Bangladesh EcoWork April13

Country Economic Work
Diagnostic Analysis of Bangladesh Economy:

Foundation for Member Country Partnership Strategy
Islamic Corporation for the
Development of the Private Sector
Islamic Development Bank Group
Jumada-II 1434H (April 2013)
Islamic Development Bank
P.O. Box 5925, Jeddah 21432, Kingdom of Saudi Arabia
Telephone: +966 2 6361400, Fax: +966 2 6366871
e-mail: idbarchives@isdb.org
website: www.isdb.org


Country Economic Work
Diagnostic Analysis of Bangladesh Economy:
Foundation for Member Country Partnership Strategy

Rabi-II 1434H (March 2013)
Development of the Private Sector
Jumada-II 1434H (April 2013)

Acknowledgements
Appreciation for Special Contribution
Mr. Iqbal Mahmood, Senior Secretary and IDB Executive Director; Mr. Kazi Shofiqul Azam, Additional Secretary;
and Md. Shahriar Kader Siddiky, Deputy Secretary (ERD, Ministry of Finance); Mr. Moazzem Hossain (Editor,
Financial Express); Mr. Matiul Islam (Chairman, IIDFC); Prof. Md. Salim Uddin; Prof. Mohammed Jamal Uddin;
Mr. S. M. Mokaddes Ahmed Dipu (Chittagong University); Ms. Siban Shahana (BIDS); and Mr. Hasnat Karim
Pintu (Consultant, BARCODE).
IDB Group Team
Mr. Mohammad Jamal Al-Saati, Director; Country Programs Department
Dr. Muhammad Ahmed Zubair, Peer Reviewer, Country Programs Department
Dr. Areef Suleman, Peer Reviewer, Economic Research and Policy Department
Mr. Muhammad Iqbal Karim and Mr. Abdul Momen Bhuiyan, IDB Field Representative, Bangladesh

Overall Coordinator
Mr. Ahmed S. Hariri, Regional Manager, South & South East Asia Region and Surinam
Report Authors & Contributors
Dr. Zafar Iqbal, Lead Economist (Task Team Leader), Country Programs Department
Mr. Muhammad Nassis Sulaiman, Country Programs Manager for Bangladesh
Mr. Ahsanul Kibria, Alternate Country Programs Manager for Bangladesh
Dr. Bandar Alhoweish, Young Professional, Country Programs Department
Team-I
Core Engagement Areas
Mr. Tahir Akbar,
Team Leader

Team-II
Private Sector Development,
Investment and Trade
Development, Insurance and
Risk
Dr. Elvin Afandi,
Team Leader
Team-III
Resources and Alignment
Mr. Wasim Ahmed Abdulwahab,
Team Leader
Infrastructure Department
Mr. Intikhab Alam
Mr. Tahir Akbar
Mr. Fida Rana
Development of the Private
Sector (ICD)
Dr. Elvin Afandi
Mr. Ahmed A. Khalid
Islamic Financial Services
Department
Mr. Wasim Ahmed Abdulwahab
Human Development Department
Mr. Hisham Fakha
Mr. Jawara Gaye
Insurance of Investment and
Export Credit (ICIEC)
Mr. Irfan Arshad
Islamic Solidarity Fund for
Development
Mr. Ahmad Maaty
Agriculture and Rural
Development Department
Mr. Sohail Malik
Dr. Umar Kamarah
Mr. Mustafa Uur Alver, Consultant
International Islamic Trade
Finance Corporation (ITFC)
Ms. Batoul Alam

Operations Policy and Services
Department
Mr. Mohammad Faisal Siddik
Group Strategic Planning
Department
Mr. Mehman Abbas
Islamic Research and
Training Institute (IRTI)
Dr. Amir Raslan Abu Bakar
Treasury Department
Mr. Mohammad Saeedullah
Khan
Economic Research and Policy
Department
Dr. Ismaeel I. Naiya
Group Risk Management
Department
Mr. Ariful Alam Choudhury
Legal Department
Mr. Kayvon Khashayar
Contributions from Mr. Taha Hameduddin; Mr. Ali Alam; and Mr. Abdulrehman Ibrahim (all were Interns
in Country Programs Department) are highly appreciated.

Abbreviations and Acronyms
ADB : Asian Development Bank
APIF : Awqaf Properties Investment Fund
BDT : Bangladeshi Taka
BERC : Bangladesh Energy Regulatory Commission
BOI : Board of Investment
BPBD : Bangladesh Power Development Board
CAE : Country Assistance Evaluation
CPA : Country Poverty Assessment
CEW : Country Economic Work
CPPR : Country Portfolio Performance Review
DESC : Dhaka Electric Supply Company
DESA : Dhaka Electric Supply Authority
DPPs : Development Project Proposals
EPB : Export Promotion Bureau
ECGS : Export Credit Guarantee Schemes
EFA : Education For All
EGCB : Electricity Generation Company of Bangladesh
EU : European Union
ECA : Export Credit Agency
ERD : Economic Relations Division
FAO : Food and Agriculture Organization
FDI : Foreign Direct Investment
GDP : Gross Domestic Product
GoB : Government of Bangladesh
HPNSDP : Health, Population and Nutritional Sector Development Program
ICD : Islamic Corporation for the Development of the Private Sector
ICIEC : Islamic Corporation for Insurance of Investment and Export Credit
ICT : Information, Communication, and Technology
IDB : Islamic Development Bank
IDB Group : IDB, ICIEC, IRTI, ICD, ITFC
ICT : Information and Communication Technologies
IIFC : Infrastructure Investment Facilitation Centre
IPCC : International Panel on Climate Change
IPFF : Investment Promotion and Financing Facility
IPP : Independent Power Producer
IRTI : Islamic Research and Training Institute
ITFC : International Islamic Trade Finance Corporation
ITAP : Investment Promotion Technical Assistance Program
MC : Member Country
M&E : Monitoring and Evaluation
MCPS : Member Country Partnership Strategy
MDBs : Multilateral Development Banks
MDGs : Millennium Development Goals
MOU : Memorandum of Understanding
MPEMR : Ministry of Power, Energy, and Mineral Resources
NGO : Non-Government Organization
NSAPR : National Strategies for Accelerated Poverty Reduction
OCR : Ordinary Capital Resources
OIC : Organization of Islamic Cooperation
PPP : Public Private Partnership
PRSP : Poverty Reduction Strategy Paper
R&D : Research and Development
SFYP : Sixth Five Year Plan
SHS : Solar Home System
SMEs : Small and Medium Size Enterprises
UIF : Unit Investment Fund
WASA : Water Supply and Sewerage Authority

TABLE OF CONTENTS
EXECUTIVE SUMMARY. 1
DIAGNOSTIC ANALYSIS OF BANGLADESH ECONOMY: SOCIO-ECONOMIC
DEVELOPMENT AND PROSPECTS......
4
1.1 Introduction
4
1.2 Recent Socio-Economic Development and Prospects.
4
1.3 Binding Constraints to Sustainable Economic Growth......
12
1.4 Summary of Binding Constraints to Economic Growth ... 27
POVERTY AND HUNGER
31
2.1 Poverty Trend ... 31
2.2 Hunger Situation ... 33
2.3 Progress in Achieving MDGs............ 34
2.4 Government Strategy for Reducing Poverty and Hunger ................ 35
2.5 Binding Constraints to Reducing Poverty and Hunger. 35
2.6 Summary of Binding Constraints to Reducing Poverty and Hunger................... 38
INFRASTRUCTURE DEVELOPMENT .............................
39
3.1 Energy Sector.....
39
3.2 Urban Development...................
49
3.3 Summary of Binding Constraints to Infrastructure Development... 52
AGRICULTURE AND RURAL DEVELOPMENT ...
53
4.1 Overview of Agriculture and Rural Development .....................
53
4.2 Government Strategy for the Agriculture and Rural Development.........
57
4.3 Binding Constraints Facing Agricultural and Rural Development..
4.4
58
4.4 Summary of Binding Constraints to Agriculture and Rural Development.
67
HUMAN DEVELOPMENT
68
5.1 Health Sector..
68
5.2 Education Sector........
74
5.3 Summary of Binding Constraints to Human Development... 77
PRIVATE SECTOR DEVELOPMENT 78
6.1 Private Sector Development..
78
6.2 Small and Medium Enterprises
82
6.3 Foreign Trade Sector.....
85
6.4 Public Private Partnership
89
6.5 Summary of Binding Constraints to Private Sector Development 92
ISLAMIC FINANCE AND REVERSE LINKAGES...
93
7.1 Islamic Financial Services Industry ....... 93
7.2 Reverse Linkage Opportunities...... 97
93 7.3 Summary of Binding Constraints to Islamic Finance and Reverse Linkages
97
LIST OF FIGURES

Figure 1.1. Real GDP Growth and Per Capita Income....
5
Figure 1.2. Growth Rates by Major Sectors..
6
Figure 1.3. Sectoral Shares in Gross Domestic Product, 2010.................................
7
Figure 1.4. Sectoral Shares in Gross Domestic Product, 2015.....................................
7
Figure 1.5. National Savings and Investment Rates.....................................
8
Figure 1.6. Inflation Rates...
8
Figure 1.7. Total Revenue, Expenditure and Budget Deficit
9
Figure 1.8. Trade and Current Account Balances.....
10
Figure 1.9. Foreign Exchange Reserves and Exchange Rate....
10
Figure 1.10. Headcount Poverty Ratio..
11
Figure 1.11. Growth Diagnostic Framework........................
14
Figure 1.12. Real GDP Growth and Private Investment.....
16
Figure 1.13. Foreign Direct Investment in Bangladesh...
17
Figure 1.14. Foreign Direct Investment in Selected Asian Countries
17
Figure 1.15. Domestic Banking Credit to Private Sector
17
Figure 1.16. Banking Sector Lending Interest Rates...................
17
Figure 1.17. Most Problematic Factors for Doing Business....
21
Figure 1.18. Return to Investment in Selected Asian Countries.........................
22
Figure 1.19. Real GDP Growth and Public Investment Rates................
22
Figure 1.20. Fiscal Deficit and Public Investment Rates.
23
Figure 1.21. Quality of Institutions in Selected Asian Countries
25
Figure 1.22. Ranking of Global Competitiveness of Selected Asian Countries.....
26
Figure 1.23. Indicators of Innovation
26
Figure 1.24. Indicators of Business Sophistication...
27
Figure 3.2. Population Growth Rate...
49
Figure 3.3. Total Population and Urban Population.....
50
Figure 3.4. Population of Large Cities
50
Figure 4.1. Arable Land in Selected Countries ..
54
Figure 4.2. Arable Land per Person in Selected Countries...
55
Figure 4.3. Arable Land per Person in Bangladesh...
55
Figure 4.4. Historical Crop Production..
56
Figure 4.5. Rice Production Per Capita..
59
Figure 6.1. Private and Public Investment Rates.. ... ..
78
Figure 6.2. Business Sophistication.
80
Figure 6.3. Outages of Power and Water
81
Figure 6.4. Products-Wise Exports of Bangladesh, 2002-2003... ..
85
Figure 6.5. Product-Wise Exports of Bangladesh, 2010-2011...
85
Figure 6.6. Country-Wise Exports of Bangladesh, 2002-2003..
86
Figure 6.7. Country-Wise Exports of Bangladesh, 2010-2011..
86
Figure 6.8. Ease of Trading Across Borders...
89
Figure 7.1. Bangladesh Financial System...

94
LIST OF TABLES
Table 1.1. Real GDP Growth in Selected Asian Economies... ..
13
Table 1.2. Human Development Index and Its Components...
18
Table 1.3. Quality of Infrastructure in Selected Asian Countries... 19
Table 1.4. Doing Business Ranking in Selected Asian Countries.......... ..
20
Table 1.5. Governance Indicators of Selected Asian Economies... ..
24
Table 1.6. Summary of Binding Constraints to Economic Growth....
28
Table 2.1. Number of Poor and Poverty Headcount Ratio..
31
Table 2.2. Poverty Headcount Ratio at $1.25 a day (PPP)...
32
Table 2.3. Global Hunger Index in Selected Asian Countries... ..
34
Table 2.4. Governance Indicators in Bangladesh... ...
37
Table 2.5. Summary of Binding Constraints to Reducing Poverty and Hunger
38
Table 3.1. Electricity Produced by Public and Private Sectors...
42
Table 3.2. Power Sector Indicators.. ...
43
Table 3.3. Year-wise Power Generation During Sixth Five Year Plan...
45
Table 3.4. Summary of Binding Constraints to Infrastructure Development
52
Table 4.1. Bangladesh Land Area Statistics..
54
Table 4.2. Summary of Binding Constraints to Agriculture and Rural Development..
67
Table 5.1. Summary of Binding Constraints to Human Development...
77
Table 6.1. Summary of Binding Constraints to Private Sector Development
92
Table 7.1. Comparative Position of the Islamic Banking Sector... ..
95
Table 7.2. Awqaf Properties by Division
96
Table 7.3. Summary of Binding Constraints to Islamic Financial Services Industry...
97

APPENDICES
S

Annex Table 1.1. Bangladesh Socio-Economic Indicators...............
29
Annex Table 1.2. Sixth Five Year Plan (SFYP) Targets...
30

98

REFERENCE
1
1

EXECUTIVE SUMMARY
Prior to designing the IDB Group Member Country Partnership (MCPS) for Bangladesh, the
MCPS Team undertook a detailed diagnostic analysis of identifying binding constraints to
achieving sustainable economic growth and critical constraints to key sectors of the economy,
which are selected for the IDB Group interventions over the next four years (2013-2016).
Therefore, this Country Economic Work (CEW) a knowledge document is prepared by the
MCPS Team based on latest available information and data from reliable national and
international sources, bilateral meetings with the line Ministries, key stakeholders, outcome of
two Consultative Workshops held in Dhaka and Chittagong, which were attended by Senior
Government officials, representatives of the private sector, academia, civil society and
development partners. As a result, this CEW provides a sound basis for designing an
implementable partnership strategy between the IDB Group, the Government of Bangladesh and
the private sector entitled as IDB Group Member Country Partnership Strategy: Partnering for
Sustainable Growth and Reducing Poverty (published separately).
Starting from economic development of the country, the growth story tells that Bangladesh
achieved sustainable economic growth of 6% per annum during 2000-2011. This impressive
growth performance was contributed by corresponding growths in agriculture, industry, and
services sectors. The economy also remained more or less resilient to global financial and
economic crisis of 2008/2009, mainly resulting from significant growth in remittances and
exports of the textile sector. Further, Bangladeshs per capita income has steadily increased from
$380 in 2000 to $818 in 2011 and the country is classified as a low-income country.
Despite impressive growth, Bangladesh is still facing a number of socio-economic challenges.
With the recovery of global economy, increase in domestic demand and food price escalation in
international commodity markets created upward pressures on inflation in the country. Although,
fiscal performance has improved overtime but the high level of fiscal deficit is a source of
concern as its monetization and domestic financing are putting pressure on macroeconomic
balances. The country showed good performance in increasing saving and investment rates,
however, the overall investment rate remained below the national saving rate, resulting in
significant internal resource surplus (saving investment) to 4% of GDP in 2011. It was mainly
due to rapid growth of workers remittances that have fueled a tremendous inflow of private
transfers and raised the private savings as well as national saving rates, thus surpassing the
investment rate. On the external trade front, the country recorded persistent external trade deficit
but current account remained in surplus, mainly attributed to surge in remittance inflows since
2000, which reached $11.7 billion in 2011.
With regard to social development, Bangladesh has made noteworthy progress in the attainment
of MDGs, however, the areas that need further attention are primary school completion rate, adult
literacy rate, and maternal mortality rate. Although, the country has made substantial progress in
reducing poverty, the headcount poverty rate is high and the gap between rural and urban poverty
is quite substantial. Although, rapid economic growth has helped to reduce poverty in
2
2

Bangladesh, there is evidence of growing income inequality and regional disparities. Youth
unemployment is another major challenge, particularly providing decent jobs to youth.
Going forward, Bangladesh plans to achieve lower-middle income status by 2021, which requires
the economy to grow by 8% to 10% during the Sixth Five Year Plan (2011-2015) and Seventh
Five Year Plan (2016-2021). To this end, the country will have to raise current per capita income
from $818 to $1,001 by 2015 and over $2,000 by 2021 through inclusive and sustainable growth.
These targets seem to be ambitious keeping in view the current available resources both in terms
of physical and human capital, and several binding constraints to achieving sustainable economic
growth and critical constraints to key sectors of the economy.
Whether or not the country will be able to achieve 8% to 10% growth targets, it is essential to
undertake the diagnostic analysis of achieving sustainable economic growth. Therefore, the key
objective of this CEW is to identify binding constraints (i.e. the most critical factors inhibiting in
achieving sustainable economic growth). With this objective, the MCPS Team undertook
diagnostic analysis using a comprehensive Growth Diagnostic Framework developed by the
MCPS Team (i.e. An Extended Version of Growth Diagnostic Framework of Hausmann, Rodrik,
and Velasco (2005)). This Framework is used to identify binding constraints to economic growth
as well as to key sectors selected for the MCPS namely Infrastructure Development; Human
Development; Agriculture Development; and Private Sector Development.
The diagnostic analysis shows that countrys economic growth is constrained by low level of
private investment, which needs to be increased from the current rate of 19.5% to 25% of GDP in
order to achieve 8% economic growth by 2015. It is worth noting that total investment
requirement under the Sixth Five Year Plan has been estimated at BDT 13.5 trillion (about $190
billion). Of the total Plan investment, private investment would be 77.2% and public investment
22.8%. However, the present private investment is constrained by weak access to finance and
high cost of financing; climate change and natural disaster; low human capital; poor quality and
quantity of infrastructure; macroeconomic risks (i.e. soaring inflation, higher fiscal and trade
deficits); and microeconomic risks (i.e. weak business environment, although the rate of return on
investment is high compared to all selected lower-middle income Asian countries (i.e. China,
India, Indonesia, Malaysia, Philippines, Sri Lanka, Thailand, and Vietnam except Pakistan).
Similarly, low level of public investment also appears to be binding constraint to achieving
sustainable growth. Public investment in Bangladesh declined gradually from the maximum level
of 7.4% of GDP in 2000 to 5.3% of GDP in 2011. In order to achieve 8% economic growth, the
Government plans to increase it again to 7.4% of GDP by 2015. However, public investment is
constrained by budgetary limitation, weak governance and institutional capacity. Further,
economic growth is constrained by weak global competitiveness and weak software of growth
(i.e. poor level of innovation, weak business sophistication, low R&D and poor quality of
education). The country can also enhance its economic growth by exploiting Reverse Linkage
opportunities (i.e. transferring knowledge and expertise of Bangladesh in Microfinance and Solar
Home System Solar to other IDB member countries). In this way, both provider (i.e. Bangladesh)
and recipient IDB member countries will be in a win-win situation, whereby the IDB Group will
act as a facilitator in terms of Reverse Linkages.
3
3

With regard to infrastructure development, the diagnostic analysis shows that power sector is
constrained by inadequate public and private investment, absence of cost reflective tariff, and
insufficient primary fuel supply chain. The public private partnership (PPP) is restricted by dearth
of long-term financing in the local market and currency risk for market-exposed projects. Urban
development is constrained by existing limited capacity of urban infrastructure and rapidly
expanding urban slums in big cities. Major constraints to agriculture and rural development are
identified as climate change and natural disasters and poor diversification of agricultural
production, which are causing high rural poverty and food insecurity. With regard to human
development, health sector development is constrained by low public spending on health; high
maternal mortality ratio; lower life expectancy; high proportion of women early childbearing; and
absence of skills and facilities. Similarly, binding constraints to education include low level of
spending on education; poor quality of secondary education; lack of access to tertiary education;
and low spending on research and development. Binding constraints to private sector
development include poor access to finance; weak business sophistication; frequent outages of
electricity and water; unfavorable regulatory and administrative procedures; lack of modern
technology; weak innovation; high rate of interest on bank loans; and lack of skilled technicians
and workers. Islamic Financial Services Industry (IFSI) is constrained by absence of requisite
legal, regulatory, supervisory and Shariah frameworks.
In the next phase of its socio-economic development, Bangladesh needs to fix identified binding
constraints to achieving sustainable economic growth and critical constraints to key sectors of the
economy. It must embark on a more inclusive development as well as build on new sources of
growth, which can drive the economy to achieving lower-middle income status by 2021. In
particular, the private sector needs to be placed on the driving seat of the economy by improving
business environment, facilitating banks loans on favourable mark up, providing attractive
incentives to both local and foreign investors, and allocating higher public spending on R&D.

