, there is great promise for this to be a reliable long term base
load supply option. The groundwork to expand power trading to the next level has been laid.
Next steps include a technical feasibility study of the power corridor for transshipment of 6
GW of power across Bangladesh and exploration of the true potential of wider power trading
with other neighboring countries, including Myanmar.

81
 Reduce the fiscal burden. Market-based pricing of key inputs such as natural gas and
petroleum products along with end-user electricity tariffs that cover efficient production costs
will help greatly in reducing dependence on the exchequer. Work is required on the following:
(a) permitting bulk supply tariffs to reflect the market price of generation, (b) retail tariff reform
to provide greater certainty to investors, and (c) lower priced renewal of rental contracts, since
capital costs have been paid down. To date some contracts have been renewed on a ‘no power
no payment’ basis, while some rental prices have come down, more should be done to reduce
the cost of rental power and eventually phase it out. Permitting the price of domestic gas to
reflect the international price would signal scarcity and provide incentives for conservation and
efficient use. It would also help ensure that planned use of imported gas does not create an even
greater fiscal burden than currently exists. Finally, subsidies need to be targeted to the poor,
and preferably delivered through direct transfers, rather than below-cost tariffs.

4.2 Inland Connectivity and Logistics

4.20 Bangladesh needs to accelerate the economic transformation of its rural areas; and
improving connectivity is key. As highlighted in Part 1, growth in labor incomes in Bangladesh
was an important contributor to faster poverty reduction over the past decade, with productivity
increase in the agriculture sector and the outflow of workers from low productivity daily-wage
work in agriculture to jobs in services being significant drivers of such change. Still around 80
percent of the poor live in rural areas, where agriculture continue to be the dominant sector of
employment and household income, but closely followed by non-farm activities. Also considerable
spatial variations in the incidence of poverty between the east and the west, and across upazilas
exist. Hence, if Bangladesh wants to eliminate extreme poverty, it needs to deepen the economic
transformation of rural areas across the entire country. There is a wealth of evidence on the role of
improved inland connectivity on raising agriculture productivity, promoting the movement of the
workforce from farm to non-farm employment and reducing poverty in Bangladesh. Box 10
presents findings from impact evaluations of several completed transport interventions in the
country.65

4.21 Bangladesh also needs to enhance its competitive edge in international markets, and
improving its logistics is key. A more dynamic export-oriented manufacturing sector in
Bangladesh has the potential to create more and better jobs to accelerate the pace of poverty
reduction and provide better lives for its citizens. High logistics costs can be seen as an implicit tax
that biases the economy away from exports, and limit access to imported inputs and final goods.
There is significant evidence on the impact of logistics costs on trade. For example, Limao and
Venables (2001) found that a 10 percent reduction in transport costs can increase trade flows by 25
percent. Bangladesh ready-made garment sector is now faced with increasing competition and the
challenge of delivering exports to meet continuously decreasing order cycles. There is ever growing
pressure for a more efficient logistics system in the country.

Limited rural-urban and inter-urban connectivity are a key binding constraint to poverty
reduction
4.22 Despite past expansions of the transport network, poor inland connectivity is still
hindering further economic transformation in rural areas. Although the road network in
Bangladesh is extensive – about 300,000 km long, with a density of 1.9 km per 1,000 people66 – it
provides sub-optimal accessibility. World Bank estimates indicate that only 37 percent of rural

82
households live within two km of an all-weather road (i.e. one that is motorable all year round),
compared to 61 percent in India and Pakistan. As a consequence, access to markets can be difficult
and costly for rural households under adverse weather conditions. This problem is likely to worsen
over time due to the impact of climate change on the Bangladesh Delta. Roads are also often too
narrow for the traffic they carry resulting in congestion and delays. According to the study Dynamic
of Rural Growth in Bangladesh (World Bank, 2015b), traders of high value agricultural products
rank poor road condition and road blocks as the two most severe constraints to business operations.
The same study show that transport costs are major sources of variable costs for all traders. For
instance, transport and handling costs account for 45 percent of wholesale traders’ variable costs
and 35 percent of the variable costs for retail traders of brinjal. For all types of traders of brinjal,
the costs of damage and loss are also very high (40 percent of variable costs). About 30 percent of
traders surveyed reported transport congestion and another 26 percent reported transport delays as
the main reasons for product loss/damage. Looking to the future, continued investments in road
infrastructure are a high priority.

Box 10: Impact of Improving Connectivity in Bangladesh

Improved inland connectivity increased the competitiveness of farm and non-farm enterprises in rural areas of
Bangladesh. Impact evaluations of several completed transport interventions in Bangladesh confirm the benefits of
inland connectivity improvements. These studies show significant decrease in travel time (above 50 percent in some
cases) and transport costs (for example, per km. average passenger fares decreased 8-39 percent on improved roads vs.
88-134 increase on control roads), and consequent increase in passenger and freight movement in the improved roads.
Khandker et al. (2009) found transport cost for taking agricultural production to market fell by about 25 percent. Such
improvements in connectivity triggered increases in the average yield per hectare of various agricultural cash crops –
42 percent (LGED, 2010), increases in the value of the basket of agriculture production – 8 to 22 percent – due to more
production or shifts to higher value crops, and increases in output prices– 2 to 3 percent. Khandker et al. (2009) also
found a decrease in the cost of agricultural inputs, particularly fertilizer. Hence, improving rural roads increased gross
output per worker. The same studies show that improved inland connectivity also increased the average number of
enterprises along roads, with non-agro enterprises increasing the most.
Increases in productivity and competitiveness of agriculture and non-agriculture firms due to road investments yielded
increases both in fulltime employment and in wages. For example, in villages with improved connectivity the number
of fulltime employed household members increased by 2 and 1 percent for male and female, respectively, compared
with decreases of more than 25 percent observed in similar areas but without improved connectivity (LGED, 2010). In
the case of wages, men’s daily agriculture wage increased by 11 percent in some villages, while men’s daily non-
agriculture wage increased by 19 percent in other villages, in both cases due to improvement of rural roads (Khandker
et al, 2011). The employment effects on non-agricultural wage work are found to be stronger in the longer term. As
the authors point “this suggests a feedback effect between off-farm work and rural road development, where road
improvements foster markets that become increasingly diversified across sectors.” The economic transformation of
rural areas caused by better access to input and output markets improves the income generating capability of
households. The average monthly household income rose by almost 60 percent in villages with increased connectivity
(LGED, 2010). Finally, strengthening the income generating capability of households through better inland
connectivity was found to reduce moderate and extreme poverty by roughly 1 percent yearly (Khandker et al, 2009).
Improved inland connectivity also lowered barriers to investments in human capital. Several studies found increases
in school enrollment due to improved connectivity. A recently finished rural road improvement project had positive
impacts on education (LGED, 2010), with enrollment of children under 16 years old increasing by about 10 percent
due to better connectivity. Two other programs were found to increase enrollment in secondary schooling by 14 percent
for boys and more than 20 percent for girls. Khandker et al. (2011) find the effects on schooling to be attenuated in the
longer term, which could be explained by the lack of proper maintenance of roads. Improvement of rural road
communication and transports played a vital role in improving access to sanitation and hygienic behavior including
having sanitary latrine, using soap and garbage disposal. Improved inland connectivity thus has cross generational
impact on poverty reduction.

4.23 Bangladesh needs to improve east-west connectivity, particularly connecting the

Southwest to Dhaka. The geographic east-west divide of the country due to the Jamuna and Padma

83
rivers is seen in the poverty incidence figures, with this being 6 percentage points higher in the west
than in the east in 2010. At present the only connectivity between Dhaka and the Southwest and
South Central regions is through ferries, which is less reliable and more limited than through
bridges. The Jamuna Multipurpose Bridge, connecting the northwest region with the eastern section
of the country, had significant impacts on villages in the northwest region (Bayes, 2007).
Connecting the southwest with the eastern section of Bangladesh through the Padma Bridge can
similarly be expected to have a major impact on job creation, poverty reduction and human capital
accumulation. Using the differences in poverty rates and accessibility to economic centers across
thanas, Bankespoor et al. (2014) estimate that a 1 percent increase in market access could lead to a
2.6 percent reduction in future poverty. The authors find that the Padma Bridge could reduce
poverty by about 0.6 percent. This is a conservative estimate given that the analysis does not fully
capture the potential economic transformation of the southwest region and the rest of Bangladesh.

4.24 Increasing the competitiveness of medium and small cities in Bangladesh is important
for economic activity to be more evenly distributed across the country. Secondary cities have
a very low employment density (employment per square kilometer), which is 25 and 16 percent
that in Chittagong and Dhaka, respectively. Secondary cities are service-based economies, with a
arrow and declining industrial base, while Dhaka and Chittagong are primarily industrial cities. As
the study of the garment industry by Muzzini and Aparicio (2013) has shown, distance to other
garment firms and inadequate access to transport infrastructure, including the port, together with
lack of skilled workers are the main disadvantages of firms in secondary cities compared to those
located in Dhaka and Chittagong. Closely related to urban-rural connectivity is the need to focus
on secondary cities that remain poorly connected; they are potential drivers of economic activity
and better jobs.

Box 11: Economic and poverty impact of safer roads

The road safety situation in Bangladesh is serious and with a disproportionately large impact on the poor. According
to police data, road crashes in the country claim about 4,000 lives a year. However, a study conducted during 2001
estimated the number of road deaths and serious injuries to be 34 times that officially reported (Aeron-Thomas et al,
2004), and that the poor were involved in over half of all road deaths (54 percent), with pedestrians accounting for
almost half of these deaths, mainly due to lack of adequate pedestrian infrastructure. The study also found that about
70 percent of poor rural families suffering a road death saw their income decrease compared to 50 percent for non-
poor rural families. In the case of seriously injured victims, fewer rural poor were able to return to their job (56
percent vs. 75 percent of non-poor) and spent on average twice as many days searching for a new job than non-poor.
The impact of road crashes on the economy is a serious issue: annual socio-economic costs of road safety are
estimated to be around 2 percent of GDP. Bangladesh should follow the recommendations from UN Decade of
Action for Road Safety to improve its performance in this area.

Sustainability of investments comes with increased maintenance and enhanced governance

4.25 Bangladesh needs to move away from the “build, neglect, rebuild” mindset. The
quality of roads is poor: only 25 percent of the road network is paved, and about 40 percent of the
main roads (National and Regional highways, and Zila roads) are in good condition (World Bank,
2010). In 2011, only about 23 percent of the maintenance requirements in rural roads were being
met. A similar problem arise in other modes of transport, such as IWT, where unmaintained
waterways, particularly in rural areas, have reduced navigability by modern mechanized vessels.
Under-spending on maintenance of infrastructure has direct and indirect costs. Without regular
maintenance, physical infrastructure can rapidly fall into disrepair, requiring expensive

84
reconstruction to bring it back to adequate standards. For example, the cost of full reconstruction
of roads that have been poorly maintained is, on average, at least three times the cost of maintenance
(World Bank, 2005). Lack of adequate maintenance triggers a progressive deterioration of the
quality of the infrastructure services, which hurts users (e.g., higher costs because of imperfect and
costly substitutes, worse social outcomes in health and education) and development outcomes. In
the overall transport sector in Bangladesh, maintenance expenditures in real terms have remained
broadly stable over the last decade. Looking forward, with increasing investment expenditure, this
raises the question as to the ability to maintain new capital investments and their sustainability.
4.26 Bangladesh should ensure enough funding is available for maintenance; but most
importantly, enhance governance, particularly monitoring mechanisms of maintenance
spending. While funds for new construction are sometimes easier to obtain and implement, those
for maintenance are more difficult as they need to be sustained on a regular basis. Different
mechanisms can be implemented in different transport sectors to improve maintenance. In the road
sector, some governments have adopted or considered adopting a “road fund” type of arrangement
for supporting maintenance. Under such arrangements, maintenance funds are assured from a
mandated tax on gasoline and diesel and are deposited into an assured and independently operated
fund, possibly overseen by a Board that includes the public sector, or the private sector, or both.
Most importantly, weak governance, particularly regarding selection of roads to receive
maintenance and monitoring of spending, plays a significant role in the poor condition of roads in
Bangladesh, which the government needs to address. For example, there are striking differences in
investments in rural development projects among districts. While part of the differences could be
due to higher population and size, these two factors are unlikely to explain the large differential.
Figure 4.5: Logistics Performance Index: Bangladesh and Comparator Countries
4.5 4.1 4.0
3.5
4.0 3.5 3.2
3.5 3.5 3.4 3.1 3.2
3.0
3.5 3.2 2.9 2.9
3.1 3.0 3.0 2.7 2.8
2.7 2.6 2.7 2.6
3.0 2.7 2.7 2.5 2.5
2.6 2.5 2.3
2.5 2.1 2.1
2.0
2.0
1.5
1.5
1.0 1.0

0.5 0.5

0.0 0.0

Bangladesh India SAR Average

Source: World Development Indicators, 2015. Data shown are for 2014.

Efficient logistics are needed to enhance Bangladesh’s competitive edge in exports, lower
imports costs, and develop a more dynamic export oriented manufacturing sector.
4.27 Bangladesh’s cost advantage resulting from low labor cost is reduced or sometimes
offset by poor logistics performance. Efficient logistics reduce costs and delays for exports and
expedite imports of consumer goods, but also of foreign inputs used in the domestic production. In

85
particular, superior logistics performance offers a competitive advantage in an era of increasing
globalization, more production sharing across countries, and shortened product lifecycles. Despite
some progress in improving its logistics performance, Bangladesh still lags behind its main
competitors, especially when it comes to infrastructure and customs. Even though it performs above
the South Asia average in terms of timeliness and international shipments, it generally ranks below
India (Figure 4.5). Moreover, Bangladesh’s logistics lag behind its peers in the garment sector, and
far behind Germany, which is the world’s best performer. To date, low wages have benefitted
Bangladesh’s RMG exports and have partially compensated for poor logistics performance.
However, to ensure general growth of exports, logistics performance in Bangladesh will need to
improve considerably.

4.28 The Dhaka-Chittagong corridor (DCC) is the most important trade link in
Bangladesh, but its current performance hinders exports growth. Estimates indicate it directly
serves regions accounting for more than half the national population, 57 percent of GDP, and more
than two thirds of the country’s import and export flows. The importance of the logistics
infrastructure and services along the DCC cannot be underestimated. The Port of Chittagong is the
main seaport in Bangladesh through which almost all import and export cargo is routed – in 2013,
Chittagong handled over 90 percent of the total container traffic in Bangladesh. However, the
performance of the logistics infrastructure and services along the DCC is so weak that if nothing
is changed to improve the overall import/export process, a physical ceiling may be reached in a
couple of years. At that point, gridlock could occur, with even longer delays in getting containers
in/out of port and inland terminals, limiting the growth of the RMG sector.67 Consequently, supply
chain bottlenecks along the DCC, including the inland transportation bottlenecks must be resolved
quickly even to support current growth rates.

4.29 Air transport is inefficient due to congestion and lack of capacity at the air terminal.
Airfreight is used mostly by the garment industry, usually at the buyer’s request, and sometimes in
the case of a missed ocean shipping date. There are problems with ground handling and
management of the air cargo terminal at the airport in Dhaka, performed by a subsidiary of the
national carrier, Biman Airlines. The terminal area is often congested, partly due to increasing cargo
volumes but also due to poor performance in the handling and clearance processes.

Poor port performance hampers Bangladesh competitiveness

4.30 Bangladesh suffers from limited connectivity to main shipping routes. The Port of
Chittagong, which handled a total of about 1.5 million 20 foot equivalent units (TEUs) of imports
and exports in 2013, is the 5th largest container port in South Asia in terms of throughput. However,
Chittagong with its 9.1 meters of water depth is much shallower than the other main ports in the
region – e.g. Colombo has a water depth of 18m at its newest terminals; Karachi, will have 16-18
meters at its newest terminal; and JNPT will have 14 meters. This means that Bangladesh’s exports
have to be carried in feeders to the region’s hub ports of Colombo, Singapore and Tanjung Pelepas

86
to link up with deep sea
Figure 4.6: Liner Shipping Connectivity Index (2014)
services. In contrast, the exports
180 165
of India, Pakistan and Sri 160
Lanka, all of which have deep 140 116 113
120
water, can use direct services to 100
94
their main markets. According 80 53 52 46 46 45
60
to the Liner Shipping 40 20
Connectivity Index, 20 8 6
0
Bangladesh ranks second to
lowest in comparison to its
garment-exporting peers, and
far below high performers in
Southeast Asia and Europe
(Figure 4.6). Liner connectivity Source: World Development Indicators, 2015.
is important since most
overseas trade in manufactured goods is moved in containerized regular “liner” shipping services.

4.31 Chittagong’s performance is well short of the benchmarks for efficient container
terminals in South Asia and elsewhere in the world. The operational performance of Chittagong
compares poorly with that in the rest of South Asia. The average vessel turnaround time (i.e., the
time a vessel spend in port) and pre-berthing waiting time in Chittagong have been the highest in
the region during the 2000-2012 period (Figure 4.7). The container handling speeds are in the range
12-15 boxes per crane hour compared with 25 at efficient modern ports and over 30 at premier
league ports. Dwell times for containers (i.e. the time spent in port) averaged 17 days in 2012. They
have come down from 25 days in 2005 but are still well above the 3-4 days typical of efficient
ports. Exports take twice as long to load as imports causing delays and unpredictability in ships
departure times. This can result in failure to catch the deep-sea services to the US and Europe. The
main reasons for the delays include customs procedures; the transfer of cargo from container to
covered vans on the quay; and slow processing of documentation and payments by importers
(World Bank 2104).

Figure 4.7: Average operational performance, South Asian container ports, 2000-2012
5
4
3
2
1
0

TAT WT

Source: Herrera Dappe et al. (2015).

Note: TAT = average turnaround time; WT = average pre-berthing waiting time.

87
4.32 Bangladesh needs to bring its port sector to the 21st century by increasing the role of
the private sector and introducing competition. If Chittagong port had performed at a level
similar to Colombo port during 2000-2007, the maritime transport costs of Bangladeshi exports to
the US would have been about 3 percent lower.68 Chittagong Port is the only large container port
in South Asia that has not implemented the landlord port model, where the port authority acts as
regulatory body and as landlord, while port operations are carried out by private companies under
long-term concessions. Private participation in Chittagong port is very limited. Experience
worldwide, and in South Asia, demonstrates that the division of risks and responsibilities between
the public and private sector that takes place in the landlord port model, together with competition
for the market and in the market yield high port performance. Bangladesh has the advantage that
Chittagong is large enough to accommodate more than one terminal operator (competition in the
market), and the best approach to attract professional and experienced operators is through open
and transparent competitive process (competition for the market). Improving Chittagong Port’s
performance will not solve the lack of water depth, which can only be dealt by building a deep sea
port. However, building a new port will take significant time. Therefore, the priority for Bangladesh
is to improve Chittagong Port’s performance.

Poor Inland logistics also hinders integration with international markets

4.33 The logistics services between Dhaka and Chittagong exhibit patterns that are not
conducive to efficient movement of cargo. Most freight between Dhaka and Chittagong, and
particularly the higher value cargo, is transported by road. Around 75 of the containerized cargo
through Chittagong port in 2013 went to/originated from the Dhaka area, and 94 percent of that
was transported by road. 69 Furthermore, despite the rapid growth of containerization in
international transport, only 10 percent of containers handled at Chittagong are moved inland; the
rest are stuffed and stripped in the port or in privately operated inland container yards near the port.
The practice of stuffing and stripping containers and trans-loading the cargo to/from trucks, is rarely
seen in other countries, and adds to handling costs. Moreover, the increased demand for trucks on
the corridor is causing overloading of trucks and increased congestion on Dhaka-Chittagong
highway. Congestion increases transit times and decreases reliability on the corridor, with transit
times possibly being as high as 12 hours when they should be less than 4 hours in free-flowing
traffic. By not being able to move goods by container along the corridor, the logistics process is
reverting back to break bulk methods, increasing inefficiencies both in cost and time.

4.34 Bangladesh can better utilize the multimodal potential along the Dhaka-Chittagong
corridor. Rail transportation has not managed to keep pace with the growth of import/export
container traffic through the port of Chittagong. Not only has rail lost market share, but also the
number of containers transported by rail has fallen in absolute terms each year since 2008. In 2013,
less than 6 percent of the containers that went to/originated from Dhaka were transported by rail.
Customers’ modal choice has shifted in favor of road transportation due to several factors including
cost, the unreliable rail transit time between Chittagong and Dhaka, the absence of adherence to
fixed train schedules, poor customer service, container damages at the Kamalapur inland container
deport (ICD) in Dhaka, and frequent breakdown of container handling equipment at the ICD,
among others.70 Even though around 40 percent of the total traffic to/from Chittagong is transported
through inland waterways,71 currently there is no transport of containers by inland water transport
(IWT). By way of comparison, over 60 percent of Hong Kong SAR, China’s container traffic over
similar distances is carried from/to the port by barge.72 However, insufficient vessels to support a

88
daily service between Dhaka and Chittagong and Pangaon container terminal not yet fully
operational, are some of the reasons for IWT of container not taking off. Rail and inland water
transport along the DCC are green alternatives to the highly inefficient road transport, and can help
reduce congestion at the port and along the Dhaka-Chittagong highway.

4.35 The government’s role in the transport sector is worth reviewing, particularly
regarding the logistics services along the DCC. Promoting a modern multimodal transport
system requires redefining the government’s role to focus on regulating and attracting private sector
participation in transport sectors, and eliminating current biases that distort markets for transport
services. In the case of rail container service between Dhaka and Chittagong, a Public-Private
Partnership (PPP) that adequately allocates risks and responsibilities to the parties best-suited to
deal with them and rewards performance, has the potential to increase the modal share of railways.
Similarly, the inland water transport sector can play a more significant role if the government
minimizes the commercial and economic regulation that creates barriers to entry, while retaining
strong regulation of safety, seaworthiness, and quality of service. Customs procedures that limit the
movement of containers along DCC create another bias in favor of road transport as it is one of the
reasons behind the stuffing/stripping of containers at the port and transfer of cargo to covered vans.
A less distorted playing field have the potential to promote a more balanced and efficient
multimodal transport system along the DCC, but will not eliminate the need of expanding the road
capacity between Dhaka and Chittagong in the short-term.

Borders will not disappear but can be made irrelevant.

4.36 Improving integration with India and the rest of Asia could bring significant gains to
Bangladesh. Gilbert and Banik (2010) estimated the gains that could be obtained by removing
physical and non-physical barriers that prevent Bhutan, Nepal, and the landlocked regions of
northeastern India from accessing the Chittagong or Mongla ports in Bangladesh. This
improvement in connectivity would increase GDP by 0.1 percent in Bangladesh. 73 A more
comprehensive study by Zhai (2010) highlighted the large potential gains stemming from a more
regionally integrated South Asia. Zhai (2010) estimated that investments in transport infrastructure
to increase Pan-Asian connectivity could reduce trade costs by more than an eighth in Bangladesh.
The lower trade costs would yield net annual gains of around 6 percent of 2020 GDP for
Bangladesh.74 De et al (2012) shows that a full free trade agreement (FTA) between India and
Bangladesh would increase exports to India by 182 percent, while improving connectivity between
both countries in addition to the FTA would bring the increase in exports to almost 300 percent.

4.37 Bangladesh should improve physical connectivity with India, but the priority should
be to remove the policy constraints to seamless cross-border movement of cargo. Bangladesh
and India have a basic interconnected transport network, with the limited connectivity within
Bangladesh being the main constraint. For efficient cross-border movement of cargo, it is essential
that road, rail, and inland waterway vehicles are allowed to cross borders and deliver goods from
origin to destination seamlessly. However, this is not happening in land and water based transport
due to limiting transit agreements and differences in market access policies, among others. For
example, goods are offloaded at the border and transferred to trucks from the other country. This
practice is inefficient, increasing time and cost.75 In order to promote seamless connectivity in
South Asia, the primary challenging task is two-fold: first to integrate the different sub regional
transport corridors and modes (railways, roads, air and maritime shipping), which will facilitate

89
movement of goods and services in South Asia; and second, and most importantly, to overcome
institutional and policy constraints that are deteriorating regional competitiveness by making trade
expensive.76

4.3 Regional and Global Integration

4.38 The ultimate goal of export-led growth is poverty reduction and the enhanced welfare
of Bangladesh’s citizens. The government recognizes that export-led growth and a broadening of
the country’s export structure are pivotal to its growth ambitions. In the Sixth Five-Year Plan, trade
is considered a strong source to accelerate growth and provide high-productivity and high-income
jobs. The government recognizes that a dynamic manufacturing sector will benefit from greater
outward orientation, particularly based on the experience of other successful Asian exporters, such
as China, India, the Republic of Korea, Thailand, and Vietnam. The government has emphasized
product and market diversification and regional and global integration. The 6FYP projects “…the
share of exports in relation to gross domestic product (GDP) to rise by 7.7 percentage points to 23.9
percent of GDP by the end of the 6FYP, reflecting a leading role that [the] export sector is envisaged
to play in increasing domestic activity” (General Economics Division 2011, Volume 1, p. 85). This
strategy recognizes the pivotal role that higher export orientation has already played in the
impressive export and job creation of the garment export sector.

4.39 Bangladesh’s exports have exhibited strong growth and doubled their world market
share between 1995 and 2012, owing to success in garments, catering largely to the European
Union and the United States. Since 2009, Bangladesh has become the world’s second largest
garment exporter, making it unique among least developed countries (LDCs) in its high share of
manufactures in total exports, which reached 90.1 percent in 2012, compared with about 21.1
percent for LDCs. Although growing over time, the role of trade in the overall economy is still low.
Thus far, Bangladesh has enjoyed strong success in exports, primarily based on low-skill, low-
wage-based competitiveness in garments, which dominate the export basket. However, this strategy
does not guarantee continued growth in exports, given the pressures of global competition and the
possible emergence of future competitors with a better wage-productivity combination.

4.40 Bangladesh’s unique manufacturing performance raises a puzzle: the country appears
to have mastered labor-intensive mass manufacturing as displayed in its many large garment
factories; the high share of manufactures in exports is unique at its income level. Yet, this success
has so far not led to the creation of another large, labor-intensive cluster. Garments dominate the
export basket. This raises some potential issues about the sustainability of export growth.

4.41 Moreover, the positive current account in Bangladesh may speak to the lack of
investment opportunities. A low-income economy usually draws on foreign savings to
supplement domestic national savings to increase the overall rate of investment. Yet, in the case of
Bangladesh, the current account has been positive in most years since FY2006, indicating the lack
of sufficient investment opportunities and an inadequate climate for investment. This means that
acceleration of export growth, which will demand a significant increase in overall investment, will
require a concerted policy effort. FDI could further contribute at diversifying exports and
technology transfer in Bangladesh. In addition, the jobs created by foreign direct investment (FDI)
are good jobs, both from the worker’s and the country’s perspective, as suggested by Javorcik’s
(2008) survey of the empirical evidence. From the worker’s perspective, such jobs are likely to pay

90
higher wages than jobs in domestic firms, at least in developing countries, and because foreign
employers tend to offer more training than local firms do. From the country’s perspective, jobs in
foreign affiliates are good jobs because FDI inflows boost the aggregate productivity of the host
country.

4.42 Trade could play a more significant role in promoting faster GDP growth and poverty
reduction. Imports as a percentage of GDP stand at 32.1 percent, while exports accounted for 23.1
percent of GDP in FY2012, which is significantly lower than Vietnam (exports and imports are
each about 90 percent of GDP), Thailand, or Indonesia. 77 Trade can increase the efficiency of
domestic production and contribute to greater labor intensity in the economy. Thus, if the share of
trade in GDP is higher (with the same net exports balance), then, even with constant GDP levels, it
could mean an increase in overall employment in the economy. If it were to capture 20 percent of
China’s current garment exports, Bangladesh’s total exports would more than double, increasing
by US$29 billion, and, based on current parameters, create 5.4 million new jobs and 13.5 million
new indirect jobs. These would be virtually enough to absorb all new entrants into the labor force
over the next decade.

4.43 Bangladesh will need to exploit the international market more intensively, building
on the pivotal role that exports have already played in providing gainful employment and
access to imports. Rapidly growing exports and the millions of new jobs accompanying them,
along with skill upgrading, will increase productivity and wages, which over the long term is the
only sustainable way to improve living standards. It will also begin a discourse to move beyond
wage-based competitiveness. Improving skills will allow the effective participation of people in
growth. Improving labor standards and worker safety is also part of this agenda and, in the wake of
recent tragic incidents in the RMG sector, has become a part of the preconditions for RMG exports.

4.44 The example of Vietnam shows that accelerated, export-oriented development is possible,
even in the context of the current global environment. Vietnam moved from being one of the
poorest countries in the world to a lower-middle-income one in the space of 25 years, with FDI and
trade playing a dominant role in the economy: exports and imports are each 90 percent of GDP and,
with 88 million people compared with Bangladesh’s 159 million, Vietnam exports four times as
much as Bangladesh today.

4.45 In the pursuit of multiple objectives, Bangladesh has over the years created a complex
trade regime, including both tariffs and nontariff measures. As in many other countries, the
consumer or exporter has not been the focus of government’s policy intentions. However, much
can be done to make trade policy more efficient, balancing the interests of producers/workers,
consumers, and exporters. A more harmonized and simpler import tax regime would reduce
distortions and ensure a level playing field among and within sectors and firms, which would favor
the development of new export sectors and small and medium enterprises, and thus jobs

4.46 Bangladesh’s cost advantage resulting from low labor cost is reduced or sometimes
wiped out by disadvantages on the trade facilitation side. High logistics costs can be seen as an
implicit tax that biases the economy away from exports. Efficient logistics are important for
enhancing Bangladesh’s competitive edge in exports. Efficient logistics reduce costs and delays for
exports and expedite imports of consumer goods, but also of foreign inputs used in the domestic
production. In particular, superior logistics performance offers a competitive advantage in an era

91
of increasing globalization, more production sharing across countries, and shortened product
lifecycles. To date, low wages have benefitted Bangladesh’s ready-made garment (RMG) exports
and have partially compensated for poor logistics performance. But to ensure the general growth
of exports, logistics performance in Bangladesh will need to improve considerably.

Figure 4.8: Bangladesh’s Logistics Performance, 2014

Customs
4

3
Timeliness 2 Infrastructure

International
Tracking & tracing
shipments

Logistics competence
India Region: South Asia Bangladesh
Source: World Bank, Logistics Performance Index 2014.

4.47 Despite some progress, Bangladeshi logistics performance lags in customs,

infrastructure, competence of logistics service providers, and tracking and tracing (Figure
4.8). There are ongoing reforms in customs and there has been considerable expansion of the road
network and performance improvements at the main trade gateway, the Port of Chittagong.
However, the 2014 Logistics Performance Index (LPI) (World Bank 2010) suggests that
Bangladesh performs below the regional average for South Asia in logistics, ranked above only
Bhutan and Afghanistan, landlocked countries, and below other countries at similar income levels.
The analysis in the trade facilitation chapter of the DTIS identifies options for tackling four
interrelated issues that are critical to Bangladesh’s logistics efficiency. The four issues are: (a) the
limited use of containers on the Dhaka-Chittagong corridor; (b) customs and border management
modernization; (c) air transport capacity and connectivity; and (d) regional transit and connectivity.

4.48 Bangladesh has failed to improve its business environment and investment climate.
Red tape and poor governance remain two of the most pressing constraints to business growth in
Bangladesh. Weak government capacity is an endemic issue preventing providing long-term vision
and solutions for regulatory matters that affect private sector development. The energy shortage is
an overarching constraint affecting virtually all segments of the economy. In 2012, the demand-
supply gap of electricity was around 5,000 gigawatt-hours (Ministry of Finance 2013). Bangladesh
ranks nearly last among its Asian competitors (only above Nepal) in the prevalence of power
outages. Power outages are a key reason why manufacturing productivity in Bangladesh is much
lower than in China and Vietnam. And the use of captive generation to compensate for outages
adds to costs (World Bank 2012b). A comparison of the World Bank’s Investment Climate
Assessment between 2002 and 2007 revealed that the value lost because of electrical shortages

92
increased from 2.9 to 12.3percent of sales (World Bank 2012b). Although access to reliable sources
of electricity tops the list of concerns for the region as a whole, the losses that Bangladeshi firms
suffer are much higher compared with 5.4 percent of sales lost in Pakistan and 5.5 percent in India.

4.49 In this unfriendly business environment, FDI has persistently represented a small
fraction of GDP and private investment. Bangladesh’s FDI inflows reached around US$1 billion
in 2012, but overall FDI stocks remain below 7 percent of GDP. Average FDI stock as a percentage
of GDP was 25 percent in LDCs as a whole. It was also higher in comparator countries, such as
Vietnam (51.6 percent of GDP) and Pakistan (11.5 percent of GDP, despite difficult conditions
there), and it was almost 12 percent in South Asia as a whole and 32 percent in Sub-Saharan Africa
(Figure 4.9).

Figure 4.9: FDI Stock (Share of GDP, 2012): Bangladesh and Selected Developing Countries

160
134.9
140
120
100
80 70.1
59.9
60 47.8
39.7 34.7
40 29.5 25.8
13.7 11.8 12.2 11.9 11.4
20 5.6 8.1 2.8
0

Source: http://unctadstat.unctad.org/ReportFolders/reportFolders.aspx.

4.50 FDI in Bangladesh has mostly flowed into the services sector. The telecommunications
industries and banking sector have attracted the most FDI, followed by the garment, gas, and
petroleum sectors. Bangladesh has attracted three totally foreign-owned mobile telephone
providers, as well as a majority-foreign investor in the firm with the largest market share. The
banking sector also includes a number of globally renowned banks. The textile and clothing
industry has received less FDI, partially because of the obstacles in this sector (UNCTAD 2013).
To reach East Asian growth rates of 7–8 percent, private investment levels in Bangladesh need to
rise to at least 33 percent of GDP (World Bank 2012). FDI could help to augment the quality and
quantity of investment. Foreign-owned firms are a source of innovation spillovers and perform
significantly better than domestic firms in labor productivity and profit margins. They can also help
to increase the overall amount of private investment by accessing their own savings as well as
international financial markets, thereby easing at least a part of financial sector limitations.

4.51 The lack of space in good industrial zones in Bangladesh is another constraint
currently faced by potential investors. In Bangladesh such land was available in BEPZA’s
industrial zones which are now filled up to capacity. As a result, Bangladesh had to turn down large
investors. In June 2011, Samsung affirmed it was willing to invest $1.25 billion, representing an
estimated creation of 50,000 jobs, if it could obtain access to 300 acres in an industrial zone. In

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fact, more than 2,000 acres would have been available in the Korean Export Processing Zone in
Chittagong, but they were subject to a legal dispute since 1998. Samsung subsequently invested in
Vietnam where it now employs 100,000 employees and has been followed by 63 of its Korean
suppliers contributing in a major way to Vietnam becoming a global manufacturing hub for
electronics. Resolving, the dispute around the Korean EPZ would be the fastest way to unlock this
binding constraint while a new generation of private sector led industrial zones emerge.

4.52 Sector studies point to the important role FDI can play in export diversification and
technology transfer in Bangladesh. Korea has led investment in the garment industry. FDI was
critical in the emergence of bicycle exports. Malaysian investors seized an opportunity in the EU
market by establishing the first bicycle exporting firm in Bangladesh in 1995. They invested US$2
million in a new plant in Chittagong. FDI in the shipbuilding sector is close to zero for the moment;
however, FDI and joint ventures could help gradually improve Bangladesh’s capacity and
reputation in shipbuilding. FDI could especially help the linkage of industries through technological
advancement and improvement of processes and worker skills. Chinese and Korean investors in
particular seek to capture some of the growth in Bangladesh’s textiles and services sectors.

4.53 Bangladesh will need to focus more attention on skills development: skills are emerging
as a major constraint, even in the garment sector, as well as other, more skill-intensive sectors.
Although educational access has increased significantly over the past decade, particularly at the
lower levels of education and especially for females, currently 96 percent of the labor force has less
than secondary education and two-thirds has less than primary education. According to the World
Bank (2013a), just a third of primary graduates acquire the numeracy and literacy skills they are
expected to master by the time they graduate. Moreover, among the labor force, the percentage of
persons having professional education, such as engineering and medicine, is very small (only 0.17
percent of the labor force has such degrees). A World Bank survey of 1,000 garment firms in 2011
found that skills were the major disadvantage of firms located outside Dhaka. High rejection rates
in a 2010 United Nations Industrial Development Organization (UNIDO) survey also point to the
low average skills of garment workers. In sectors such as ITES, shipbuilding, and pharmaceuticals,
part of this DTIS, higher skills are in constant demand (World Bank 2012a, 2012b).

4.54 The low level of literacy and years of schooling of the labor force make skill
acquisition more difficult. About 46.5 percent of the population of the country remains illiterate;
the average years of schooling among the labor force was 4.8 years in 2010. Compared with many
other Asian countries, Bangladesh has a rather low level of literacy. Moreover, the average years
of schooling is also low compared with countries that are currently competing with Bangladesh’s
garment sector. The lower time spent in school complicates the process of learning and skill
acquisition. In contrast, Sri Lanka has provided a skills environment that allows garment firms to
move up the value chain quickly. Bangladeshi firms’ choice is restricted to only primary school
graduates and high school dropouts.

4.55 Labor issues (wages, workplace safety and compliance with labor standards) can
generate major reputational risk for garment exports, and will need to be carefully managed.
Labor standards and safety issues can affect future exports and Bangladesh’s overall reputation in
the exporting sector. Concerns have been heightened recently following a series of fatal incidents
and the government has been pressured to take a number of measures to improve workers’ safety.
International buyers and governments have also reacted strongly to these events. On June 27, 2013,

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the United States suspended Generalized System of Preferences (GSP) trade privileges for
Bangladesh over concerns about safety problems and labor rights violations in the garment
industry. Whatever measures the government will implement under domestic and international
pressure, the important issue will be enforcement and commitment to ensure better and safer
practices. Continued improvement in labor conditions in the garment sector, in coordination with
international business and development partners, will be important.

Recommendations on Breaking into New Markets

4.56 Improving trade facilitation. Improving trade logistics will help reduce delivery lags and
thereby enable Bangladesh to become more competitive globally, reaching out to more emerging
and dynamic markets. It would also help in the quest to diversify into products with shorter lead
times, including higher-value garments. Key actions include the launching of a National Logistics
Strategy; establishment of the rail inland container depot (ICD) at Tongi, on the outskirts of Dhaka;
development of the Inland Water Transport sector; improvement in the efficiency of Dhaka-
Chittagong road connectivity; and working closely with the Government of India to improve the
efficiency of common land border posts. Reducing trade finance costs by leaving title documents
open and not assigning them to a local bank and making current account transactions, such as
payments for samples and consultants, etc., hindrance-free, would also facilitate exports.

4.57 Promoting economic integration with Asia. Exploiting market diversification opportunities
would involve taking advantage of Bangladesh’s location in the fastest-growing region in the world
and between India and China. Given geography and potentially lower trading costs, the possibilities
for greater exports to Asia are immense. Granting transit rights and concluding road transport
agreements with Bhutan, India, Myanmar, and Nepal would foster regional trade going through
Bangladesh and have potential spillover effects on Bangladesh’s own trade. Economic relations
with India in particular can be deepened significantly. Bangladesh can increase its exports to India
several fold through mutual recognition agreements (MRAs) for harmonization of standards,
mutual reduction of nontariff barriers (with an efficient dispute resolution mechanism),
harmonization of border clearance procedures, and signing of the International Road Transport
(TIR) Convention by both countries, with a view to allowing transit traffic.78 China and Japan are
major potential markets as well and FDI from all three countries can help bring exports back to the
source countries as well as other destinations.

Breaking into New Products

4.58 Rationalizing trade policy to level the playing field. (a) Rationalizing trade taxation and
moving toward eliminating the anti-export bias, as seen, for example, in high and varying rates of
effective protection, will mean that it is not just garments that enjoy a more neutral tariff regime.
Critical actions will include reducing overall tariff protection and simplifying the import tax regime
such that cross-sector tariff distortions are reduced and para-tariffs are eliminated or applied equally
on domestic production. Such goals can be achieved without risking revenue generation. (b)
Facilitating imports for exporters will progressively make the private sector’s production and
export decisions less dependent on domestic availability of inputs. Having facilitated the imports
of fabrics for apparel exporters has been critical to the success of Bangladesh in that sector. By
opposition, the barriers to imported inputs have constrained other high potential sectors, such as
the footwear industry where one million direct jobs are at stake, as companies find it difficult to
import the necessary leather, and other inputs.79 In practice, given the poor functioning of duty

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drawback, the best answer seems to lie in ensuring well-functioning bonded warehouse schemes
that are in principle available to all sectors and high-performing operators. Such schemes have been
critical to explain the initial success of Bangladesh’s exports. Reviewing mandatory standards and
other non-tariff measures, such as para-tariffs, to ensure a smooth flow of imported inputs would
also be useful. (c) Formulating and adopting a strategy for trade in services will help in better
understanding specific services, trends, and markets in services trade and boost the ITES sector.

4.59 Improving the environment for domestic and foreign investment. Attracting much larger
FDI flows would help upgrade technology and improve market linkages, and develop an area where
Bangladesh has had only narrow success. To accomplish this, Bangladesh needs to improve
allocation of serviceable land for business use, including through the 2010 Export Processing Zone
(EPZ) Act; more proactively welcome FDI and promote it through high-level missions to potential
FDI sources, such as China, India, and Japan; ensure that companies, especially the large export-
oriented companies, can have access to secure, readily available, well serviced and well located
industrial land; and reduce discretionary practices, increase transparency, and enforce standards
more strictly so that foreign as well as domestic firms that enforce strict compliance and standards
are not penalized. Enforcing standards would also help bridge the gap between the domestic and
foreign markets. Resolving energy constraints will help all segments of the economy and provide
a major boost to investment. It would be critical for Bangladesh to implement sustainable solutions
that are able to provide unsubsidized power at competitive prices. Critical actions involve both the
public and private sectors, including increasing generation capacity in low-cost, base-load power
plants; commissioning of the large, gas-fired and dual-fuel combined-cycle power plants awarded
to the private sector; upgrading BPDB’s simple-cycle plants to combined-cycle; and accelerating
moves to imported power from Bhutan, Myanmar, and Nepal and India’s northeastern states. These
actions would help move attention away from the measures that have been taken by the government
so far, which have focused on shorter-term solutions, raised costs and subsidies, and added to fiscal
vulnerabilities. Many of the recommended measures, as well as those relating to skills, logistics,
and trade policy, would also improve the environment for domestic and foreign investment.