4
4

1.1 Introduction
1. Before embarking on Member Country Partnership Strategy (MCPS) for Bangladesh, the
IDB Group Team undertook diagnostic analysis of the overall economy as well as a number of
key sectors. This Country Economic Work (CEW) entitled Diagnostic Analysis of Bangladesh
Economy: Foundation for Member Country Partnership Strategy is aimed at providing in-depth
analysis of recent socio-economic development and prospects, and major challenges facing the
country. In particular, the CEW focuses on identifying binding constraints to achieving
sustainable economic growth in Bangladesh. Further, through extensive consultations with the
key stakeholders (i.e. public sector, private sector, business community, academia, civil society
and donors), three main pillars namely (i) Improving Infrastructure Development (i.e. power
sector, public private partnership, and urban development); (ii) Supporting Sustainable
Agriculture and Rural Development; and (iii) Supporting Primary and Secondary Education and
Vocational Training are identified for the IDB Group interventions over next 4 to 5 years.
Further, two cross-cutting areas namely: (i) Private Sector Development; and (ii) Supporting
Islamic Finance, Capacity Building and Reverse Linkages have also been identified for the IDB
Group assistance. Therefore, diagnostics have been undertaken for these sectors in order to find
out niche areas for IDB Group interventions in the next few years. This CEW uses the latest
available information and data from reliable national and international sources.
2. The CEW document is structured as follows: Recent socio-economic developments and
prospects, and the analysis of binding constraints to sustainable economic growth are given in
Section I. Diagnostic analysis of poverty and hunger (sub-theme of the IDB Group MCPS) is
given in Section II. Diagnostic analyses of key Pillars namely: (i) Infrastructure Development; (ii)
Agriculture and Rural Development and (iii) Human Development (education and health) are
presented in Sections III, IV, and V, respectively. Diagnostic analyses of two Cross-Cutting
Areas namely Private Sector Development and Islamic Finance and Reverse Linkages are given
in Sections VI and VII.
1.2 Recent Socio-Economic Development and Prospects
1.2.1 Macroeconomic Development and Prospects
3. The latest data on key socio-economic development indicators are given in Annex Table
1.1. However, the trends of major indicators are briefly described below:
I.
DIAGNOSTIC ANALYSIS OF BANGLADESH ECONOMY:
SOCIO-ECONOMIC DEVELOPMENT AND PROSPECTS
5
5

Source: Planning Commission, Government of Bangladesh, Sixth Five Year Plan (2011-2015)

380 380 380
400
440
463 476
523
608
676
751
818
1001
2000
0
500
1000
1500
2000
2500
0.0
2.0
4.0
6.0
8.0
10.0
12.0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2015 2021
P
e
r

C
a
p
i
t
a

I
n
c
o
m
e

(
S
)

R
e
a
l

G
D
P

G
r
o
w
t
h

(
%

p
.
a
.
)

Figure 1.1. Bangladesh: Real GDP Growth (% per annum) and
Per Capita Income ($), 2000-2021
Per Capita GNI GDP Growth
Real GDP Growth and Per Capita Income
4. Real economic growth in Bangladesh remained sustainable and the economy
remained more or less resilient to global financial and economic crisis. During the last decade
(2000-2011), Bangladeshs real GDP growth rate was, on average, 6% per annum. It is worth
noting that most of the global economies, including the Asian economies, were badly affected by
the global financial and economic crisis and their growth rates were significantly decelerated or
declined in 2009 but the real growth in Bangladesh was 5.7% in 2009 mainly contributed by
significant growth in remittances and exports of textile sector. Notwithstanding this past
progress, Bangladesh is classified as a low-income country
1
and its per capita income has been
steadily increased from $380 in 2000 to $818 in 2011 (Figure 1.1).
5. Bangladesh plans to achieve lower-middle income status by 2021, which requires the
economy to grow by 8% to 10% per annum. In recognition of the long-term development
challenges, the Government adopted Bangladesh Vision 2021. The Vision 2021 and the
associated Perspective Plan 2010-2021 have set solid development targets for Bangladesh by the
end of 2021. The Vision aims to transform the country from a low-income economy to a lower-
middle income economy. It lays down a development scenario where people will have a higher
standard of living, better education, better social justice, more equitable socio-economic
environment, and sustainable development through better protection from climate change and

1
According to the World Bank (2011), using the Atlas Method, economies with per capita Gross National Income
(GNI) of $1025 or less are classified as low-income countries; economies with per capita GNI between $1,026 - $4,035
as lower-middle income countries; economies with per capita GNI between $4,036 $12,475 are upper-middle income
countries; and economies with per capita GNI of $12,476 or more are high income countries.
6
6

natural disasters. The Government of Bangladesh (GoB) plans to manage within the framework
of a market economy with appropriate interventions to correct market distortions; ensure equality
of opportunities; and guarantee equity and social justice for all. The implementation of Vision
2021 is being done through two medium-term development plans namely Sixth Five Year Plan
(2011-2015) and Seventh Five Year Plan (2016-2021). These Plans translate into the course of
achieving lower-middle income status. To this end, the country will have to raise current per
capita gross national income (GNI) from $818 in 2011 to $1,001 by 2015 and to over $2,000 by
2021 through inclusive and sustainable growth.
6. The impressive growth performance was contributed by corresponding growths in
agriculture, industry, and services sectors. During 2001-2011, industrial sector grew by, on
average, 7.6% per annum followed by the services sector (6.1%) and agriculture sector (3.6%),
indicating satisfactory performances of all the three broad sectors of the economy. During the
Sixth Five Year Plan (SFYP) period, the Government plans to achieve average annual growth
target of industry by 10.4%, services 7.3% and agriculture 4.4%. Both large and small enterprises
need to contribute to this growth. The textile and clothing, machinery, and other industries will be
the major drivers of overall industrial growth while the services sector is projected to experience
steady growth. With regard to deceleration in agriculture sector growth, major fall is expected in
cereal crops production (Figure 1.2).
7. With regard to sectoral shares in GDP, the share of services sector went up gradually
from 48.7% in 2000 to 54% in 2010 and industrial share went up from 25.7% to 27.4%,
while the share of agriculture declined from 25.6% to 18.6% during the same period. In the
medium-term, the Government plans to increase the share of industry to 30.9% in GDP while
keeping almost the same share of the services sector and reducing further the share of agriculture

Source: Ministry of Finance, Government of Bangladesh, Macroeconomic Review (2011) and
Planning Commission, Government of Bangladesh, Sixth Five Year Plan (2011-2015)

0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Figure 1.2. Bangladesh: Growth Rates by Major Sectors, 2001-2015
(% per annum)
Agriculture Industry Services
7
7

to 15.5%, mainly due to expected fall in cereal crops production by 2015. The most notable rise
will be in the cases of textile and clothing, and machinery sectors (Figures 1.3 and 1.4).
Saving and Investment Rates
8. The Country showed satisfactory performance in increasing saving and investment
rates. Since 2000, total investment relative to GDP has risen slowly from 23% in 2001 to 24.7%
in 2011. However, the overall investment rate remained below the national saving rate, widening
the internal resource surplus (saving investment) of less than one percent in 2000 to maximum
6% of GDP in 2008 and about 4% of GDP in 2011. Since 2000, the rapid growth of workers
remittances have fueled a tremendous inflow of private transfers and rapidly raised the private
savings as well as national saving rates, thus surpassing the investment rate. In the medium-term,
acceleration of the economic growth by 8% will require a substantial increase in the rate of
investment, which is projected to increase from the present 24.4% to 32.5% of GDP by the end of
the Plan period while a 10% economic growth will require 40% investment rate by 2021. Much
of the higher investment will be deployed to fix binding constraints to infrastructure development
(primarily power and transport) and human development. A large part of the financing will come
from the domestic public resource mobilization and from higher private savings, including from
remittances. The Government also plans to encourage public private partnerships (PPP) to finance
these investments to fast-track the development requirement. Therefore, the Government plans to
close the saving-investment gap to almost balance by 2015 (Figure 1.5).

Bangladesh Bureau of Statistics website (www.bbs.gov.bd)

Data Source: Ministry of Finance, Government of Bangladesh, Macroeconomic Review (2011)
Agriculture
(18.6%)
Industry
(27.4%)
Services
(54%)
Figure 1.3. Bangladesh: Sectoral
Shares, 2010 (% of total GDP)
Agriculture
(15.5%)
Industry
(30.9%)
Services
(53.6%)
Figure 1.4. Bangladesh: Sectoral
Shares, 2015 (% of total GDP)
8
8

Inflation
9. With the recovery of global economy, increase in domestic demand and food price
escalation in international commodity markets created upward pressure on inflation. The
overall inflation rate went up from 2.8% in 2000 to 8.8% in 2011, while the average inflation rate
remained 5.9% during 2000-2011. Food inflation touched double digit to 11.3% in 2011, from
2.7% in 2000, contributing mainly to rise in overall inflation (Figure 1.6). Non-food inflation rose


20
22
24
26
28
30
32
34
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Figure 1.5. Bangladesh: National Savings and Investment Rates, 2000-2015
(% of GDP)
National Savings Total Investment

0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Figure 1.6. Bangladesh: Inflation Rates, 2000-2015
(% p.a.)
Overall Food Non-food
9
9

modestly from 3.1% to 4.2% during the same period. The average food and non-food inflation
rates remained 6.6% and 4.9%, respectively, during 2000-2011. Expansionary monetary and
fiscal policies have also contributed to a rise in inflation. During the SFYP, the Government
projected that the inflationary pressure will be eased, reaching the overall inflation to 6% by
2015.
Fiscal Position
10. Although, fiscal performance has been improved overtime but still the high level of
fiscal deficit is a source of concern as its monetization and domestic financing are putting
pressure on macroeconomic balances. The country has been successful in reducing the overall
budget deficit (excluding grants) from 6.1% in 2000 to 4.4% of GDP in 2011, attributing mainly
to faster increase in total revenue as percentage of GDP from 8.5% to 12.1%, while total
expenditure rose marginally from 14.5% to 16.5% of GDP during the same period. On the
revenue side, the Government has taken various steps to rationalize direct and indirect taxes with
an aim to mobilize adequate domestic resources for investing in infrastructure development, with
the objectives of attaining higher growth to reduce poverty at a faster rate, achieve self-
sufficiency in food production and ensure food security, expand export-oriented industries,
develop domestic industries, enhance industrial productivity and create employment opportunities
in the medium-term. On the expenditure front, the Government plans to encourage expenditure in
the productive sector, exercise austerity in public expenditure and restrain unproductive outlays.
Therefore, the revenues are projected to increase to 14.6% of GDP and expenditure 19.6% of
GDP, maintaining the fiscal deficit target of 5% of GDP by 2015, which will require sizable new
borrowing from the banking system. The Government may also seek additional external financing
to avoid any crowding out of the private sector (Figure 1.7).

-10
-5
0
5
10
15
20
25
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Figure 1.7. Bangladesh: Total Revenue, Expenditure and Budget Deficit,
2000-2015 (% of GDP)
Budget Deficit Total Revenue Total Expenditure
10
10

External Account Balance
11. During 2000-2011, the country recorded current account surplus but external trade
deficit. On the external trade front, Bangladesh has been facing persistent trade deficit, which
increased to the maximum level of 8.1% of GDP in 2007 but later declined to 6.6% of GDP in
2011. However, the country had been recording current account surplus since 2002 (except 2001
and 2005), which in percentage of GDP increased from 0.5% in 2002 to its highest-ever surplus
of 3.7% in 2010 (Figure 1.8). This is attributable mainly to the surge in remittance inflows, which
reached at $11.7 billion in 2011. However, due to slowdown in job placements abroad, growth in
remittances dropped from over average 23% per annum during 2002-2009 to 13.4% in 2010 and
6% in 2011 (Figure 1.9). However, foreign exchange reserves of the country increased

-10
-8
-6
-4
-2
0
2
4
6
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Figure 1.8. Bangladesh: Trade and Current Account Balances, 2000-2015
(% of GDP)
Trade Account Balance Current Account Balance

0
10
20
30
40
50
60
70
80
90
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
16.0
18.0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
(
B
D
T

P
e
r

U
S
$
)

(
U
S
$

b
i
l
l
i
o
n
)

Figure 1.9. Bangladesh: Foreign Echange Reserves and Exchange Rate,
2000-2015
Foreign Exchnage Reserves Exchange Rate
11
11


0
10
20
30
40
50
60
70
1992 1996 2000 2005 2010 2015
Figure 1.10. Bangladesh: Headcount Poverty Ratio
(% of total population)

Rural Urban National
significantly from $2.5 billion in 2000 to $11.7 billion in 2011. In the medium-term, the country
is projected to record trade deficit of over 8% of GDP, while current account is projected to turn
into a marginal deficit during 2012-2015, mainly due to projected growing import demand
associated with achieving higher economic growth of 8% by the end of the Plan. Foreign
exchange reserves are estimated to reach $16.1 billion (3.3 in months of imports) and the
exchange rate is projected to depreciate from BDT 71.5 in 2000 to BDT 82.2 per US dollar by
2015.
1.2.2 Social Development and Prospects
12. Bangladesh has made substantial progress in reducing national poverty. The country
has been striving for a long time to reduce poverty and improve the standard of people. The
percentage of population living below poverty line went down from more than 80% in early
1970s to 31.5% in 2010. Although, the country has made substantial progress in reducing
poverty, the headcount poverty rate is still high. The decline in poverty stems in large part from
strong economic growth over the past two decades. Moreover, the remarkable growth in the
inflow of remittances helped reducing poverty by supporting the expansion of construction and
services sectors and by providing strong safety net by the Government. Notwithstanding this past
progress, Bangladesh is classified as low-income country with substantial poverty, inequality and
deprivation. According to recent estimate, 47 million people are living below the poverty line
with a significant proportion living in households which are female headed, in remote areas, and
consisting of socially excluded and other vulnerable people. However, the Government plans to
reduce to overall poverty to 22.5% by 2015 (Figure 1.10). The gap between rural and urban
12
12

poverty remained quite substantial throughout the period under analysis. In 2010, rural poverty
remained higher (35.2%) compared to urban poverty (21.3%). However, the Government plans to
reduce rural poverty to 25.3% and urban poverty to 14.1% by 2015.
13. Although, rapid economic growth has helped to reduce poverty in Bangladesh, there
is evidence of growing income inequality. Income inequality (as measured by the Gini-
coefficient for the distribution of income) rose substantially during the 1980s and the 1990s.
During 2000 and 2005, the Gini-coefficient increased further from 0.451 to 0.467 due to an
increase in rural income inequality. Thus, the rural Gini-coefficient increased from 0.393 in 2000
to 0.428 in 2005. The urban Gini-coefficient remained unchanged at 0.497. However, the latest
data show that Gini-coefficient at the national level declined slightly to 0.458 in 2010 though it
was still higher than the level in 2000. The urban Gini-coefficient also declined to 0.452 and it
was lower than the level in 2000. On the whole, income inequality is a serious problem in
Bangladesh and reversing the trend in a sustainable manner will be a major challenge under the
SFYP.
14. Bangladesh has also made noteworthy progress in the attainment of MDGs. A review
of MDGs indicators progress shows that the country is on track in relation to most of the
targets
2
.With regard to MDG targets such as expansion of primary and secondary education,
infant and child mortality rate, containing the spread and fatality of malaria and tuberculosis,
reforestation, access to safe drinking water and sanitation latrines especially in urban areas,
Bangladesh has performed remarkably well and is expected to achieve several of these targets
before the stipulated time. The country has already achieved gender parity in primary and
secondary education (Annex Table 1.2).
15. Youth unemployment is another major problem, particularly providing decent jobs to
youth: The current youth unemployment rate in Bangladesh is 13.4% compared to 11% in India
and 5% in Vietnam, while under-employment in the country is 24.5%. Both high levels of
poverty and unemployment are considered to be detrimental to sustainable economic growth in
Bangladesh. Most of the labor force is engaged in informal sector with low productivity and low
income jobs.
1.3 Binding Constraints to Sustainable Economic Growth
16. Bangladeshs economy is projected to achieve strong economic growth of 8% by 2015,
which is significantly higher than the growth rate achieved during 2000s. Bangladesh had
achieved an annual average real GDP growth of 6% during 2000-2011, which was higher than
some of the competing lower-middle income Asian countries (i.e. Indonesia, Pakistan,
Philippines, and Sri Lanka) but lower than India and Vietnam. In the medium-term, Bangladesh
has set average growth target of 7.5%, which is higher than all the selected lower-middle income
Asian countries, even higher than some of upper-middle-income Asian countries like Malaysia
(4.8%) and Thailand (5.5%) (Table 1.1).

2

13
13

17. Keeping in view past performance of the Bangladesh economy, the question arises
whether the country would be able to achieve growth rate of 8% by 2015 with the existing
socio-economic situation and the available resources and what are/will be the binding
constraints to achieving sustainable economic growth. The question needs in-depth analysis of
the overall economy as well as its key economic sectors. Using the Growth Diagnostic
Framework developed by the IDB Group MCPS Team (2012), the following section provides
analysis of binding constraints to achieving sustainable economic growth in Bangladesh.
1.3.1 Growth Diagnostic Framework
3

18. The widely used Growth Diagnostic Framework developed by Hausmann, Rodrik,
and Velasco (2005), which considers low level of private investment as the only binding
constraint to economic growth, while ignoring the role of public investment and software of
growth in achieving sustainable economic development. In this CEW, Hausmann, Rodrik, and
Velasco framework is extended by including all the possible sources of economic growth (i.e.
public investment, private investment and software of growth). The IDB Group MCPS Team has
developed the problem tree, which provides a complete framework for diagnosing critical
constraints to sustainable economic growth (Figure 1.11).
19. The Growth Diagnostic Framework starts with private investment: First, it starts by
asking what keeps the level of private investment low. Is private investment low due to low return
on investment or high cost of financing? If it is low because of low social returns, is that due to
poor geography (i.e. natural disasters) or poor human capital or physical infrastructure? If the
problem is poor appropriately, is it due to government failures, market failures or both? If it is

3
This extended Growth Diagnostic Framework was used in case of Country Economic Work for Malaysia,
Diagnosing the Malaysia Economy: Basis for the IDB Group Member Country Partnership Strategy (May 2012).
Table 1.1. Real GDP Growth in Selected Asian Economies
Country 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
2000-
2011
2012-
2015
Bangladesh 5.9 5.3 4.4 5.3 6.3 6.0 6.6 6.4 6.2 5.7 6.1 6.7 5.9 7.5
Lower-Middle Income Countries
India 5.2 3.9 4.6 6.9 7.6 9.0 9.5 10.0 6.2 6.6 10.6 7.2 7.3 7.4
Indonesia 4.2 3.6 4.5 4.8 5.0 5.7 5.5 6.3 6.0 4.6 6.2 6.5 5.2 6.7
Pakistan 3.9 2.0 3.1 4.7 7.5 9.0 5.8 6.8 3.7 1.7 3.8 2.4 4.5 3.5
Philippines 4.4 2.9 3.6 5.0 6.7 4.8 5.2 6.6 4.2 1.1 7.6 3.7 4.7 4.7
Sri Lanka 6.0 -1.5 4.0 5.9 5.4 6.2 7.7 6.8 6.0 3.5 8.0 8.2 5.5 6.9
Vietnam 6.8 6.9 7.1 7.3 7.8 8.4 8.2 8.5 6.3 5.3 6.8 5.9 7.1 6.5
Upper-Middle Income Countries
China 8.4 8.3 9.1 10.0 10.1 11.3 12.7 14.2 9.6 9.2 10.4 9.2 10.2 8.6
Malaysia 8.7 0.5 5.4 5.8 6.8 5.3 5.8 6.5 4.8 -1.6 7.2 5.1 5.0 4.8
Thailand 4.8 2.2 5.3 7.1 6.3 4.6 5.1 5.0 2.6 -2.3 7.8 0.1 4.0 5.5
Sources: International Monetary Fund, World Economic Outlook Database (April 2012)
For Bangladesh, Planning Commission, Government of Bangladesh, Sixth Five Year Plan (2011-2015),

14
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15
15

government failure, is that due to micro risks (i.e. high cost of doing business), macro risks (i.e.
financial, monetary and fiscal instability) or restriction on ownership for the foreign investors? If
the impediment on private investment is due to high cost of financing, is that due to bad
international finance (i.e. high interest rate and stringent conditionalities) or shortage of local
finance. If the problem is of bad local finance, is that due to low private saving or poor
intermediation of the banking system.
4

20. Starting from the second part of the problem tree with regard to low level of public
investment, it starts by asking what keeps the level of public investment low. Is public
investment low because of budgetary constraints, leakages, or limited implementation capacity?
If it is due to budgetary constraint, is it because of tight fiscal position, high borrowing cost or
other development priorities? Are the leakages due to corruption or poor governance? Is limited
implementation capacity due to weak institutions or poor human capital?
21. The final part of problem tree starts asking questions whether weak software of
growth are due to weak business sophistication, low level of innovation, or poor Reverse
Linkages. Is weak business sophistication due to poor quality of local supplier, weak state of
cluster development, narrow value chain breadth, or weak production process sophistication?
With regard to low level of innovation, is it due to low capacity for innovation, poor quality of
scientific research institutions, lower company spending on research and development (R&D),
lack of availability of scientists and engineers, or low government procurement of advanced
technical products.
22. Final branch of problem tree is whether poor Reverse Linkages (RLs) are constraining
to growth (i.e. country is not fully exploiting RLs opportunities through sharing its knowledge
and expertise in Microfinance and Home Solar System with other IDB member countries).
1.3.2 Binding Constraints to Sustainable Economic Growth
23. Using the growth diagnostic framework, binding constraints to Bangladeshs sustainable
economic growth are identified in terms of private investment, public investment, and software of
economic growth as follows:
i. Low Level of Private Investment as Binding Constraint to Economic
Growth
24. Under the SFYP, a substantial increase in private investment rate will be required
from the current rate of 19.5% to 25% of GDP by 2015 in order to achieve 8% economic
growth by 2015. Total investment requirement under the SFYP has been estimated at BDT 13.5
trillion (about $190 billion). Of the total Plan investment, private investment would be 77.2% and
public investment 22.8%. Domestic financing is projected to be 90.7% and external financing

4
For further detail on the Growth Diagnostic Framework, see Iqbal Z. and A. Suleman (July 2010), Indonesia: Critical
Constraints to Infrastructure Development, and ADB-IDB-ILO (2010), Joint Country Diagnostic Study on Indonesia:
Critical Development Constraint.
16
16

9.3% (of which 31% is projected to come from FDI sources). The past performance showed that
private investment rose steadily from 15.6% in 2000 to 19.5 % of GDP in 2011 (3.9 percentage
points increase in 11 years). Now the Government has set an ambitious target of overall
investment rate of 32.1% of GDP by 2015 in order to achieve 8% economic growth by 2015
while a 10% economic growth will require 40% investment rate by 2021. Therefore, the key
challenge for the Government will be to stimulate both public and private investment over the
SFYP period. Accelerating economic growth by 8% per annum will require a substantial increase
in private investment (5.5 percentage points increase in the next five years). Therefore, the private
sector must be placed in the driving seat of the economy through creating a more business-
friendly environment for both local and foreign investors in the coming years (Figure 1.12).
25. Like local private investment, low level of foreign investment also appears to be
binding constraint to achieving sustainable economic growth. Compared to all selected
competing countries (except Sri Lanka) in the Asian region, Bangladesh is lagging behind in
terms of attracting FDI inflows. The country received maximum FDI of $1.1 billion (1.3% of
GDP) in 2008, which declined to $0.7 billion (0.7% of GDP) in 2009 and thereafter began to
recover reaching $1.14 billion (1% of GDP) in 2011 (Figures 1.13 and 1.14).
26. There are a number of binding constraints that are constraining both local and
foreign investment in the country. Some of them are identified below:


0
5
10
15
20
25
30
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
9.0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
P
r
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I
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l

G
D
P

G
r
o
w
t
h

(
%

p
e
r

a
n
n
u
m
)

Figure 1.12. Bangladesh: Real GDP Growth (% per annum) and Private
Investment (% of GDP), 2000-2015
Real GDP Growth Private Investment
17
17

Weak Access to Finance and High Cost of Financing
27. Compared to Asian countries, Bangladeshs banking sector loans to the private sector
are significantly low. During 2000-2011, average annual domestic credit to the private sector
was reported 35.8% of GDP, which were lower than China (117.4%), Malaysia (115.7%),
Thailand (108.1%), Vietnam (74.6%), and India (39.8%) (Figures 1.15 and 1.16). However, it

Source: World Bank, World Development Indicators website (www.worldbank.org (29 August 2012).
Note: Domestic credit to the private sector refers to financial resources provided to the private sector, such as through loans,
purchases of non-equity securities, and trade credits and other accounts receivable, that establish a claim for repayment. Lending
interest rate is the rate charged by banks on loans to prime private customers.