Improving Worker and Consumer Welfare

4.60 Improving skills and literacy. Improving skills and literacy will allow increased
productivity of workers, wage increases, and a reduced level of waste. This will enable, among
other things, the production of higher-quality goods. This will require articulating a comprehensive
vision for skill development, reskilling the current labor force through greater access to non-formal
training and skill-building, and improving the quality of foundational education.

4.61 Implementing labor and work safety guidelines. Minimizing the chances of further
tragedies in the garment and other export sectors in Bangladesh has become a precondition for
sustained export growth. This will require strong and credible government action and a partnership
with the private sector, domestic and international. Seriousness of intent on the part of the
government will play a critical role in trade relations with the European Union and the United
States, the major players in post-Rana Plaza events.

4.62 Making safety nets more effective in dealing with trade shocks. Starting preparation of a
safety net and labor strategy that recognizes possible winners and losers in trade liberalization could
help reduce opposition to a neutral trade policy. Apart from cash transfers, a key part of this strategy
should prioritize finding mechanisms that link poor safety net beneficiaries to more productive

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employment opportunities with a particular focus on youth. The swelling youth cohorts offer
opportunities and challenges. Investment in appropriate skills development to meet global and
domestic demand has the potential to harness substantial gains from globalization, whereas training
and retraining of workers will help to ensure their resilience to trade shocks.

Building a Supportive Environment

4.63 Building institutions for trade policy coherence and implementation. Implementing the
multi-sector competitiveness agenda outlined above will require strong leadership, such as through
an empowered inter-ministerial Cabinet Sub-Committee on Trade, and is a top priority. This body
can also take on the more gradual process of institution building to ensure that institutions are
working coherently and in a coordinated manner toward the objective of trade competitiveness.
Important steps here will include the National Board of Revenue (NBR) and Ministry of Commerce
(MOC) jointly formulating tariff policy, with due consultation; strengthening the in-house
economic capacity of MOC; and linking MOC’s policy making and trade negotiation roles more
strategically with think tanks. Further steps will include making the Export Promotion Bureau
(EPB) more effective by augmenting its in-house capacity; enabling greater private sector
participation; targeting market diversification in key markets, such as China, India, and Japan; and
allowing private sector providers to provide quality services in areas under government regulation.

Making migration more remunerative, affordable, inclusive, and safe

4.64 In many areas of rural Bangladesh, remittance incomes from family members working
abroad represents both a significant proportion of household income as well as a substantial source
of fund inflows into the local economy. Most of the job intermediation between overseas employers
and potential Bangladeshi migrants occurs informally, outside the oversight of the public overseas
employment intermediation agency, Bureau of Manpower, Employment and Training. Bangladesh
is among the world’s top ten remittance receiving countries, but has the lowest remittance per
worker because of the low level of education and skills of the typical migrant worker. These
migration trends have branded Bangladesh as a source of low skilled workers, and have locked
workers into low wage and less dignified jobs. Poor contract enforcement and informational
asymmetry have led to worker abuse especially among those who migrate through informal
channels and face huge debts or poverty at home. Financing migration, which can cost anywhere
between USD 2,500 – 3,750, or about 2.5 to 3 times the national per capita income, is a significant
constraint for the poor.80 Moreover, the poor are also especially prone to suffer from fraudulent
practices by unscrupulous recruitment agents preying on their low knowledge and powerlessness.

4.65 Concerted efforts by the government to make migration more remunerative, affordable,
inclusive and safe would likely yield high payoffs in helping to improve the lives of migrants and
their families, especially those Bangladeshi currently too poor to avail of opportunities overseas.

4.66 The government can help make migration more remunerative by (i) building a national
skills database to help plan, monitor, and improve training for aspirant workers, complemented by
a Migration Information System with a web portal to provide information on the different skills
sought in overseas job markets, and (ii) shifting accreditation for training providers from the
existing certification mechanism to the internationally accepted National Technical and Vocational
Qualifications Framework.

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4.67 Out-of-pocket cost of migration in Bangladesh is extremely high compared with other
countries.81 The cost of migration can be reduced by (i) reducing information asymmetries between
employers and prospective migrant workers through increased sharing information on the labor
migration process through local government offices, and (ii) promoting more direct negotiations
with government counterparts and employers in host countries to reduce visa trading.

4.68 The most important short-term problem aspiring migrants face is finding a way to pay for
the move. Availability of loans for poorer households to finance migration could help make
migration more inclusive, though not without risks. Such services would likely be best provided by
micro-finance institutions, which have experience in banking with poor communities. Available
evidence suggests that migration and microfinance institutions already interact: households use
microcredit as an advance against expected future remittances; others use loans to finance the cost
of migration; however, where migration fails, household debt can quickly become problematic.

Better regulation of manpower agencies, and an information campaign on the risks, overseas job
conditions and migrant rights, can help aspirant migrants make more informed choices and reduce
the risk of fraudulent practices committed by unscrupulous recruiting agents. In addition,
government can help avoid costly-to-reverse migration decisions and limit the abuse of vulnerable
migrants by providing credible information on migration opportunities and risks. While improved
regulation of recruitment agents merits consideration (Box 12), any efforts to do so should be
designed bearing in mind the capacity limitations of public sector institutions.

Box 12: Overseas Migration in the Philippines

The Government of Philippines approach to overseas migration focuses on both promotion and protection of the
migrants with a view to maximize benefits by the Philippines Overseas Employment Administration (POEA). The
government has taken a number of steps to achieve these objective.
 Electronic passport with biometric data was introduced to diminish identity fraud.
 All foreign employers who intend to hire Filipino workers are required to go through an accreditation procedure
and officially engage the intermediation of a licensed Philippine recruitment agency.
 Local recruitment agencies are only given licenses if they comply with the rules and regulations set by the
Government. These include disclosing to the migrant all terms and conditions, assuming joint liability with
employers, specific advertising and recruitment process requirements, among other things. Agents are also
responsible for sending potential workers for skills testing and medical examinations at authorized entities.
 Job placement happens through the recruitment agencies (or by POEA in the case of government-to-
government arrangements) on the basis of a contract that conforms to the standards set by the government.
 Violations of rules are addressed through penalties that are overseen by POEA.

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4.4 Urbanization: Improving Livability and Productivity
4.69 Bangladesh needs to develop competitive urban spaces to achieve higher economic
density, especially the Dhaka metropolitan area which accounts for about 36 percent of GDP.
Dhaka needs to shift toward a more diversified economic structure and upgrade to higher-value-
added manufacturing and service industries. Empirical evidence (e.g. Glaeser et al.,1992, Jacobs,
1969) suggests that urban diversity and knowledge spillovers across, rather than within, industries
are critical for long-term growth. Bangladesh should also encourage urban growth outside of Dhaka
and Chittagong. Inter- and intra-city mobility will be critical to this process. Mobility of goods,
services, labor, capital, ideas, and technologies helps ensure that all cities receive the needed
production factors, human capital inputs, and innovations to improve productivity.

Scarcity and high price of urban land and housing, as well as transport accessibility, are key
binding constraints
4.70 Dhaka city is still the most productive location in Bangladesh. Access to markets and a
relatively better quality of power supply are Dhaka city’s main comparative advantages. Dhaka is
the best performing city locations for access to skilled labor and power supply, proximity to
suppliers, sub-contractors, machine repair technicians and support businesses. But the capital is
falling behind other locations in other aspects. Dhaka is the worst performing location for urban
mobility and access to highways. Firms in Dhaka city have also a disadvantage in accessing the
port and the airport, compared to those located in Chittagong city. Moreover, there are also issues
on weak institutional framework (registration, mapping, land rights, etc.), and scarcity and high
prices of land and housing. This is particularly challenging for firms, workers and investors. In fact,
inadequate access to land and transport infrastructure in Dhaka city is the leading cause of firm
relocation to peri-urban areas. While peri-urban areas benefit from proximity to Dhaka city, have
a comparative advantage in accessibility and land and housing, these areas suffer indirectly from
Dhaka city’s congestion, and have lower access to infrastructure.82 Priority action to help increase
Dhaka’s competitiveness are discussed in Box 13.

4.71 Chittagong city has a disadvantage in access to markets, but an advantage in

accessibility, land and housing. Chittagong city has a marked comparative advantage in
accessibility, being the top location for access to port, airport, highway and urban mobility. The
port city was also ranked as the best performing location for availability and cost of land, buildings
and housing for workers. However, in spite of its accessibility advantage, Chittagong has not been
able to capitalize on its comparative advantage as the largest seaport city in Bangladesh. The
Chittagong port handles 80-85 percent of Bangladesh foreign trade, including the bulk of
Bangladesh’s main exports, garments. However, Chittagong is one of the most inefficient ports in
Asia, and the slow turnaround times seriously affect exports.

4.72 Local poverty incidence in Bangladesh is closely correlated with its accessibility to
urban centers as well as level of urbanization, economic density and human capital. The
Economic Potential Index (EPI) and local poverty incidence show strong spatial correlation.83 The
EPI highlights very high economic potential along the Dhaka and Chittagong corridor. In addition,
The EPI shows several districts with high local poverty incidence possess high economic potential
which, with the right policies, might be able to act as regional growth poles. A policy priority would
be improving the connectivity between these poles and the Dhaka-Chittagong corridor. It will help
develop a national system of cities for more balanced and inclusive regional development.

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 Box 13: Transforming Dhaka into a Globally Competitive Metropolitan Area
The Dhaka metropolitan area is among the world’s 10 largest megacities, with an estimated population of about 15
million, and produces 36 percent of Bangladesh’s GDP. It is the most productive urban location for garment firms
in Bangladesh, but it is losing competiveness as a manufacturing growth center due to poor living conditions, high
costs of living and heavy road congestion. Concern over the size of Dhaka is misplaced, since even the world’s
largest cities can be successful if they are well managed; the issue is not whether Dhaka is too large but rather how
well it is managed. According to the Economic Intelligence Unit’s global livability index, Dhaka is one of the
world’s 10 worst cities to live in. It has the highest level of urban-related inefficient turnover (defined as separations
caused by an inefficient urban environment rather than by more competitive job offers), primarily because of the
shortage of affordable housing and the high cost of living.
Causes of Urban-Related Inefficient Employee Turnover in Garment Firms, by Location

Increasing Dhaka’s competitiveness requires a shift from reactive and remedial measures to proactive urban policies.
It also requires bringing local governments to the forefront of the competitiveness agenda, in partnership with central
government agencies, the private sector, and research institutions. Dhaka needs to transform itself in the following
strategic directions.
 Enhance the capacity to innovate within a productive and diversified urban economy. Dhaka needs
to transform away from the production of low-value manufacturing products toward a high-value industrial and
service mix. Moving to high-value products and services requires highly skilled human resources and an
innovation capacity fueled by the cross-fertilization of ideas that is characteristic of large metropolitan areas.
 Improve connectivity, both internally and with the global economy. The Dhaka metropolitan area
needs to be better connected internally and with its peri-urban areas, and has to strengthen their connectivity to
the global economy. Improved connectivity within Bangladesh’s system of cities—particularly within the
Dhaka-Chittagong corridor—is important for export competitiveness.
 Increase livability and attractiveness for firms and workers alike. Dhaka City’s inadequate living
conditions have already started eroding its comparative advantage by increasing firms’ operational costs as a
result of high worker turnover and high levels of crime and violence. The livability of the urban space will
become an even more binding constraint to inclusive growth.
Priority action areas include (i) developing appropriate institutional mechanisms for core-periphery coordination in
the Dhaka metropolitan area; (ii) improving infrastructure in both Dhaka City and its peri-urban areas to leverage
its productivity advantage, (iii) enhancing urban mobility in order to manage the growing diseconomies of
agglomeration; (iv) strengthening institutions for a more efficient and integrated land and housing market; (v)
strengthening the coordinating role of local authorities to foster a business environment that rewards
entrepreneurship and innovation; and (vi) improving livability and the quality of urban amenities, and make growth
more environmentally and socially sustainable.

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4.73 The pressure of rapidly growing urban population has had a major impact on the
scarcity and costs of urban land for housing, businesses and other purposes. In Dhaka, for
example, the average estimated land price in 2012 is about 2.3 times of that in 2007 (PPRC, 2012).
High land prices and scarcity of buildable land increase the costs of housing, offices, factory spaces,
and services. The high cost to both residents and businesses makes the city less attractive to
investors and human capital, thereby making it less competitive globally. There are several
challenges associated with making urban land available for development. These include (i)
difficulty in establishing clear property titles, registration, and building permits; (ii) occupation of
large tracts of land by public entities; (iii) added cost of filling in low elevation terrain; and (iv)
inadequate urban infrastructure. The status quo process of filling in and developing small plots of
land within, or at the margins of, developed areas is inevitable due to the scarcity of adequate land,
but is an inefficient process and often causes considerable environmental damage. In the case of
Dhaka, in which all adequate land has been fully utilized but which face an increasing demand for
land, larger scale development with provision of infrastructure is both necessary and more efficient.

4.74 Both Dhaka and Chittagong suffer from acute shortages in adequate housing stock.
The housing stock shortage was 40 percent in 2001 and has continued to increase, pushing up rental
costs. In Dhaka, the average housing rent in 2007 was 24 times higher than that in 1973, while in
Chittagong it was 15 times higher (PPRC, 2012). Sixty percent of housing in Dhaka is classified as
informal or illegal, and therefore ineligible for government and donor sponsored funding for home
improvement and retrofitting. The main reason is that the current building standards are not
affordable for the majority of urban residents and the building permit and registration process is
extremely cumbersome and costly. Leaving the housing outside the regulatory realm prevents the
application of truly necessary and relatively affordable regulations.

4.75 Standards of living and environmental conditions in urban slums are worse than
those in rural areas. Over 3 million people in Dhaka are estimated to live in slums, and over a
million in Chittagong. An indicator that illustrates the disparity between urban slums and rural areas
is the under-five mortality rate, which is 79 percent higher in slums than the overall urban rate and
44 percent higher than in rural areas (UNICEF, 2012). Residents of informal settlements and slums
are highly vulnerable to natural disasters such as floods and earthquakes. Most slum housing in
Bangladesh is made of bamboo or other temporary materials. Slums are usually located in
vulnerable locations, such as in low-lying areas near rivers or on stilts over drainage channels. Their
occupants are therefore very vulnerable to floods, which occur frequently in Bangladesh.

Poor urban services weakens city competitiveness and livability

4.76 Access to improved water supply and sanitation in Bangladeshi cities is lower than
the averages for both the South Asia and East Asia and Pacific regions (Figure 4.10, and Figure
4.11).84 According to the 2011 Population Census, around 58 percent of households in Dhaka and
32 percent of households in Chittagong had access to tap water. Poor living conditions and high
costs of living discourage workers from settling down and therefore exacerbate overall economic
inefficiency and high turnover. Only about 40 percent of housing for garment workers in Dhaka
has piped water supply and regular garbage collection, significantly lower than the 70 percent
overall connection rate. An estimated eighteen percent of garment workers in Dhaka and
Chittagong leave their employment on account of poor living conditions (World Bank. 2102); this
high turnover inhibits the accumulation of human capital, which in turn is crucial for industries to
advance their technology and product value chain. The rapid growth of large-scale manufacturing

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clustered around the Dhaka and Chittagong region has given rise to significant environmental
challenges (see Annex).

Figure 4.10: Access to Water Supply Facilities Figure 4.11: Access to Sanitation Facilities

Source: WDI. Data shown are for 2010. Source: WDI. Data shown are for 2010.

4.77 Large urban population with significant consumption producing large quantities of
waste in densely populated areas. The solid waste management sector today is under extreme
stress and is in a state of near crisis, mostly due to population pressure in urban areas with
fragmented and insufficient responses from various levels of government. The 43.5m people living
and working in urban areas today, collectively generate some 33,300 tons of solid waste per day,
out of which only around one-half is collected and disposed of in landfills. The remaining
uncollected waste ends up either on city sidewalks where it is openly burned contributing to local
air population problems, or in the storm drainage and river systems where it causes significant
blockage and exacerbates flooding in many cities, including in the capital, Dhaka.

4.78 Poor public transportation and inadequate transport infrastructure reduce the
livability and economic efficiency of cities. Bangladesh’s urban public transport systems are
unorganized and inadequate. The basic urban transport infrastructure in Dhaka has not been
developed and maintained to keep up with the city’s rapid urban growth. Urban routes carry more
passenger car units (PCU) than their designed capacity; at the same time, roads are mainly occupied
by low PCU personal cars. As a result, all major urban roads and intersections are congested. The
absence of adequate public transportation has had a much greater negative impact on the lower to
middle income households in Dhaka. The Strategic Transport Plan household survey85 reflected a
high dependence on public buses, rickshaws and walking: about one third of the population uses
rickshaws as the primary mode of transport, 44 percent use public buses, 14 percent walk, and only
8 percent use “non-transit motorized” vehicles (e.g. cars, pickups, motorcycles, etc.). Of public
transit users, an overwhelming majority (97 percent) were from low- and medium-income
households, highlighting the need for major investment in urban public transportation infrastructure
to improve livability for poor households. Road congestion reduces the city’s productivity,
economic efficiency and livability. The Roads and Highway Department estimated that the annual
loss caused by traffic congestions in Dhaka city to be around Tk.200 billion ($2.7b) and that about
3.2m business hours are lost every day. Time loss on the streets accounts for nearly Tk.120 billion,
trade and export losses for about Tk.40 billion, environmental causes for about Tk. 25 billion, and
the rest for medical and other purposes (PPRC, 2012). Smaller cities suffer the most from poor
urban services: the shares of households with access to private piped water supply, private latrines,

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regular garbage collection and durable roofs in Chittagong and other city corporations is much
lower than in Dhaka; municipalities (pourashavas) show the poorest quality (World Bank, 2013).

4.79 Well planned and integrated urban transport systems will improve the livability and
economic efficiency of cities. Urban transport by its nature is a multi-sectoral subject. International
experience suggests it is essential to ensure good coordination among relevant policy areas, such
as urban road development (new road, flyovers, and maintenance), urban railway, city bus,
including Bus Rapid Transit (BRT), and urban land use planning and development. It is
recommended to develop a national urban transport policy outlining key policy areas and policy
directions, followed by (a) institutional development programs to re-align institutions to urban
transport functions and strengthen capacity and coordination of those institutions, (b) development
of urban transport master plans for each urban area, and (c) investment programs to improve urban
transport infrastructure and services in major cities, with a particular focus on public transport and
non-motorized transport.86 It is essential that public transport systems are well integrated with not
only each other but also with other transport modes to create efficient, safe and affordable urban
transport systems. It is necessary to strengthen traffic flow capacity of arterial network, and clarify
the functions of sub-arterials and neighborhood roads by controlling unnecessary diversion into
lower categories of road. Flyovers shall be kept minimal as they only shift the points of congestion,
and the additional capacity can be filled up very quickly. Along with public transport
improvements, continuous, convenient, and safe NMT networks need to be developed through
better paved and connected sidewalks and rickshaw lanes, safer and more accessible
pedestrian/rickshaw crossings, and better street lighting for safety and security after dark. Lastly,
formalizing urban bus industry, improving regulation of private operators and shifting competition
for public transport services from the ‘street level’ to competition for defined routes will improve
the livability and economic efficiency of cities.

Figure 4.12: Share of households with Access to Urban Services and Housing, 2006

Source: World Bank 2013

Large-scale urban land and affordable housing development

4.80 Scarcity and high cost of buildable urban land are the main reasons for the high cost
of housing, offices, and factory spaces in large cities, especially in Dhaka, where firms cite land

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cost as a major constraint to business expansion (PPRC, 2012). The challenge of securing and
increasing urban land for development are due to difficulties in establishing clear property titles,
registration, and building permits; scarcity of available urban land due to large tracts occupied by
public entities; high building costs due to the need for filling to compensate for the low elevation
of the terrain; and the lack of basic urban infrastructure. A quantum leap in the mass production of
buildable urban land and housing for lower to middle income households is required as part of the
national growth agenda. Large scale affordable housing development requires the government to
establish a clear property rights system, provide basic public infrastructure, set up realistic building
and housing regulation and policy, implement adequate and practical planning, support
differentiated housing financial solutions of lower to middle income households, and facilitate
inter-governmental coordination among different ministries and agencies.