25.0
25.2
29.6
31.7
35.8
39.9
74.6
108.1
115.7
117.4
0 50 100 150
Pakistan
Indonesia
Sri Lanka
Philippines
Bangladesh
India
Vietnam
Thailand
Malaysia
China
Figure 1.15. Domestic Banking Credit to
Private Sector (% of GDP) 2000-2011
15.4
15.1
13.6
11.7
11.5 11.5
9.4
6.6
6.1
5.8
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
16.0
18.0
Figure 1.16. Banking Sector Lending Rate
(average, % per annum) 2000-2011

Source: UNCTAD Database (29 August 2012)

0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
1.6
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200
400
600
800
1000
1200
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Figure 1.13. Foreign Direct Investment
in Bangladesh (% of GDP), 2000-2011
FDI (% of GDP)
124.0
31.6
18.9
12.0
9.6
7.4
1.3 1.3 1.1 0.3
-
20.0
40.0
60.0
80.0
100.0
120.0
140.0
Figure 1.14. Figure. Foreign Direct
Investment in Selected Asian Countries
($ billion, 2011)
18
18

was higher than Philippines (31.7%), Sri Lanka (29.6%), Indonesia (25.2%), and Pakistan (25%).
The main reason for low level of domestic credit to the private sector seems to be the higher
lending rate charged on loans to the prime private customers (average 15.1% per annum during
2000-2011), which was higher than all the competing countries (except Indonesia).
Poor Geography
28. Because of its geographical location, frequencies of hazards arising from drought,
floods and other natural calamities are on the increase in Bangladesh. The country is
recognized to be the worst sufferer of global warming and climate change impacts. Further,
uncontrolled global warming and climate change are negatively affecting socio-economic
condition of the country. Due to the changing global environment, the country is facing several
threats due to various human activities such as industrialization, tremendous increase in the
number of automobiles and indiscriminate cutting of trees. Further, CO2 emission growth in
Bangladesh was 181.7% compared to South Asia growth of 134.1% during 1990-2007. It is
predicted that for 45 cm rise of sea level may inundate 10-15% of the land by the year 2050
resulting over 35 million climate refugees from the coastal districts of Bangladesh
5
.
Weak Human Capital
29. Human development indicators in Bangladesh lag well behind compared to all
selected lower-middle income Asian countries (Table 1.2). Low human capital is one of the

5
Climate Change Cell, DoE (2007) Climate Change and Bangladesh published by DFID, UNDP and Department of
Environment, Bangladesh.
Table 1.2. Human Development Index and Its Components

Out of
169
Countries

Human
Development
Index (HDI)
Life
Expectancy
at Birth
Mean
Years of
Schooling
Per Capita
GNI
Public
Expenditure
on Education
(% of GDP)
Public
Expenditure
on Health
(% of GDP)
HDI rank Value (Year) (Year)
(Constant
2005 PPP$)

2011 2011 2011 2011 2006-2009 2009
146 Bangladesh 0.500 68.9 4.8 1,529 2.4 3.4
134 India 0.547 65.4 4.4 3,468 3.1 4.2
124 Indonesia 0.617 69.4 5.8 3,716 2.8 2.4
145 Pakistan 0.504 65.4 4.9 2,550 2.7 2.6
112 Philippines 0.644 68.7 8.9 3,478 2.8 3.8
97 Sri Lanka 0.691 74.9 8.2 4,943 .. 4.0
128 Viet Nam 0.593 75.2 5.5 2,805 5.3 7.2
101 China 0.687 73.5 7.5 7,476 .. 4.6
61 Malaysia 0.761 74.2 9.5 13,685 4.1 4.8
103 Thailand 0.682 74.1 6.6 7,694 4.1 4.3
Source: UNDP Human Development Report 2011 - Sustainability and Equity: A Better Future for All

19
19

major binding constraints on economic growth in Bangladesh. The country has been struggling
with low human development indicators, ranking 146 out of 169 countries in the Human
Development Index 2011, which is the lowest ranking compared to all the selected Asian
countries. Low levels of spending on the social services have mainly contributed to poor human
development indicators, particularly Bangladesh spending on education (2.4% of GDP) and
health (3.4% of GDP) is lower compared to selected Asian countries.
Poor Quality and Quantity of Infrastructure
30. Bangladesh has poor quality and quantity of infrastructure, especially roads, power,
ports, and telecommunication. In comparison to a number of selected low-middle income
countries in the Asian region, Bangladeshs performance in terms of quality of infrastructure is
classified as poor. According to Global Competitiveness Report 2011-2012, out of 142 countries,
Bangladesh ranks 129
th
position, compared to Sri Lanka (48), Indonesia (82), India (86), Pakistan
(109), Philippines (113) and Vietnam (123). Among various components of infrastructure, power
is the most pressing need and supply of electricity is currently considered to be the most binding
constraint to economic activities as Bangladesh ranks in terms of electricity supply 135 position
out of 142 countries. Presently, only 48.5 % of the total population has access to electricity and
per capita generation is only 200 kWh, which is very low compared to the developing countries.
The maximum power generation was 4,606 MW in 2010, while according to the initial findings
of Power System Master Plan, 2010 study, and the maximum demand including captive power in
2015, 2021 and 2030 will be about 12,000 MW, 20,000 MW and 36,000 MW, respectively
(Table 1.3).
Table 1.3. Quality of Infrastructure in Selected Asian Countries, 2011-2012
(out of 142 countries)
Country/
Economy
Overall Roads Railroad Port
Air
Transport
Electricity
Supply
Fixed
Telephone
Lines
Mobile
Telephone
Subscription
Bangladesh
129 111 73 113 117 135 135 127
India
86 85 24 82 67 112 113 117
Indonesia
82 83 52 103 80 98 79 82
Pakistan
109 79 59 72 85 126 120 119
Philippines
113 100 101 123 115 104 103 92
Sri Lanka
48 49 37 45 60 62 73 95
Vietnam
123 123 71 111 95 109 70 5
China
69 54 21 56 72 49 55 113
Malaysia
23 18 18 15 20 38 78 40
Thailand
47 37 63 47 32 50 94 70
Source: World Economic Forum | www.weforum.org/gcr (2011)

20
20

Macroeconomic Risks
31. With regard to macro risks, currently Bangladesh is facing soaring inflation rate,
significant trade account deficit and high level of fiscal deficit. The overall inflation rate
continued to rise overtime as it rose to 8.8% in 2011. In particular, food inflation touched double
digit to 11.3% in 2011. Similarly, the country has recorded high fiscal deficit of 4.4% of GDP in
2011 and plans to keep it at 5% of GDP during 2012-2015. On the external trade front,
Bangladesh has also been facing persistent trade deficit, which increased to 6.6% of GDP in 2011
and is projected to remain between 8% - 9% of GDP during the SFYP period.
Microeconomic Risks
32. The Country is relatively weak in terms of providing business friendly environment to
the private sector. According to the World Bank/IFC Doing Business 2011 Report, out of 183
countries, Bangladesh ranked 122 in terms of ease of doing business, which is weak compared to
other lower-middle countries such as Sri Lanka (89), Vietnam (98), and Pakistan (105), while
better than Indonesia (129), India (139), and Philippines (136). In particular, getting electricity is
the most prominent constraint with ranking of 183, followed by enforcing contracts (180),
registering property (173), trading across borders (115), resolving insolvency (107) and paying
taxes (100). The relatively poor business climate also affects global competitiveness of the
country (Table 1.4).

Table 1.4. Doing Business Ranking in Selected Asian Countries, 2011


Economy
Ease of
Doing
Business
Rank
Starting
a
Business
Getting
Electricity
Registering
Property
Getting
Credit
Protecting
Investors
Paying
Taxes
Enforcing
Contracts
Resolving
Insolvency
Bangladesh
122 86 182 173 78 24 100 180 107
India
132 166 98 97 40 46 147 182 128
Indonesia
129 155 161 99 126 46 131 156 146
Pakistan
105 90 166 125 67 29 158 154 74
Philippines
136 158 54 117 126 133 136 112 163
Sri Lanka
89 38 95 161 78 46 173 136 42
Vietnam
98 103 135 47 24 166 151 30 142
China
91 151 115 40 67 97 122 16 75
Malaysia
18 50 59 59 1 4 41 31 47
Thailand
17 78 9 28 67 13 100 24 51
Source: World Bank/ IFC (2011), http://www.doingbusiness.org/rankings

Data Source: Ministry of Finance, Government of Bangladesh, Macroeconomic Review (2011)
21
21

33. According to Global Competitiveness Report 2012-2013, the top-5 problematic factors
in doing business in Bangladesh include inadequate supply of infrastructure; corruption;
access to financing; inefficient government bureaucracy; and high inflation rate. However,
private firms are also concerned about policy instability, government instability, foreign currency
regulations, inadequately educated workforce and tax rates, among others. These business
constraints negatively affect returns to investment and lower the productivity of firms, thereby
constraining private investment (Figure 1.17).
Returns to Investment
34. Despite all the above mentioned constraints to private investment, returns to
investment in Bangladesh are higher compared to all selected Asian countries. Higher
economic growth in Bangladesh can also be explained by high returns to economic activity. A
comparison of returns to investment across selected Asian countries suggests that Bangladeshs
average annual returns to investment during 2000-2011 were 24.5%, which were higher than
China (24.1%), India (23.2%), Malaysia (23.1%), Philippines (22.8%), Sri Lanka (21.5%),
Vietnam (20%), Indonesia 20%), and Thailand (15.6%) but lower than Pakistan (25.1%). This
can be attributed to cheap labor force and low input cost (Figure 1.18)
6
.

6
For detail on returns to investment, see IDB Group MCPS for Malaysia (May 2012) and ADB-IDB-ILO joint
country diagnostic study Indonesia: Critical Development Constraints (2010).

Source: World Economic Forum, Global Competitiveness Report (2012-2013)
0
5
10
15
20
25
Figure 1.17. Most Problematic Factors for Doing Business in Bangladesh, 2012
22
22

ii. Low Level of Public Investment as Binding Constraint to Economic
Growth
35. Public investment in Bangladesh declined gradually from the maximum level of 7.4%
in 2000 to 5.3% of GDP in 2011. However, in order to achieve 8% economic growth by 2015,
the Government plans to increase it again to 7.4% of GDP by 2015 (Figure 1.19). Therefore, the

Source: IMF World Economic Outlook (April 2012) and World Bank, World Development Indicators
Note: Return to investment is estimated as the ratio of real GDP growth rate and gross capital formation as % of GDP.
25.1
24.5
24.1
23.2 23.1
22.8
21.5
20.0 20.0
15.6
0.0
5.0
10.0
15.0
20.0
25.0
30.0
Figure 1.18. Return to Investment in Selected Asian Countries, 2000-2011
(average % per annum)


0
1
2
3
4
5
6
7
8
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
9.0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
P
u
b
l
i
c

I
n
v
e
s
t
m
e
n
t

(
%

o
f

G
D
P
)

R
e
a
l

G
D
P

G
r
o
w
t
h

(
%

p
e
r

a
n
n
u
m
)

Figure 1.19. Bangladesh: Real GDP Growth and Public Investment Rates, 2000-2015
Real GDP Growth Public Investment
23
23

diagnosis of public investment starts by examining why the level of public investment remained
low in the past. Was this due to budgetary constraint or limited implementation capacity or was it
due to corruption or poor governance? Will the similar budgetary constraint remain in the
medium-term? The following sub sections attempts to answer to these questions.
Budgetary Constraint
36. Public investment in Bangladesh is constrained by Governments tight budgetary
position. Although, the Government succeeded to reduce its fiscal deficit from 6.1% of GDP in
2000 to 4.4% in 2011, while average annual fiscal deficit was 4.6% during 2000-2011 clearly
shows that public investment was constrained by the budgetary limitation of the Government.
Although, the Government set the public investment target of 7.5% of GDP by 2015 (from the
current level of 5.3%), higher fiscal deficit target of around 5% under the SFYP period shows that
public investment will be constrained by the budgetary limitation in the medium-term as well
(Figure 1.20).
Poor Governance
37. Bangladeshs other major issue is weak governance which is a critical constraint in
achieving macroeconomic stability, sustaining economic growth and delivering public
services. The World Banks worldwide governance indicators show that Bangladeshs
performance in all the six governance indicators (i.e. voice and accountability, political stability,
government effectiveness, regulatory quality, rule of law, and control of corruption) have been
poor. Compared to other Asian countries, Bangladesh ranks poor in all six indicators (lower the
value, poor the indicators: 100 value implies the best and 0 the worst). For example, voice and


-8
-6
-4
-2
0
2
4
6
8
10
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Figure 1.20. Bangladesh: Fiscal Deficit and Public Investment Rates
(% of GDP)
Budget Deficit Public Investment
24
24

accountability (38), political stability (10), government effectiveness (22), regulatory quality (22),
rule of law (27), and control of corruption (16). This extracts a significant price in terms of lost
growth potential. Recent studies have established positive relationships between good governance
and improved investments, better economic performance, and improved human welfare and
development, while corruption hinders progressive development and therefore increases poverty
7
.
Further, a strong positive correlation has been found between per capita income and the quality of
governance across countries
8
(Table 1.5).
Poor Quality of Institutions
38. Compared to selected Asian countries, quality of institutions in Bangladesh is poor.
The Global Competitiveness Report (2012-2013) shows that Bangladesh stands at the lowest
ranking of 127 out of 144 countries. The better quality of institutions appears to have positive
impact on economic growth in an economy. Strong and fair institutions play a positive role in
terms of investment decision making. The role of institutions goes beyond the legal and
regulatory framework. In particular, the Governments attitude toward markets and the efficiency
of its operations are important in achieving sustainable high economic growth
9
(Figure 1.21).

7
ODI (2006), Governance, development and Aid Effectiveness: A Quick Guide to Complex Relationships, Briefing
Paper.
8
Ishrat Husain (2009), Economic Governance in Pakistan.
9
For further detail on this institution matter, see World Economic Forum, Global Competitiveness Report (2011-12).

Table 1.5. Governance Indicators of Selected Asian Economies, 2011

(percentile rank between 0 - 100, lower the values, worst the indicator)

Country
Voice and
Accountability
Political Stability and
Absence of
Violence/Terrorism
Government
Effectiveness
Regulatory
Quality
Rule of
Law
Control of
Corruption
Bangladesh 38 10 22 22 27 16
India 59 11 55 39 55 36
Indonesia 48 19 48 40 31 27
Pakistan 27 0 26 30 26 12
Philippines 47 7 52 44 35 22
Sri Lanka 32 21 49 45 53 41
Vietnam 9 51 44 31 39 33
China 5 24 60 45 45 33
Malaysia 31 52 82 71 65 61
Thailand 30 13 58 56 50 47
Source: World Bank (2011), Governance Indicators (http://info.worldbank.org/governance/wgi/index.asp)

25
25


29
49
50
70
72
77
89
94
115
127
0
20
40
60
80
100
120
140
Malaysia Sri Lanka China India Indonesia Thailand Vietnam Philippines Pakistan Bangladesh
Figure 1.21. Quality of Institutions in Selected Asian Countries, 2012
(ranking out of 144 countries, higher the ranking, lower the quality)
iii. Weak Software of Growth as Binding Constraint to Economic Growth
39. Software of economic growth plays a key role in achieving sustainable economic
growth in the medium- to long-term. Software of economic growth includes various
components of global competitiveness such as innovation, business sophistication, quality of
education, expenditure on R&D, and Reverse Linkages activities. In order to achieve sustained
growth of 8% by 2015, Bangladesh needs to improve significantly software of economic growth.
The following sub sections briefly describe the binding constraints to various components of
software of growth.
Weak Global Competitiveness
40. Weak global competitiveness also remains a key challenge for the countrys economic
growth. The scale of the challenge is manifested in Bangladeshs global ranking of 118 (out of
144 countries) in the Global Competitiveness Index 2012-2013, compared to raking of all lower-
income countries such as Indonesia (50), India (59), Philippines (65), Sri Lanka (68), Vietnam
(75), but better than Pakistan (124). However, opening up trade has been considered one of the
key pillars of future Bangladeshs growth. Growth dividends from trade openness will depend
upon investment climate reforms to boost competitiveness of domestic firms (Figure 1.22).
Poor Innovation
41. Bangladesh is relatively poor in terms of overall innovation with ranking of 131 out of
144 countries. Various indicators of innovation show that country is weak in terms of all
indicators such as out of 144 countries, Bangladesh ranks 134 in terms of Government
26
26


25
29
38
50
59
65
68
75
118
124
0
20
40
60
80
100
120
140
Malaysia China Thailand Indonesia India Philippines Sri Lanka Vietnam Bangladesh Pakistan
Figure 1.22. Ranking of Global Competitiveness of Selectecd Asian Countries


134
131 131 130
127
115
81
0
20
40
60
80
100
120
140
160
Figure 1.23. Bangladesh: Indicators of Innovation, 2012
(ranking out of 144 countries: higher the ranking, poor the indicators)
procurement of advanced technological products; followed by capacity for innovation (131);
university-industry collaboration in R&D (131); company spending on R&D (130); quality of
scientific research institutions (127); PCT patents, applications/million population (115); and
availability of scientists and engineers (81) (Figure 1.23).
27
27


138 138
119 119
99
93
81
77
57
0
20
40
60
80
100
120
140
160
Nature of
competitive
advantage
Willingness to
delegate
authority
Production
process
sophistication
Extent of
marketing
Control of
international
distribution
Value chain
breadth
Local supplier
quality
Local supplier
quantity
State of cluster
development
Figure 1.24. Bangladesh: Indicators of Business Sophistication, 2012
(Ranking out of 144 countries: higher the ranking, poor the indicator)
Weak Business Sophistication
42. Similar to poor innovation, Bangladesh is also weak in terms of overall business
sophistication with a ranking of 108 out of 144 countries. According to the Global
Competitiveness Report (2012-2013), the country is quite weak in terms of nature of competitive
advantage (138) and willingness to delegate authority (138) followed by production process
sophistication (119), extent of marketing (119), control of international distribution (99), value
chain breadth (93), local supplier quality (81), local supplier quantity (77), and state of cluster
development (57) (Figure 1.24).
Poor Reverse Linkages
43. Bangladesh needs to transfer its expertise to other IDB member countries that can
help to support high economic growth. With regard to technology transfer, Bangladesh can
facilitate and support its experience in the areas of rural electrification through solar energy. For
instance, Solar Home System (SHS) Program of Bangladesh is one of the most successful off-
grid solar electrification programs in the world. The SHS program has been established as a
viable model for increasing access to electricity in rural areas where the electric power grid is not
presently economically feasible. More than 1.3 million SHSs have been installed to date. The
Government has a goal of providing SHSs to 2.5 million households by 2014. Further, Jute
manufacturing technology and microfinance expertise can also be replicated in other IDB
member countries.
1.4 Summary of Binding Constraints to Economic Growth
44. The above diagnostic analysis identifies several binding constraints to sustainable
economic growth. Keeping in view the existing socio-economic situation and the available
physical and human capital and associated policies, it will be a challenging task for the
28
28

Government to progressively achieve 8% economic growth by 2015 and 10% growth by 2021.
These constraints (along with the constraints identified in the existing literature) are summarized
in Table 1.6.
Table 1.6 Summary of Binding Constraints to Economic Growth in Bangladesh
Source of Information

Binding Constraints to Sustainable Economic Growth
Islamic Development Bank
(September 2012)
Low Level of Private Investment
Weak Access to Finance and High Cost of Financing
Poor Geography
Weak Human Capital
Poor Quality and Quantity of Infrastructure
Macroeconomic Risks (i.e. soaring inflation, higher fiscal and trade
deficits)
Microeconomic Risks (i.e. weak business environment )
Low Level of Public Investment
Budgetary Constraint
Poor Governance
Poor Quality of Institutions
Weak Software of Growth
Weak Global Competitiveness
Poor Innovation
Weak Reverse Linkages
World Bank (August 2010),
Country Assistance Strategy
2011-2014
Energy Deficit
Weak Business Environment
Weak State-owned Banking Sector
Existence of Anti-Export Bias
Low Tax Collections
Weak Governance
World Bank (July 2007),
Bangladesh: Strategy for
Sustained Growth
Inadequate Infrastructure, especially Power and Ports
Weak Governance
Rapid and Imbalanced Urbanization
Weak Export Competitiveness
Low Financial Depth
Weak Quality of Education
ADB (October 2011),
Country Partnership Strategy:
2011-2015
Stagnant Gross Domestic Saving and FDI Flows
Narrow Economic Base Dominated by Garments and Remittances
Insufficient government revenues
Serious Constraints in Power, Gas, Ports, Railways, and Roads
Insufficient Skills Base
Poor Quality of Education
Climate Change Impacts
Governance Challenges
Ahmed Salman (2009),
Bangladeshs Economy:
Surrounded by Deadly
Threats, International Journal
of Social Economics, Vol. 36)
High Corruption
Rising Inflation
Electricity Shortage Crisis
Poor Performance of Financial Sector
Limited Product Diversification Capacity
Jyoti Rahman and Asif
Yusuf (2010), Economic
Growth in Bangladesh:
Experience and Policy
Priorities
Low Level of Human Capital
Poor Infrastructure
Market Failures Specific to Individual Industries
Low Levels of International Trade
Corruption
Cumbersome Regulations

29
29

Annex Table 1.1: Bangladesh Socio-Economic Indicators*

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Per Capita GNI ($)
380 380 400 440 463 476 523 608 676 751 818
GDP Growth (%)
5.3 4.4 5.3 6.3 6.0 6.6 6.4 6.2 5.7 6.1 6.7
Agriculture
3.1 0.0 3.1 4.1 2.2 4.9 4.6 3.2 4.1 5.2 5.0
Industry
7.4 6.5 7.3 7.6 8.3 9.7 8.4 6.8 6.5 6.5 8.2
Services
5.5 5.4 5.4 5.7 6.4 6.4 6.9 6.5 6.3 6.5 6.6
Savings and Investment (% of GDP) 2/
Domestic Savings 18.0 18.2 18.6 19.5 20.0 20.3 20.3 20.3 20.1 20.1 19.6
National Savings 22.4 23.4 24.9 25.4 25.8 27.7 28.7 30.2 29.6 30.0 28.4
Total Investment
23.1 23.3 23.7 24.3 24.6 24.6 24.3 24.3 24.4 24.6 25.0
Public 7.2 6.4 6.2 6.2 6.2 6.0 5.5 4.9 4.7 5.0 5.3
Private 15.8 16.8 17.2 17.8 18.3 18.7 19.0 19.3 19.7 19.4 19.5
Inflation (% p.a.) 1/
Overall
1.9 2.8 4.4 5.8 6.5 7.2 7.2 9.9 6.7 7.3 8.8
Food
1.4 1.6 3.5 6.9 7.9 7.8 8.1 12.3 7.2 8.5 11.3
Non-food
3.0 4.6 5.7 4.4 4.3 6.4 5.9 6.3 5.9 5.5 4.2
Budget (% of GDP) 1/
Total Revenue 9.6 10.2 10.4 10.6 10.6 10.8 10.5 11.1 11.3 11.4 12.1
Tax Revenue 7.8 7.8 8.3 8.5 8.6 8.7 8.3 8.8 9.0 9.2 10.0
Non-Tax Revenue 1.8 2.4 2.1 2.1 2.0 2.1 2.2 2.3 2.2 2.2 2.0
Total Expenditure 14.8 14.9 14.6 14.8 15.0 14.7 14.1 17.3 15.3 15.9 16.5
Budget Balance (excluding grants) -5.1 -4.7 -4.2 -4.2 -4.4 -3.9 -3.7 -6.2 -4.1 -4.5 -4.4
Budget Balance (including grants) -4.1 -3.7 -3.4 3.4 -3.7 -3.3 -3.2 -5.4 -3.3 -3.9 -3.9
External Sector (% of GDP) 1/
Imports 19.9 18.0 18.6 19.3 21.8 21.5 28.5 24.5 22.7 21.3 27.4
Exports 13.7 12.6 12.6 13.5 14.4 16.8 20.4 17.8 17.4 16.2 20.8
Trade Balance -6.1 -5.4 -6.0 -5.8 -7.5 -4.7 -8.1 -6.7 -5.3 -5.1 -6.6
Current Account Balance -2.2 0.5 0.6 0.3 -0.9 1.3 1.4 0.9 2.7 3.7 0.9
Foreign Exchange Reserves (US$ million)
1,307 1,583 2,470 2,705 2,930 3,484 5,077 6,149 7,471 10,750 10,912
Banking Sector4/
Domestic credit to private sector (% of GDP) 27.8 30.1 30.2 32.1 33.8 36.2 37.3 39.2 41.5 47.1 49.4
Lending rate (% per annum)
15.8 16.0 16.0 14.8 14.0 15.3 16.0 16.4 14.6 13.0 13.3
Social Indicators
Population (million) 1/ 129.9 131.6 133.4 135.2 137.0 138.8 140.6 142.4 144.2 146.1 147.9
Overall Poverty (%, head count ratio) 2/ 48.9 40.0 31.5
Rural 52.3 43.8 35.2
Urban 35.2 28.4 21.3
1/ Bangladesh Economic Review (2011), Ministry of Finance, Government of Bangladesh

2/ Sixth Five Year Plan (2011-2015), Ministry of Planning, Government of Bangladesh

3/ World Bank, World Development Indicators (2012).
* Fiscal Year starts on 1st July and ends on 30 June next year (e.g. 2001 is 2000-2001).