Municipal governance and revenue enhancement to improve urban livability and inclusiveness
4.81 The financial resource for urban development is very limited: less than 1 percent of
Bangladesh’s GDP is spent on urban infrastructure development, compared to about 4 percent in
China during the 1990s when urbanization was comparable to Bangladesh’s current rate. Even
much more developed cities like New York budget 5 percent of their GDP to urban development.
Municipal governments in Bangladesh are heavily dependent on central government grants, which
account for over 85 percent of their development expenditures. Of the central grant currently given
to municipalities, ADP block grants are fully under the central government control. On municipal
revenue, the average own-source revenue of a sample of 127 small and medium-sized
municipalities in 2010-2011 was only about Tk.176 per capita ($2.4), which is very low, especially
when compared to other low-income countries. Own-source revenues of the 19 largest cities in
Ethiopia, a country with much lower per capita GDP, averaged about USD66 per capita in fiscal
year 2009-2010, almost 9 times that of Dhaka (MacDonald, 2011). Many municipalities are unable
to identify the entire tax base and struggle to collect the holdings (property) tax, which is the most
important local general revenue source. In Dhaka, for example, the holdings tax revenues amounted
to about Tk.300 (USD4) per capita in 2010-2011. In smaller cities, the average amount collected
was only Tk.40 (USD0.5) per capita. User charges for services make up another large local revenue
category in Bangladesh, but the current charges are far too low to recover costs.

4.82 Local governments should be granted greater financial autonomy and responsibility.
Increasing local government autonomy and capacity to manage own revenue and expenditures will
enable municipalities to address local needs and challenges. Municipalities must develop short- and
medium-term capital investment plans that take available resources into account. They must also
develop a more effective planning system to support efficient and effective investments, both for
public bodies and private investors. Increasing local autonomy and responsibility will require
significantly upgrading the municipal staff’s technical capacity. Municipal governments that
successfully improve fiscal resources through sustainable means should be rewarded with more
autonomy. The central government should also initiate systematic training programs for elected
municipal officials and professional training courses for technical staff.

4.83 The current municipal service provision models are worth reviewing, especially the
service providers’ institutional capacity and performance. Public-Private Partnerships (PPPs)
can also be leveraged to mobilize resources for urban infrastructure and services. The conditions
and supporting mechanisms for PPPs need to be developed. In the long term, market based pricing
for municipal services offers one way for the private sector to create its long-term cash flow for its

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investment or service. In the short term, instead of charging service at a market price, the
government can redesign its subsidy policy with appropriate public contribution to cover some
service costs; the households pay an affordable price to cover the rest of service cost.

Figure 4.13: Urban-Rural Disparities in Population Density, and Economic Density, 2010 (USD)

Source: World Bank 2013. Based on data from Bangladesh Bureau of Statistics 2011; UN 2011; World Bank, 2012

The economic density of Dhaka and other urban areas should be increased
4.84 Economic activity in Bangladesh is heavily concentrated in Dhaka and Chittagong
metropolitan areas. The urban economic density, measured by economic output per square
kilometer, is about 8.5 times of rural areas. The productivity difference between urban and rural
areas is about 4 times, while urban population density is twice of rural ones (Figure 4.13).
Bangladesh’s continued urbanization is critical to its future economic growth. However, compared
with other global cities, Dhaka’s economic density is low (Figure 4.14).87 Dhaka’s peak economic
density is US$55 million per sq. km. While the comparison is not entirely fair given that Bangladesh
is a low-income country, for Bangladesh to move into middle-income country status, Dhaka must
improve its economic density to compete with other high density cities, such as Delhi (US$113
million per km2),88 Bangkok (US$88 million per km2) and Singapore (US$269 million per km2).

Figure 4.14: Population Density vs. Economic Density of Urban Agglomerations (2006)

Source: PwC, 200989 and UN World Urbanization Prospects

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4.5 Adaptive Delta Management
4.85 Major rivers of Bangladesh have shaped its comparative advantage and determined
the location, nature and pace of development. While the rivers have conferred unquestionable
benefits to transport, trade, agriculture and livelihoods, they also remain a risk to development
through recurrent floods, erosion and water pollution. Major flooding recorded in recent years
occurred in: 1987, 1988, 1998, and 2004; the most recent one occurred in 2007. In 2004, around
20 percent of Bangladeshis were affected by flood, and more than 40 percent of Dhaka was
underwater. Management of water resources has therefore emerged as a central pillar of prudent
economic policy. The problem of river management in Bangladesh is often rendered more complex
due to the high vulnerability of the economy to water related impacts that are transmitted through
transport, agriculture, urbanization and human health and exposure to disasters.

Sustaining productivity growth in agriculture

4.86 A notable feature in Bangladesh’s economic development has been the ongoing structural
transformation in the economy; the country is in fact “ahead of the curve” relative to most other
developing countries in that the share of agriculture in employment is falling faster than its share
in GDP (Figure 4.15). While labor productivity in the non-agricultural sector continues to be much
higher than in agriculture, good agricultural growth combined with labor exiting from agriculture
has resulted in a significant narrowing of this gap in recent years (Figure 4.16). Bangladesh has
done remarkably well in agricultural productivity growth – largely on account of technical change.
Key drivers of agricultural growth have been liberalization of input market, adoptions of modern
varieties, increasing use machinery, access to markets and price hike of agricultural products.90

Figure 4.15: Share of the Agriculture Sector in Figure 4.16: Ratio of Non-Agricultural to
GDP and Employment (percent) Agricultural Labor Productivity
6
GDP Employment (LFS/WDI)
80
5
70
60 4
y = 72.734e‐0.022x
50
3
40
30 2
20
y = 29.647e‐0.019x 1
10
0 0
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009

Source: Based on national accounts data, LFS (various years; inerpolated for inter-survey years) and WDI

4.87 Crop agriculture is the largest component of agricultural GDP (nearly 60 percent), and is
dominated by rice, which is grown in 75-80 percent of land under cultivation. Rice productivity
has risen primarily through adoption of high yielding varieties which now cover 80 percent of the
land under rice, up from around 20 percent in 1979. The production performance of major non-rice
crops during the last four decades has been mixed. However, analysis of comparative advantage
suggests that in the winter season in Bangladesh, production of most non-rice crops (including
wheat, pulses, potatoes and many vegetables) is economically efficient. The fisheries and livestock
sectors are potentially also important sources of growth and poverty reduction. Poultry and dairy
farming has specific advantages over crops, fisheries and forestry, as they require less land and are

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not significantly affected by seasonality. Culture and marine fisheries subsectors also have
significant potential for growth acceleration in the coming years.

Box 14: Fisheries Sector in Bangladesh

Fish forms an important part of the protein intake of the poor. Data from rural areas in Bangladesh suggest that low-
value, wild, small freshwater fish are the most common fish consumed in rural areas and the most important source
of dietary protein (Belton et al. 2011; Thilsted 2010, 2012). Small fish are generally sold in rural markets and can
be purchased in affordable quantities by the rural poor and shared more equitably among household members,
including women and children (Roos et al. 2007). The fate of capture fisheries is inextricably tied to the condition
of wetlands, which also provide a variety of indirect environmental services in the form of flood control, ground
water recharge and pollution abatement. Production in this subsector has declined, given losses of floodplain habitat
due to agriculture and urbanization, lost connections along critical fish migration pathways, significant reductions
in dry season riverine flows, over-fishing, and rapidly increasing industrial, human and agricultural pollution.
Adaptive and resilient agricultural/fisheries systems should be introduced to scale up sustainable fisheries systems
adaptive and resilient to seasonally flooding conditions and strengthen agriculture/fish value chains in order to
support sustainable livelihood practices (including disease risk reduction, increase productivity and quality of
produce). Activities may include (i) structural and non-structural investments to explore more climate-resilient and
diversified agriculture and fisheries models for both inland fishing and aquaculture (including capacity building and
extension services); (ii) strengthening of value chains and marketing, (iii) improve sustainability of shrimp farming
and promote greater rotation/diversification farming systems through modernization in shrimp farming systems,
support for non-shrimp aquaculture; and technical support to strengthen integrated sectoral planning.
The development of inland and marine fisheries can be supported by improving inland fisheries habitat to boost
productivity and restore ecosystem health; scale up proven approaches for community-based fisheries management;
and initiate a reform process for marine fisheries including piloting co-management in selected coastal areas with
artisanal fishing communities. The growth of shrimp exports can be improved (i) increasing the share of value-added
products in the export basket, (ii) improving the image of Bangladeshi shrimp abroad and (iii) investing in food
safety and sustainable certification initiatives. Further improvements are also needed through increasing the
productivity of fish farms, reducing post-harvest losses, and encouraging exporters to invest in integrated fish farms.

4.88 Analysis of the determinants of farming efficiency carried out recently by the WBG has
highlighted several implications for policy.91 An important finding is that land size has a positive
and significant impact on efficiency suggesting larger farms are more efficient. Results also
highlight the importance of key public services: for instance, electricity access strongly raises
technical efficiency of farmers, likely because farm households with electricity access may be more
inclined to use agricultural machinery compared those with no electricity access. Two significant
findings emerge related to land: (a) rented land is associated with higher efficiency, and (b) land
fragmentation is negatively associated with farming efficiency; these results point to the importance
of better functioning land and lease markets to allow more efficient households to rent in rent in
land (or, perhaps equally important, to allow the inefficient households or absentee households to
rent out land without fear of losing their land). Finally, the analysis highlights the importance of
improved connectivity in Bangladesh, and the high potential payoffs from the investments made so
far on physical infrastructure. With declining farm sizes, improved competitiveness through more
effective and efficient use of inputs, especially land and labor, will be critical. Another important
area meriting policy attention is agricultural research – both to consolidate rice productivity gains
but also to broaden its scope to cover diversified agriculture and deal with climate change.

4.89 Fisheries make an important contribution to food security and the economy. While this
sub-sector currently contributes less than 3 percent of exports, this could be enhanced by tapping
the latent potential of high-value marine resources (Box 14). This is especially important in the
context of two recent successive UN tribunal awards that have established Bangladesh’s sovereign

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right on more than 118,000 sq. km of maritime territory, 200 nautical miles of Exclusive Economic
Zone and 34 nm of continental shelf. These awards have opened up the promising possibility of
creating many new jobs in the marine fisheries sub-sector and thereby boost the country’s economy.
The livestock sector is potentially also important source of growth and poverty reduction. Poultry
and dairy farming has specific advantages over crops, fisheries and forestry, as they require less
land and are not significantly affected by seasonality. To help expand the productivity of livestock
animals and birds, government attention needs to concentrate mainly on three elements: (i)
increasing the productivity of small holder farmers; (ii) expanding commercial production; and (iii)
ensuring better marketing facilities, especially for small holders.

4.90 Though much progress has been made in managing water-related risks, institutional
structures have been overwhelmed by the scale and magnitude of the challenges confronting
the sector. The government needs to strengthen and reform institutions and incentives in ways that
can respond to the escalating challenges of rising population densities, and hydrological risks that
impact economic productivity. Insufficient attention is given to the operation and maintenance of
infrastructure resulting in a fiscally inefficient cycle of build-neglect-rebuild. Similarly, land
erosion remains one of the enduring challenges of river management (see also Box 15). Since 1973
the banks of the Jamuna River have lost over 90,000 ha of land due to erosion and the Ganges more
than 7,000 ha. As Chapter 2 has shown, the southwest is one of the country’s least developed region,
due in large part to degradation of water resource system resulting from a reduction of freshwater
inflows from the Ganges, siltation of rivers following the construction of the polder systems, and
increasing salinity intrusion from the Bay of Bengal.92 These challenges are compounded by the
region’s more pronounced exposure to cyclones and tidal floods (Figure 4.17).

Figure 4.17: Tropical cyclones that made landfall over Bangladesh during 1979-2010

 
4.91 Climate change poses an important development challenge for Bangladesh. In 2014,
Bangladesh was ranked the most climate-vulnerable country in the world.93 Sustainable economic
growth is directly linked to the country’s climate-adaptive programming for resource management.
The frequency of floods, storm surges and cyclones are an immense strain on land and water

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resources, especially for poorer households living in the Bangladesh Delta. Thousands of
kilometers of road and railway tracks, as well as energy infrastructure and industries, are currently
at risk of inundation (The Cost of Adapting to Extreme Weather Events in a Changing Climate,
WB 2011). The country faces tremendous water scarcity in the north-west drought prone area
during dry season. In addition the country is heavily impacted by erosion, land subsidence and
environmental degradation.

Box 15: Key Trans-boundary Water Issues and Challenges

Fifty-seven trans-boundary rivers feed into Bangladesh, carrying a peak water flow of an estimated 1.5 million cubic
meters per second. These rivers effectively create the world’s second largest riverine drainage basin, the Ganges–
Brahmaputra–Meghna (GBM) Basin. Bangladesh is located in their lowermost reaches, sharing fifty four rivers with
India and two with Myanmar. The other co-riparian countries are India, Nepal, Bhutan and China. To date,
Bangladesh has signed only one international river pact with India on the Ganges– a 1996 bilateral treaty that
establishes a 30-year water-sharing arrangement between the two countries. There are no other international water
treaties on any other river.
The first challenge for Bangladesh is managing its water resources base, with little control and knowledge of
incoming flows. The constant variability of water lends itself to sectoral levels of conflict with concerns of
environmental flows and ecosystem services bringing a new dimension to the conflictual use of water resources.
The second challenge for Bangladesh is managing its vulnerability to flood and other environmental hazards.
Growing environmental stress, population and increasing demands for water in Bangladesh require governments to
co-operate, or collaborate in the least, to address these issues at a regional scale. Sustained and adaptive management
will require adopting a “basin-approach” in the GBM – this has been hindered by the lack of open availability of
detailed hydrological data of the GBM basins.
The third challenge is Bangladesh’s food security. As an agrarian and riverine country, Bangladesh is dependent on
river water for human consumption, crop irrigation, fisheries, transportation and conservation of biodiversity. The
downstream riparian status of Bangladesh makes it even more dependent on stable river flows meeting its
agricultural needs. With changing monsoon patterns, it is even more important for Bangladesh to have sufficient
information to plan its cropping seasons and ensure high crop yields.
The fourth challenge is missed opportunities. Large basins present an opportunity to improve the standard of living
of the largest concentration of the poor people in the world, vis-à-vis hydropower schemes, joint irrigation schemes,
knowledge exchange, joint research and collaboration on large programs. Bhutan and India have shown that, given
goodwill and trust between the countries concerned, water can be successfully used as an engine for economic
growth. Greater cooperation and collaboration along similar lines between Nepal, India and Bangladesh has the
potential to bring substantial additional benefits to all three concerned countries

4.92 Over $ 10 billion of investment in the last 35 years in the Bangladesh Delta in water
resource management, protective infrastructure like cyclone shelters and coastal embankments,
along with better early warning and readiness systems, have begun yielding modest results for rural
growth, especially in agriculture. Bangladesh has built 9,000 km of embankments, 12,000 hydraulic
structures, and more than 500 flood control, drainage and irrigation works, reaching some 6 million
hectares of land. It has also completed 240 disaster shelters with a further 230 are under
construction, have significantly reduced the loss of life and livelihoods and property damage. Over
50 km of connecting roads were built. Rising household incomes in the areas impacted by these
programs show there has been a positive impact on agricultural productivity. Although being a
considerable investment, this is far less than the average annual economic loss of US$1.8 billion
per year on average due to natural hazards. In addition, a considerable part of these investments
have been allocated to post-disaster reconstruction activities. Notwithstanding that extreme weather
events may put all the recent gains in resilience at extreme risk (The Cost of Adapting to Extreme
Weather Events in a Changing Climate, WB 2011).

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4.93 Increased investment in infrastructure for effective land and water management has
reduced vulnerability to some degree. Sustaining investment in land and water management
infrastructure, with particular focus on climate change adaptation improve the productivity of rice
and other crops, remains important if the country is to meet its food security needs.94 Results for
agricultural productivity from such investments are also linked to a wide range of other factors,
including institutional development, R&D for climate-smart agriculture, technology adaptation,
crop diversification, and the promotion of agri-based industry. The WBG and other development
agencies continue to partner with the government for water resource management, agricultural
adaptation, environmental and natural resource management with pollution abatement and disaster
preparedness. Bangladesh’s resilience to climate change should improve over the next decade as
the benefit from these investments is increasingly felt.

4.94 Even though Bangladesh’s response to the challenge of delta and climate change
related risks has achieved some results by focusing on infrastructure for land and water
management, much more work is needed to reach optimal levels of resilience. Protective
measures are needed to guarantee sustained infrastructure systems (especially transport and
energy), being prerequisite to boost foreign investments. These measures should be combined with
renewed approaches of erosion protection / land reclamation and halt environmental degradation.
Institutions should be strengthened and water resource management infrastructure ought to be
scaled up. Regional climate-smart strategies for agricultural growth, aimed at sub-sectors like
fisheries, livestock, and high value crops, are likely to yield a significant national impact on climate
change. Given the already considerable evidence that investment to reduce climate vulnerability
promotes agricultural growth, programs should focus on (i) institutional strengthening of land and
water management arrangements, (ii) investments in water resource management infrastructure and
disaster preparedness systems to meet demands in these areas, and (iii) area-specific strategies for
agricultural adaption in sub-sectors such as fisheries, livestock and high value crops.

The scale and urgency of Bangladesh's water resources challenge

4.95 Bangladesh faces challenges related to flooding and inundation predominantly during
the monsoon season, while experiencing water shortages and droughts predominantly in the
dry season. Estimating practically available water resources and demand in the dry season for the
years 2010 and 2030 shows that water supply was sufficient to meet demand on a national scale in
2011. However, assuming practically available water supply, i.e. considering current infrastructure,
to remain equal to today, water demand is expected to exceed water supply by 21 percent in the dry
season by 2030 (Figure 4.15). Requiring 93 percent of total water demand, agricultural water
demand is mainly driven by Boro rice production. Given population growth and dietary changes,
agricultural water demand is expected to increase by 46 percent in 2030. Driven by the textile
industry, industrial water demand is also expected to increase by 109 percent in 2030.

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 Figure 4.5: Water supply/ demand balance (dry-season, Figure 4.6: Dhaka's water quality
practically available water resources) situation in the dry season

50
Water Demand
45

40
21%
35
Volume (in bcm)

30

25

20

15

10

-
Water Demand (2011) Water Demand (2030)

Domestic Demand Industrial Demand

Agriculture Demand Practically available water resource

Source: PwC Analysis Source: Dr. Badruzzaman

4.96 The water supply-demand gap in 2030 is expected to widen when also considering water
quality aspects. 33 percent of Bangladesh's population is exposed to arsenic contamination of
groundwater, while the increasing salinity levels from seawater intrusion and agricultural runoff
pose challenges for industries and farming activities in the southern regions. Untreated wastewater
and effluent discharged into water bodies further reduce usable water resources, particularly in
urban and industrial centers. In the dry season, the rivers in and around Dhaka are practically void
of aquatic life, as dissolved oxygen levels of around zero prohibit any form of live to pertain (Figure
4.16). Importantly, the severity and diversity of the water resource management challenges depends
on the region. With 80 percent of the water demands being met by groundwater resources,
abstractions in some regions exceed the groundwater recharge rate, resulting in falling groundwater
tables. This is particularly a challenge around the capital city Dhaka where the groundwater table
is falling by 2 meters every year, and in the Barind Tract.

4.97 The quantity of groundwater recharge is still uncertain in Bangladesh, with estimates
ranging from 21 billion cubic meters to 65 billion cubic meters per year. Similarly, the sustainable
total yield of extraction of groundwater has not yet been assessed. Further, 92% of all water
resources are external, i.e. entering Bangladesh via trans-boundary waters, resulting in high
dependency and uncertainty on future water availability. Thus, the water supply-demand gap could
be greater than the estimates project. While recharges in groundwater resources only form 2 percent
of Bangladesh’s renewable water resources, only 0.4 percent of the total surface water is stored.
Bangladesh with its typical flatland topography as a delta country, and the resultant challenges for
construction of required infrastructure, is one of the main reasons for these low levels of surface
water storage. The WBG (along with the 2030 Water Resources Group) need to identify strategies
and interventions to address the quantity and quality issues in water resources management.

4.98 As a result of climate change, flood risks will largely increase by an increasing number of
cyclones, higher river peak flows, more flash floods and sea level rise. The availability of fresh
water sources and other natural resources will come under increasing pressure by temperature

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increase, salinization, increase of the population and intensification of agricultural and industrial
sectors. At the same time, the country’s vulnerability will rapidly increase due to socio-economic
development as more people and a higher economic value will be exposed to these natural hazards.
Although the exact speed of climate change, and the impacts of socio-economic development are
difficult to predict, spatial integration of these developments will become increasingly difficult as
pressure on available space already is very high. As the time horizon of investments in
infrastructure and urbanization are 50 years and longer, the country’s development plans should
therefore be fully anticipating on the long term risks of climate change.

4.99 A different approach is needed to manage the Bangladesh Delta because of its
complexity. More long-term planning is urgently needed. The Ganges-Brahmaputra-Meghna
Delta, which encompasses two-thirds of Bangladesh as well as India’s West Bengal, is Asia’s
largest delta, a climate hot spot, and the world’s most populated delta. In the worst-case scenario,
projected sea-level rise by 2050 could directly affect more than 16.8m people and one-quarter of
Bangladesh’s land area. With support from the Government of the Netherlands, Bangladesh has
embarked on preparing the Delta Plan 2100 to develop an integrated and holistic long-term plan to
ensure safe living and sound economic development in the delta.95 Adaptive delta management
(ADM) is used as a guiding principle, and can be summarized by the following 4 principles:

 Anticipate: By using multiple adaptive strategies and a flexible approach instead of final
development images, solutions are more likely to be resilient and limit over- or under-
investment.
 Adequate: by connecting short term decisions on water and spatial planning to long term
challenges of climate and socio-economic growth, ADM ensures that projects or
interventions taken fit within a long term vision and strategy with short-term and medium-
term implementation and investment plans.
 Flexible: by valuating flexibility, investments in timing and scope are adapted to meeting
the real needs of the moment, limiting the chance of over- or under investments.
 Concerted action: by connecting investment agendas of public and private stakeholders,
support and synergy is created for long term, resilient solutions.

4.100 This way of adaptive planning is particularly important as the impact of climate change is
to be fully integrated into Bangladesh delta management. Figure 4.17 highlights some of the key
processes and impacts which have to be included in strategies to manage the Bangladesh Delta.

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 Figure 4.7: Effective Management of Bangladesh’s Delta

Schematic of many of the long-term and short-term processes and impacts that have to be considered in
effectively managing the Bangladesh Delta. The arrow links the physical impacts causally to the social
impacts. The main process fall into two categories: those directly affected by climate change and those
that are primarily a result of human activities. They are not mutually exclusive. For example, erosion and
sedimentation is affected by climate related processes as well as human activities.

4.101 ADM would connect short term investments with long-term challenges facing the
delta. This requires a commitment to short-term actions within a framework that will guide future
actions. The time horizon for ADM is long, up to 2100, to capture the long-term effects of climate
change. The long-term vision should shape short-term no-regrets actions, avoiding ‘trial and error’
projects96. For example, investments in major infrastructure have to consider not only the short
term benefit of the investment, but also the possible longer-term and sometimes adverse
consequences. The Bangladesh Delta is dependent on certain courses of action; that is, once a
development is started, it cannot easily be changed or adapted to new conditions. This requires an
approach that focuses on adaptation pathways, which are a sequence of GoB policy actions that are
able to achieve a set of objectives because they are not limited by actions in the past or by actions
planned anterior in the pathway97. Another building block is the connection between public and
private agendas. ADM should actively search for opportunities to combine different investment
agendas with the aim of making actions easier, cheaper and yielding more societal value. ADM
applied to the Bangladesh Delta would have three phases: identification of current and future
problems and challenges based on future scenarios; options, which may enhance sustainability or
reduce vulnerability or both for current threats and future uncertainties; and integration of
adaptation options into viable management strategies and ensuring their proper implementation.

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4.102 ADM has to consider all aspects of infrastructure systems and infrastructure services
which impact lives and livelihoods of the inhabitants of the Bangladesh Delta (e.g. agriculture
and aquaculture, fisheries, forestry, transportation, water and sanitation, energy, industry,
ecosystems, plus physical infrastructure in each of these sectors). ADM must also be climate-smart
to cope with the likely adverse consequences of climate change. Since resilience in one sector is
highly dependent on resilience in another, attention is needed to ensure that vulnerabilities in one
sector do not compromise another. Moreover, interdependencies among the sectors are multi-
dimensional and a holistic approach is required to reduce people’s exposure to both anthropogenic
and climate-induced hazards. Given the plethora of projects in the Bangladesh Delta; greater
integration without necessarily affecting the core objectives of these activities would contribute to
a better managed delta ecosystem. This approach would support the development of cost-effective
infrastructure investments that properly take into consideration the likely impacts of future hazards.

4.103 Delta Management has to ensure food security for the growing population. With the
decline of poverty and increase of purchasing power, the composition of the Bangladesh food
basket keeps changing. As the current main source of protein, fisheries will likely play an even
greater role in the economy and food security of Bangladesh. The fisheries sector contributes
substantially to the economy (4.4 of the Gross Domestic Product) and food security (60 percent of
the animal protein intake of the country) and involve a wide-range of income generating activities
contributing to economic development.98 More than 15 million people are directly and indirectly
associated with various fishery activities at present.

4.104 A functioning ADM needs to address and require an understanding on the

management and reestablishment of large areas of interconnected habitats. A fundamental
issue is how to integrate this large-scale thinking with the small-scale, on-the-ground projects
underway in Bangladesh. This requires quantifying landscape-scale metrics based on historical
landscapes; developing an understanding of historical ecological functions and comparing them to
present ones; refining conceptual models of Delta ecological function; developing restoration
design principles and guidelines based on this new understanding, and presenting explicit landscape
illustrations and other visualizations to be used to create guiding images for the future Bangladesh
Delta. This analytical work would underpin planning efforts and to provide the specific tools
needed for landscape-level management of ecological functions.

4.105 Protection of land resources from tidal waves and storm surges are critical for the
low-lying coastal areas. A mix of conventional infrastructure and soft measures are needed, which
include options for eco-system based coastal defense in combination with food production (oyster
reefs, strengthening the mangrove belt/tidal marsh restoration, sediment trapping etc.). Forest
ecosystems can play an important role in climate change adaptation. A large number of people
depend on forestry not just for their livelihoods but also to reduce vulnerability. Mangrove
afforestation in the coastal region for example, has proved to effectively mitigate climate change
related disaster risks. For example, Cyclone Sidr in 2007 and Cyclone Aila in 2009 caused less
damage to property and fewer life losses in Chokoria and surrounding areas compared to the
devastating results of the cyclone in 1991. One of the main contributing factor was afforestation on
the foreshore of embankments, which substantially reduced the storm surge velocity.

4.106 Institutional development and good governance are important factors in striving for
well-being and security of life, livelihood and economy of the Bangladesh Delta.99 There is an

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urgent governance challenge: the need for adopting a holistic approach in planning and in
implementing and funding the programs as designed under different sectoral plans. The recent and
future anthropogenic changes in the hydrological cycle due to climate change, construction of dams
and barrages in the upstream countries in combination with increasing water demand are expected
to make future water governance and management even more challenging. The development
culture could be transformed more profoundly from a project approach to a coherent program
approach with a strong emphasis on adequate implementation.100

4.107 ADM needs to protect, restore and enhance the delta ecosystem and its services.
Achieving the goal of ecosystem protection, restoration, and enhancement means successfully
establishing a resilient, functioning estuary and surrounding terrestrial landscape capable of
supporting viable populations and migratory species with diverse and biologically appropriate
habitats, functional corridors, and ecosystem processes. To achieve this, management regime needs
a mix of infrastructural and policy oriented measures. As one of the largest Deltas of the world with
highest number of inhabitants, the Delta has already experienced numerous interventions of water
management including upstream water withdrawal, reduction of floodplain and pollution. All these
anthropogenic intervention coupled with natural changes have restricted the Delta’s capacity of
ecosystem services. So, it is essential to understand the delta and a nature based solution should be
introduced to restore and enhance the services. Environment sustainability is a key principle
underpinning for delta management- restoring the delta ecosystem and also protecting and
enhancing the delta as a unique and evolving place. Environmental aspect is remained as one of the
major challenges for delta management in Bangladesh and needs to be integrated with the water
allocation and water quality decisions.

4.108 ADM provides also an opportunity for trans-boundary cooperation. As a lower

riparian country, Bangladesh is very vulnerable to upstream interventions. Changes in flows and
sedimentation rates resulting from the development of upstream dams and barrages may be
illustrative of the type of impacts which may be expected should further upstream infrastructural
development (and especially increased diversion of flows for irrigation consumption) take place.
In order to limit the negative impacts of these developments, Bangladesh has to focus on the
establishment of close cooperation with upstream riparian countries. Strengthening its water
diplomacy approach is a promising step in order to strengthen the position of Bangladesh.
Bangladesh needs to convince upstream countries of the extra benefits to be gained while focusing
on the basin as a whole rather than to be restricted by the current political boundaries. By searching
for mutual gains and by inviting different stakeholders to the negotiation table, the negotiations and
outcome will become more flexible and accordingly it will be more likely the parties reach a
mutually beneficial agreement or even establish joint management of the river basin.

4.109 ADM will benefit from the long term scenarios, which will be developed through the
Bangladesh Delta Plan 2100. The Government of Bangladesh (GoB) supported by the
Government of the Kingdom of the Netherlands (GoN) is preparing the ‘Bangladesh Delta Plan
2100 (BDP 2100)’, an undertaking hosted by the General Economic Division (GED) of the
Planning Commission, Ministry of Planning. The mission of the BDP 2100 is to realize a
sustainable delta vision, long term strategy and plan, agreed with all stakeholders, for an optimum
level of water safety and food security as well as economic growth and a framework for its
implementation. The objective is to prepare a long term (50 to 100 year) integrated and holistic
plan to ensure safe living and sound economic development in the delta given the challenges posed

115
by climate change. Effective implementation is a recognized challenge of any plan, which entails
multiple sectors and requires a complex and functioning governance set-up. Both Governments
recognize the importance for a well-coordinated approach amongst all key stakeholders, (i) in
defining an investment plan which re-evaluates water management in the light of long-term
sustainable development and climate change; (ii) to identify institutional mechanisms for
implementing key actions including areas for institutional capacity strengthening; and (iii) to cost
out the various actions and identify financing sources including climate finance.

4.110 Catalyzing both public and private sector investment is critical. Phased
implementation of a comprehensive delta plan with require huge investments. Conducive policies
and regulations; structures and incentives should be in place to inform and incentivize private sector
investment in the form of PPPs.

116
 ANNEX
Improved social protection systems to meet changing needs
A high share of poor households in Bangladesh continue to rely on agricultural labor or
petty informal sector activities for their livelihood, and remain vulnerable to seasonal fluctuations
in output and other such risks. As workers move to more formal jobs in the expanding
manufacturing and services sectors, they will gradually be less vulnerable to such risks— higher
wage incomes and earnings means greater ability to save and build assets to serve as a safety
cushion—but they will face new challenges: jobs in the non-agricultural sector, especially those in
the private sector, are more vulnerable to economic downturns. Bangladesh will need a stronger
social protection system designed to meet these new challenges. An important policy challenge will
be to extend the coverage of social assistance programs, which are presently only in rural areas, to
the urban poor. Planning for fiscally responsible pension reform to support an aging population
should also be accommodated in the design of a comprehensive social protection system.

Bangladesh’s largest safety net programs are making effective progress towards reducing
poverty and improving gender outcomes, such as increasing the food available for women and girls,
as well as measures of empowerment. Social protection spending in Bangladesh has been around
14 percent of the total budget (2 percent of GDP), among the highest relative to other South Asian
countries. Currently 22 ministries implement 95 programs, ranging in size from Tk. 10 million
(US$130,000) to Tk. 55 billion (US$ 714 million). The government’s pension program constituted
a third of the total budget in fiscal 2013 (Figure A1), while the remainder was spent on safety nets
and various other community based cash and in-kind transfer programs. The government recently
approved its National Social Security Strategy, key features of which are presented in Box 16.

Figure A1: Social Protection Expenditures (Crore Tk) in Bangladesh

Source: Based on national accounts data, LFS (various years; inerpolated for inter-survey years) and WDI

There is considerable fragmentation and overlap among safety net programs. The ten
largest programs command 70 percent of the total budget, with the remaining allocation distributed
among 18 medium sized programs (23 percent) and 67 very small ones (7 percent). The lack of
coordination between the various programs results in inefficiencies and spreads scarce resources
too thin. For example, the Ministry of Women and Children Affairs offers the Maternity Allowance
for the Poor Lactating Mothers, while the Ministry of Health offers Maternal Health Vouchers.
Three different ministries run various education stipend programs. The Ministry of Disaster
Management and Relief implements 3 similar programs - Employment Generation Program for the
Poorest, Test Relief and Food for Works - but utilizes different administrative processes, leading
to tremendous strain on limited project implementation personnel and administrative inefficiencies.

117
 Box 16: National Social Security Strategy 2015
The government recently approved the National Social Security Strategy 2015 (NSSS) that seeks to build an
inclusive social security system that effectively addresses and prevents poverty and inequality and contributes to
broader human development, employment and economic growth. The NSSS builds on the past experience of
Bangladesh and seeks to streamline and strengthen the existing safety net programs with a view to ensuring more
efficient and effective use of resources. It also broadens the scope of social protection from the narrow safety net
concept to include employment policies and social insurance to address the emerging needs of a middle income
Bangladesh in 2021 and ahead. Some of the key features of the Strategy include:
 Better targeting: Recognizing the high levels of leakage in the sector and limited fiscal space, the NSSS
reinforces the current policy of targeting programs to the poorest through the use of the Bangladesh Poverty Database
currently under development.
 Increased coverage: The strategy provides for a lifecycle approach framework that would cater to the changing
vulnerabilities and risks faced during each stage of life through which an individual or household passes. This calls
for a social protection system that provides support from conception to early childhood and schooling through to
working age and old age, in addition to addressing the needs of the disabled and strengthening resilience to covariate
shocks. The Strategy also addresses the need for a social insurance system that would enable people to invest in
schemes that provide protection against risks stemming from unemployment, disability, old age and other shocks.
 Coordination and consolidation: The strategy lays out an ambitious reform strategy for reorganization and
consolidation of the multiplicity of programs along five thematic lines that address poverty and risk at different
stages of the life cycle: (i) social allowances; (ii) food security and disaster assistance; (iii) social insurance; (iv)
labor and livelihoods interventions, and (v) human development and social empowerment. Lead coordination and
implementation ministries are identified which would be responsible for implementing the programs under the
various themes and report to a central lead agency under the Cabinet Division. This also necessitates a review of the
government’s current Food Stock Policy and Public Food Distribution System (PFDS) so that consolidation efforts
are not hampered by policies on food stock management and rotation through safety nets.
 Strengthened delivery mechanisms: A sound social security system requires a strong administrative and
delivery mechanism, aided by the use of technology. The NSSS proposes reforms in priority areas including
professionalization and capacity building of staff to underpin effective and efficient delivery of services; use of
management information systems to promote coordination and monitoring of programs; strengthened payment
mechanisms through formal channels to minimize the scope for leakage and promote financial inclusion, and
establishing functional grievance mechanisms for citizens to have recourse to appeal on any matter.

Expensive and “leaky” food based programs receive a significant share of resources.
While the government has recently reformed some large food based programs into cash and
increased spending on cash transfers, there is scope to do more. Studies show it is cheaper and more
efficient to deliver cash than food, yet 4 of the 10 largest social protection programs continue to be
food–based. The multiple intermediaries involved in the procurement, distribution and storage of
food add to program administration costs, and also increase the potential for misappropriation.
Cash, by contrast, is becoming faster and cheaper to deliver thanks to new technology.

Poor targeting of benefits, along with transfer amounts which are too low at the
beneficiary level, limit the potential of safety nets to reduce poverty. Social protection programs
in Bangladesh at present cover only one-third of the poor population. Many people above this
threshold also receive benefits: 60 percent of safety net beneficiaries are not defined as poor. The
average transfer amount is about 11 percent of the total expenditures of poor households, much
lower than the global median, which ranges from 18 to 27 percent. Even within the existing social
protection budget, more effective targeting, better institutional coordination, and more efficient
program administration could substantially increase benefits to poor households. For example, even
if average transfer amounts were unchanged, ensuring they reached the poorest households would
reduce the poverty rate by 4.3 percentage points, lifting nearly 5 million people out of poverty.

118
 Social protection expenditures would be more efficient if programs were consolidated
and rationalized. A high level inter-ministerial committee could assess ways in which similar
programs can be integrated, with an emphasis on increasing budgetary support for better
performing programs. Brazil and Mexico's cash transfer programs, considered to represent global
best practice, evolved in a similar fashion. In these and other Latin American countries, social
protection mechanisms became more effective partly through consolidation and rationalization, and
partly through developing state-of-the-art management information systems. While the
consolidation process has to be incremental, a few actions can be undertaken immediately. For
example, the country has three separate public works programs (Food for Works, Test Relief and
Employment Generation Program for the Poorest), which could effectively be merged into one
workfare program. Similarly, as laid out in the recently-approved National Social Security Strategy
2015, all food security programs could be re-grouped and consolidated as those aimed at disaster
relief (Vulnerable Group Feeding, Gratuitous Relief) and those aimed at stabilizing food prices
(Open Market Sales, Food Card and Fair Price Program). Bangladesh could also build on its
successful Employment Generation for the Poorest of the Poor program by sharing lessons on
operational processes that have worked well. These include the use of automated administrative
platforms, electronic payments via cash cards or mobile phones, third-party monitoring and spot-
checks, and impact evaluations. Similarly, “crowding out” some of poorly performing programs by
those that can improve employability of the poor youth, whether at home or abroad, could also be
an important strategic step meriting further consideration.

Improving the cost effectiveness of safety nets is closely linked to developing a more
efficient reserve food stock. Food–based programs are part of the country’s food security strategy,
as they help regular turnover of reserve grain supplies to prevent losses due to deteriorating quality.
The Public Food Distribution System (PFDS) relies on safety nets to rotate almost three-quarters
of its total annual distribution. Increasing the use of cash rather than food by these programs will
involve assessing the optimal size of food stocks and various options for their monetization, as well
as improving grain storage technologies so that less frequent rotation of grain stocks is needed.
While reshuffling the PFDS to expand cost-effective approaches and phase out weaker ones is
challenging, it is not impossible. Careful analysis and long term planning will be needed.

119
 Addressing emerging environmental risks and challenges
The rapid growth of large-scale manufacturing clustered around the Dhaka and
Chittagong region has given rise to significant environmental challenges. Issues related to
better management of the Dhaka watershed,101 and tackling increased air pollution merit special
attention. Increased pollution of watercourses from industrial discharges and domestic sewage has
forced the Dhaka Water and Sewerage Authority (DWASA) to undertake a plan to bring water to
the city from the Meghna River more than 60 km away. Shallow aquifers have been contaminated
by chemicals (mainly heavy metals) and dissolved solids, very likely from industrial sources.
Surface water bodies (i.e. rivers, canals ponds) have very low oxygen levels, which reflects the
breakdown of organic waste, from both domestic sewage and chemical residues from industry. The
environmental, health, and economic costs associated with pollution from untreated industrial
effluent are significant,102 and also pose both a direct and indirect threat to the competitiveness of
key industries (e.g. textiles) located in this area.103 The fisheries sector is another sector of the
economy that is also vulnerable to the adverse impacts of pollution.

Despite having a regulatory framework currently in place for industrial pollution control,
including environmental clearance permits and defined environmental impact assessment
procedures, the government has failed to address growing industrial pollution concerns, in part due
to institutional inefficiencies and lack of enforcement. There is also no single institution responsible
for overseeing the development of the greater Dhaka watershed area, which severely curtails
coordination and dialogue between the multiple institutions, and results in a systemic lack of
oversight and inadequate prioritization of actions needed to improve the environment. Most
interventions are short-term and sporadic, as there is no strategic long-term planning for watershed
management. Dhaka needs a shift from ‘the go-for-growth’ approach to one where growth is
accompanied by implementation of policies for sustainable production and improved
environmental management. Key recommendations include:
 Compliance promotion. Industrial discharges into rivers, canals and groundwater must be
reduced through stricter enforcement of environmental clearance conditions and effluent
standards, focusing on priority sources of contamination.104
 Promote incentives for pollution abatements by introducing (i) ‘polluter pays’ principle; and
(ii) pollution prevention through better process optimization.105
 Long-term strategic framework. Form a single statutory body to help ensure cross-sector
coordination, promote joint planning and minimize jurisdictional conflicts; Develop an
integrated long-term strategy addressing water quality, water supply, sanitation, flood
management, inland water transport, agriculture production, and fisheries development.106
 Invest in pollution abatement in line with long-term strategic frameworks for waste water
treatment, sewage treatment, river bank protection, conservation water transportation, etc.
possibly through PPPs for combined effluent and sewage treatment plants in strategic hotspots.

120
 Deteriorating urban air quality in Bangladesh is cause for major concern. Particulate
matter (PM) is the most significant pollutant; concentration levels in Dhaka and other major cities
across the country have increased steadily, and are now much higher than World Health
Organization recommended limits, and result in significant health and economic costs.107 While the
problem is most severe in Dhaka, where air quality is worst and the most people are exposed, air
pollution is also a growing concern in other Figure A2: Main Air Pollutants Sources in Dhaka
major cities of Bangladesh. Scientific source
apportionment studies to ascertain the major
sources of air pollution – particularly fine
particulate matter – point to three main
causes: (i) small industries, in particular
brick kilns and other biomass incinerators;
(ii) vehicles; and (iii) road dust that has been
re-suspended, or kicked back up into the air
(Figure A2). Brick making in Bangladesh is
highly energy intensive and one of the
biggest emitters of air pollution in and
around cities. Diesel buses and trucks are
also a major source of PM pollution in cities. Source: World Bank, 2011
Finally, black carbon also constitutes a
significant fraction of PM2.5.108 Recommendations to help reduce urban air pollution include:

 Adopt a long-term strategic framework to address the urban air pollution issues in major
sectors. This also includes building credible monitoring and enforcement capacity.
 Promote clear-cut and profit driven industry specific pollution abatement programs. This
includes assistance to industries in minimizing effluents through market-based mechanisms,
affordable innovative technologies, and changes in industrial processes.
 Provide incentives to scale-up clean and energy-efficient brick production. For instance, a
risk-guarantee fund could encourage financing to small entrepreneurs who have limited access
to investment capital. Similar financing may be needed to encourage energy efficient and low-
emission technologies in other energy intensive industries (steel, cement, glass and ceramics).
 Revise policies to tax polluting technologies, vehicles & fuels Current tax policy encourages
solid rather than machine-made perforated bricks (latter less energy-intensive; need less clay).
 Rationalize bus routes: implement bus rapid transit; introduce bigger buses on franchised
routes to help phase-out highly polluting and inefficient mini-buses; improve traffic flow.
 Support dust control measures for road and re-suspended dust through measures such as
mandatory provision of covering of trucks; pilot of no dust construction in the major cities, etc.