30
30

Annex Table 1.2: Bangladesh: Sixth Five Year Plan (2011-2015) Targets

Targets
Current
Situation
(2005-2010)
Vision
2021
SFYP
2015
MDGs
A. Production, Income Generation and Poverty
1. Real Income Growth (%) 6.1 10 8.0
2. Head Count Poverty (%) 31.5 14 22 29
3. Industrial Sector Employment Rate (%) 17 30 25
4. Contribution of Productivity to Economic Growth (%) 8 20 10
5. Overseas employment of skilled labour (%) 35 20 50
B. Human Resource Development (Education, Health and Population)
6. Net Enrolment at Primary Level (%) 91 100 100
7. Enrollment Rate in 12th Class (%) 100 60
8. Percentage of cohort reaching grade 5 (%) 55 100 100
9. Total Fertility Rate Reduction 2.7 1.8 2.2
10. Increase Contraceptive Prevalence Rate (%) 60 80 72
11. Under 5 Mortality Rate (per 1000) 62 50 50
12. Immunization, measles (% of children under 12 months) 87 100 100
13. Maternal Mortality Ratio (per 100,000 live births) 194 143 143
14. Births attended by skilled health staff (% of total) 24 50 50
C. Water and Sanitation
15. Proportion of urban population with access to safe drinking water 99.9 100 100 100
16. Proportion of rural population with access to safe drinking water 79 100 96.5 96.5
17. Proportion of urban population with access to sanitary latrines 88.0 100 100 85.5
18. Proportion of rural population with access to sanitary latrines 85.0 100 90 55.5
D. Energy and Infrastructure
19. Electricity Generation (MW) 5803 20000 15457
20. Electricity Coverage (%) 47 100 68
E. Gender Equality and Women Empowerment
21. Ratio of girls to boys in tertiary education (%) 32 60 100
22. Ratio of literate females to males (% of ages 20-24) 85 100 100
23. Female Overseas Employment Rate (%) 5% 20% 10%
F. Environment Sustainability
24. Productive Forest Coverage (%) (70 % tree density) 13 20 15 20
G. ICT
25. Research and Development Spending (% of GDP) 0.6 1.4 1.0
26. Compulsory ICT Education (education level-class) 5 12
27. Telecentre/Comm. e-centre with Inter-net facilities at unions (%) 100 100
28. Computer laboratory at the primary government school 20 5
29. Increase teledensity (%) 90 70
30. Expansion of Broad Band Coverage (%) 40 30
Source: Planning Commission, Government of Bangladesh, Sixth Five Year Plan (2011-2015), Part-1

31
31

2.1 Poverty Trend
45. Bangladesh has been struggling with poverty since its emergence as a sovereign nation in
early 1970s. Although poverty, given its multidimensional nature, is a universal problem in all
countries and regions of the world, many factors make Bangladesh a unique case in this regard.
The geographical position of the country coupled with high population, acute shortage of land
and natural resources as well as other social and political factors compound the problem of
poverty in the country. Although, the country has recorded significant improvement in poverty
alleviation during the last two decades, the problem of poverty still persists. As usual, the rural
areas take the largest proportion of the incidence of poverty even though the rate of decrease in
poverty is higher in the rural areas compared to urban areas.
46. Poverty headcount ratio (i.e. absolute poor living below $1.25 a day (PPP)) declined
from 70% in 1992 to 43% in 2010 while the number of absolute poor also declined from 76
million to 64 million. The trend shows that the number of extremely poor people decreased from
76 million in 1992 to 72 million in 1996 but bounced back in 2000 to its 1992 position and then
continued to decline reaching 64 million in 2010 (Table 2.1). However, when $2 a day poverty
Table 2.1. Bangladesh: Number of Poor and Poverty Headcount Ratio
Year
$1.25 a day $2 a day $2.5 a day
Number of
Poor
(million,
number)
Headcount
Ratio (%)
Number of
Poor (million,
number)
Headcount
Ratio (%)
Number of Poor
(million, number)
Headcount
Ratio (%)
1992 76 70 100 93 104 97
1996 72 61 101 86 107 91
2000 76 59 109 84 118 91
2005 71 50 113 80 124 88
2010 64 43 114 77 128 86
Source: World Bank, World Development Indicators (WDI) (www.worldbank.org, accessed on May 19, 2012).
II.
DIAGNOSTIC ANALYSIS OF POVERTY
AND HUNGER

32
32

line is used, the number of people under this poverty line actually increased by 14 million from
100 million to 114 million despite a decline of headcount ratio by 16 percentage points during the
same period. In terms of relative poverty (people living $2.5 a day), the situation has been similar
to the case of the marginally poor, while the headcount ratio decreased from 97% in 1992 to 86%
in 2010 and the number of people under this poverty line increased by 24 million people (i.e.
from 104 million to 128 million).
47. Compared to 10 selected Asian countries in the region, poverty remained highest in
Bangladesh. Poverty incidence had been 43% in Bangladesh in 2010, followed by India (33%),
Pakistan (21%), Philippines (18.4%), Indonesia (18.1%), Vietnam (17%), while it remained
below 15% in other remaining countries. The favorable impact of Bangladeshs limited economic
intervention aside, the pace of poverty reduction in the country remained much lower than in
faster-growing Asian countries, which underscores the importance of higher growth for achieving
even faster reduction in poverty (Table 2.2).
48. Using Household Income Expenditure Survey (HIES) 2010 data, Titumir and
Rahman (2011)
10
observed that the incidence of poverty had decreased at an annual average
rate of 1.3% from 1991. This means that the rate of poverty will be higher (27.5%) in 2013 than
the Governments projected rate of 25% in 2013 and 17% in 2021. Similarly, the number of
people below poverty line, which is increasing at an annual average growth of 0.3% nationally,
will stand at about 57 million in 2013 and 60 million in 2021. Conversely, going at the current
trend, the number of people below the poverty line in rural areas will decrease while poverty in

10
Titumir, R. A. M. and Rahman, K. M. M. (2011), Poverty and Inequality in Bangladesh. Umayan Onneshan The
Innovators.

Table 2.2: Poverty Headcount Ratio at $1.25 a day (PPP) (% of population)
Country 1992 2000 2010
Bangladesh 70.22 58.59 43.25
India 49.4 41.64 32.67
Indonesia 54.4 47.7 18.06
Pakistan 64.71 29.05 21.04
Philippines 30.68 22.45 18.42
Sri Lanka 15.01 13.95 7.04
Vietnam 63.74 40.05 16.85
China 63.8 35.63 13.06
Malaysia 1.62 0.54 0
Thailand 8.6 3.04 0.37
Source: World Bank, World Development Indicators (WDI).
Note figures are for the years specified or nearest available year
33
33

urban areas will increase during the same periods. This means that urban poverty will be the
future challenge of the countrys poverty reduction efforts. The slow rate of poverty reduction,
despite the concerted efforts at reducing it, calls for revisiting the overall perception and approach
to the problem.
49. Similarly, the slowing rates of the depth of poverty (poverty gap) and that of severity of
poverty (squared poverty gap) in the second half of the last decade compared to the first half
means that although there is improvement, however, the reduction has been impaired by rising
inequality in the country (Titumir and Rahman, 2011). This situation is further compounded by
the rising household general expenditure and expenditure on food in particular above the rise in
income during the last decade with a rise in both income and expenditure higher in the second
half of 2000s. The phenomenal increase in expenditure on food during the second half of the
decade due to the combined effects of the food and financial crisis coupled with the Cyclone and
Tsunami disasters left many people falling below the poverty line especially among the urban low
income group and the rural landless.
2.2 Hunger Situation
50. Poverty and hunger are two sides of the same coin. They reinforce each other such that
each causes the other in a vicious circle. Although hunger is mainly caused by extreme poverty, it
has other causes such as conflicts, natural disasters like earthquake, drought, cyclones or Tsunami
etc., leaving people with not sufficient food for their needs. The fact that the poor people devote
greater proportion of their income to food than the rich means that the poor households are the
hardest hit by general and food inflations due to the recent global food and financial crises.
51. The large number of poor people in Bangladesh and its geographical location which
make it susceptible to frequent occurrences of natural disasters such as floods and cyclones
perpetuate the problem of hunger and malnutrition in the country. The Global Hunger Index
(GHI), 2011 shows that despite significant improvement in reducing hunger, the country is still at
an alarming level of hunger (24.5 points), the highest among the selected countries in the region.
Although there has been improvement over the years in all three components of the GHI, the rate
of change especially of the prevalence of undernourished in the population, has not been
impressive. Bangladesh has the highest rate (27 %) of the hungry people in the region.
52. According to the Food and Agricultural Organization (FAO)
11
, although both the number
and proportion of undernourished persons in Bangladesh has sharply declined from 37 million
people (34.6% of the population) in 1990-1992 to 24 million (18.4%) in 1999-2001, however,
after reaching its lowest level at 15.1% in 2004-2006, the trend picked up since then reaching
16.8% in 2010-2012. This is in contrast with regional figures as the proportion of the
undernourished persons in South Asian region including India, Pakistan, Sri Lanka, Maldives,
Iran and Nepal have been declining since mid-2000s. These figures indicate that the number and
proportion of the undernourished people in Bangladesh is on a rising trend despite the highly
acclaimed economic growth during the period (Table 2.3).

11
Food and Agriculture Organization (February 2013), The State of Food Insecurity in the World.
34
34

Table 2.3: Global Hunger Index in Selected Asian Countries (the lower the better)
Country 1990 1996 2001 2011
Bangladesh 38.1 36.3 27.6 24.5
India 30.4 22.9 24.1 23.7
Indonesia 18.5 15.5 14.3 12.2
Pakistan 25.7 22.0 21.9 20.7
Philippines 19.9 17.5 14.1 11.5
Sri Lanka 20.2 17.8 14.9 14.0
China 11.7 9.1 6.8 5.5
Malaysia 9.0 6.7 6.6 <5
Thailand 15.1 11.9 9.5 8.1
Source: The Global Hunger Index (2011) prepared by IFPRI, Welthungerhilfe, and Concern.
Note: Extremely Alarming (>30); Alarming (20.0-29.9); Serious (10.0-19.9); Moderate (5.0-9.9); Low (<5)

2.3 Progress in Achieving MDGs
53. Bangladesh has made impressive progress towards attainment of Millennium
Development Goals (MDGs) by 2015. In case of majority of the indicators, Bangladesh is on
track with prospect for earlier attainment of targets of some of the indicators. Regarding the
MDGs, the current trend indicates Bangladesh is well on track in achieving the MDG targets in
the areas of hunger, net enrolment in primary education, gender parity in primary and secondary
education, reducing child mortality and improving immunization coverage, rolling back malaria
and controlling tuberculosis, and improved drinking water supply. The areas that remain in need
of attention are poverty reduction and employment generation, increases in the primary school
completion rate and adult literacy rate, creation of more wage employment for women, reduction
of the maternal mortality ratio and increase in the presence of skilled health professionals at
delivery, increase in correct and comprehensive knowledge of HIV/AIDS, increase in forest
coverage, and coverage of information and communication technology.
54. Hence, it is crucial for the Government to tackle poverty as one spectrum of engagement
which has direct spill-off effects towards better education and healthcare services by employing a
proper but relevant mechanism while effective on current scenarios facing the poor both in rural
and urban areas. In other words, active community participation is key for all implementable
projects to kick-offs smoothly and it is the Government to ensure the assistance received from
development partners (DPs) and Non-Government Organization (NGOs) are fully triggered down
to the needy by cutting unnecessary bureaucratic procedures along the delivery cycles.
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35

2.4 Government Strategy for Reducing Poverty and Hunger
55. Poverty reduction trend is attributed to the pro-poor strategy of the Government over
the years - focusing on growth, human development and social safety nets; NGO activities
and broad-based micro credit operations; strong expatriates remittances; and growth
process led by an expanding the private sector. Since 2002, the GoB initiated the PRSP to
pursue development objectives. The first full PRSP, titled Unlocking the Potential was
implemented during 2005-08, while the second PRSP Moving Ahead: National Strategies for
Accelerated Poverty Reduction (NSAPR II) FY 2009-11 was approved by the Government in
October 2008. As a result of vastly improved transport and communication networks, rural labor
has become more mobile; farming has become more market-oriented; and the poor are now able
to draw their livelihoods from a continuum of farm, off-farm, rural, and urban activities. The
Government plans to speed up economic growth and poverty reduction while adapting to the
impacts of climate change to transform Bangladesh into a lower-middle income country by 2021.
In this regard, the Governments policy framework under NSAPR II puts poverty reduction as the
central issue of its development agenda as it prepared a long-term Perspective Plan for 2010-2021
to reduce poverty to a "tolerable level" propelled by high growth and social justice. This Vision is
to be implemented initially through the NSAPR II, followed by two successive Five Year Plans.
The five priority areas of the revised NSAPR II include maintaining macroeconomic stability and
stabilising commodity prices, continuing effective actions against corruption; ensuring adequacy
of power and energy; achieving significant reduction of poverty and inequality; and establishing
good governance.
2.5 Binding Constraints to Reducing Poverty and Hunger
Slow Pro-Poor and Inclusive Growth Process
56. The experience of Bangladesh suggests that the benefits of economic growth did not trickle
down, meaning that the process had not been efficient in realizing the goal of reducing poverty
and hunger. The paradox of high growth with slow rate of poverty reduction calls for revisiting
the conventional paradigm which postulates that higher growth generates benefits to both the rich
and the poor through the so-called trickle down effect. The growth performance in Bangladesh
has masked many aspects that are detrimental to the poor such as high rates of unemployment,
underemployment, and inflation. Moreover, many people work at very low wages which do not
move them out of poverty but yet are classified as employed. Therefore, to understand the true
picture of the growth performance in Bangladesh there is needed to examine the nature and
components of economic growth in the country. Bangladeshs economic growth in the past
decade has been driven mainly by exports of the textile sector and the inflows of remittances by
workers abroad. The activities of the textile sector involve engaging cheap labor mostly women
in the production process working under very tight working conditions with low wages and poor
employment conditions. Under such conditions, many people work but remain in poverty.
Moreover, the structural transformation of the economy from agriculture to services dominated
by the informal activities instead of via manufacturing, is another challenge to the country. The
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36

implication of this is that the informal sector offers low wage and in most cases temporary
employment keeping many people at the fringe of poverty. There is, therefore, need of strong
private sector support and empowerment of the poor people with essential finance to enable them
to leapfrog to a safety zone away from poverty. In other words, there is need to strongly support
sustainable and inclusive growth in the country.
Weak Consideration of Social and Political Dimensions into Growth Strategies
57. Due to the evidences of rising poverty despite sustained economic growth, it is suggested
that social and political dimensions need to be taken into consideration. For instance, people
should be given equal opportunities to make use of their capabilities and be socially included in
the economic, political and social decision making. In this context, Titumir and Rahman (2011)
12

concluded that the major reasons for the persistence of poverty in Bangladesh are: absence of
adequate state intervention for the expansion of production, deficiency of equalizing income
augmenting employment system, shortfalls in public expenditure for capabilities enhancements,
inadequacies in regulatory regimes, lack of complementary policy structure, and non-existence of
enforceability of constitutional rights.
Poor Governance for Reducing Poverty and Hunger
58. Poor governance is another binding constraint to reducing poverty and hunger. There is
need for improving governance indicators to reduce poverty and hunger. Numerous studies have
established positive relationships between good governance and improved investments, better
economic performance, welfare and development; while corruption hinders development and
therefore increases poverty (Overseas Development Institute (2006).
13
Kaufmann and Aart
(2002)
14
and Haq and Zia (2009)
15
established that there is a strong positive correlation between
per capita income and the quality of governance across countries.
59. The World Banks Worldwide Governance indicators show that Bangladeshs
performance in all the six governance indicators (voice and accountability, political
stability, government effectiveness, regulatory quality, rule of law, and control of
corruption), have been decimal over the years. The rising growth rate, despite low governance
indicators, during the last decade in Bangladesh has been viewed as a paradox by many
researchers and development analysts. For example, Mahmud, et al (2009)
16
established, based on
cross-country growth regressions, that Bangladesh is an outlier having an exceptionally high

12
Titumir, R.M. and Rahman, K.M.M. (2011), Poverty and Inequality in Bangladesh, Unnayan Onneshan-The
Innovators.
13
Overseas Development Institute (2006), Governance, development and Aid Effectiveness: A Quick Guide to
Complex Relationships. Briefing Paper.
14
Kaufmann, K. and Aart, K. (2002), Growth Without Governance, The World Bank.
15
Haq, R. and Zia, M. (2009), Does Governance Contribute to Pro-poor Growth? Evidence from Pakistan PIDE
Working Paper 52.
16
Mahmud, W., Asadullah M.N., and Savoia, A. (2009), Governance and Growth: Is Bangladesh and Outlier? IGC
Bangladesh Growth Research Programme, Economic Research Group.
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37

growth despite poor governance indicators. The study, however, concluded that there is need to
take into account the country-specific circumstances for understanding the growth-governance
nexus. The World Bank (2008)
17
is of the opinion that although many people view the growth-
governance nexus in Bangladesh as a paradox, unbundling the overall governance environment
reveals six areas where Bangladesh demonstrated capacity on governance which makes the
relationship not surprising. Despite that, there is consensus among researchers on the fact that
although the existing governance environment of Bangladesh has barely enabled the country to
break the barriers of stagnation and extreme poverty, improved governance environment is key to
sustain high growth and eliminate extreme poverty in Bangladesh. Good governance would
enable the country achieve its goal of lower-middle income status while any deterioration in
governance indicators will be detrimental to the sustainable economic development of the country
(Table 2.4).

17
World Bank Report (2008), Bangladesh Growth Paradox, Does Governance Matters?
Table 2.4: Governance Indicators in Bangladesh
Indicators Year
Percentile Rank Governance Score
(0-100)
(0 is worst and 100 is best)
(-2.5 to +2.5)
(from worst to best)
Voice and Accountability
2010 38.4 -0.28
2005 30.3 -0.57
2000 39.4 -0.28
Political Stability/Absence of
Violence
2010 9.9 -1.42
2005 4.8 -1.8
2000 23.6 -0.74
Government Effectiveness
2010 21.5 -0.84
2005 19.5 -0.89
2000 32.2 -0.56
Regulatory Quality
2010 21.5 -0.86
2005 16.7 -1.03
2000 18.6 -0.87
Rule of Law
2010 26.5 -0.77
2005 17.7 -0.96
2000 22.0 -0.9
Control of Corruption
2010 16.3 -0.99
2005 4.9 -1.42
2000 12.7 -0.96
Source: World Bank (2010), Governance Indicators

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Weak Public-Private-NGO Partnerships
60. Forging robust public-private-NGO partnerships is essential to ensure that capacities to
serve the poor are in place. Bangladesh has a flourishing civil society, including some of the
worlds most innovative NGOs and community-based organizations. Strong partnerships with
NGOs to deliver grassroots public services are clearly critical in filling the gaps in the existing
poverty reduction agenda.
Capacity Constraint
61. Binding constraints to poverty reduction in Bangladesh span a number of key sectors and
include major productive capacity and support needs. Various constraints in donor priorities,
comparative advantages and financing modes exist among the numerous aid partners in
Bangladesh. Among areas identified that receive relatively less concentration of donor funds and
existing assistance programs, despite local needs, are nutrition programs to counter malnutrition
problems and lost labor productivity; access to basic needs and food security; rural electrification;
sanitation; social safety net reform; capacity building; vocational skills and training to enhance
labor productivity and income; poverty assessment in slums (where Census seldom reaches); and
Local Government capacity building for efficient distribution of assistance.
Climate-Induced Disasters
62. Climate-induced disasters are endemic in Bangladesh, suffering the lives and
livelihoods of millions of people, damaging infrastructure, and harming the physical
environment. Climate change multiplies these inherent risks, undermining development
prospects and eroding the gains in poverty reduction. Major efforts with innovative strategies
need to be mounted for mobilizing funds for adaptation measures, putting in place the right policy
frameworks, and building institutional capacity.
2.6 Summary of Binding Constraints to Reducing Poverty and Hunger
63. The summary of binding constraints to reducing poverty and hunger is given in Table 2.5.
Table 2.5 Summary of Binding Constraints to Reducing Poverty and Hunger
Binding Constraints to Reducing Poverty and Hunger

Slow Pro-Poor and Inclusive Growth Process
Weak Consideration of Social and Political Dimensions into Growth Strategies
Poor Governance for Reducing Poverty and Hunger
Weak Public-Private-NGO Partnerships
Capacity Constraint
Climate-Induced Disasters

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64. This section covers two components of infrastructure namely energy sector and urban
development which are selected for the IDB Group Member Country Partnership Strategy for
Bangladesh, 2013-2016: Partnering for Sustainable Growth and Reducing Poverty (published
separately).
3.1 Energy Sector
3.1.1 Overview of Energy Sector
65. The per capita consumption of energy in Bangladesh is significantly low compared to
comparator countries. Per capita electricity consumption in Bangladesh is much lower than the
BRICS countries (Brazil, Russia, India, China, and South Africa) as well as that in Pakistan and
Sri Lanka. It is about 160 kilogram oil equivalent (kgoe) while it is 530 kgoe in India, 510 kgoe
in Pakistan, 470 kgoe in Sri Lanka, and 340 kgoe in Nepal. The average consumption in Asia is
640 kgoe. At present, Bangladeshs per capita electricity production is only 200 kw/hour. Only
48.5% of the total population of Bangladesh has access to electricity.
66. Bangladesh's energy sector is greatly reliant on natural gas, which is the main source of
primary energy, contributing over 61% of the commercial energy supply in 1994 and increasing
to over 70% in 2008. Currently, it is the primary energy source (between 85% - 90%) used in
power generation. Close to 57% (i.e. inclusive of captive power generation) of the country's
natural gas production is used in power generation. Given the importance of natural gas as
primary energy supply and electricity in final energy consumption, the energy sector in
Bangladesh is dominated by the natural gas and power as sub-sectors.
67. Currently, Ministry of Power, Energy and Mineral Resources (MPEMR) is
responsible for overall sector policy formulation, investment decisions and regulation of the
energy sector in Bangladesh. Bangladesh Power Development Board (BPDB) established in
1972 as a public sector organization to develop the power sector, is responsible for planning,
construction and operation of power generation throughout the country and for distribution in
urban areas (except Dhaka). In addition to its own generation, BPDB purchases power from other
generating companies and sells to its consumers and other distribution companies. Bangladesh
Oil, Gas & Minerals Corporation (Petrobangla) was established in 1972 to consolidate the state-
owned natural gas sector operations. The mission of Petrobangla is to (i) expedite exploration and
exploitation of oil, gas, coal, and mineral resources; (ii) ensure conservation of energy through
judicious use; (iii) carry research and development in the field of exploration and exploitation of
III.
DIAGNOSTIC ANALYSIS OF
INFRASTRUCTURE DEVELOPMENT