Access to adequate quality of water and sanitation is vital. Though much progress has been
made in meeting the MDG targets, poor sanitation and water is estimated to cost about US$4.2
billion a year or the equivalent of 6.3 of GDP (WSP, 2012). Losses related to health from inadequate
sanitation are the single largest contributor, accounting for 84 percent of the GDP losses, followed
by welfare and time losses (11 percent), water quality health losses (5 percent). Diarrheal disease
accounts for the bulk of these losses (Figure A3).

121
 Figure A3: Negative Externalities Imposed by Poor Sanitation

Despite considerable success in improving access to water and sanitation facilities, stubborn
challenges endure. Dhaka is the only city with a sewerage system where it covers a mere 18
percent of the city. Little of the fecal sludge and effluent in these areas is conveyed by the sewerage
system to the treatment plant or is actually treated. An institutional framework is essential for the
successful implementation of fecal sludge management (FSM) systems. While access to household
sanitation is high in rural areas, with more than 97 percent of the households provided with access
toilets, the collection and treatment of fecal sludge is limited. Remarkable gains in sanitation have
been made through a switch from latrine promotion to collective movements to eradicate open
defecation. While this has been extremely successful, it has resulted in low cost and low quality
latrines. And as a result the health cost from inadequate sanitation remain high. Indeed recent
research by Spears et al (2014) finds that the height differential between the two Bengals –
Bangladesh and India Bengal can be explained (statistically) by sanitation patterns and the
differential exposure to fecal matter in the environment. The need for improved quality sanitation
requires another shift away from collective mobilization to market mechanisms that encourage
households to move up the sanitation ladder.

Institutions and the resources available for meeting water and sanitation objectives
are limited. Long term financing in Bangladesh, particularly for infrastructure, has not been readily
available. Moreover, the desire to keep tariffs low has meant that rates have not been sufficient to
maintain the systems which have been constructed. Public sector capacity to plan and issue tenders
has also been slow and efforts to create a monitoring system or guidelines overseeing tariffs have
not come to fruition. The need for private sector participation in rural water supply remains strong;
despite the challenges in rural water supply, there are opportunities for greater private sector
participation in urban water supply and rural sanitation. In urban areas, there is scope for the private
sector role to manage aspects of water services such as billing and collections, leak detection, and
fleet maintenance. Delegated management contracts for some secondary water utilities might also
be viable. What holds the most potential promise in the short term is a private sector role in rural
sanitation. While Bangladesh has nearly eliminated open defecation, there is an urgent need for
hygienic sanitation, particularly in rural areas. Current systems come with a hefty fiscal costs. They
allow for a 60 percent subsidy with the private operator paying 20 percent of the capital costs and
the households paying 10 percent. Operations and maintenance costs are supposed to be covered
by the tariffs but in reality these have been kept low and often do not cover maintenance, much less
contribute to expansion costs.

122
 Strengthening Public Institutions
Public financial management: Thanks to past efforts by successive governments
supported by technical assistance programs sponsored by development partners, Bangladesh is well
placed to modernize PFM system to increase government efficiency and encourage development
partners to increase support for investment in transformative infrastructure projects. While
successive PFM-projects have initiated many important reforms, several systemic issues still need
fixing. 109 Key priorities for the PFM system include further strengthening the development of
integrated ICT-solutions in financial management and creating a more comprehensive Treasury
Single Account, deepening medium-term budget framework-related reforms and harmonizing
procedures across the recurrent and development budget, increasing the transparency of the budget
by allowing citizens and civil society access to public finance data in user-friendly and editable
formats, and mainstreaming revised and improved audit practices in the Office of the Comptroller
and Auditor General and audit functions.

Public procurement: Bangladesh made commendable progress in reforming its public

procurement environment over the last decade, with the existence of the fundamentals of a good
public procurement system comprising procurement laws, a nodal procurement policy agency, and
procurement performance measurement system combined with electronic tendering. Looking
ahead, key challenges include continuation of these efforts with greater sustainability, openness
and better integration of governance related functions, especially covering (i) integration of
procurement planning with budgeting; (ii) improving effective utilization of the annual
development program; (iii) strengthening/digitizing the process of project preparation,
implementation, and monitoring including contract management; and (iv) enhancing coverage of
e-GP for nation-wide application.110

Civil Service Reform: Unlike many other developing countries, Bangladesh does not
suffer from a particularly large or overpaid civil service. Of its roughly one million public sector
employees, around 700,000 are in ministries, departments and other government offices, while the
rest work in public enterprises. Salaries, allowances and pension payments account for about 25
percent of the budget. Bangladesh scores higher on quality of public administration and
professionalism than many other South Asian and low-income countries according to Global
Integrity data. However the quality of the public administration is hampered by the way in which
it is managed. Indicators of government effectiveness place Bangladesh in the 20th percentile. The
CPIA rating for public sector management and institutions, which strongly influence IDA's
performance based allocation, was only 2.9 in 2013-14, below IDA and South Asia averages.
Successive governments have politicized the administrative system, weakening its capacity while
fostering inefficiency and vulnerability to vested interests and corruption. Many senior civil
servants are made ‘Officer on Special Duty’ based on political considerations, and then languish at
the Ministry of Public Administration. 111 An emerging set of initiatives to strengthen the
performance orientation in the public sector provide opportunities to support the development of a
public sector reform agenda. A public sector which focuses on results rather than rules can be an
entry point to reforms of the civil service and personnel management, strengthening the results
focus of the public financial management reforms and resource allocation decisions, quality of the
public investment portfolio, and oversight and accountability within the administration from front-
line service delivery agents to policy making authorities, and from autonomous bodies and state
owned enterprises to parent ministries and the ministry of Finance.

123
 Service Delivery and Decentralization: Bangladesh is divided for administrative
purposes into 7 divisions, 64 zilas (districts), and 544 upazilas (sub-districts). Even though local
governments have a key role to play in providing public goods and services to their communities,
the government has initiated only modest reform of local governments, which remain fairly weak,
with poor resources, little revenue raising authority, and limited influence on how the central
government spends money in their jurisdictions. Their share of total public expenditures—
estimated to be less than 4 percent—is among the lowest globally. Key services such as education,
health, nutrition, family planning, irrigation, agricultural services, and secondary roads are all
managed directly by central government entities, with little input from elected local governments.
To help make public services more effective and bring politicians and policy makers closer to
clients, much work is needed in Bangladesh to design and implement effective political,
administrative, and fiscal decentralization to lower tiers of governments.112

Improving Access to Information to Strengthen Accountability: Restricted information

flow hinders citizens’ access to their rights and entitlements, renders service delivery less efficient
and creates opportunities for corrupt behavior through the lack of transparency. The 2009 Right to
Information (RTI) Act provides the government an opportunity to facilitate greater disclosure of
information and become more open and accountable. However, much work is needed both on the
supply side to strengthen its ability to effectively implement the new Act, 113 as well as on the
demand side to raise public awareness.114 Key public oversight institutions (e.g. judiciary, anti-
corruption, and election commissions, etc.) also need further strengthening. Finally, continued
assistance from development partners will be needed to support development of an enabling
environment for civil society organizations, capacity building, and their participation in policy
dialogue and governance. The success of Bangladeshi NGOs in delivering cost-effective services
to the poor is well known across the world; less well known but also important are the contributions
made by numerous local organizations in influencing public policy formulation, and the key
advocacy, advisory, and watchdog roles they perform.115

Good civil registration and national identification systems are necessary to achieve the
development objectives in any modern society. Legal identities of individuals are secured and their
ensuing rights are recognized when they are registered with the system. A good NID system enables
the government to accurately target and reach the beneficiaries of social protection, public health,
education, poverty reduction and other programs and to prevent fraud. It also improves governance
by reducing the cost and time associated with identifying individuals. Service delivery at the private
sector, such as, opening of bank accounts, purchase of mobile phone connectivity, is greatly
facilitated with the introduction of unique and secured NID cards and numbers for the citizens.

The state owned enterprise (SOE) portfolio plays a significant role in Bangladesh
economy and the Governance of SOEs has a significant effect on fiscal management, service
delivery, as well as addressing public investment and infrastructure bottleneck. As extra-budgetary
institutions, State Owned Enterprises do not benefit from the same level of attention and control as
institutions and transactions under the scope of the budget.

124
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 Banerjee, S., Anis, M., Driscall, I., & Faghi, A. (2010, June 1). Non-lending Technical Assistance: the Design
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 Canals-Cerda, J., & Ridao-Cano, C. (2004, July). The Dynamics of School and Work in Rural Bangladesh.
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IBRD, the World Bank. (2005, January 1). Bangladesh: Updating Poverty Maps of Bangladesh. Retrieved
from ImageBank, the World Bank:
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IBRD, the World Bank. (2007, Feburary 14). Bangladesh - Curbing Corruption and Strengthening
Governance: A Note on Strengthening Anticorruption Initiatives. Retrieved from ImageBank, the World Bank:
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red/PDF/683830ESW0WHIT000050Governance0Note.pdf
IBRD, the World Bank. (2010, August 13). Nepal and Bangladesh - Transport and HIV Portfolio Review and
Situation Analysis. Retrieved from ImageBank, the World Bank:
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IBRD, the World Bank. (2013, April 1). Bangladesh - Nutrition at a Glance. Retrieved from ImageBank, the
World Bank:
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IBRD, the World Bank. (2008, July 1). Bangladesh - Bolstering Governance to Reduce Poverty. Retrieved
from ImageBank, the World Bank:
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red/PDF/519730BRI0IDA110Box345548B01PUBLIC1.pdf
IBRD, the World Bank. (2008, October 30). Bangladesh - Horizontal Learning for Strengthening Capacities of
Local Government Institutions in Bangladesh. Retrieved from ImageBank, the World Bank:
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red/PDF/722040WP0Box370enthening0capacities.pdf
IBRD, the World Bank. (2008, January 1). Strengthening Monitoring and Evaluation of Public Procurement
Regulations (PPR). Retrieved from ImageBank, the World Bank:
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red/PDF/700250WP0P097200Report0January02008.pdf
IBRD, the World Bank. (2009, July 9). The FY10 Budget: Highlights and Assessment. Retrieved from
ImageBank, the World Bank:
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red/PDF/709870WP0Bangl00Box369258B00PUBLIC0.pdf
IBRD, the World Bank. (2010, June 29). Bangladesh - Restructuring Public Financial Management
Institutional Arrangements: A Case for Separation of Accounting from Auditing Functions. Retrieved from
ImageBank, the World Bank:
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red/PDF/703590PNT0P1080f0A0A00June029002010.pdf
IBRD, the World Bank. (2010, January 1). The Impact of the Global Financial Crisis on Investments in the
Electric Power Sector: the Experience of India, Pakistan, and Bangladesh - Final Report (Chapter 4: Bangladesh).
Retrieved from ImageBank, the World Bank:
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red/PDF/568490ESW0Whit1011065681web1version.pdf
IBRD, the World Bank. (2011, June 1). Bangladesh - Household Income and Expenditure Survey: Key
Findings and Results 2010. Retrieved from ImageBank, the World Bank:
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red/PDF/709500WP00PUBL0AndExpenditureSurvey.pdf
IBRD, the World Bank. (2014, April 1). Bangladesh - Open Public Finance Data: the Case of Bangladesh.
Retrieved from ImageBank, the World Bank:
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red/PDF/877950ESW0whit0x385228B00OUO0900ACS.pdf
IBRD, the World Bank. (2014, June 17). Bangladesh: Assistance to Building AML/CFT Capacity. Retrieved
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IBRD, the World Bank. (2014, January 1). Revenue Mobilization Program for Results: VAT Improvement
Program: Technical Assessment. Retrieved from ImageBank, the World Bank:
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red/PDF/893020WP0P12970echnical0Assessment.pdf
IBRD, the World Bank. (2014, June 11). Technical Assistance to Bangladesh: Building Capacity for
Compliance with Anti-corruption Standards Using AML Tools. Retrieved from ImageBank, the World Bank:
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red/PDF/ACS93740WP0P1452810Box385271B00OUO09.pdf
IBRD, the World Bank. (2004, October 7). Bangladesh - Promoting the Rural Non-farm Sector in Bangladesh
(Vol. 1 of 2): Summary Report. Retrieved from ImageBank, the World Bank:
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IBRD, the World Bank. (2004, October 7). Bangladesh - Promoting the Rural Non-farm Sector in Bangladesh
(Vol. 2 of 2): Main Report. Retrieved from ImageBank, the World Bank:
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IBRD, the World Bank. (2006, September 1). Bangladesh - Country Environmental Analysis. Retrieved from
ImageBank, the World Bank:
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red/PDF/404200BD0Ctry010also03694501PUBLIC1.pdf
IBRD, the World Bank. (2006, November 1). Bangladesh: Assessing and Addressing Stakeholder Interests in
Private Sector Development Reform. Retrieved from ImageBank, the World Bank:
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154240&theSitePK=501889&siteName=IMAGEBANK&eid=000310607_20070907161551
IBRD, the World Bank. (2006, Feburary 1). Graduating the Poorest into Microfinance: Linking Safety Nets
and Financial Services. Retrieved from ImageBank, the World Bank:
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IBRD, the World Bank. (2006, December 1). India-Bangladesh Bilateral Trade and Potential Free Trade
Agreement (Vol. 1 of 2): Main Report. Retrieved from ImageBank, the World Bank:
http://imagebank.worldbank.org/servlet/WDSContentServer/IW3P/IB/2007/03/08/000310607_20070308144748/Rende
red/PDF/389320v10BD0Bilateral0trade01Public1.pdf
IBRD, the World Bank. (2006, December 1). India-Bangladesh Bilateral Trade and Potential Free Trade
Agreement (Vol. 2 of 2): Methodology and Selected Case Studies. Retrieved from ImageBank, the World Bank:
http://imagebank.worldbank.org/servlet/WDSContentServer/IW3P/IB/2007/03/08/000310607_20070308145310/Rende
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IBRD, the World Bank. (2007, April 7). Bangladesh - Prices of Essential Commodities: Recent Trends,
Underlying Factors and Policy Options. Retrieved from ImageBank, the World Bank:
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red/PDF/683940ESW0WHIT00Note0on0Food0Prices.pdf
IBRD, the World Bank. (2007, February 8). Mitigating Bangladesh's Power Crisis: Possible Response Options
- A Briefing Note for the Ministry of Finance. Retrieved from ImageBank, the World Bank:
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red/PDF/683930ESW0WHIT0070Power0Sector0Note.pdf
IBRD, the World Bank. (2008, June 1). Bangladesh - Institutional and Economic Analysis of Industrial
Effluent Pollution and Management in the Greater Dhaka Watershed. Retrieved from ImageBank, the World Bank:
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red/PDF/695630ESW0P0990er0reviewers05June08.pdf
IBRD, the World Bank. (2009, September 1). Bangladesh - Energy Policy Note for the New Government.
Retrieved from ImageBank, the World Bank:
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 IBRD, the World Bank. (2011, June 30). Bangladesh - Non-lending Technical Assistance on Capital Markets.
Retrieved from ImageBank, the World Bank:
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IBRD, the World Bank. (2013, July 1). A Microcredit Crisis Averted: the Case of Bangladesh. Retrieved from
ImageBank, the World Bank:
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IBRD, the World Bank. (2013, October 1). A Wake-up Call. Retrieved from ImageBank, the World Bank:
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IBRD, the World Bank. (2014, March 1). Bangladesh - Country Snapshot. Retrieved from ImageBank, the
World Bank:
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red/PDF/868070REVISED00Spring0Meetings02014.pdf
IBRD, the World Bank. (2014, April 1). Bangladesh - Program for Results: Integrated Fiduciary System
Assessment. Retrieved from ImageBank, the World Bank:
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red/PDF/892500WP0IFA0P0y0System0Assessment.pdf
IBRD, the World Bank. (2014, June 1). South Asia - Assessment of Local Economic Development Potentials
Focusing on Information Services: Case Studies for Assessing IT Service Industry Development Potential in Pune and
Chittagong. Retrieved from ImageBank, the World Bank:
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red/PDF/ACS29090WP0P1309480Box385271B00OUO09.pdf
IBRD, the World Bank: (2012, January 1). Operationalizing Political Economy: Brick Industry in Bangladesh.
Retrieved from ImageBank, the World Bank:
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IBRD, the World Bank. (2004, September 7). Trade Policies in South Asia: An Overview (Vol. 1 of 3):
Operational Summary. Retrieved from ImageBank, the World Bank:
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red/PDF/299490vol.01.pdf
IBRD, the World Bank. (2004, September 7). Trade Policies in South Asia: An Overview (Vol. 3 of 3): Some
Key Sectors. Retrieved from ImageBank, the World Bank:
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IBRD, the World Bank. (2005, December 1). Revitalizing the Agricultural Technology System in Bangladesh.
Retrieved from ImageBank, the World Bank:
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red/PDF/354820BD0Revit10also03454301PUBLIC1.pdf
IBRD, the World Bank. (2005, December 1). The Bangladesh Integrated Nutrition Project: Effectiveness and
Lessons. Retrieved from ImageBank, the World Bank:
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red/PDF/355580BDS80Bd01tionProject01PUBLIC1.pdf
IBRD, the World Bank. (2009, March 1). The Power of Using the Right to Information Act in Bangladesh:
Experiences from the Ground. Retrieved from ImageBank, the World Bank:
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IBRD, the World Bank. (2010, January 1). Bangladesh - Economic of Adaptation to Climate Change (Vol. 1
of 2): Main Report. Retrieved from ImageBank, the World Bank:
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red/PDF/702660v10ESW0P0IC000EACC0Bangladesh.pdf
IBRD, the World Bank. (2010, January 1). Bangladesh - Economic of Adaptation to Climate Change (Vol. 2
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IBRD, the World Bank. (2013, June 1). Bangladesh's Chars Livelihoods Program (CLP): Case Study.
Retrieved from ImageBank, the World Bank:
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red/PDF/806240WP0P12680Box0379812B00PUBLIC0.pdf
IBDR, the World Bank. (2012, August 1). Health Equity and Financial Protection Datasheet: Bangladesh.
Retrieved from ImageBank, the World Bank:
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red/PDF/719370BRI0REVI0Box0377304B00PUBLIC0.pdf
IBRD, the World Bank. (2004, October 14). Cross-country ARD Sector AAA Assessment. Retrieved from
ImageBank, the World Bank:
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red/PDF/445800WP0BOX32101OFFICIAL0USE0ONLY1.pdf
IBRD, the World Bank. (2004, June 1). Integrating Gender into World Bank Financed Transport Programs:
Component One - Case Study Summary and Final Report. Retrieved from ImageBank, the World Bank:
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red/PDF/841790WP0TAG10final0Box0382094B00PUBLIC0.pdf
IBRD, the World Bank. (2004, April 1). Opportunities for Women in Renewable Energy Technology Use in
Bangladesh (Phase One). Retrieved from ImageBank, the World Bank:
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IBRD, the World Bank. (2005, Fuburary 1). Migrant Labor Remittances in the South Asia Region. Retrieved
from ImageBank, the World Bank:
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IBRD, the World Bank. (2006, November 1). Bangladesh: Pursuing Investment Climate Improvements from
Analysis to Reform. Retrieved from ImageBank, the World Bank:
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red/PDF/407810BD0Admin1iers1Review01PUBLIC1.pdf
IBRD, the World Bank. (2006, January 18). End of Multi-Fibre Arrangement (MFA) Quotas: Key Issues and
Strategic Options for Bangladesh Readymade Garment Industry. Retrieved from ImageBank, the World Bank:
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IBRD, the World Bank. (2006, December 1). Ready-made Garments: Challenges in Implementing a Sector
Strategy. Retrieved from ImageBank, the World Bank:
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red/PDF/452880BRI0Box31FC0Garments01PUBLIC1.pdf
IBRD, the World Bank. (2007, June 1). Dhaka: Improving Living Conditions for the Urban Poor. Retrieved
from ImageBank, the World Bank:
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red/PDF/404240BD0Dhaka10ALSO03582401PUBLIC1.pdf
IBRD, the World Bank. (2007, May 27). Bangladesh - Improving Competitiveness through Trade Policy
Reforms. Retrieved from ImageBank, the World Bank:
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red/PDF/683950ESW0WHIT00Trade0Policy0Reform.pdf
IBRD, the World Bank. (2007, September 1). Measuring Child Labor: Discussion Note for Country
Consultation in Bangladesh. Retrieved from ImageBank, the World Bank:
http://imagebank.worldbank.org/servlet/WDSContentServer/IW3P/IB/2011/09/16/000333037_20110916011136/Rende
red/PDF/645320WP0Bangl00Box0361540B0PUBLIC0.pdf
IBRD, the World Bank. (2009, June 1). Bangladesh - Leveraging ICT for Growth and Competitiveness in
Bangladesh: IT/ITES Industry Development. Retrieved from ImageBank, the World Bank:
http://imagebank.worldbank.org/servlet/WDSContentServer/IW3P/IB/2012/05/22/000425970_20120522121240/Rende
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 IBRD, the World Bank. (2010, January 1). Bangladesh Health Sector Profile 2010. Retrieved from
ImageBank, the World Bank:
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red/PDF/688850ESW0P1130rofile0final0Dec028.pdf
IBRD, the World Bank. (2011, April 1). Bangladesh - Reproductive Health at a Glance. Retrieved from
ImageBank, the World Bank:
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red/PDF/629650BRIEF0Ba0BOX0361514B00PUBLIC0.pdf
IBRD, the World Bank. (2012, June 10). Bangladesh - Consolidating and Accelerating Exports: A Policy
Agenda. Retrieved from ImageBank, the World Bank:
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red/PDF/AAA760ESW0gray0C0disclosed080210120.pdf
IBRD, the World Bank. (2012, January 1). Bangladesh Special Economic Zone Framework: Key Issues.
Retrieved from ImageBank, the World Bank:
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red/PDF/709370WP0P10990ssues0note0v20clean.pdf
IBRD, the World Bank. (2014, March 1). A Bangladesh Diagnostic Trade Integration Study (Vol. 1 of 3):
Towards New Sources of Competitiveness in Bangladesh. Retrieved from ImageBank, the World Bank:
http://imagebank.worldbank.org/servlet/WDSContentServer/IW3P/IB/2014/04/20/000016351_20140420132813/Rende
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IBRD, the World Bank. (2014, March 1). A Bangladesh diagnostic trade integration study (Vol. 2 of 3) : A
Bangladesh Diagnostic Trade Integration Study: Strategies to Strengthen Bangladesh's Competitiveness: Thematic
Assessments. Retrieved from ImageBank, the World Bank:
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IBRD, the World Bank. (2014, March 1). A Bangladesh Diagnostic Trade Integration Study (Vol. 3 of 3):
Investing for Competitiveness in Bangladesh: Sectoral Analysis. Retrieved from ImageBank, the World Bank:
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red/PDF/871120v30P123800Box385185B00OUO090.pdf
IBRD, the World Bank. (2012, September 1). Bangladesh - Towards Accelerated, Inclusive and Sustainable
Growth: Opportunities and Challenges (Vol. 1 of 2): Overview. Retrieved from ImageBank, the World Bank:
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IBRD, the World Bank. (2012, June 1). Bangladesh - Towards Accelerated, Inclusive and Sustainable Growth:
Opportunities and Challenges (Vol. 2 of 2): Main Report. Retrieved from ImageBank, the World Bank:
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IFC; IBRD, the World Bank. (2006, July 1). Bangladesh - Regulatory Impact Analysis Diagnostic Study and
Design. Retrieved from ImageBank, the World Bank:
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IFC; IBRD, the World Bank. (2011, January 1). Doing Business in a more Transparent World 2012 - Economy
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 Rohatgi Rajesh, BandyopadhyayArnab, & GuptaD.P. (2011, January 1). A Review of Highway Agencies in
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 Salam, A., Alim, A., & Noguchi, T. (2006). Spousal Abuse Against Women and Its Consequences on
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 ENDNOTES