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energy and mineral resources; (iv) promote compressed natural gas (CNG) and liquefied
petroleum gas (LPG) for protection of environment; (v) encourage foreign and local private
investment in oil, gas and mineral sector; and (vi) build institutional capacity. The Bangladesh
Energy Regulatory Commission (BERC) was established in 2003 through a legislative Act of the
Government of Bangladesh to regulate gas, electricity and petroleum products in country with a
mandate of providing energy at just and reasonable cost, and protection of consumers interest
and satisfaction through fair practice. Currently, eleven companies operate under the umbrella of
Petrobangla. These companies are dealing in activities related to exploration, production,
transmission, distribution, conservation of oil and gas resources and development of coal and
hard rock mines, marketing of the mined products and alternative use of oil and gas resources.
3.1.2 Overview of the Power Sector
68. Bangladesh is one of the world's most populous and poorest nations. To reduce poverty, the
Government has placed highest priority towards power sector development and is committed to
make electricity available to all by 2021. Although, power sector development has been positive,
there is still a long way to go to achieve the 2021 target. Bangladesh accomplished an
electrification rate of 50% in 2011, as compared to 14% in 2001. Despite significant
improvements in electrification over the years, Bangladesh continues to face chronic power
shortages. There is a need for increased private sector participation in the power sector to enable
the Government to meet its targets. Therefore, private participation is expected to play a major
role in all future power sector development interventions.
Institutional Reforms in the Power Sector
69. To alleviate acute power shortage, Bangladesh has developed favourable policies aimed at
liberalizing and privatizing the power sector, increasing private sector participation in
Independent Power Producers (IPPs) and improving corporate governance within the sector.
Notably, the Private Sector Power Generation Policy (1996) offers IPPs fiscal incentives which
include corporate tax holidays of 15 years, stamp duties and unrestricted repatriation of equity
along with dividends. During 19962000, several changes were made to the institutional
arrangements in the power sector. The Power Grid Company of Bangladesh (PGCB) was
established to gradually take over the operation of the high-voltage power transmission network
(230 kilovolts [kV] and 132 kV) from BPDB. The Dhaka Electric Supply Company (DESCO)
was established to take over power distribution in parts of Dhaka from Dhaka Electric Supply
Authority (DESA). The PGCB and DESCO were established on a commercial basis as
Government-owned companies under the Companies Act. Several privately-owned power
generation projects were also established during this period, as IPPs selling electricity to BPDB.
Some distribution areas were transferred from BPDB and DESA to co-operatives called Palli
Bidyuit Samity (PBS).
70. Further institutional reforms were undertaken during 20012008. More distribution zones
in Dhaka were transferred to DESCO from DESA, the West Zone Power Distribution Company
(WZPDC) was established in 2001 to take over power distribution from BPDB in the western part
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of the country, and the Dhaka Power Distribution Company (DPDC) was established in 2006 to
take over the remaining operations of DESA. The WZPDC and DPDC were also established
under the Companies Act as Government-owned companies. In the generation sector, the
Ashunganj Power Station Company Limited (APSCL) was created to take over the power station
at Ashunganj, and the Electricity Generation Company of Bangladesh (EGCB) and North West
Power Generation Company (NWPGC) were established to implement several power generation
plants financed by the ADB and the World Bank.
71. Other recent reforms and policies include the following:
Implementation of National Energy Policy (1996) which promotes the rational use of
energy sources to achieve sustainable economic growth through private sector
participation.
Implementation of Private Sector Power Generation Policy (1996) which encourages
private sector involvement and specifies the role of Power Cell as well as the general
framework for private power sector IPP bid process.
Implementation of Small Power Plant Policy (1998) which allows private sector
investors to establish small power plants and generate electricity for their own
consumption. Surplus power from such projects can be sold to other users
Implementation of guidelines for power purchase from Captive Power Plants (2007),
which permits electricity utilities to purchase surplus power from these plants to
reduce power supply deficit.
Implementation of Policy Guidelines for Enhancement of Private Participation in the
Power Sector (2008), which encourages the private sector involvement to develop new
power plants. The policy also permits the refurbishment of existing power plants that
are inefficient through the formation of PPP.
Implementation of PPP Policy (2010), which outlines the procedures for the GoB to
identify, formulate, appraise and approve PPP projects through an institutional
framework. The policy mentions power related PPP projects as a key initiative going
forward.
Power Sector Structure
72. The MPEMR is responsible for policy formulation and investment decisions, and is main
authority governing the energy sector. The Power Division was established by MPEMR in 1998
to implement, manage and carry forward Government initiatives to develop Bangladesh power
sector. It is responsible for formulating policies and overseeing development activities in the
power sector. In 1995, the MPEMR set up an administrative Power Cell to reform and privatize
the power sector. The Power Cell is responsible for establishing regulatory commissions,
promoting IPP participation and other private sector generation activities such as tariff
evaluations.
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Power Generation
73. The Government remains the dominant shareholder in the power sector owning 56% of the
installed generation capacity. The Bangladesh Power Development Board (BPDB), Ashuganj
Power Station Company Limited (APSCL) and Electricity Generation Company of Bangladesh
(EGCB) are producing electricity in the public sector. On the other hand, through IPPs and Small
IPPs (SIPPs) and through Rental Power, electricity is produced in the private sector which is
purchased by the Government at a fixed rate. Additionally, big industrial plants produce 1,200
MW electricity for their own use from which additional 88 MW is supplied to the national grid.
By June 2011, the power sector grew by 14% to reach an installed generation capacity of 6,639
MW, but the maximum available power generation is expected to remain between 4,800 - 5,000
MW due to the shutdowns for maintenance. Owing to sustained economic growth, the demand for
electricity in 2011 is expected to reach 7,500 MW. As a result the country may experience power
shortage in excess of 1,500 MW at peak times, thus constraining future economic growth of the
country (Table 3.1).
Power Transmission
74. State-owned Power Grid Company of Bangladesh (PGCB) is responsible for planning,
developing, operating and maintaining the power transmission system network in Bangladesh.
The PGCB was established in 1996 under the restructuring process of Power Sector as a fully
BPDB owned company. The Government has decided to offload PGCB shares in Dhaka Stock
Exchange (DSE) and Chittagong Stock Exchange (CSE) in 2006 in order to bring public
participation and more accountability on the companys activities and to strengthen the capital
market of the country. At present, 76.3% of PGCB ownership is with BPDB and 23.8% with the
general public. Generated power of different power plants all over the country is evacuated and
transmitted through PGCB's integrated grid system by 230 kV and 132 kV transmission lines and
substations. In 1996, when PGCB was formed, the total length of 230 kV and 132 kV line were
838 circuit km and 4,755 circuit km, respectively, which increased to 1,144 circuit km and 4,962
Table 3.1. Bangladesh: Electricity Produced by Public and Private Sectors, December 2010

Public (MW) Private (MW)
BPDB APSCL EGCB SIPP/Rental IPPs REB
Production
Capacity
2,642 606 255 1,679 1,231 226
Sub Total 3,503 3,136
Total 6,639
Source: Bangladesh Power Development Board, December 2010.
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circuit km, respectively, in 2000-01. At present, there are 2,647 circuit km of 230 kV line and
5,788 circuit km of 132 kV line throughout Bangladesh under PGCB. The PGCB has also
implemented a SCADA system by running optical fiber network parallel to its overhead
transmission lines to improve the control and monitoring of the transmission system. The PGCB
is operating thirteen 230/132 kV substations and seventy eight 132/33 kV substations in the
country. The transmission losses during 2008-09 were 3.1% vs. 4.9% in 1999-2000, while as of
September 2010 these losses stood at 2.5%.
Power Distribution
75. The BPDB and its associated entities sell the majority of Bangladeshs power supply either
directly to consumers or to distribution companies. Power is sold directly to consumers who
reside in urban areas and some rural areas under Rural Electrification Board (REB). State-owned
Dhaka Power Distribution Company Ltd (DPDC) and Dhaka Electric Supply Company Ltd
(DESCO) are the distribution companies, which purchase power for distribution in the Dhaka
region. State-owned REB is responsible for the construction, operation and maintenance of its
distribution facilities in rural areas beyond the Dhaka region. The REB has 70 operating rural
electricity cooperatives Palli Bidyuit Samity that provide power for approximately 7.9 million
connections. Each cooperative owns, operates and manages a rural distribution system in its
jurisdiction.
Power Sector Performance
76. The power sector in Bangladesh is characterised by: (a) high system losses; (b) poor
collection efficiency; (c) heavy subsidies; and (d) high cost of power generation. Encouragingly,
the aforementioned issues have mostly improved in recent times and are reflected in BPDBs
financial performance. The BPDBs operating income has been trending positively during this
period, thereby alleviating its solvency risk. The 2011 operating loss is due to high cost of
electricity purchased from IPP and SIPP, but the loss is 8% lower than the budgeted number
(Table 3.2).
Table 3.2. Bangladesh: Power Sector Indicators, 2007-2011
Financial Year 2007 2008 2009 2010 2011
Installed Capacity (MW) 5,202 5,307 5,719 5,823 6,639
Available Capacity (MW) 3,718 4,130 4,162 4,606 4,890
System Losses (%) 16.58 14.43 13.57 13.1 13.06
Operating Revenue ($ million) 720 816 926 1,030 1,181
Operating Income ($ million) (99) (96) (95) (57) (592)
Source: Power Cell and Bangladesh Power Development Board (2012)
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System Losses: The Bangladesh power sector experienced high system losses in the
past. Prior to 2000, transmission & distribution (T&D) losses were close to 30%.
However, system losses have improved over the years; from 23% in 2005 to 13% in
2011. Foreign investment and assistance, particularly from the ADB, have contributed
to this improvement.
Collection Efficiency: In 1995, the BPDB was losing approximately 10% of its billed
revenue due to inefficient collection. The collection efficiency has improved
substantially over the past 15 years. Today, most agencies utilize computerized
systems for billing and collection.
Subsidies: Tariffs, regulated by the Bangladesh Energy Regulatory Commission
(BERC), are heavily subsidized. However, there have been recent initiatives for
increases in bulk tariff prices to reduce the burden of subsidies on BPDB and GoB.
The BPDB implemented a two stage bulk tariff increase from BDT 2.80/kWh to BDT
3.27/kWh on 24 November 2011, followed by a BDT 0.47/kWh increase to BDT
3.74/kWh effective 1
st
February 2012. In the near future, further bulk tariff increases
are expected. The BPDB has sought permission to increase bulk tariffs by 15% every
quarter until July 2012, and 14% in January 2013.
High cost of Power generation: Efforts to reduce BPDBs deficit by increasing bulk
tariff have been hampered by increases in generation costs. As of February 2012,
BPDBs average cost of power generation is BDT 5.09/kWh, as compared to BDT
4.15/kWh in September 2011. The rising generation cost is attributable to shortterm
measures taken by BPDB to alleviate its power shortage crisis by implementing high
cost diesel and furnaceoil fired rental power plants.
Future Power Demand and Supply
77. Bangladesh, having experienced an average GDP growth of 6% in the last 5 years, is
expected to have significantly higher power demand in the coming years. Growth in power
demand is forecasted to increase from 6.8 GW to 11.4 GW from 2011 to 2016. Dependable
capacity is set to increase from 5.1 GW to 13.6 GW in the same period.
18
The GoB recognizes
the need for capacity additions and has plans to aggressively increase generation capacity. The
private sector is poised to lead growth in capacity additions as public participation in the power
sector has been restricted due to the shortage in Government resources. The GoB will continue to
develop policies to encourage further private participation in the power sector.
3.1.3 Government Strategy for the Power Sector
78. The Bangladesh power sector is facing numerous challenges. The frequency of power
and gas outages is threatening citizen welfare and development prospects. The annual loss to

18
Bangladesh Power Development Board (2011), An Overview of Power Sector of Bangladesh.
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production and income from power outages could well exceed 0.5% of GDP per year. The
availability of domestic primary fuel supply is getting so scarce that it is forcing severe measures
like shutting down fertilizer factories, rationing gas supplies for household and transport uses, and
keeping idle installed power units. Due to the severity of the power crisis, the Government has
been forced to enter into contractual agreements for high-cost, temporary solutions, such as rental
power and small IPPs, on an emergency basis. This has imposed tremendous fiscal pressure, as
budgetary transfers are routinely made to the power sector in order to enable it to stay current on
payments to power suppliers. To address energy crisis and increase energy supply to support
Bangladeshs development, the Government has adopted a comprehensive energy development
strategy in its SFYP. The strategy provides a balanced approach that looks at both supply
increases and demand management aspects of the energy market.
79. The power generation target in the SFYP emerges from the Perspective Plan 2010-
2021 of the Government, which calls for Power for All by 2021. The main driving force for
the power sector strategy would be the PPP initiative. The power and basic energy needs of
Bangladesh require huge investments that well-exceed the ability of the public sector. On the
other hand, there are ample untapped resources for the domestic and foreign private sector for
financing power investments in Bangladesh. To address these concerns, the IPPs policy was
formulated in 1996. Private sector has been drawn in to the power generation through IPPs,
SIPPs, Rental, Quick Rental and Joint Venture policies under the PPP framework. Under the
yearly power generation plan, the Government has taken various initiatives to produce additional
11,263 MW during the SFYP. The Plan also envisages 2,450 MW coal-based power generation in
addition to 12 MW of solar and 100 MW of wind power generation (Table 3.3).
80. In addition to power generation, it is also important to develop a dependable and
quality power transmission and distribution network to ensure quality and uninterrupted
power supply to the consumers. To transmit the newly produced power to the doorsteps of the
Table 3.3. Bangladesh: Year-Wise Power Generation During Sixth Five Year Plan (MW)

Fiscal Year Public Sector Private Sector Total
Within 2011 413 1,753 2,166
Within 2012 1,106 72 1,178
Within 2013 865 2,311 3,176
Within 2014 1,510 823 2,333
Within 2015 810 1,600 2,410
Total Additional Generation 4,704 6,559 11,263
Source: Power Division, Ministry of Power, Energy & Mineral Resources (2012)

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consumers, it is urgently needed to build new transmission and distribution infrastructure in
addition to renovation and preservation of old distribution networks. Initiatives have also been
taken to import electricity from the neighboring countries and export (in future) through the sub-
regional cooperation. Works have already been started to build a 400 kV transmission line and
High Voltage Double Circuit (HVDC) substations through Regional Grid Interconnection with
India, which has committed to supply 250 MW of electricity to Bangladesh. For resolving the
electricity crisis, the Government has also plans for increasing electricity generation and at the
same time has undertaken massive development plans for efficient and uninterrupted transmission
and distribution system. At present total length of 230 kV electric line is 2647 circuit-kilometers
and for 132 kV electric lines, the length is 5,818 circuit-kilometers. For strengthening the
electricity transmission system and for meeting up the gradual increasing future demand for
electricity, the Government has chalked out a plan for additional 3,000 km of transmission lines
to be built by PGCB by 2015.
81. According to the SFYP, high dependency on gas-based power generation will be
reduced in the short- and medium-term and the new built plants will be designed to be
dual-fuel based. In addition, emphasis will be given to various power saving efforts so that the
saved power can be transmitted to the other thrust areas. The Compact Fluorescent Lamp (CCF)
Distribution Program is expected to save 200-350 MW electricity per month. There is also a
continued effort to produce and buy captive power from renewable and non-renewable sources.
So far, contracts have been signed to purchase 88 MW of electricity from captive generation
sources.
82. Proper pricing of primary fuel and electricity is important to conserve energy as well
as to generate resources for future investments. Proper energy pricing is also critical to attract
foreign and domestic private investment in the energy sector. Accordingly, setting of proper
pricing is a key element of the energy strategy described in the SFYP. The per unit production
cost of electricity is expected to rise (50 to 60%) in the upcoming 2-3 years due to the installation
of high cost liquid fuel based plants. Accordingly, the Energy Regulatory Commission may
increase the tariff of power step by step. However, power tariff will likely come down after 2014
as the implementation of gas and coal based power plants will be completed that is expected to
reduce generation costs.
3.1.4 Major Challenges and Binding Constraints Facing the Power Sector
Major Challenges
Rising Demand-Supply Gap for Electricity
83. One of the aspects to high demand for electricity in Bangladesh is the rise in the intensity of
electricity use with the pace of economic development. Based on current income elasticity, with
an average economic growth of 6% the capacity for electricity generation would need to double
every six years. The demand for electricity is increasing rapidly with the improvement of living
standard, increase of agricultural production, development of industries as well as overall
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47

development of the country. Due to failure in the last few years to increase electricity generation
capacity proportionately to the demand, a serious supply shortage has emerged. Presently, the
shortage is estimated to be in excess of 1,500 MW. Additionally, due to the crisis of gas supply
and lack of necessary maintenance and rehabilitation of old power plants, it is not possible to
utilize the total installed capacity. Consequently, the shortage of electricity reaches up to 2,000
MW during the peak demand of summer causing acute load-shedding.
Single Source of Natural Gas-Based Electricity
84. The power sector is almost totally dependent on natural gas-fired generation (89.2% of
power comes from gas-fired generators), and the country is confronting a simultaneous shortage
of natural gas and electricity. Other fuels for generating low-cost, base-load energy, such as coal,
liquid fuel, or a renewable resource like hydropower, are not readily available, and any policies
put in place to access them are likely to have a 3-5 years lead time. Gas supply is dwindling, and
the absence of obvious choices for alternative fuels implies that there are no readily identifiable
and immediately available options for alternative and new generation sources to meet power
requirements.
Inadequate Access to Electricity
85. Despite its noteworthy economic progress, only 48.5% of the total population has access to
electricity. The Governments Vision envisages electricity for all by 2021, which will require
substantial investments in power generation, transmission and distribution. Regional differences
leave the western part of the country traditionally underserved because power generation and
transmission are concentrated in the east.
Insufficient Exploration Activities for Energy Resources
86. Current estimates suggest that Bangladesh has enough gas and coal reserves to meet its
commercial energy demand for the foreseeable future. According to available information,
Bangladesh has natural gas reserve of 20 trillion cubic feet (tcf) in the proven and possible
categories. Some estimates put the figure at 63 tcf. However, until the middle of 2011, only 9.5
tcf of gas has been extracted. Similarly, the five coal fields in Bangladesh possess 3 billion tons
of good quality coal, which is equivalent to 37 tcf equivalent of gas, which puts the existing coal
reserve at almost double the size of existing gas reserve in the country. Therefore, exploration of
domestically available natural resources, such as coal, oil and gas from onshore and offshore
drilling needs to be intensified.
19

Limited Role of Coal
87. Although there are enough reserves of coal in the country, exploitation is constrained by
concerns over extraction methods, the technological security and the possible adverse social

19
Independent Power Producers Association of India (IPPAI) http://www.ippai.org
48
48

consequences. The Government is taking steps to resolve the problems in the coal sector with a
view to making it a major source of primary energy supply in the future. The Government will
need to finalize its coal policy and formulate a coal extraction plan consistent with social and
environmental safeguards, in addition to building up mass awareness regarding coal extraction
procedures, particularly for the open pit extraction method.
Binding Constraints
Inadequate Public and Private Investment
88. The Government has insufficient funds for power sector as electricity generation,
transmission and distribution require large financial investment. Additionally, shortage of
Government funds for power infrastructure maintenance has also contributed to creating power
shortage in the country. The SFYP foresees 11,263 MW of new power generation capacity
installed by 2015, which will require $15 billion investment out of which $10 billion is expected
to be provided by the private sector. In addition, significant investment is required in building an
additional 3000 km of transmission lines by 2015, as outlined in the SFYP. Moreover,
development of primary energy resources like gas and coal will also require further public and
private investment.
Absence of Cost Reflective Tariff
20

89. The Bangladesh Energy Regulatory Commission, established in 2004, has the legislated
mandate to set electricity and gas tariffs. In March 2010, the regulator increased retail tariffs by
46%. However, carrying out politically sensitive tariff reform remains a challenge. The
Government announced a 5-year road map for the power sector retail tariff in May 2010.
However, potential investors consider the regulatory environment for the power and energy sector
to be weak. The regulator needs to be engaged with broader energy sector planning and
coordination, including reviews of generation and transmission expansion plans. Existing
electricity tariffs are inadequate, especially as the use of imported fuels such as liquefied natural
gas, heavy fuel oil, high-speed diesel, and imported coal is expected to increase significantly. An
increasingly active regulatory commission and the newly published draft tariff regulations are
expected to provide a better regulatory environment, particularly in tariff setting policy.
Insufficient Primary Fuel Supply Chain
90. The primary energy supply of Bangladesh is dominated by gas. As a result, the current fuel
supply chain (i.e. exploration, production, transmission, and distribution) is not conducive to
other forms of primary energy resources like coal and oil. Though the SFYP includes 2,450 MW
coal-based power generation (using imported coal) by 2015, the needed supply chain links (i.e.
port facilities, transportation and storage) are absent.

20
ADB Power System Efficiency Improvement Project (2009).
49
49

3.2 Urban Development
3.2.1 Overview of Urbanization
91. Urban areas are the engine of economic growth in Bangladesh. The contribution of the
urban sector to GDP has increased rapidly, from 26% in 1972 to more than 50% by 2005.
21
Urban
based economic growth has played a positive role in reducing poverty in Bangladesh. Growth in
the urban based services and industries allowed transfer of a large number of workers engaged in
low productive employment in agriculture and informal services sector of the economy to higher
income jobs. Urban based job opportunities have fueled urbanization in Bangladesh and the trend
is expected to continue as the SFYP envisions high productivity and high income jobs to come
from a labor intensive manufacturing sector based on domestic and export markets, and from
organized services. These sectors are generally urban-based, making urban areas the key catalyst
for economic growth and poverty reduction in the coming years.
92. Urbanization in Bangladesh is growing fast. Currently, 46 million people (28% of the
total population of Bangladesh) lives in urban areas.
22
Urban population growth in Bangladesh
has been significantly higher than total population growth rates in the past. Current urban
population growth rate of 2.8% is more than twice the overall population growth rate of 1.1%
23
.
Rural to urban migration for better employment and urbanization of peri-urban areas are the
major source for growing urbanization in Bangladesh (Figure 3.2).

21
UNICEF Bangladesh (February 2010), Tavares-Goodman, Nadia, Review of UNICEF Interventions in the Urban
Sector and Potential Future Interventions.
22
UN Population Division Estimates (2011).
23
World Bank: World Development Indicators (WDI) (www.worldbank.org).

Source: UN Population Division (2011)

0
1
2
3
4
5
6
7
Figure 3.2. Bangladesh: Population Growth Rate
(% per annum)
Urban Total Rural
50
50

93. Between 2010-2020 Bangladesh is also expected to be 37% urban population with about 17
million additional urban dwellers
24
. It is predicted that more than 50% of the population will be
living in Bangladeshs cities and towns by 2050 (Figure 3.3).
94. Urbanization in Bangladesh is concentrated in large cities. Top four cities (by
population) hosts 50% of the total urban population. Dhaka, the capital, alone hosts 35% of the
urban population of the country. The unbalanced growth of Dhaka shows both a large
concentration of wealth and income as well as unsustainable pressure on Dhakas already fragile
infrastructure (Figure 3.4).

24
Estimates from UN Population Division Data (2011).
Data Source: World Development Indicators(WDI)

Data Source: UN Population Division Estimates (2011)

0
50
100
150
200
250
2000 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050
Figure 3.3. Bangladesh: Total Population and Urban Population
(million in number)
Total Population Urban Population

Source: UN Population Division Estimates (2011)

5
10
15
20
Dhaka Chittagong Khulna Rajshahi
Figure 3.4. Bangladesh: Population of Large Cities
(million in number)
2010 2020
51
51

3.2.2 Government Strategy for Urban Development
95. A more balanced growth. The SFYP emphasizes a more balanced growth of urban centers
across the entire country through proper institutional reforms that involve the establishment of
locally elected and accountable municipalities and city corporations. Regarding regional
disparities, the Plan strives to address the lagging regions problems, especially focused on
Khulna, Rajshahi, and Barisal Divisions, through a strategy that involves increasing public
expenditure in infrastructure and human development; improving the access to financial services;
promoting international labor migration from these divisions, and facilitating more trade and
investment in the border districts with neighbors.
96. Responding to the emerging challenge: The SFYP allocates 19% of the total resources to
urban sector, the highest allocation for any single sector. The strategy emphasizing a more
balanced growth of urban centers across the country to reduce pressure on congested urban areas
has the key targets with respect to urban municipal services such as safe drinking water to be
made available for all urban population; proportion of urban population with access to sanitary
latrines to be increased to 100%; treat all urban waste water by 2015 to clean river waters; land
zoning for sustainable land/water use completed; and canals and natural water flows of Dhaka
and other major cities restored.
3.2.3 Binding Constraints to Urbanization
Lack of Funds for Operation and Maintenance of Existing Infrastructure and
Services
97. Although, Bangladesh has made steady progress towards MDGs, the influx of population in
urban areas has resulted in the rapid deterioration in the services quality and the environment.
Infrastructure investments are not keeping pace with the growth of the urban population, and the
Government lacks funds and arrangements for operation and maintenance of existing
infrastructure and services. Pipe networked water supply is available in the main cities and in
about 100 towns. Only 39% of the population with access to safe water has access to piped water
supply
25
. In spite of the higher sanitation coverage in urban areas as compared to rural ones, the
urban sanitation situation is worse due to high population density. In major cities, raw sewage in
open drainage is a common sight. Solid waste collection is inadequate and cities lack
arrangements for the safe disposal of municipal waste.
Unsustainable Pressure in Dhakas Already Fragile Infrastructure
98. Due to extensive pumping out of ground water, the risk of subsidence is grave in Dhaka
city. Along with ground water surface, water resources from wet lands and flood planes are also
depleting rapidly. Sewerage network is inadequate and the city with more than 15 million
inhabitants has only one sewerage treatment plant. Urban mobility is another big challenge in
Dhaka where traffic congestion is a common sight.

25
World Bank (2010), Sector Analysis Chittagong Water Supply Improvement and Sanitation Project.
52
52

Rapidly Expanding Urban Slums
99. An estimated 15% of the urban population in Bangladesh lived in slums in 2008.
26
The
rapidly expanding slum population and rising land prices in urban areas is posing challenges for
providing people with proper shelter and services. The population density in urban slums is in
excess of 200 times the average population density of Bangladesh
27
. In most cases, slums lack
even the most basic amenities associated with urban life, such as running water, sewage systems,
latrines, waste disposal services and electricity. Only 12% of households in slums use an
improved sanitation facility in conformity with the Government standard, with a large proportion
of households sharing a toilet due to lack of space.
28

Unsustainable Pressure on Already Fragile Ecosystem
100. Due to unplanned urbanization, rampant encroachment and earth filling of wetlands and
flood planes are taking place, which is creating unsustainable pressure on already fragile
ecosystem.
Grave Risk of Earthquake and Natural Disasters
101. Dhaka city is recognized as one of the most vulnerable cities to earthquake in the world.
Any earthquake of the magnitude 7 or above may pose grave danger to the lives and properties of
its inhabitants.
3.3 Summary of Binding Constraints to Infrastructure Development
102. Summary of binding constraints to energy, public private partnership and urban
development is reported in Table 3.4.

26
UNICEF (2010), Understanding Urban Inequalities in Bangladesh: A prerequisite for achieving Vision 2021.
27
Slums of Urban Bangladesh: Mapping and Census (2005)
28
Bangladesh MDG Progress Report (2009)
Table 3.4 Summary of Binding Constraints to Infrastructure Development
Infrastructure Sector Binding Constraints to Infrastructure Development

Energy Sector
Inadequate Public and Private Investment
Absence of Cost Reflective Tariff
Insufficient Primary Fuel Supply Chain

Urbanization
Lack of Funds for Operations and Maintenance of Existing Infrastructure
Unsustainable Pressure in Dhakas Already Fragile Infrastructure
Unsustainable Pressure on Already Fragile Ecosystem
Grave Risk of Earthquake and Natural Disasters
Rapidly Expanding Urban Slums

53
53

4.1 Overview of Agriculture and Rural Development
29

103. About 80% of the landmass is made up of fertile alluvial lowland in Bangladesh;
however, this fertility is threatened by natural disasters and environmental drawbacks. The
elevation of the country is mostly less than 10 meter above the sea level, especially in the
southern part. With such low elevations, concomitant flooding is usual, particularly in monsoon
season. Bangladesh is estimated to be one of the most severely negative impacted countries from
the climate change. The increase in sea levels and rain drop will cause more lands to be under
water in the monsoon seasons, yielding significant salinity problem.
104. Despite the prevailing threats, agriculture is still the single most and the largest sector
of Bangladesh's economy which accounts for 20% of the GDP and 45% of the labor force as
of 2011
30
. Although the share of agriculture in GDP has declined from over half at the time of
independence to around one fifth, it remains the predominant sector in terms of employment and
livelihood, with more than half of Bangladeshs workforce engaged in it as the principal
occupation. Agriculture also contributes significantly to export earnings of Bangladesh and
agricultural output is used as an important source of raw materials for many industries. Therefore,
the importance of agriculture sector in generating employment, alleviating poverty, and fostering
growth is needless to mention.
105. Despite a steady historical growth in agriculture as well as in food production,
Bangladesh has been facing persistent challenges in achieving food security. This is mainly
due to natural disasters and fluctuations in food prices from the influence of volatile international
market for basic food items. Agriculture is the principal source of food and nutrition. Therefore
the level of farm production and prices are the key determinants of poverty and human welfare.
106. Availability of arable land is a distinct advantage for the country; hence, Bangladesh
has the highest arable land percentage (58%) than any other country in the world. The total
country area of Bangladesh is around 144,000 km
2
, 130,000 km
2
of which is land area while the
rest is inland water. Over 75,000 km
2
of this area is currently used for agricultural purposes;
however area of total arable land is declining gradually due to natural and human originated
factors. A decade ago, total arable land area was estimated to be 83,000 km
2
, which clearly

29
This section is sourced from Country Note Series No. 1-1432H on Agriculture and Rural Development in
Bangladesh published by the Agriculture and Rural Development Department of the IDB.
30
IV.
AGRICULTURE AND RURAL DEVELOPMENT

54
54

Source: World Bank World Development Indicators (www.worldbank.org)

0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
58.1%
Figure 4.1 Arable Land in Selected Countries, 2009
(% of total land)
indicates that loss of arable land is a continuous threat for Bangladesh agriculture that needs to be
addressed timely (Figure 4.1).
107. Availability of arable land is a distinct advantage for the country; hence, Bangladesh
has the highest arable land (58%) than any other country in the world. Over 75,000 km
2
of
this area is currently used for agricultural purposes; however area of total arable land is declining
gradually due to natural and human originated factors (Table 4.1). A decade ago, total arable land
Table 4.1. Bangladesh: Land Area Statistics (km
2
)
2002 2003 2004 2005 2006 2007 2008 2009
Country area 144,000 144,000 144,000 144,000 144,000 144,000 144,000 144,000
Land area 130,170 130,170 130,170 130,170 130,170 130,170 130,170 130,170
Agricultural area 93,530 93,280 93,230 93,110 92,800 92,680 89,820 91,490
(% of agriculture area) 71.9% 71.7% 71.6% 71.5% 71.3% 71.2% 69.0% 70.3%
Arable land 82,930 82,580 82,230 79,310 79,100 78,380 75,320 75,690
Forest area 14,628 14,602 14,576 14,550 14,524 14,498 14,472 14,446
Inland water 13,830 13,830 13,830 13,830 13,830 13,830 13,830 13,830
Source: FAOStat website (URL: http://faostat.fao.org/)
55
55

area was estimated to be 83,000 km
2
, which clearly indicates that loss of arable land is a
continuous threat for Bangladesh agriculture that needs to be addressed timely.
108. The availability of arable land per capita is extremely low given the huge population
and small country land size. Although having the highest arable land percentage, Bangladesh
ranks well below the world average with only 0.05 hectares arable land per person almost same as
Japan. Moreover, the joint impact of population growth and reduction in arable lands continue to
hold pressure on the agriculture and food security while putting more pressure on increasing land
productivity (Figures 4.2 and 4.3 ).

0
0.2
0.4
0.6
0.8
1
1.2
1.4
1.6
Figure 4.2. Arable Land Per Person in Selected Countries, 2009
(hectares)


0
0.02
0.04
0.06
0.08
0.1
0.12
0.14
0.16
0.18
Figure 4.3. Bangladesh: Arable Land Per Person, 1961 - 2009
(hectares)
56
56

109. The joint impact of reduced arable land and increased demand for food forced the
country to accelerate its transition to high value added agricultural practices. Bangladesh
made a steady progress in the post-independence period and increased the cropping intensity from
148% to 181%
31
. Following the introduction of high yielding varieties and application of modern
inputs such as fertilizers and pesticides, the agricultural production tends to increase gradually.
However, the weather dependent structure is still a major barrier for ensuring stable annual
growth. Therefore, Bangladesh also started to promote non-crop agricultural practices such as
fisheries and livestock sector in order to remove high dependence to cropping sub-sector and to
ease the land dependency.
110. Currently, crops and horticulture sub-sector accounts for 60% of agricultural GDP,
while the contributions of fisheries, livestock and forestry are 20%, 13%, and 7%
respectively. In spite of gradual decline of relative importance of cropping sub-sector, it has still
remained the most important sector in agriculture. Non-crop agricultural sub-sectors started to
gain importance in last decades; in particular, they are crucial for rural employment generation.
Livestock sector, though contributing only 3% of total GDP, employs 20% of rural population;
whereas fisheries sector employs 13% of rural population with 5% share in total GDP. The
relative importance of fisheries and livestock sectors will continue to increase, along with the
increase in total production and productivity (Figure 4.4).

31

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Figure 4.4. Bangladesh: Historical Crop Production, 1970-2010
(million tonnes)
Fibre Crops Fruit Vegetables Cereals (Right Axis)
57
57

4.2 Government Strategy for Agriculture and Rural Development
111. The Government of Bangladesh accurately recognizes the importance of the
agriculture sector as a backbone of the economy given its unique role in employment
generation, poverty alleviation and growth. The Governments recognition on the sector is not
new; a special emphasis on the sector was already introduced in all the Five Year Plans. In
particular, the Fifth Five Year Plan targeted raising the GDP growth rate; increasing food
production; and initiating agricultural diversification.
112. The SFYP identifies agriculture and rural development as the key priority sector. The
Government defined various strategic targets to be focused on during the implementation period
of SFYP. Among the set strategic targets, acceleration of economic growth and employment,
ensuring food security, addressing land constraint, and ensuring environmental sustainability are
directly linked with the agriculture sector. Besides, reducing income inequality and ensuring
social protection for the under-privileged population are the strategies directly linked to rural
development, which are briefly described below.
113. Accelerating Growth: According to the SFYP, the Government foresees more employment
generation opportunities in the manufacturing and organized service sectors, thereby a gradual
shift from agricultural employment to industry and services sectors are expected. Therefore, the
role of small and medium enterprises will be particularly important to provide employment base.
In this respect, the promotion of small enterprises in rural areas will emerge as a major strategic
element for creating higher income and employment in the rural economy, which will be the key
for sustained poverty reduction.
114. Ensuring Food Security: Past progress in crop production, particularly in rice, suggested
that food security can be achieved by domestic production if agricultural productivity can be
further enhanced. The achievements of goals in three dimensions of food security, availability,
and access and affordability will be facilitated by the implementation of National Food Plan
(NFP). In line with the NFP, promoting climate change adaptation and supporting farmers with
effective incentives will be instrumental to achieve the set-targets.
115. Addressing Land Constraint: Land is probably the most binding constraint for Bangladesh,
which is accurately recognized by the GoB and necessary steps would be undertaken to tackle the
scarcity of land in the SFYP. Given Bangladesh is the most densely populated country in the
world, subsequently land became the scarcest factor in production. Reducing the population
growth was a helpful tool recently, but the GoB will further tackle the land scarcity problem by
introducing and improving sustainable land use strategy. The main goal of the Government land
use policy and management would be to ensure the best possible use of land resources and
delivery of land related services to the people through modernized and efficient land
administration for sustainable development with accelerated poverty reduction. A heavy agenda
for improvement of the system including computerized record keeping, simplifying the land-laws
and improvement of land acquisition legislation is waiting to be implemented in the forthcoming
years.
58
58

116. Ensuring Environmental Sustainability: A key element of the strategy of the SFYP is the
firm commitment of ensuring environmental sustainability in the development process.
Bangladesh is a clear victim of climate change because of its possible vulnerability to the melting
Himalayan glaciers, global warming and sea level rise, intensified natural calamities, and greater
water scarcity. These drawbacks will be detrimental to livelihood and welfare of its citizens. The
ultimate need of addressing environmental drawbacks, particularly climate change related ones, is
precisely recognized by the GoB and the SFYP environmental strategy is tailored to conserve and
maintain natural resources, reducing air and water pollution, and liberating encroached rivers,
water bodies and forest areas.
117. Reducing Income Inequality: The income inequality in Bangladesh mainly derives from
improper distribution of assets as well as human capital. The GoB proposes to reduce income
inequality through two-fold strategy. First, it will include efforts to increase the access of the poor
to assets and means of production; and second, it will strengthen the delivery of human
development services to the poor.
118. Improving Access to Financing: In order to improve access to financing, the
Governments strategy includes provisions of loan with low interest rate to the agriculture and
rural development sector.
4.3 Binding Constraints Facing Agricultural and Rural Development
Facing Distress of Food Insecurity
119. Although, significant improvements have been made so far, particularly in rice productivity
and production increases, yet large segments of the population remain highly vulnerable and
continuously face the distress of food insecurity. This is compounded with the widespread under
nutrition of the population as almost 31.5% of the population survives with less than 2,122 calorie
intake per day.
32
In addition, Bangladesh has an extremely negative record in malnutrition among
under 5 year old children with 41%, which is more serious than many other countries facing the
child malnutrition problem.
120. The three dimensions - availability, access and affordability - of food security need to
be simultaneously tackled in order to set up a robust and sustainable long-term food
security in Bangladesh. However, each dimension needs a dedicated focus with a different set of
policy options and investment agenda. Thus, a comprehensive food security action plan, in close
coordination with many other efforts in agricultural, rural, economic and human development
plans, has to be prepared while addressing the major binding constraints.
121. On the availability side, agricultural productivity enhancement and agricultural
diversification will be instrumental to secure food supply in the medium- and long-term.
Recent progress in the rice sector has been impressive with a tripling of production over the past
four decades although the area harvested remained the same. The enhanced use of agricultural

32
Bangladesh Bureau of Statistics, Household Expenditure and Income Survey (2010).
59
59

inputs mainly high-yielding quality seed varieties, fertilizer, and irrigation equipment were key to
the increase of yields and cropping intensity. Over three-fourths of the rice area is now cropped
with improved varieties developed by Bangladesh Rice Research Institute (BRRI) and
Bangladesh Institute of Nuclear Agriculture (BINA) in collaboration with international
agricultural research centers. However, despite this production boost, the level of food security
has not significantly improved because of high population growth, which kept the per capita
production almost in the same level (Figure 4.5).
122. Rice and vegetables production and consumption have increased over time and helped
to improve the populations nutritional standards. However, intake of essential animal and
vegetable proteins and lipids from livestock, fish, oil and pulse has not improved, thus creating a
huge gap between in the nutritional balance between current and recommended standards. The
reality is that this gap is gradually widening because of recurrent problem of availability and
affordability factors. The GoB is planning to address this problem by promoting non-crop
agricultural sectors in the SFYP.
123. The key structural constraint that prevents food security in Bangladesh is the scarcity
of arable land. This problem is getting worse over the time. According to official statistics, the
cultivated area is decreasing by 1% every year because of encroachments due to urban
development, industrialization and economic development, and erosion and intrusion of saline sea
water into coastal arable lands. These increased pressures on already limited land resources leave
little room for agricultural land expansion, and therefore, calls for greater intensity use of the
available arable lands. Currently, Bangladesh competes favorably in terms of cropping intensity
(1.81) with India (1.78) and Pakistan (1.25) though lower than Vietnam. Maintaining the current

Source: FAOstat website (URL: http://faostat.fao.org/)

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Figure 4.5. Bangladesh: Rice Production Per Capita, 1970-2010
(kg/person)
60
60

high attention given to cropping intensity and productivity increase would greatly help to narrow
the grain production and consumption gap in the short-term. Livestock and fisheries sectors
(which are less dependent on the availability of physical land area) appear to have more untapped
potential for growth and contribution to the countrys food security agenda.
124. Access and efficient use of water resources constitutes another major challenge to
agricultural activity and improvement of the livelihood of rural population particularly
when it comes to safety of drinking water. Bangladesh was able to expand total area of
irrigated lands considerably in recent three decades. Unfortunately, this shiny achievement is
shaded with the unsustainability of the current irrigation practice which is mainly dominated
(75% of the area) by ground water irrigation. This type of irrigation is mostly carried out by
privately installed shallow tubewells, which is even blamed to be the main reason for rise of
arsenic levels in the drinking water due to the exploitation of ground water levels. For the sake of
developing a sustainable irrigation scheme, dependency on ground water irrigation has to be
reduced. On the other hand, due to increased irrigation, the cropping intensity was raised
considerably. However, the increase in irrigation levels was not reinforced by efficient use of
fertilizers and organic matter; therefore dramatic soil fertility losses were experienced in many
regions of Bangladesh.
125. Due to high population growth in recent decades, the number of farm households
increased dramatically and as a consequence the average farm size shrank despite steady
urban migration. Thereby, the scale of average farm size is diminished and farmers became
more marginalized. Moreover, the rapid urban migration led many landowners to lease their lands
to agricultural laborers. Therefore, the possibility of private agricultural investments was
marginalized and generated a tiny scale farm structure. According to the official statistics, the
number of farms holding more than 3 hectares of land was 300,000 in 1996 (out of 11.8 million
farms); their number are further declined to 171,000 by 2005.
33
This, as an adverse effect, further
deteriorated the agricultural markets and helped market intermediaries and large farms to
mobilize subsistence farmers surpluses within very low farm gate prices. Consequently, the
system leads agricultural laborers and marginal farmers to become poorer. Further, with the
increase of population, natural resource extraction also increases, which ultimately affects the
nature. Therefore, population growth rate needs to be curtailed to negative figure or at least zero.
Otherwise poverty reduction strategy, food security and other related programs will not sustain.
Climate Change and Natural Disasters
126. Bangladesh is one of the most natural-disaster prone countries in the world with their
huge record of annual floods, frequent coastal cyclones, lack of water in dry seasons, storm
surges, and exploitation of ground water aquifers. Although adequate adaptation investment
programs were undertaken by the Government with the help of international donors, the changing
climate keeps putting additional pressures on the country. Agricultural sector, far more than any
other, is the most vulnerable sector in case of environmental and climate change related disasters.

33
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Future, climate change risks can be listed as changing patterns and levels of rain, increased
precipitation, and sea level rise due to global warming, which altogether might be additional to
the disasters the country already faced.
127. Country is a hydraulic civilization situated in the low altitude plain at the confluence
of three great rivers Brahmaputra, Ganges, and Meghna. The timing of the peaks of the
three rivers, particularly in monsoon season, determines the occurrence of heavy floods. In
addition, discharge from the Himalayan glaciers is also another determinant on the seasonality
and magnitude of the floods. Despite the high occurrence of flooding, Bangladesh was able to
maintain a significant agricultural performance in the past, even somewhat learnt to benefit from
the floods in rice production. Adaptation to annual floods, particularly since 1970s, has been
improved and agricultural damage due to floods has been decreased. For example, Boro rice,
which can be harvested before the monsoon season beginning, replaced Aman rice which is
highly vulnerable to floods. However, low frequency but high magnitude floods still have severe
adverse impacts on the agriculture and rural livelihood.
128. Bangladesh has also a distinct dry season, particularly the northwestern side of the
country experiences drought season from November to May. According to the official
estimates conducted by Bangladesh Agricultural Research Council (BARC), 2.7 million hectares
of the land are vulnerable to droughts and occurrence of a drought affecting 40% of the
Bangladesh agricultural lands has the probability of 0.10. The drought season impacts the
agricultural yields particularly in the rice production. Bangladesh advanced its agricultural
practices in dry season cultivation recently and the biggest growth in crop production was
achieved by the dry season cultivation advancement. However, this improvement is expected to
be constrained shortly, since the success was mainly achieved by the extensive use of ground
water resources. Currently, under the threat of ground water depletion, Bangladesh has to
improve dam and reservoir infrastructure to balance the water usage.
129. Climate change originated sea level rise is one of the most severe impacts for coastal
countries. Having most of its lands less than 10 meters above the sea level, Bangladesh is one of
the victims of global sea level rise. According to a study by Nicholls and Leatherman (1995)
34

one meter rise of sea level will affect 13 million people in Bangladesh. On the other hand, sea
level rise also alters the ground and surface water quality as well as soil quality due to the
increased salinity. Moreover, increased sea level may further reduce the drainage gradient,
thereby the salinity may move further inland. Bangladesh was able to adapt the current situation
by increasing shrimp production, which is good in fresh and salty water, but further increase in
sea level and salinity might deteriorate additional areas and reduce agricultural production.
High Rural Poverty
130. Notwithstanding with its successful past progress, Bangladesh is still a low income
country with substantial poverty, inequality and deprivation. According to official estimates,

34
Nicholls R.J., and Leatherman S.P. (1995), Global Sea-Level Rise
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the national poverty head count ratio (upper level) decreased to 31.5% in 2010
35
from 40.0% in
2005. Similar to the case in most low income countries, rural poverty ratio (35.2%) in Bangladesh
is higher than the urban poverty ratio (25.3%). The rural population ratio in Bangladesh is
significantly high (75%), thereby 80% of poor people lives in rural Bangladesh.
131. Employment provides the key link between the growth and poverty alleviation
making it the most important instrument to focus on. Despite having 20% share in overall
GDP, agricultural sector is the biggest employer almost covering half of the total employment in
Bangladesh. However, the income level generated by agriculture is not favorable due to small
land size, low labor productivity, low wage levels and lack of developed agricultural markets.
The Household Expenditure and Income Survey (HIES) 2005 demonstrated that occupation and
poverty has a strong correlation where the highest incidence of poverty is measured among the
agricultural laborers.
132. According to the HIES (2005) results, the biggest poverty shares are recorded in the
agricultural laborer employment group, followed by non-agricultural laborers. Therefore,
poverty map of Bangladesh is mostly coincided with the agricultural labor wage rate map. Rural
poverty rates for each employment group are higher than the urban poverty rate. There are many
reasons behind the low income generation by the agricultural and rural activities, but the most
prevailing ones are low agricultural labor productivity, lack of developed agricultural markets,
and the scale of the production.
133. Improving efficiency of agricultural market will be the key to combat rural poverty in
Bangladesh. However, it is not easy to implement, since lack of well-developed rural
infrastructure is the main barrier in front of agricultural market development. Bangladeshi
farmers and agricultural laborers face higher costs in production but lower prices in the sales,
mainly because of the market distortions. Since many farmers are small scale producers, they
have to sell their products in the nearby rural locations, where the farmers produce at the same
time. Therefore, there is a chronic demand-supply mismatch; consequently middle man or large
farms purchase most of the surpluses within very low price levels. In the small scale farmers
side, storing their products to balance the supply is not an option due to lack of cold storage
facilities in rural Bangladesh. Transportation is another major problem increasing the magnitude
of the market distortions. Rural transportation network is poor and transportation is very costly,
thereby the small scale farmers are locked in their tiny neighborhood to sell their products.
134. Rural infrastructure improvement and development would be the starting point to
remove the barriers hindering agricultural market development. Construction of cold storage
facilities and improvement of rural transportation network will help small scale farmers to sell
their products within more favorable price ranges and will alleviate rural poverty to some extent.
However, in order to secure more income for farmers, market intermediaries need to be replaced
by the farmer cooperatives. Finally, poorly developed agro-processing sector is another binding
constraint for agricultural market development. Therefore, processing the agricultural products is

35
Bangladesh Bureau of Statistics, Household Income and Expenditure Survey 2010
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a rare option due to the lack of well-developed agro-processing sector, which would be beneficial
to combat with demand-supply timing mismatch if it would have developed sufficiently.
Poor Diversifying of Agricultural Production
135. Diversification in agricultural production, both in crop and non-crop sub-sectors, is
considered the key to overcome persistent constraints and bottlenecks in Bangladesh
economy. The unavoidable land scarcity bottleneck and chronic poverty problem can be best
tackled by acquiring a widely diversified agricultural structure. Since, high value agriculture has
direct and indirect pathways to reduce poverty; enhanced agricultural diversification can help to
cure Bangladesh rural economy in a sustainable way. So far, major achievements have been
recorded in transition to high yielding varieties, but there is still a long way to tap the full
potential. Each sub-sector has distinct opportunities to attend high yield varieties, and
comprehensive policies need to be defined to expedite the transition to high yield agriculture in
each sub-sector.
136. Fisheries sub-sector has demonstrated higher growth than any other agricultural sub-
sector in the last two decades, and it still has a wide room for further growth if appropriate
measures are undertaken timely. The greatest advantage of the sector is the high and
continuous domestic demand from the public and the constantly increasing export market
opportunities. According to the official statistics
36
, more than 60% of the animal protein intake
comes from the fish consumption. Besides, particularly for the poor, fish is the sole source of the
animal protein. Fisheries sector has three broad areas in Bangladesh namely, inland capture,
inland culture and marine fishing. Inland captured fisheries dominate the whole sector and
constitutes more than 40% of the total fish production with an average annual rate of growth of
5.6%. Inland cultured fisheries contribute about 39% of total production with an average annual
growth of 6%. Remaining 20% is contributed by the marine fisheries with an annual growth rate
of 5.4%
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. Most of the marine fish captures comes from the surface fishing (92%) conducted by
the poorest and landless citizens to earn their living. Despite its domination in marine sector,
surface marine fishing has many constraints, especially in terms of safety of the fisherman due to
lack of tracking systems and type of the wooden boats. On the other hand, deep sea fishing is,
although not very common, has a huge untapped potential which needs to be unlocked. However,
in order to promote deep sea fishing, a comprehensive research on the richness of the deep sea
resources in Bangladesh coastal waters needs to be conducted timely. Despite its prevailing recent
growth, fisheries sector is constrained by many persistent challenges which need immediate
attention to sustain medium- and long-term growth trend of the sector. The major challenges are
(i) overfishing; (ii) fishing of undersized; (iii) incidence of fish diseases; (iv) construction of flood
embankments and roads; (v) siltation; and (vi) conflict between paddy cultivation and fish
production.