1
Khandker, S. Bakht, Z. & Koolwal, G. (April 2006) The Poverty Impact of Rural Roads: Evidence from
Bangladesh. World Bank Policy Research Working Paper3875, Washington DC
2
Bangladesh’s online work industry has grown tremendously in recent years, and it is in a strong position to
tap its early growth stage. The total yearly earnings from IT workers is estimated to have grown from around
$10m to over $40m in the past few years, representing one of the fastest growth rates in the world on eLance,
oDesk and Freelancer platforms. Bangladesh stood on the sidelines as the IT-BPO industry took off in the
last decade, while neighboring India benefited tremendously - its industry employed 2.8m workers, generated
$69 billion in revenue, and 25 percent of total exports in 2012. By tapping this opportunity, Bangladesh could
create mass employment and income for youth and women, increase total services exports, and help develop
a knowledge-based economy.
3
Mustafa Mujeri, Nazneen Ahmed, and Mohammad Iqbal Hossain, Managing Rice Value Chain for
Improved Food Security in Bangladesh Bangladesh Institute of Development Studies, Policy Brief
Number 1401, April 2014
4
See for instance Cash RA, Halder SR, Husain M, et al, Reducing the health effect of natural hazards in
Bangladesh Lancet 2013. http://dx.doi.org/10.1016/S0140-6736(13)61948-0
5
E.g. see H Z Rahman, Bangladesh: Strategy for Accelerating Inclusive Growth (2010 DCCI Conference)
at http://www.pprcbd.org/new/index.php?option=com_content&view=article&id=38&Itemid=12.
Improved rural connectivity also aided commercialization of agriculture and helped reduce disaster
vulnerability noted earlier.
6
Amartya Sen has attributed Bangladesh’s success in this particular regard to the “general determination
in post-independence Bangladesh to target the elimination of female disadvantage”. What's happening
in Bangladesh? http://www.thelancet.com/journals/lancet/article/PIIS0140-6736(13)62162-5/fulltext
7
Bangladesh’s dramatic fertility decline is a result of an aggressive family planning program in place
since the 1970s that provided door-step delivery of contraceptives to women along with improved family
planning service delivery through clinical services, community-based distribution, and social marketing.
Contraceptive prevalence rose from a mere 8 percent in 1975 to over 61 percent in 2011. Coinciding
with the extensive family planning programs, Bangladesh halved its fertility rate between 1971 and 2004,
going from more than 6 children per woman to about 3. The latest total fertility rate estimates show
continued steady decline from 2.7 children per women in 2007 to 2.3 in 2011, suggesting that Bangladesh
will soon be at replacement level.
8
Bangladesh Poverty Assessment: Assessing a Decade of Progress in Reducing Poverty for the Period
2000-2010, World Bank Washington DC (2013).
9
The 2014 Climate Change Vulnerability Index ranks Bangladesh the number one economy at risk to
climate change, a classification that is largely determined by the difficulties coping with the current
climate. See http://maplecroft.com/portfolio/new-analysis/2013/10/30/31-global-economic-output-
forecast-face-high-or-extreme-climate-change-risks-2025-maplecroft-risk-atlas/
10
Dasgupta, S., Kamal, F., Khan, Z., Choudhury, S., Nishat, A. 2014. River Salinity and Climate Change.
Evidence from Coastal Bangladesh. River Salinity and Climate Change. Policy Research Working Paper.
6817. World Bank.
11
Susmita Dasgupta. 2015. Left attended, 5.3 Million of Bangladesh’s poor will be vulnerable to the effects
of climate change by 2050 in Let’s Talk Development – A blog post hosted by the World Bank’s Chief
Economist. https://blogs.worldbank.org/developmenttalk/left-unattended-53-million-bangladesh-s-
poor-will-be-vulnerable-effects-climate-change-2050
12
Salt water intrusion from sea level rise in low lying plains could lead to food insecurity, further spread
water-related diseases, and reduce freshwater supplies. The retreat of glaciers of the Himalaya will

151
 directly impact the Bangladesh delta threatening water supplies. In the short-term, flood risk will
increase; over the longer-term, there will be no replacement for the water provided by glaciers, which
will likely result in long term freshwater shortages. Agriculture and the economic structure of the delta
will need to undergo significant adjustments. In the southwest coastal region of Bangladesh, 2.5 million
of the poorest people already suffer from shortages of drinking water, scarcity of water for irrigation for
dry-season agriculture, and significant changes in the coastal aquatic ecosystems.
13
For more details, please see World Bank. 2011. Economics of Adaptation to Climate Change.
http://www.worldbank.org/en/news/feature/2011/06/06/economics-adaptation-climate-change
14
Dasgupta, S., Huq, M., Khan, Z.Q., Ahmed, M., Mukkherjee, N., Khan, M., Pandey, K. (2011) Cyclones
in a Changing Climate. The Case of Bangladesh
15
Bangladesh: Strategic Program for Climate Resilience. 2010.
16
Monitoring and evaluation systems in the line ministries and the Planning Commission are expected to
provide the data and periodic assessments needed to make these adjustments, though the extent to which
this feedback loop functions varies considerably across different ministries and agencies.
17
There are some minor differences in poverty estimates from the 2002 and 2013 Poverty Assessments for
the overlapping year (i.e. 2000) due to differences in how this method was implemented in the two
reports. All these poverty estimates were derived using methodologies based on the “cost-of-basic needs”
approach and hence are consistent and comparable in an inter-temporal sense, and since the analysis was
carried out in collaboration with BBS, they coincide with Bangladesh’s official poverty estimates.
18
World Bank (forthcoming) The Dynamics of Rural Growth in Bangladesh. The sources for information
and data used in this report include (i) secondary data: national and district level aggregate data from
BBS for national accounts statistics and agricultural production, FAO agricultural database; (ii)
household level data from (a) the nationally representative HIES for 2000, 2005 and 2010; (b) the
BIDS/IRRI/BRAC household panel survey initiated and undertaken in four rounds (1988, 2000, 2004
and 2008) in 64 study villages covering all districts of Bangladesh, supplemented by census data in 2013;
(ii) a longitudinal household panel survey conducted by World Bank, BIDS and INM with two rounds
in 1998/99 and 2010/11; (iii) the nationally representative Bangladesh Integrated Household Survey
(BIHS) collected by the International Food Policy Research Institute for 2011-12.
19
World Bank (2012) Towards Accelerated, Inclusive and Sustainable Growth—Opportunities and
Challenges. The report analyzes key drivers underpinning the growth process and acceleration, what
enabled the drivers to move Bangladesh forward, plus what it’d take to further increase the growth rate.
20
The poverty gap is a measure of the depth of poverty, and estimates how far below the poverty line the
poor are on average as a proportion of that line. The squared poverty gap indicates the severity of poverty,
and takes into account not only the distance separating the poor from the poverty line, but also inequality
among the poor.
21
Moderately calorie deficient is defined as consuming less than 2122 kcal per day per person. Severely
calorie deficient is defined as consuming less than 1805 kcal per day per person.
22
Bangladesh Poverty Assessment: Assessing a Decade of Progress in Reducing Poverty for the Period
2000-2010, World Bank Washington DC (2013).
23
Addressing Inequality in South Asia, World Bank Washington DC (2014).
24
Recent analysis by the World Bank (2013 Poverty Assessment) shows that between 2000 and 2010
nearly one-fourth of the increase in gross output per worker was associated with inter-sectoral shifts in
the workforce, in particular the outflow of workers from low-productivity daily wage work in agriculture
to jobs in services.
25
Sadiq Ahmed (forthcoming) The Dynamics of Rural Development and Agricultural Wages in
Bangladesh, Policy Research Institute, Dhaka.
26
It has been widely documented that the vast majority of RMG workers are rural women, who were
introduced to the formal workforce through this sector (Afsar 2001, Kabeer and Mahmud 2004). In
addition to the benefit of paid employment, studies have documented that the garment sector has had a
152
 favorable effect on a number of outcomes, including women’s bargaining power within the household,
their ability to support their families financially, fertility choices, and investments in children’s education
(Kabeer 2001, Hossain 2012, Heath and Mobarak 2014). For instance, Heath and Mubarak (2014)
estimate that about 15 percentage point of the national gain in girls’ school enrollment rate can be
attributed to the growth of this industry since rural families kept girls in school due to cognitive skill
requirements of garment industry jobs. Also, they report that the likelihood of being married and having
children has declined with the average number of years during which girls lived close to a garment
factory in rural areas.
27
Micro studies from Bangladesh show that gender gaps exist in all industries and education levels, and
moreover, both gender-based discrimination and industrial and occupational segregation contribute to
its size. Kapsos (2008) shows using the Bangladesh Occupational Wage Dataset that women earned an
average of 21 percent less per hour than men in 2007, and further, gender wage gaps existed in every
industry as well as across all levels of education and in every establishment size. The largest gaps were
observed in the hotels and restaurants and construction industries, among workers with primary
education or less, and in mid-sized establishments. Decomposing the gender wage gaps into explained
and unexplained components; the study shows that industrial segregation increases the wage gap by 7
percentage points. While the gender gap is estimated to be 15.9 percent after controlling for differences
in age, educational background, industry, occupation and geographic location; it increases to 23.1
percent once the effects of industrial and occupational segregation are included. Across industries,
gender-based occupational segregation increases the gender wage gap in the construction, financial
intermediation and manufacturing industries, but reduces it in the education, hotels and restaurants and
other services industries. Still, a large part of the gender wage gap fell under the “unexplained” category,
which is often interpreted as unobserved forms of gender discrimination.
28
Changes in Poverty Maps in Bangladesh 2000-2010 (mimeo) prepared by Carlos Sobrado, Yeon Soo
Kim, and Monica Yanez-Pagans, World Bank, Washington DC.
29
World Bank (forthcoming) The Dynamics of Rural Growth in Bangladesh. The study finds electricity
access strongly raises technical efficiency of farmers; this may be for a number reasons, including that
farm households with electricity access may be more inclined to use agricultural machinery compared
to farm households with no electricity access. Adoption of farm mechanization among farmers with
electricity was higher than that of farmers with no electricity access by 6 percentage points in 2008.
Similarly the report also highlights the importance of connectivity and the high potential payoffs from
the investments made so far on physical infrastructure: the far-reaching impact of connectivity can be
seen in the positive impact on farming efficiency of the different variables on connectivity, reflecting a
much deeper impact than just improving access to and increased use of inputs.
30
For details see Towards Accelerated, Inclusive and Sustainable Growth—Opportunities and Challenges.
31
See Hossain Zillur Rahman (2012) Bangladesh Urban Dynamics: Exploring a Holistic Perspective,
Power and Participation Research Center, Dhaka.
32
While Dhaka has been the main destination of choice for migrant households in Bangladesh, the
Economist Intelligence Unit ranked it the world’s second least livable city in 2014.
33
For more details, see World Bank (forthcoming) South Asia Region Urbanization Flagship Report.
34
World Bank. 2013. “A Policy Note on Skills Development,” in Seeding Fertile Ground: Education that
Works for Bangladesh.
35
In 2010, the difference in the gross enrollment rates between the poorest and richest quintiles was 10
percentage points for primary, 45 percentage points for secondary and 70 percentage points for higher
secondary.
36
Labor productivity in the industry and service sectors is 8.5 and 4.6 times higher in the formal sector
compared to the informal sector respectively.
37
Mahmud (2003) has shown that women’s primary responsibility for reproductive work has constrained
the quality of women’s employment as well as their returns to labor. Huq (2013) argues that women’s
domestic responsibilities and care work have heightened in recent years due to economic, social and
153
 demographic trends in Bangladesh. There is increased pressure on women to take up part-time, insecure
and informal jobs (Huq 2013). A survey conducted by the Centre for Policy Dialogue illustrates this
tradeoff. About 72.4 percent of the interviewed women who were not involved in paid work, but would
like to be involved in it, were looking for part-time jobs. Also, 64.8 percent of the same group cited their
family maintenance responsibilities as the reason for not being involved in paid employment, while
another 40.4 percent of the respondents cited pregnancy and caregiving to children. On the other hand,
77 percent of women who were involved in paid work also reported having inadequate time for their
families, while 49 percent of them reported that they were not able to take care of a child or an old family
member because of their job. Finally, 59.5 percent of the surveyed women stated that they did not want
to be involved in paid work because they needed to provide time to their families. None of these
considerations mediate men’s work choices.
38
Preliminary results of the 2013 Labor Force Survey, Bangladesh Bureau of Statistics.
39
For instance, violence and harassment associated with women being on the move, having nontraditional
living arrangements, and occupying spaces outside the home without male presence have been
documented in relation to garment industry jobs (see Siddiqi 2003, Sharma 2015). Prevailing norms
about the living arrangements of unmarried women who live away from their parental homes tend to put
such women workers at risk, especially those who are young, who come from poorer backgrounds and
who have little choice but to migrate for work (Temin et al. 2013). Micro data from recent years show
that nontraditional living arrangement among garment industry workers are on the rise. For example, 90
percent of female manufacturing worker respondents in the Enterprise and Skills Survey 2012, a formal
sector employment survey conducted by the World Bank, lived in Dhaka and 95 percent of them recently
moved for employment. Further, 75 percent of these workers were migrants living in a different
community than where they were born and 46 percent of females employed in the garment sector and
18 percent of those employed in the textiles sector were unmarried (as opposed to only 6 percent in other
manufacturing jobs). About three-fourths of females in manufacturing jobs (as opposed to 55 percent of
men) were renting their house or apartment.
40
According to the International Labor Office’s Decent Work Profile of Bangladesh, the percentage of
workers in informal employment has increased substantially in recent years; from 76.2 percent in 2000
to 88.5 percent in 2010. While informality is a common reality both for men and women across South
Asia, it is a larger problem in sectors that employ a larger share of the female workforce as well as a
large share of female workers vis-à-vis male workers. In Bangladesh, 97.8 percent of employment in the
agriculture sector and 69.6 percent of manufacturing jobs, which account for two-thirds and one-fourth
of female employment, respectively, is in informal jobs. The annual rate of increase in the number of
informally employed men was 4.3 percent between 2000 and 2010, increasing from 22.7 million to 32.4
million workers, whereas the rate of growth among females was 12.6 percent, which increased the
number of informal female workers from 6.6 million in 2000 to 14.9 million in 2010. Female
employment has increased in sectors where informality is less prevalent (education, health and social
work, and real estate and other businesses), simultaneously female employment has decreased in sectors
in which the extent of informality is lower (public administration, finance, electricity, gas and water).
41
It has been widely documented that employer perceptions about men and women have an impact on their
hiring decisions. For example, Hossain, Mathbor and Semenza (2013) show that managerial beliefs about
women’s docility, dexterity, tolerance for monotony and willingness to accept lower wages still
dominate their decisions about who gets hired in garment industry jobs. Such perceptions result in
women getting overrepresented in low end jobs, while men get selected for professional and managerial
positions (Hossain 2011). Using the 2012 Enterprise and Skills Survey (ESS) conducted by the World
Bank, Nordman et al. (2014) show that employers take personality traits into consideration for
determining the wages of female employees, especially in the upper parts of the wage distribution, but
not for males. Whenever there is imperfect information about workers’ productivity and skills,
employers use “signals” based on their beliefs about sex-specific skills to set wages within the same
firm, which contributes to observed gender wage gaps. The ESS highlights occupational sex segregation
in formal sector jobs. For example, while 26 percent of men surveyed by the ESS were professional
workers, the corresponding share of women was only 15 percent. In contrast, 50 percent of female
workers were in the construction and crafts occupational category, which includes low-end garment
sector jobs, as opposed to 28 percent of male workers. Another 26 percent of women were in either
154
 elementary occupations or clerical support occupations. Occupational segregation patterns were present
even in the most “formal” sectors that employed a considerable share of women, such as the public
administration sector. The ESS shows, for instance, that the public administration sector employs
educated women more than any other sector, with 55 percent of females employed in the public sector
having at least higher secondary education and another 20 percent having either bachelor or post-
secondary education. However, despite their educational profile, women in the public sector tend to be
excluded from the upper cadre of public administration jobs—while professional jobs are dominated by
men, women mostly hold clerical or elementary positions. Moreover, women in managerial,
professional, service or clerical positions in the public administration sector have more experience than
males in their respective positions, indicating that it takes them longer to get promoted.
42
Gender-based differences in two specific subsets of household work, namely unpaid services for
households’ own use and caregiving, were even larger. The average number of hours spent by employed
females on “providing unpaid domestic services for own use within the household” was 2.9 hours in
2012, compared to only 1.3 hours spent by employed men. Further, employed women spent an additional
0.6 hours for “providing caregiving to other household members,” whereas men spent only 0.1 hours
(BBS 2013). Being employed or unemployed made little difference in terms of the time women spent
on caregiving. In fact, unemployed females spent more time on unpaid domestic services compared to
women who were employed—5.4 hours on unpaid domestic services for own use and another 0.8 hours
on unpaid domestic services for other household members. In other words, paid employment did not
isolate women from household production and caregiving to others. For example, employed women in
rural areas spent more time on unpaid domestic services than those in urban areas, but they spent the
same amount of time on providing unpaid caregiving services.
43
See review of the literature on unpaid care work in Bangladesh by Huq (2013). Also see Kabeer (2011a,
2011b), Kabeer, Mahmud and Tasneem (2011) and the research program carried out by Pathways of
Women’s Empowerment (www.pathways-of-empowerment.org).
44
World Development Report 2013 Jobs. The World Bank, Washington DC.
45
Ensuring macroeconomic stability involves containing volatility and avoiding major misalignments of
relative prices. Similarly, the report highlights how protection of property rights, access to finance, and
sound regulation are key ingredients of the business environment. Good nutrition, health, and education
outcomes are important pre-requisites as well, since they are key elements both of improving people’s
lives as well as to better equip them for productive employment.
46
As the report persuasively argues, the first cliff undermines the development payoffs from agglomeration
and global integration; the second leads to low living standards and a social cohesion deficit.
47
The report also points out that where these failures and imperfections cannot easily be removed in
particular country or regional settings, offsetting them may be an option.
48
World Bank. 2007a, p. 143.
49
Rahman, Habibur (2007), Financial Development: Economic Growth Nexus in Bangladesh.
50
The TVET system is an important channel for skills acquisition especially for those who are able to
progress beyond secondary level education since entry to TVET requires completion of grade 8.
However it falls short of placing their trainees in jobs: it is estimated that about a third of TVET graduates
find employment. Employer survey data suggests market demand for TVET graduates as well as those
with secondary or higher secondary education is low. Thus on the one hand TVET graduates despite
having mid-level education remain unemployed or fall into the trap of the informal sector. On the other
hand, those who are unable to complete secondary education, mostly the poor, do not have access to
TVET education. Moreover the TVET system is fragmented with 19 ministries and numerous other
private entities implementing skills training programs that include both accredited and non-accredited
courses that are not fully responsive to market needs. See, for instance, ILO. 2014. “Skilling the
Workforce: Labor migration and skills recognition and certification in Bangladesh”.
51
Active labor market programs are a set of policy instruments that facilitate transition into employment
(including wage and self-employment), improve productivity, and enhance job search and matching
efficiency. Middle income countries are increasingly shifting their emphasis from social assistance to
155
 ALMPs, particularly targeted to the youth, as part of their social protection systems: in Colombia,
Dominican Republic, and Tunisia, comprehensive wage-employment programs that combine technical
training and life skills with wage subsidies and internships in the private sector have helped raise
employment rates among beneficiaries. In addition, countries increasingly implement policies and
programs to improve earnings opportunities among self-employed workers. There is evidence to show
that a combination of training, credits or grants, and advisory services could be effective tools to increase
productivity and earnings. See Cho and Honorati (2014) and Cho et al. (2015) for discussions on the
programs to promote productive self-employment.
52
These skills could be acquired either via on-the-job training or through pre-employment training. Most
of their training is done while working for an employer who helps the apprentices learn their trade or
profession, in exchange for their continued labor for an agreed period after they have achieved
measurable competencies.
53
COEL tainees receive training for first three months followed by a nine month apprenticeship with
organizations in the leather sector. They are provided compensation while they complete their training
and apprenticeship, and are also certified by BMET upon completion of their training.
54
Many countries are building such second generation “degree apprenticeships.” Most recently the UK
launched a flagship degree apprenticeship program in March 2015. In such programs, typically the
educational background of the apprentice determines whether they self-select into a semi-skilled
apprenticeship or into a “degree apprenticeship” geared towards achieving an academic degree such as
a Bachelors or a Masters. Apprentices split their time between normal university studies to gain a
technical or an academic degree while earning a wage and getting on-the-job experience.
55
Offering “degree apprenticeships” also help to overcome the stigma attached to vocational degrees that
only the less intelligent students end up in these technical institutes.
56
BAIRA presently has about 1000 government approved recruiting agents.
57
Preliminary work by the WBG suggests that prepayment or health insurance scheme sponsored by
employers might serve to pool and cover these health risks and at the same time increase the fiscal space
for health. A few nongovernment organizations and health service providers have implemented micro
health insurance schemes in limited areas and with restricted health plans, mostly for microcredit
borrowers without the involvement of formal insurance intermediaries. Back-of-the-envelope estimates
of thee potential revenue that could be generated for the health sector by introducing some prepayment
or health insurance schemes range from US$14-22 million per annum. For more details, see WBG
(forthcoming) Fiscal Space for Health in Bangladesh.
58
These include (i) chronic obstructive pulmonary disease, (ii) ischemic heart disease, (iii) stroke, (iv)
diabetes, (v) cirrhosis, and (vi) chronic kidney disease.
59
If the trends appear positive without major risks or obstacles, then the prospects can be considered good.
If the trends appear positive but with some obstacles, then the forecasts will be moderate. If the trends
or projections appear stagnant or negative, or if the risk or obstacles are enormous, then the prospects
are considered limited. For more details, see WBG (forthcoming) Fiscal Space for Health in Bangladesh.
60
Alayne M Adams, Tanvir Ahmed, Shams El Arifeen, Timothy G Evans, Tanvir Huda, Laura
Reichenbach, for the Bangladesh Lancet Team Innovation for universal health coverage in Bangladesh:
a call to action. Paper available for download at www.thelancet.com/series/bangladesh .
61
http://www.enterprisesurveys.org/~/media/GIAWB/EnterpriseSurveys/Documents/CountryHighlights/
Bangladesh-2013.pdf
62
World Bank staff calculations.
63
Allowing for ~20% reserve margin. The current installed capacity is in excess of 10.5 GW but the
maximum demand met is around 7.5 GW, i.e., capacity is about 33% higher than peak demand. The
target of 33 GW is taken from the Power Sector Master Plan of 2010, which is currently being updated.
64
Gesellschaft für Technische Zusammenarbeit (GTZ) and World Bank. “Bangladesh Roadmap for
Energy Efficiency Improvements and Demand Side Management.” 2009.
156
65
   LGED (2010). Bayes (2007), Khandker et al. (2009), Khandker et al. (2011), and Mahmud et al.
(2014). 
66
About 21,000 km are major roads. This gives a (major) road density of 0.13 (km per 1,000 people)
compared to 1.5 for Pakistan, 3.5 for India, 5.5 for Sri Lanka and 9.7 for Bhutan (Andres et al., 2013).
67
World Bank (2015).
68
Herrera Dappe et al. (2015).
69
World Bank (2015).
70
Ibid.
71
World Bank (2013b).
72
World Bank (2014).
73
GDP would increase by 0.3 percent in Nepal, 0.1 percent in Sri Lanka, and 0.01 percent in India.
74
These figures are expressed in 2008 prices.
75
Clearance times at Benapole are typically 5-6 days and within 2-3 days at smaller land border stations.
At Benapole, 80 percent of declarations are assessed within a day of being lodged, whereas it takes up
to 5 days to clear 80 percent of goods for release after declaration (World Bank, 2013b). The main reason
for this is the current practice of transloading cargo between trucks registered in Bangladesh and those
registered in India. Das and Pohit (2006) found that improved customs process at the Petrapole (India)
– Benapole (Bangladesh) border crossing and free transit for Indian trucks could on average cut travel
time by 75 percent between Kolkata and Benapole and reduce auxiliary transaction costs, which
currently on average amount to 10 percent of shipment value.
76
Razzaque, M. A., & Basnett, Y. (2014). Regional Integration in South Asia: Trends, Challenges and
Prospects. London: Commonwealth Secretariat.
77
In 2012, comparable countries had ratios of exports and imports to GDP of 78 and 75 percent (Thailand),
89.8 and 90.2 percent (Vietnam), and 31.6 and 29.4 percent (Indonesia), respectively.
78
The TIR (Transports Internationaux Routiers) is a system of bonds, operated in nearly 70 countries, that
guarantees that any customs and other duties will be paid on goods transported in transit trucks. Its
objectives are the improvement of transport conditions and the simplification and harmonization of
administrative formalities in international transport, particularly at frontiers.
79
While the performance of Bangladeshi apparel exports is comparable to Vietnam’s, Vietnam exports ten
times more footwear on a per capita basis than Bangladesh.
80
Such high costs associated with overseas migration has kept many outside the scope of overseas
employment while for some it has led to indebtedness or loss of household assets..
81
Migration agents and labor brokers organize most of the recruitment of Bangladeshi workers. A
Bangladeshi worker typically spends between US$1,935 and US$3,870 for a low skilled job in the
Middle East, equivalent to 2.5 to 5.0 times the GDP per capita, or some 14 months of an average salary.
By contrast, the average recruitment cost for Indonesian domestic workers in Hong Kong SAR, China
is around 5 months of wages, or 6 months for Nepalese construction workers in the Gulf.
82
World Bank (2012). Bangladesh: Towards Accelerated, Inclusive and Sustainable Growth –
Opportunities and Challenges
83
The Economic Potential Index is a simple diagnostic tool to measures a district’s economic development
potential. It offers a relative comparison of the potential of all districts in Bangladesh. It consists of five
components: market access, economic density, level of urbanization, human capital and local transport
connectivity. These components have been identified through a review of theoretical literature and
empirical studies as key determinants of the potential to experience heightened levels of local
productivity and rapid local economic growth. The EPI is categorized into five bands of performance:

157
 very high, high, medium, low and very low. The full analysis is elaborated in: Identifying the Economic
Potential of Districts in Bangladesh. World Bank. 2015.
84
Access to improved water supply is defined as reasonable access (20 L/day/person) from an improved
water source (piped water connection, borehole, public standpipe, etc.) and therefore does not reflect
information about the quality of the water. Regions in Figures 10 and 11 follow World Bank regional
definitions. EAP corresponds to the data for East Asia and the Pacific (Developing Countries Only);
SSA corresponds to the data for Sub-Saharan Africa (Developing Countries Only); and SAR corresponds
to South Asia.
85
STP 2005 Urban Transport Policy: The Strategic Transport Plan for Dhaka. BCL and Louis Berger
Group Inc.
86
As a reference, India developed National Urban Transport Policy in 2006 that provides policy directions
and institutional setups for urban transport development. The implementation of the policy is supported
by an investment program called “Jawaharal Nehru National Urban Renewal Mission (JnNURM)”
which provides both public transport infrastructure investment and technical capacity building.
87
PricewaterhouseCoopers (PwC) 2009, UK Economic Outlook, November.
88
Delhi 2008 urban GDP USD167 billion , the PricewaterhouseCoopers 2009 UK Economic Outlook; the
area of land 1483 km2, 2012-2013 Economic Survey for the North Capital Territory (NCT) of Delhi.
89
PricewaterhouseCoopers (PwC) 2009, UK Economic Outlook, November.
90
World Bank (forthcoming) The Dynamics of Rural Growth in Bangladesh.
91
World Bank (forthcoming) The Dynamics of Rural Growth in Bangladesh.
92
Even though the southwest region has an extensive river transportation system, this has been clogged
and is facing problems of increased siltation. The region’s six river ports are working well below
capacity, mainly due to reduced fresh water flows that used to regularly flush sediment in the rivers. For
example, the Gorai River, the main source of freshwater for the southwest region, has witnessed more
than a 50 percent reduction in annual flows over the last 40 years. Additionally, the reduction in fresh
water flows and sea level rise contribute to increased salinization, which severely limits crop production
- the mainstay of the southwest region. Salinization of water supplies is also a critical problem for both
livelihoods and health, resulting in and increasing incidence of diarrhea and other infectious diseases.
93
Maplecroft Climate Vulnerability index 2014. In the Global Climate Risk Index 2014 of Germanwatch,
Bangladesh is ranked in the top 5 countries being most affected by impacts of extreme weather events,
with an average annual loss of $1.8 billion and death toll of 816 people per year during the last 20 years.
94
For instance, irrigation has played a major role in poverty reduction in the past. Bell et al (2015) find
that access to irrigation has had the greatest poverty reducing impact during the dry season and especially
in regions where “boro” rice is grown. But the vitality of this sector is declining with growing scarcity
and competition for water and increasing overexploitation and degradation of groundwater. Inadequate
operations and maintenance and a failure to rehabilitate infrastructure and properly manage and maintain
large-scale surface irrigation schemes have impacted farm production, household incomes, and poverty.
95
Marchand, M. and F. Ludwig. 2014. Towards a comprehensive framework for adaptive delta
management. Delta Alliance.
96
ibid.
97
ibid.
98
DOF, 2014: Fisheries Statistics Yearbook of Bangladesh, 2012-13.
http://www.fisheries.gov.bd/sites/default/files/Statistical%20Yearbook%202012-13.pdf
99
Courtesy of Bandudeltas, 2015
100
Ibid.

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101
The Dhaka watershed includes the Dhaleswari, Turag, Tongi Khal, Buriganga, Balu, Bangshi and
Sitalakhya rivers. These river systems have been used to provide water for a variety of uses, including
drinking, washing, cooking, bathing, recreation as well as irrigation and fisheries, and - most importantly
- to support the local life system.
102
Although evaluation of costs is difficult, some studies have estimated the costs of unmitigated industrial
wastewater for the Greater Dhaka area to be around US$150-170 million annually (Ullah et al. 2006;
Alam and Marinova 2006; Alam 2008). A study in Kaliakoir Thana in Gazipur district, north-east of
Dhaka, identified 3 key ailments associated with industrial water pollution: jaundice, skin disease, and
diarrhea. Nearly 50 percent of households in the watershed area reported having lost at least one week
of work due to jaundice, while a further 10 percent lost 4-6 full days.
103
Factories involved in the washing, dyeing, and finishing of textiles are reliant on large quantities of good
quality water – currently pumped virtually free-of-charge from groundwater sources which are fast
becoming compromised. Although reliable data is hard to obtain (as most groundwater abstraction is
carried out through unmetered self-supply), rough calculations suggest that textile mills in and around
Dhaka consume as much groundwater as is supplied to the entire megacity of over 12 million inhabitants.
Worse, if no efficiency improvements are made, demand for water from textile mills is expected to
double within the next seven years at current growth rates.
104
To achieve tighter regulatory control, it will be necessary to re-examine the institutional incentives for
Department of Environment (DOE) staff, based on performance indicators, transparency and
accountability. The outsourcing of compliance monitoring needs to be gradually carried out.
105
Market-based ‘polluter pays’ principles have been widely adopted as a way of internalizing the
environmental impact of economic activities, so that the prices of goods and services fully reflect the
costs of pollution prevention and abatement, whilst leveling the playing field for all industries. Cleaner
production, including the “3R’s” (reduce, reuse, recycle), can provide very attractive financial win-win
incentives by considerably reducing energy, material and water inputs, encouraging recycling and reuse
to generate significant financial savings, while reducing both waste volume and overall pollution load.
This, in turn, significantly reduces pollution abatement costs.
106
An important element of the strategic framework will be adequate monitoring of pollution, plus a public
information campaign to raise awareness of the causes and impact of environmental degradation, and
consequent interventions. Such initiatives are essential to build civil society and private sector support.
107
According to a 2011 WHO air quality assessment, which covered 1,100-odd cities with 100,000 or more
inhabitants around the world, Dhaka has the unenviable distinction of being among the world’s top 20
cities with the highest air pollution. The Bank’s 2006 Country Environmental Assessment estimated that
nearly 10 percent of respiratory infections and disease in Bangladesh were attributable to urban air
pollution; it is the leading cause of mortality and morbidity related to environmental issues, and its health
burden is not far behind that of the lack of access to clean water and sanitation. A study in Dhaka in 2008
concluded that an estimated 15,000 premature deaths were attributed to poor air quality, along with
several million cases of pulmonary, respiratory, and neurological illness. If peoples’ exposure to urban
air pollution were reduced by 20 percent, it would save between 1,200 and 3,500 lives annually in
Bangladesh, and avoid 80 to 230 million cases of ill health. This would save an estimated US$169 to
US$492 million annually in avoided health costs. Along with the harm done to people’s health, air
pollution also damages crops, vegetation, buildings and visibility.
108
Black Carbon is formed through the incomplete combustion of fossil fuels, biofuel, and biomass, and is
emitted in both anthropogenic and naturally occurring soot. It consists of pure carbon in several linked
forms. PM2.5 are the small particles floating in the air which are less than 2.5 micrometer in diameter.
They are so small that they can only be detected with an electron microscope. Sources of fine particles
include all types of combustion, including motor vehicles, power plants, residential wood burning, forest
fires, agricultural burning, and some industrial processes.
109
The latest Public Expenditure and Financial Accountability assessment (PEFA) based on 2010 data
showed improvements in the transparency and credibility of the budget, and in achieving a more policy-
based budget process; however the assessment also revealed a number of gaps, primarily in the areas of
accounting and audit. Overall, the PEFA Assessment scored Bangladesh close to the bottom of the list
159
 of South Asian region countries, below even Nepal and Afghanistan. PFM-reform since 2009 has
predominantly been carried out through the US$113m multi-donor supported Strengthening Public
Expenditure Management Program. SPEMP has had several noteworthy achievements, including the
design of an integrated budget and accounting system (iBAS++), the rollout of a Medium Term Budget
Framework to all line ministries, the decision to adopt a new budget classification structure to ensure
compliance with international standards and an upgraded public debt management system. The program
has also facilitated reform in external audit, including piloting of modern audit techniques, as well as
strengthening of support systems for the financial oversight committees in Parliament. However, SPEMP
has also encountered several structural impediments to deliver on its mandate, including frequent staff
rotations, entrenched tensions between civil service cadres and the dual budget system.
110
For decentralized local level procurements, there are incidences of inappropriate bidding and/or
collusive/coercive/obstructive practices combined with complaints; such procurement has instances of
influence by local level elites and/or vested quarters. However, with the introduction and exponential
growth of the comprehensive electronic tendering system in the key sectoral agencies, such incidences
have significantly reduced. The system shows improved competitiveness as demonstrated by increase in
the average number of bids submitted for civil works contract packages; improved transparency as
demonstrated by increased publication of award of contracts in the website of the Central Procurement
Technical Unit (CPTU), the procurement policy unit of the Government. With the centralized national
web-portal for electronic government procurement (e-GP) which is becoming increasingly sustainable,
the visibility and transparency of the system has improved considerably and has helped reduce
inappropriate/collusive bidding. Regarding the efficiency of the system, overall procurement delays is
significantly as demonstrated by award of most contracts within the initial bid validity period.
Concurrently, the Government made extensive effort for enhancing procurement management capacity
with two-pronged approach. It has created a pool of 39 national trainers, and trained about 3,500 staff of
around 300 public procuring entities (in addition to the 2,200 staff in the first phase); completed an
international procurement core competence/ accreditation certifications of 65 staff (MCIPS) with
Chartered Institute of Purchase and Supply, UK combined with 35 top-up Masters on Procurement and
Supply Management. Also, it has a fully computerized on-line procurement performance monitoring
system through e-GP. As part of the social accountability actions, a Public-Private Stakeholders
Committee (PPSC) with representatives from leading think-tanks, NGOs, business apex bodies, and
senior Government officials has been fully functioning; a government-contractors forum has been
established and workshops held in seven districts. Also, an extensive communication campaign is
ongoing to demystify procurement reform at the grass-root level.
111
With 257 different exceptions from the merit principle, the civil service recruitment system in effect
reserves 55 percent of positions for special groups, including women, ethnic minorities, and freedom
fighters. The service is separated into 29 cadres, each with divergent career and promotion prospects.
Silo-like mentality and inter-cadre rivalry hinder information sharing, coordination, and collaboration,
and reduce the efficiency and effectiveness of public service delivery. Promotions are generally confined
within cadres, and are primarily based on seniority (i.e. years of service) rather than performance. There
is no adequate incentive system to encourage initiative and reward excellence. Training is not linked to
career planning or other dimensions of personnel management; frequent staff rotations also undermine
its efficacy and hinder smooth implementation of development projects.
112
In the June 2014 budget speech the Finance Minister has announced the government’s intention to vest
more power and authority to Zila, Upazila, and Union Parishads, to gradually make an effective
hierarchical division among local bodies, and to eventually leave issues like education, health, law
enforcement, and social safety in their hands. Additional steps that will be taken to make local
government more effective include a careful scrutiny to decide what subjects of the central government
can be transferred to the local authority and in what manner, as well as the establishment of a fair system
of revenue sharing between the central and local governments.
113
A range of options is available to improve implementation, including developing the capacity of the
Designated Officers (mandated by the Act to respond to citizens’ requests for information); conducting
regular training at national, district and upazila offices; distributing materials on the roles and duties of
DOs. To support pro-active disclosure (specifically emphasized by the Act), the government could
develop standards for records management and filing, and take advantage of low cost IT solutions (such
160
 as low-cost mobile devices and open source software) to expand the use of electronic record keeping and
digitalized information for ease of retrieval and archiving.
114
Possible options include public awareness raising through strategic partnerships (NGOs, CSOs,
professionals, civil society groups); developing diverse and relevant communication materials (poster,
leaflets, TV adverts) assisting RTI partners to support citizens make RTI requests; involving national
and regional NGOs in rolling out extensive advocacy program focusing on service delivery agencies to
create more demand for information; educating citizens, particularly poor communities with limited
literacy on RTI through grassroots consultation framework meetings; encouraging media and CSOs to
monitor and report widely on RTI implementation, etc.
115
These include Transparency International Bangladesh, Ain O Salish Kendra, BRAC, Center for Policy
Dialogue, Manusher Jonno Foundation, Odhikar, Power and Participation Research Center, and the
Policy Research Institute.

161