36
Bangladesh Bureau of Statistics, Household Income Expenditure Survey (2005)
37
Bangladesh Sixth Five Year Plan (2011-2015)
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137. Although contributing only 3% to overall GDP, livestock sector has a unique position
in Bangladesh rural employment. This locates livestock as a key sector to generate income for
rural people. On the other hand, the sector gets higher importance due to increased demand to
livestock sector products such as eggs, milk, and meat, because of the rise in the income levels.
However, Bangladesh is not self-sufficient in livestock sector and the existing gap is widening
gradually. There is a wide room for further improvement in livestock sector productivities,
because current structure is relying on low per animal production. The sector is mainly
constrained by the animal diseases, poor genetic stock, insufficient feed sources and limited
availability of pasturelands. Besides, the livestock sector is mainly practiced by many small scale
farmers who do not have sufficient know-how to efficiently and profitably maintain the
production. Eventually the constraints are intertwined; particularly shortage of good quality feed
and limited availability of pasture lands hinder animals to get enough nutrition and therefore they
are much prone to animal diseases, which increase mortality and make animal production less
profitable than it would otherwise be. In addition, the utilization of the feed by the cattle or the
chicken is very low due to poor genetic quality of the animal; thereby increasing need for the
feed. Despite the existing constraints, livestock sector kept growing constantly over the last
decade, particularly the growth was pulled by the poultry sector. Since 2002, the number of
chicken increased more than 50% while number of cattle almost remained same. The number of
sheep and goats also doubled in the last decade. The difference between increase in chicken and
cattle is mainly explained by the scarcity of the pasture lands. Since cattle/buffalo farming
necessitates availability of grazing, it has been constrained by the scarcity of land; however the
poultry sector, less dependent on the land, has demonstrated a strong growth performance in the
recent decade.
138. Despite its great potential, horticultural production has enjoyed development trends
similar to rice. The biggest challenge in this sub-sector is the high level of fluctuations prices,
mainly due to the lack of storage facilities as well as the non-existence of agro-processing
industry. It will be difficult for Bangladesh to stimulate and sustain a healthy growth in this sub-
sector unless infrastructural investments are materialized. Moreover, many market distortions
need to be corrected if Bangladesh aspires to be a major regional and global market player.
Attention needs to be given to improving the productivity and competitiveness of the horticulture
sub-sector, stabilizing market prices, and developing effective export channels. Increase in trade
would be only being achieved if the country develops sound food safety standards and establishes
internationally accredited reference laboratories.
139. Future growth and further productivity increase in crop sector can be catalyzed by
three measures, namely use of additional and high quality inputs, introduction of better
agricultural techniques, and transiting to high value agricultural crops. However, sustained
growth through the use of additional inputs seems to have reached its limits, such as cropping
intensity levels. Over use of the land will cause further land degradation due to fertility loss. Only
fertilizers and quality seeds are the remaining inputs that can be used for further improvement of
the productivity. All in all, for cropping sub-sector the major purpose should be to preserve the
products, and then comes the productivity increase.
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Poor Quality of Seeds
140. Quality seed is amongst the most important inputs needed to achieve the much desired
increased agricultural production. The use of good quality seed is important to increase food
production and agricultural productivity. It would be the major priority for agricultural
development in the coming years. Therefore, proper emphasis has to be given to seed
multiplication programme to produce large quantity of quality seeds, and marketing and
distribution to the user farmers. National seed sector need to be supported with capacity building.
There is need to establish Tissue Culture Laboratory at different regions of the country for virus-
free planting material production through micro-propagation method. Farmers access to
foundation seed along with appropriate training on `Modern Seed Technology` including
attention on varietal maintenance, roughing, fertilizer and irrigation management, pest control,
seed processing and storage are needed. This would help to sufficiently improve the quality status
of homegrown seeds. Demand of quality seeds of different crops are increasing day by day and
currently Bangladesh Agricultural Development Corporation (BADC) cannot provide the
sufficient amount of quality seeds as per farmers demand. Therefore, the seed production
capacity of BADC should be strengthened through proper planning. Besides, the private sector
should be facilitated to produce and market quality seeds.
Poor Water Management
141. Ground water utilization has reached its peak and this has an adverse impact on
climate condition. Improvements need to be made with regard to development and optimum
usage of surface water. Flood is a regular phenomenon which brings havoc to the country by
destroying crops, homestead etc. and at the same time the silt that it carries raises the river and
cannel beds. This, in turn, creates water logging situation and diminishes the surface water. The
only way out of this quagmire is re-excavation of bodies including rivers, cannels etc. for
bringing an improvement in the water drainage system which would help in controlling floods
and at the same time increases surface water availability for irrigation. This is gigantic task which
requires substantial financial assistance from donors.
Scarcity of Farm Mechanization
142. There is scarcity of farm mechanization at all levels. In particular, there is a seasonal
scarcity of labour for transplanting and harvesting of Boro and Aman rice. Necessary steps are
needed to introduce mechanized transplanting and harvesting (cutting) system for Boro and Aman
rice. Rice Transplanter and small- to medium-size Combine Harvester are scarce in the country.
Introduction of these machineries in agriculture sector will also decrease the contribution of farm
labour force.
Inadequate Research and Development
143. Research and development (R&D) is key for the development of the agriculture
sector. Strengthening institutional capacity of research organizations through deployment of
adequate manpower is essential. Human resources are the main assets of any scientific institute.
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Developing scientific and professional human resources is an important factor for achieving the
benefit from technological innovations. Higher study leading to Ph.D. is the basic requirement of
conducting frontier agricultural research in the country. For example, over 1600 agricultural
scientists are working in the National Agriculture Research System (NARS), of which only 19%
scientists of having Ph.D. degree. Moreover, the experienced scientists are retiring continuously,
thereby reducing the capacity of NARS institutes. Capacity enhancement is, therefore, required
for the scientists of NARS institutes. This should be an on-going process whereby the staffs
should be provided regular periodic training for improving their capability. They, in turn, would
be able to develop improved varieties of seeds for stressful condition like salinity, drought, water
logging etc. Varieties of drought-tolerant, submergence-tolerant, salinity-tolerant, shorter
maturity, resistance to arsenic uptake, resistance to lodging in moderate storms, and suitable for
cultivation in deep water areas need to be developed.
Weak Agro Business
144. There is great need of strong linkages between production and marketing for the overall
development of the agricultural sector. Growth of agriculture and rural economy as a whole
largely depends on the commercialization of agriculture. Several problems like inadequate
transport facility, high transportation cost, preservation problem or lack of sufficient storage
facility, lack of feeder roads, lack of sheds in the market, low price at peak harvesting period,
unstable prices, poor market information, weak institutions, and large numbers of small traders
are affecting market operations and market development. Market infrastructure development like
road communication and transport is essential to decrease marketing cost and increase marketing
efficiency. Adequate transportation facilities are needed for agricultural products from farmyards
to markets and to millers or processes and from them to ultimate uses. By expanding and
developing communication network, markets would be more integrated and spatial price variation
would be reduced. For the development of export-oriented marketing chain with the cooperation
and coordination of public and private sectors has to be given emphasis. Establishing export-
oriented production zone through introducing contract farming, where quality and standard have
to be ensured according to importers need.
145. Contract farming arrangements do allow small farmers to achieve higher yields, diversify
into new crops, and increase incomes, and can deliver wider benefits. In Bangladesh, contract
farming is in the nascent stage, but is likely to emerge as an important form of vertical coordination
with unfolding of market liberalization and globalization. Contract farming is expected to enable
farmers to access better quality inputs such as seeds, fertilizers, pesticides, extension services, and
credits. Contract farming has also potential to eliminate and/or reduce market and price risks,
which farmers face. Further, information and communications technologies (ICT) have the
potential to enhance the levels of both innovation and productivity across the economy.
Increasingly globalized economy is rapidly moving towards knowledge-based economic
structures and information systems. ICT is also one of the key determinants of competitiveness
and growth of firms and countries. The recent advances in information technology are becoming
central to the process of socio-economic development.
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Lack of Supervised Agricultural Credit Program
146. Regular supervision of utilizing credit with the technical support would be an effective way
of reducing poverty and capacity building of the poor and improving access to productive
resources and advanced technology. Special facilities or benefits are needed for cooperative
farms. Provision of short-term loans for storing agricultural products at farm level is essential.
Loan recovery system also needs to be developed. Agribusiness, handicrafts, small scale cottage
industry, and small processing units in rural areas can be strengthened through effective micro
credit system.
4.4 Summary of Binding Constraints to Agriculture and Rural Development
147. Summary of binding constraints to agriculture and rural development is given in Table 4.2.

Table 4.2 Summary of Binding Constraints to Agriculture and Rural Development
Binding Constraints

Facing Distress of Food Insecurity
Climate Change and Natural Disasters
High Rural Poverty
Poor Diversification of Agricultural Production
Poor Quality of Seeds
Poor Water Management
Scarcity of Farm Mechanization
Inadequate Research & Development
Weak Agro Business
Lack of Supervised Agricultural Credit Program

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5.1 Health Sector
5.1.1 Overview of the Health Sector
148. Over the past decade, Bangladesh has witnessed significant improvement in health
indicators. In particular, country witnessed significant decline in infant and child mortality.
Control and prevention of diseases, such as measles, poliomyelitis, and diphtheria along with the
widespread control of diarrhea diseases have greatly reduced childhood mortality and morbidity.
Bangladesh is also on the verge of polio eradication, and has already achieved the elimination
goal for leprosy at the national level. People are living longer as the average life expectancy at
birth in Bangladesh had increased to over 69 years in 2010. According to Bangladesh
Demographic and Health Survey (BDHS) 2011, total fertility rate declined to 2.3 in 2011 (from
4.3 in 1991 and 3.3 in 2000). However, the maternal death ratio is high at over 320 per 100,000
live births.
149. While there has been substantial progress in disease prevention and control and a
decline in childhood communicable diseases, new and old infectious diseases, such as
malaria, tuberculosis and Acquired Immunodeficiency Syndrome (AIDS) are important
threats to health for the years ahead. Projections are uncertain because of the potential of travel
and trade, urbanization, migration and microbial evolution to amplify these diseases. The
emergence of drug resistant malaria and tuberculosis further increases the risk. Non-
communicable diseases are a heterogeneous group that includes major causes of death, such as
heart diseases, diabetes and cancer, and disability, such as mental disorders. These are also on the
rise in Bangladesh. Malnutrition is a major cause of death and disability in children in the
country. Micro-nutrient deficiency is quite common; nearly 75% of children's life is spent in
illness mostly due to malnutrition related debility and infections. Poor nutrition deters physical,
cognitive and mental development. Low birth weight and malnourished children are susceptible
to infections; roughly two-thirds of under-five deaths are attributed to malnutrition, 75% of it
being associated with mild and moderate malnutrition. About 25% of maternal deaths are
associated with anemia and hemorrhage. Women and adolescent girls mostly suffer from anemia
owing to iron deficiency.
150. The BDHS (2011) revealed that 41% of children under 5 are stunted (short for their
age), 16% wasted (low: weight-for height) and 36% are underweight (low: weight-for-age).
Chronic energy deficiency, low-birth weight, micronutrient deficiency, protein-energy deficiency
V.
HUMAN DEVELOPMENT

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are rampant, posing serious problems in Bangladesh. Vitamin-A deficiency is a leading cause of
childhood blindness and night blindness among women is also high at 2.2%, and among pregnant
and breast-feeding women it is even higher at 2.7% and 2.4%, respectively.
151. However, there has been some improvement in child nutritional status over the past
four years. The level of stunting had declined from 51% in 2004 and 43% in 2007 to 41% of
children under five in 2011. The pattern and change in wasting had been small and inconsistent. It
increased from 15% in 2004 to 17% in 2007, and declined to 16% of children in 2011. The level
of underweight had also been declining from 43% in 2004, 41% in 2007, and 36% in 2011.
152. In 1988, the Government adopted the Primary Healthcare (PHC) approach as a
guiding principle to the health systems development in Bangladesh. Given the country's
resource limitations, it was prudent and more pragmatic approach to the introduction of PHC. The
later commenced with the introduction of selective PHC in some districts to ensure a broader
understanding of the concept. Pursuant to popular demand in 1988, comprehensive PHC was
introduced in Gazipur and Tangail Districts. The PHC has to-date expanded to cover 12 districts,
namely Tangail and Gazipur in the Dhaka Division; Chittagong and Feni in Chittagong Division;
Rajshahi, Sirajganj and Gaibandha in the Rajshahi Division; Barisal and Bhola Districts in Barisal
Division; Maulvibazar district in Sylhet Division and Bagerhat district in Khulna Division. In
2004/2005 plan of action, the Ministry of Health and Family Welfare (MOHFW) requested the
inclusion of 8 new districts in the PHC intensification scheme. Namely: Comilla, Chandpur,
Jessore, Jehnaidah, Joipurhat, Bogra, Sylhet and Kishorganj. The PHC covers 109 Upazillas.
Interventions of operationalizing PHC in Bangladesh were based on 3 prolonged strategies i.e.
training/ retraining of staff on the elements and principles of PHC; provision of basic essential
equipment; and supplies to facilitate effective preventive, curative, promotive and rehabilitative
services to the vulnerable, the disadvantaged and the poor. Regular monitoring through
supportive supervision to ensure acceptable quality of care while simultaneously guaranteeing
beneficiary community participation and inter-sectoral collaboration. Generally, the health and
family welfare facilities under the MOHFW are distributed in four different administrative levels;
National; District; Union; and Upzillas. The facilities at the National and District levels constitute
the secondary and tertiary health care facilities and Union and Upzillas levels constitute the
primary health care facilities, which are briefly described below:
National Level
153. At the national level, the Directorate of Primary Health Care is responsible for the planning
and implementation of PHC activities assisted by a deputy director and three assistant directors of
PHC. At national level, Medical College Hospitals (MCHs) are tertiary level hospitals rendering
treatment to patients (both outdoor and indoor) coming from different parts of the country with
complicated diseases. The MCHs provide facilities for multifarious major operations as well.
Further family planning and welfare services are also rendered to all those who come to these
hospitals for availing the same. There are thirteen MCH's in the country with bed facilities
varying from 250 to 1000 beds. In addition, there are eleven Specialized Institutes/Hospitals at
the national level providing sophisticated treatment facilities in the respective fields.
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District Level
154. The Civil Surgeon and the District Teams provide technical and administrative support by
way of periodic supervision to the Upazila Health and Family Planning Offices. They also
coordinate management of referrals from Upazila level and below. This administrative unit
covers a population of 5 million and above and makes it the most important administrative unit
for the basic services to the people in almost every sector. The District Hospital is capable of
providing sophisticated curative, diagnostic and laboratory services. It is also the secondary level
referral unit. Besides, some of the districts that have Sarkari Karmachari Hospitals and School
Health Clinics (SHC), the urban population of the district is served by the Urban Primary Health
Centers (UPHC), which is functioning only in the Metropolitan cities. For family planning
facilities, the district hospitals can provide almost all types of such services to the clients.
Separately, in some districts, it is the Maternal and Child Welfare Centers (MCWC), which
provide maternal and child health services to both indoor and outdoor patients. For providing
curative, laboratory and diagnostic services and effective management of communicable diseases,
Tuberculosis Hospitals (TBH), Tuberculosis Clinics (TBC), Leprosy Hospitals (LPH) and
Infectious Diseases Hospitals (IDH) are being run at the district level. Medical Assistant Training
Schools (MATS) at the district level offer training to different functionaries to help them in
providing medical assistance skillfully. Another important activity related to human resources
development (HRD) for health personnel constitutes the basic and in-service training of nurses.
Thirty-eight Nursing Institutes (NI) at the district level are providing such training. The health
service functions are facilitated by a number of support services at the district level, which
constitutes the Warehouses (DWH) and Medical Stores (MS). There are 317 district facilities.
One District Hospital (DH) operates at each of the district headquarters other than at Dhaka,
Mymensingh, Rajshahi, Rangpur, Dinajpur and Bogra. The district Narayanganj has one
Specialized Hospital in addition to a General Hospital.
Upazila Level
155. By sheer reason of population density, Upazila in Bangladesh is the equivalent of district
elsewhere. It constitutes the first level of referral in the PHC system. Curative care is provided by
specialists in obstetrics and gynecology, medicine, surgery, medical officers, and supportive
laboratory and supplies personnel. Primitive and preventive services are supported by Health
Inspectors, Sanitary Inspectors and Assistant Health Inspectors. It is an administrative unit
covering the population of 300,000 to almost one million people. Upzillas health and family
welfare facility caters the basic health need of the population of that particular Upzillas. It
provides comprehensive health care services and serves the focal point of primary health care
activity. The health and family welfare services are provided through Upzillas Health Complexes
(THC, 31 bedded), Other Upzillas Hospital Centers (OTHC), Rural Health Centers (RHC, 10
bedded) and Maternal and Child Welfare Centers (MCWC). The THC provides the first level
referral services. It usually has inpatient and outpatient departments, which together provide
preventive and limited curative services to the patients. In addition to the THC, there are also
Regional Training Centers (RTC) located at Upzillas headquarters to cater training needs of field
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workers, especially the Family Welfare Assistant (FWA), Family Welfare Inspectors (FWI) and
Family Welfare Visitors (FWV). These centers provide basic training as well as in service
training ranging from two to eight weeks to FWAs, FWls and FWVs. Some special training
programs are also offered to managers, trainers and field staff. There are 470 Upzillas facilities.
One THC is operating in each of the Upzillass other than in the Sadar Upzillas of the respective
Districts, where District Hospital and Medical College Hospital operate. The exception is
Syeedpur Upazilla, where there is no THC; instead there is a 50 bed hospital (Sarkari Karmachari
Hospital).
Union and Ward Levels
156. The Upazila Health and Family Planning Officer is the overall administrative and technical
head of the Upazila Health Complex, as well as all health services up to the community level
through the Union level facilities run by field level health and family welfare workers. The Union
is the lowest administrative unit covering between 15,000 to 200,000 people. At Union level, the
health and family welfare services are provided through Union Health and Family Welfare
Centers (UHFWC), Union Sub Centers (USCs) and Rural Dispensaries (RDs). All these three
facilities provide only outdoor services. The patients needing hospital admission or higher level
of medical consultation are usually referred to the immediate first referral units. The UHCs also
provide maternal, child health and family planning services, apart from outdoor services. Several
USCs are also involved in similar activities, while RDs provide only outdoor services. Total
number of union facilities available in Bangladesh is 4,213. The facilities cover 3,609 Unions
from the total of 4,453 Unions. The reason of such discrepancies is that some Unions have more
than one facility.
Community Participation
157. Community participation being one of the pillars of PHC development is established
through Village Health Volunteers (VHVs) nominated by the community people and trained
under the intensification project. Eight VHCPs were established for providing health services.
With the recent reforms under HPSP and providing health care through ESP strategy, 15 of the
first community clinics were refurbished in 6 Upazilas using own funds.
5.1.2 Government Health Strategy
158. The goals of Governments Vision 2021 were set to eliminate all kinds of contagious
diseases, reduce infant mortality from 54 at present to 15 per thousand, and reduce
maternal death rate from 3.8% to 1.5% by 2021. In addition, the Health, Nutrition and
Population Sector Program (HNPSP) for 20112016 has set out several objectives to improve the
health services including: (i) scaling up services for the achievement of the targets of MDG 1, 4,
5 and 6 by 2015; (ii) expanding access to health services for priority communicable and non-
communicable diseases; (iii) revitalizing the Community Clinic based services as part of a
functional Upazila Health System; (iv) strengthening overall health system and governance
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including establishing a sustainable monitoring and evaluation system; and (v) improving health
equity for the poor and geographically marginalized population.
159. The Government is committed to improving health of women as evident from the
national plans and strategies. One of the main aims of the National Health Policy is to improve
the health of mothers and children at the union level and to ensure the provisions of facilities for
the safe and clean delivery of children at the village level. The national reproductive health
strategy includes maternal health as a priority component and recommends support for
development of a cadre of community/nurse midwives. One of the objectives enumerated in the
Sixth Five Year Plan is to ensure universal access to essential health care services of acceptable
quality to reduce maternal mortality and morbidity, improve nutritional status and reduce fertility
so as to reach the replacement level of fertility by the year 2020.
160. The National Maternal Health Strategy has a ten-year perspective with specified aims
and objectives to be achieved by 2020. The strategy focuses on service delivery mechanism and
management, human resource development/ mobilization plan, quality assurance, advocacy,
community participation, research and evaluation. The Governments millennium goal of the
maternal health strategy is to reduce maternal mortality to 240/1000 by the year 2020. The
strategies for reducing maternal mortality and the prioritized elements of reproductive health in
the Health, Nutrition and Population Sector Program (HNPSP) 2012 include:
Safe motherhood will be ensured through ANC, delivery by skilled birth attendants
(SBA), EmOC, prenatal and postnatal care, essential newborn care and maternal
nutrition.
The ongoing pilot program of training of SBAs with WHO/UNFPA support will be
expanded to cover at least 30 districts by the end of the program.
Local area specific mechanisms of community involvement in transporting pregnant
women to facilities, and information campaigns targeting family and community
members will be developed.
35% increase in deliveries by skilled birth attendants, including Family Welfare
Assistants (FWAs) and Female Health Assistants (FeHAs) who have had six months of
training in the conduction of normal deliveries and referral of complicated deliveries.
Increase in coverage of antenatal care to 60%.
Comprehensive EmOC, available at 30 UHCs, will be made available at other selected
UHCs based on population needs. UHFWC services will be strengthened to provide safe
delivery as well as Obstetric First Aid with a provision for facilitated referrals.
161. Based on the experience of the SBA Training in 6 pilot projects undertaken by WHO and
UNFPA, the GoB has taken decision to train FWAs and FeHAs as Skilled Birth Attendants. It
aims that this intervention along with the strengthening of EmOC will contribute to reducing
maternal mortality.
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5.1.3 Binding Constraints to Health Sector
High Maternal Mortality Ratio
162. Bangladesh, a country with an annual birth of close to 4 million, still has a high
maternal mortality ratio with at 320 women dying per 100,000 live births. Over 80% of the
maternal deaths happen at home because more than 85% of deliveries occur at home attended by
traditional birth attendants (75.6%) and relatives (10.8%). Deliveries by a medical trained person
are 11.6%, (6.5% doctors and 5.3% by nurse/midwives/family welfare visitors/others). About
47.5% of pregnant women avail one or more antenatal care check (ANC). The infant mortality
rate was 38 per 1000 live births in 2010, with the neonatal mortality rate of 27 per 1000 live
births. The total fertility rate is estimated at 2.6, with the contraceptive prevalence rate 58%, of
which 47% are modern and 11% traditional methods.
Low Life Expectancy
163. Life expectancy at birth has increased over the years; however, Bangladesh still
remains as one of the few countries where life expectancy at birth is lower for females than
males. The progress has not been satisfactory with respect to reduction in maternal mortality and
morbidity. Bangladesh has one of the highest maternal mortality rates (MMR) in the world, i.e.
3.2 - 4 per1000 live births (estimated annual maternal deaths per year are around 11,000-12,000).
Consequence of these deaths is that about 75% of the babies born to these women also die within
the first week of their lives, thus contributing to high neonatal mortality.
Early Childbearing
164. Bangladesh is one of the countries with a high proportion of women less than 20 years
of age who have begun childbearing. About 31% of teenage girls (13-19 years) are mothers and
5% are pregnant with their first child, thus 36% of the teenage girls have already begun
childbearing. Early childbearing, particularly among teenagers, has negative demographic, socio-
economic and socio-cultural consequences. Although, the Government health facilities are
available down to the Union level, due to existing cultural beliefs and social practices, more than
85% of deliveries are still occurring at home, assisted by either trained (12%) or untrained
Traditional Birth Attendants (TBAs). A review of the performance of trained TBAs showed that
they continued several harmful practices. Around 12% of births are assisted by medically trained
persons (doctors 6.5%), or nurses, midwives, family welfare visitors, sub-assistant community
medical officers and medical assistants (5.3%). Assistance during delivery by doctors/trained
medical professionals is substantially higher in the case of lower-order-births, mothers with
secondary education, wealthy households and those with four or more ANC visits.
High Rate of Maternal Deaths
165. A study on safe motherhood programs in Bangladesh found that womens low status
in society, poor quality of maternity care services, lack of trained providers, low utilization
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of services by women and infrastructure and interdepartmental problems contribute to the
high rate of maternal deaths. The major causes of maternal death are postpartum hemorrhage,
eclampsia, and complications of unsafe abortions, concomitant medical causes, obstructed labor,
postpartum sepsis and violence/injuries. About 14% of deaths of pregnant women are associated
with injury and violence, which is reported to be on the rise. Most population based studies show
that complications of abortions are responsible for the death of nearly 25% of mothers. These
complications arise during antepartum (37%), intrapartum (12%) and postpartum (51%). These
reproductive morbidities diminish womens fertility, productivity and quality of life, as well as
the health and survival of the next generation.
Low Skills and Facilities to cope with Obstetric Emergencies
166. The high maternal mortality represents the end point in a lifetime experience of
gender discrimination, neglect and deprivation of women in Bangladesh. The near absence of
skills and facilities to cope with obstetric emergencies is noticeable. Improvement of Bangladeshi
womens health is not just a social and moral necessity; it is also an economic imperative. The
national estimate reflects that nearly 8.8 million women have been suffering from chronic
morbidities. The highest prevalence of chronic morbidities has been reported in the Chittagong
Division.
5.2 Education Sector
5.2.1 Overview of the Education Sector
167. The Government emphasized in its program for human capital development providing
quality of education and ensuring equal access to affordable education. The Government is
committed to achieve Education for All (EFA) by 2015 and attaches highest priority to education
sector. The GoB intends to utilize internal resources as well as other development partners to
develop comprehensive education facilities.
168. Bangladesh efforts to boost economic growth and reduce poverty must encompass a well-
defined education strategy that engenders a knowledge-base society in which the education
system comprising primary, secondary, tertiary, informal education, and vocation and technical
education produces knowledgeable and skilled individuals. It must focus on ensuring the
provision of quality education and labour market oriented skills for both domestic and foreign
needs. The education system in Bangladesh is characterized by the co-existence of three separate
streams. The mainstream is a vernacular based secular education carried over from the colonial
past. There also exists a parallel system of religious education (Islamic) is offered through
Madrassas. Based on use of English as the medium of instruction, the third stream of education,
modeled after the British education system, has rapidly grown in the metropolitan cities. The
primary education spans for five years (Grades 1 - 5). Although most children are enrolled in
public government schools or government assisted schools.
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5.2.2 Government Education Strategy
169. The right to education is constitutionally guaranteed in Bangladesh and the
Government is committed to the global initiatives of meeting the MDGs and EFA goal. For
Bangladesh, progressive social and human developments are the subset of good standard of living
and instrumental to economic development. Access to affordable, high quality health care and
education are not only essential to increase stock of human capital, but form an integral part of
key performance indicators of the Government policies towards countrys poverty dynamics.
There is general agreement that the number of institutions and enrolments have grown at all
levels and the quality of education has improved gradually but it needs to be improved further,
especially in institutions attended by the children of poor families. The declining quality of
education reduces the employability of the learners creating a disincentive for the poor people to
send their children to school. The commitment of the Government is to achieve 100% literacy by
2014.
170. The Government has taken multi-faceted actions in accelerating the pace of providing
primary and mass education. The compulsory primary education programme now covers the
whole country. The Government has moved to improve the quality of education through the
introduction of primary school quality level standards, increased access, participation and
completion of the primary education cycle. One of the key objectives of the Government is to
enroll all children of 6-10 years age by 2011. The Government also started a school feeding
program under which a child is provided with 75 grams of fortified biscuits in eight poverty-
stricken Upazilas of three selected districts. According to education policy, primary education has
to be upgraded to grade 8 (from grade 5) by 2018. Currently, the Government is also
implementing school feeding and stipend activities for the school students in order to achieve
100% enrolment of all eligible children.
171. Secondary education is provided through collaboration between the Government and
non-government providers within a regulatory framework. Poverty is a deterrent to secondary
school access because, in addition to the tuition fees, there are high additional costs for
transportation, uniforms, books and materials and private tutoring. Retention of the students in
secondary education is one of the major challenges. A positive development has been the closing
of the gender gap in secondary school enrolment rate with 53% female net enrolment at
secondary level while male net enrolment rate was 47% in 2011. The overall net enrolment rate
was 55.7% in 2011. In particular, stipends and exemption of tuition fees for girls in rural areas
have made a difference.
172. The technical and vocational education and training (TVET) programmes offer
courses of one to four years duration after the junior secondary level (grade 8). Vocational
training institutes, polytechnics, commercial institutes, technical training centres and specialised
institutes offer such courses. Stated Government policies and goals are to increase the proportion
of participants in TVET to 20% of the students enrolled in the secondary stage by 2020 from the
present proportion of around 3%. The objectives of TVET are to expand it for the poor,
particularly for adolescents, young adults, adults, males and females and make provision for
TVET after grades 6, 7 and equivalent grades.
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5.2.3 Binding Constraints to the Education Sector
Poor Quality of Secondary Education
173. The quality of secondary education remains a major challenge. The curriculum does
not relate to prospects of employment, entrepreneurship and practical skills. Examinations mostly
test ability to recall information and do not test the ability to reason, or apply, analyze and
synthesize information. Expansion in enrolment has not been matched by increase in physical
capacity and human resources. Students both per class and per teacher are around 60. Almost half
of the teachers do not have any professional training. Academic supervision of secondary schools
is weak and almost non-functional.
Gender Disparity
174. The main issues regarding access to tertiary education are two-fold: (a) equity of
access to universities and prestigious institutions leading to potentially high private return from
higher education, and (b) the balance of enrolment in different fields. Gender disparity in higher
education persists, despite progress at the primary and the secondary levels. In tertiary education,
increase of enrolment of male and female students in professional degree education may be
improved in accordance with the domestic needs and also according to the needs of the countries
importing human resources.
175. In various consultative meetings, stakeholders also mentioned the following additional
constraints:
Low level of spending on education
Poor access to secondary education (transition from primary to secondary for both the
general education and madrassa)
Inadequate infrastructure especially in low land flood prone areas
Internal inefficiencies such as high dropout, repetition rates and low completion rates
at both primary and secondary levels (both general education and madrassa)
Inadequate teaching and learning materials and high student textbook ratio
Inadequate teachers with skewed teacher deployment
Inadequate teacher training opportunities for madrassa teachers (only one madrassa
teacher training institute)
176. In order to overcome above constraints, the Government is implementing a number of
projects with local funds as well as assistance from the development partners.

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5.3 Summary of Binding Constraints to Human Development
177. Summary of binding constraints to education and health is presented in Table 5.1.

Table 5.1 Summary of Binding Constraints to Human Development

Binding Constraints
Health Low Public Spending
High Maternal Mortality Ratio
Lower Life Expectancy
Early Childbearing
Low Skills and Facilities to cope with Obstetric Emergencies
Education Low Public Spending
Poor Quality of Secondary Education
Gender Disparity
Inadequate Infrastructure
Lack of Access to Tertiary Education
Low Level of Spending on R&D
Inadequate Teacher Training

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6.1 Private Sector Development
6.1.1 Overview of Private Sector Development
178. Privatization and liberalization over the last two decades have reduced the direct
ownership role of the state and the private sector has gained remarkable importance in the
economy. The private sector in Bangladesh has developed from a modest base since its
independence in 1971. Along with large infusions of external aid and a growing middle class, the
country began to turn its attention to developing new industrial capacity and privatizing its
economy. As a result, private investment had increased from 15.6% in 2000 to 19.5% of GDP in
2011 while public investment had declined from 7.4% to 5.3% of GDP during the same period
(Figure 6.1). With increased market liberalization and privatization, the private sector has taken
the lead role, which was traditionally reserved for the public sector. Today, over two-third (77%)
of Bangladesh economy is relying on private sector activities. With regard to sector-wise,
agriculture and services sectors (i.e. garments, ICT and business services) are growing at a solid
pace, which appear to be the main sectors where the private enterprises are largely involved.
VI.
PRIVATE SECTOR DEVELOPMENT

Source: Ministry of Finance, Government of Bangladesh, Bangladesh Macroeconomic Review (2011)

4
6
8
10
12
14
16
18
20
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Figure 6.1. Bangladesh: Private and Public Investment Rates, 2000-2011
(% of GDP)
Public Investment Private Investment
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79

Despite the various pro-market reforms, including tax and regulatory reforms to allow
investments in the gas and power sectors, the pattern of the private sector investment in the
economy was slow in general.
179. Although, recently foreign direct investment inflows increased in absolute term but
declined in terms of GDP. The country received foreign direct investment (FDI) of $579
million in 2000, which increased to $1,136 million in 2011 while in percent of GDP, FDI
declined from 1.2% to 1% during the same period. The FDI in Bangladesh also remained low
compared with other competing economies (except Sri Lanka) of the region. The United Nations
Conference on Trade and Development (UNCTAD) has ranked Bangladesh low both in its FDI
Potential Index and FDI Attraction Index.
38
One of main reasons cited for Bangladeshs low
ranking is the low level of regional integration. The region is heavily constrained by restrictions
such as prohibitive trade barriers, one of the highest in the world.
180. Today, in Bangladesh, Special Economic Zones (SEZ) play a crucial role in the
development of the private sector especially in the growth-related to agriculture and textile.
The majority of companies operating in SEZs are garment manufacturers making products for
world class brands. Since these companies benefit from tax holidays and business regulations,
FDI inflows channeled by those enterprises also contribute to investment pool of the economy.
6.1.2 Government Strategy for Private Sector Development
181. One of the unique features of the SFYP is that it has been developed as a strategic and
indicative plan where private sector contribution appears to be a dominant (i.e. 77%).
Recognizing that development is a long-term and challenging process, recently the Government
has embarked on a Perspective Plan (2010-2021) aimed at implementing Vision 2021, which
aspires for Bangladesh to attain lower-middle income country status by 2021. The Government
recognizes that the economy is gradually becoming dominated by the private sector, therefore, the
new strategy is clearly declaring the plan as private sector-led development strategy. For this
objective, Bangladesh would need 32-40% investment rate to achieve 8% to 10% GDP growth by
2021, which is projected to originate from the private sector.
6.1.3 Binding Constraints to Private Sector Development
Poor Access to Finance
182. Bangladesh firms tend to have poor access to formal finance compared to other Asian
countries of the region. Private sector growth continues to slow down by a less conducive
financial system. In 2011, credit to private sector amounted to 49% of GDP in Bangladesh which
is lower than Thailand (132%), China (127%), Malaysia (116%), Vietnam (112%) and India
(51%) but higher than Philippines (32%), Indonesia (32%), Sri Lanka (31%), and Pakistan (18%).
Furthermore, according to the Enterprise Surveys data of the World Bank, firms in Bangladesh
reported that around 80% of their investment, on average, came from internal sources, while bank

38
United Nations Conference on Trade and Development (UNCTAD), World Investment Report (2012)
80
80


98
87
76
57
47
45
43
37
32
20
0
20
40
60
80
100
120
Bangladesh Vietnam Pakistan Philippines Thailand Indonesia India China Sri Lanka Malaysia
Figure 6.2 Bangladesh: Business Sophistication, 2011-2012
financing accounts for about 17% of their investment capital. According to the same survey,
about 42% of enterprises in Bangladesh identified access to finance as a major constraint while
only 25% of firms in South Asia think that financial exclusion is a main obstacle for their
businesses. Overall, there are serious weaknesses and looming problems in the financial sector
that can hurt long-term growth of the private sector. Bangladesh has a relatively shallow financial
sector. State-owned banks control about three-fourths of deposits and loans and carry significant
amount of non-performing loans. High interest rates, low level of market capitalization, poor
insurance coverage, weak risk management and poor protection of creditor rights are among other
elements of the insufficiently developed financial system.
183. According to the Global Competitiveness Report 2011-2012, Bangladesh ranks poorly
on business sophistication. Out of 142 countries, Bangladesh stands at 98 ranking in terms of
business sophistication, which is poor compared to all the selected countries in the Asian region.
Enhanced business sophistication is going to be critical for operating domestically as well as
globally. To become competitive is important not only for export-oriented private firms, but also
enterprises that largely operate in the domestic market as these firms are found to face significant
competition from foreign enterprises. Traditionally, firms in Bangladesh have pursued price-
based competitive strategies, taking advantage of low labor cost. However, Bangladeshs ability
to compete on a price basis is being threatened by the growing strength of other low-cost
producers globally. At the same time, non-price factors, such as quality and adherence to ethical
standards, are becoming important sourcing criteria in global markets. In general, issues related to
enhancing business sophistication can be broken down into a number of specific challenges.
These include improving product quality, achieving cost-efficiency, ensuring rapid and consistent
delivery to consumers, adhering to social and environmental standards, identifying new markets
and developing new products (Figure 6.2).
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Source: World Bank Enterprise Surveys (2007), (http://www.enterprisesurveys.org)

100.7
33.9
7.0
4.8
2.8
1.4
Bangladesh South Asia World
Figure 6.3. Bangladesh: Outages of Power and Water, 2007
Number of electrical outages in a typical month
Number of water insufficiencies in a typical month
Frequent Outages of Electricity and Water
184. The quality and quantity of infrastructure appear to be relatively poor in Bangladesh. The
economy ranks lower on most of the dimensions of the infrastructure than other countries of the
region. For example, on average, every month electrical outages happen at least 100 times in
Bangladesh which is three times more frequent than the region average and far behind the world
average. Water insufficiencies are also found to be a binding constraint in Bangladesh as it
becomes insufficient about five times in a month in Bangladesh. Further, lack of access to
adequate infrastructure is significantly more constraining rural enterprises. Some surveys show
that rural firms have far less access to electricity compared to the enterprises in urban areas. In
addition, road conditions are also poor, particularly due to poor construction and lack of
maintenance of roads and bridges (Figure 6.3).
Unfavourable Regulatory and Administrative Procedures
185. A fundamental element of favorable business environment is that the economic activity is
supported with good regulatory and administrative procedures. The private sector of Bangladesh
also suffers from the favorable business regulations that establish and clarify property rights and
reduce the cost of resolving disputes, and rules that increase the predictability of economic
interactions and provide contractual partners with certainty and protection against abuse.
According to the World Bank, Doing Business Report (2012), Bangladesh ranks 122
th
out of 183
economies of the world in terms of the overall business climate.
186. For private sector development, various stakeholders suggested that Bangladesh
needs to adopt effective policy changes that aim to relax the above mentioned binding
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constraints, particularly boosting incentives for both the local and foreign private investors
in the coming years. These include the following:
Further business deregulation is required through enhancing the enabling environment, in
particular, making business-friendly regulatory and administrative procedures. Further,
the Government also needs to develop a comprehensive PPP investment strategy. The
administrative and legal framework is essential to improving the investment climate and
is often overlooked.
Curtailing the growth of speculative investments by initiating effective tax reforms
Improving access to long-term financing by improving efficiency of the financial sector
6.2 Small and Medium Enterprises (SMEs)
39

6.2.1 Overview of SMEs
187. SMEs in Bangladesh are playing a substantial role in providing the impetus to the
development of a modern manufacturing sector and in job creation in the country. An
overwhelming majority (i.e. 98% of establishments) are micro units having less than 10 workers.
Only 13% are in manufacturing and the remaining 87% are involved in trade and services. Within
manufacturing, 58% of the enterprises are in the category of SMEs (less than 50 workers)
employing about 20% of total manufacturing labor force.
188. The target of achieving double digit economic growth hinges largely on the
performance of the small and micro enterprises. So far, SMEs have contributed about 5.2% to
total GDP in 2008-09 and this share has not increased much over the last decade. In terms of
value addition, the performance is also not satisfactory as the growth of value addition declined in
1995-2000 from the period 1989-1995. Over the period 1989-2000, value addition of SMEs had
grown at an annual rate of 6.6% while in the later five years it grew at 5.5% per annum.
6.2.2 Government Strategy for the SME Development
189. All the successive Governments have emphasized the importance of developing the SMEs.
Some of the recent policy initiatives include the following:
190. National Taskforce on Small Enterprise Development: The Government constituted a
National Taskforce on Small Enterprise Development to formulate a comprehensive strategy for
promoting rapid growth and vigorous competitiveness among these enterprises. The Taskforce
has submitted its report including a comprehensive set of recommendations that, if implemented,
will mount a coherent strategy to promote the development of small enterprises in Bangladesh in
three phases: short-, medium- and long-term. The Government has accepted most of the
recommendations and some of them are under implementation.
191. Small Enterprise Cell and Small Enterprise Foundation: Considering the importance of
small enterprise financing, a Small and Medium Enterprise Cell was created in 2003 in the

39
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Ministry of Industries. The Cell has announced that 80% of total resources available for SMEs
would be allocated specially for small enterprises. The SME Cell also decided that BASIC Bank
and BRAC Bank will be working together as lead banks and will be responsible for distribution
of credit and venture capital fund in the short-run.
192. Creation of Special Funding Arrangements: A number of funds namely Bangladesh Bank
Fund, EGBMP/IDA Fund, and ADB Fund are now in operations in Bangladesh governed by
different entities like the Bangladesh Bank, the SME Foundation and the Ministry of Finance.
193. SME Objectives, Strategies and Policies in the Sixth Five Year Plan: In order to achieve
double digit economic growth, the contribution of small and micro enterprises to GDP also needs
to be increased to double digit. Through the SFYP, the Government aims to develop SMEs sector
through three major ways: (i) by increasing the number of micro and small enterprises through
proper monetary and non-monetary incentives so that people with entrepreneurial capabilities are
more willing to start small businesses; (ii) by scaling up the size of the existing micro and small
enterprises; and (iii) by enhancing the productivity of the existing micro and small enterprises.
6.2.3 Binding Constraints to SMEs Development
Inability to Market Products
194. The present and future growth prospect of SMEs depends upon marketing their activities.
This requires having a well-planned marketing strategy including advertisement campaign as well
as resources for implementing that strategy. Unfortunately, most SME entrepreneurs are heavily
constrained in this respect as they cannot make adequate investments in marketing and also lack
necessary marketing skills.
Ability to Maintain Product Quality
195. A major constraint to the sustainability of SME growth in Bangladesh is the inability to
maintain the quality of SME products. At present, Bangladesh produces mostly common
consumer goods which are labor-intensive and require relatively simple technology. But due to
poor quality these products cannot stand competition from imported products. The challenge for
Bangladesh today is not in competing with high-tech products of developed countries but to make
its SME sector survive competition from its rivals.
Lack of Investment and Working Capital
196. Lack of access to finance particularly working capital finance and investment finance to
enable them to expand their business is a prime constraint facing the SMEs. Banks in general do
not consider SME financing as profitable activity. SMEs are also regarded as high risk borrowers
because of their low capitalization, insufficient assets and high mortality rates, and consequently
banks are not keen to offer them credit at comparable interest rates. SMEs in the export sector
also face problems of access to working capital.
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Lack of Skilled Technicians and Workers
197. Lack of skilled manpower is a perennial problem in Bangladesh. This problem is
particularly acute for small and medium scale export-oriented 115 enterprises. Bangladesh has
made large inroads in the worlds apparel market through commendable performance of
readymade garments. However, the value addition of the products is low. Despite high demand,
Bangladesh cannot make much entry into high value fashion wear exports due to dearth of trained
workers. Supply capacity is thus constrained by non-availability of skilled workers.
Poor Management Skills of Entrepreneurs
198. Managerial skills for undertaking planning, marketing, and cash-flow management are vital
for survival of the SMEs. The SME entrepreneurs in Bangladesh are very much lacking in
managerial skills and are not used to strategic planning. It is natural that they are unable to
survive market failures. The concept of managerial training for SME entrepreneurs is yet to take
root in country.
Lack of Information
199. In a competitive world, market information regarding demand and supply situation for a
product at a particular period, changing consumer tastes, etc. are crucial elements for the success
of SMEs. In Bangladesh, although some financial institutions and a few trade bodies like Dhaka
Chamber of Commerce have introduced help desk and knowledge centers with internet facilities
but such services are too limited to the SME entrepreneurs on the whole. Therefore, lack of
market information is a serious constraint to the SME development.
Non-Tariff Barriers and Changes in World Trade Regimes
200. Liberalization of industrial and trade regimes in the wake of globalization are likely to have
significant effects on Bangladeshs SMEs. Over the past decade, there has been a significant
change in the world trade regime with new regulations coming into effect. WTO agreements such
as Application of Sanitary and Phytosanitary Measures (WTO SPS Agreement) to trade in
agriculture products raise the barrier for SME exports to developed markets. WTO agreements
not only cover the traditional goods sector, but also new sectors like services. Lack of knowledge
about the current status and essential components of WTO Agreements hampers trade and
business. The need for product standardization and compliance with health and hygiene
requirements is an unavoidable part of international trade in farm and non-farm products catered
by SMEs. Long-run economic prosperity of SMEs will critically hinge upon turning the
challenges of globalization into opportunities.
Enabling Environment for Trade and Business
201. Although trade and business activities are carried out by the private sector (independent of
the Government control), existence of enabling environment like supportive regulatory
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framework, congenial tax regime, developed transport and communications infrastructure is vital
for SME development. Bangladesh has made some progress in this direction but it still falls short
of present day needs.
202. Existing literature (i.e. Sardar Jahangir 2001)
40
have also identified a number of specific
constraints facing the SMEs sector such as lack of modern technology; inadequate investments;
irregular/inadequate supply of power; high rate of interest on bank loans; inadequate availability
of raw materials; absence of clear cut government policies; fierce competition; lack of skilled
technicians and workers; and low spending on research and development.
6.3 Foreign Trade Sector
6.3.1 Overview of Foreign Trade
203. External trade is one of the vital components for Bangladeshs socio-economic
development as it provides capital, managerial expertise, technology, and employment
generation. Consistent with the trends of free market economy and globalization, Bangladesh has
made solid progress in liberalizing its foreign trade by pursuing a liberal trade policy since 1990s.
Bangladesh has also made significant progress over the years in reducing tariff levels - the
highest tariff is now 25%, as opposed to 300% ten years ago - and the number of bands has also
been reduced. A large number of trade barriers were either dismantled or significantly decreased
such as customs duty rates (Figures 6.4 - 6.5). Policies were deployed towards this including tariff
liberalization, flexible exchange rate, opening up of most sectors for private and FDI and

40
Sardar Jahangir (2001): An Assessment of Operational Conditions of Cottage, Small Medium Enterprises (CSME) in
Bangladesh, Report Prepared for FBCCI, Dhaka.


Readymade
garments
50%
Knitwear
25%
Frozen
food
5%
Jute goods
4%
Leather
3%
Chemical
products
1%
Raw Jute
1%
Shoe
1%
Others
10%
Figure 6.4. Bangladesh: Product-
Wise Exports, 2002-2003
Knitwear
42%
Readymade
garments
37%
Jute goods
3%
Frozen food
3%
Raw Jute
2%
Engineering
products
1%
Leather
1%
Shoe
1%
Others
10%
Figure 6.5 Bangladesh: Product-Wise
Exports, 2010-2011
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privatization of public sector enterprises. This has induced export-led industrialization in
Bangladesh thus leading to both higher exports and trade-openness which reached 57% of GDP in
2011. However, external trade depends on a narrow export basket with more than 80% of export
earnings derived from clothing exported mainly to US and EU markets (Figures 6.6. and 6.7).
204. Moreover, the country is rated for the first time in its history in April 2010 and earned Ba3
(Moody's) and BB- (Standard & Poor's) sovereign rating with stable outlook for three consecutive
years namely 2010, 2011 and 2012. This rating has positioned Bangladesh in the global financial
arena thus boosting foreign investors' confidence to invest in the country and facilitating smooth
operations of the country's foreign trade. Furthermore, Chittagong Export Processing Zone is
ranked 3
rd
in the Best Cost Competitiveness and is in 4
th
position in Best Economic Potential for
2010/2011 in a Global Competition of Economic Zones conducted by FDI magazine of The
Financial Times, London (March 2010). Bangladesh has also a system of duty-free (i.e. bonded)
imports of certain raw materials to be used for producing finished goods for exports. A few items,
mostly manufacturing inputs, are subject to rates ranging from 0-3%; basic raw materials are
subject to 0-5%; intermediate products 12%; and finished products up to a rate of 25% as of fiscal
2009/10. Ready-made garment manufacturers that are 100% export-oriented can import duty-free
through bonded warehouses. Other export-oriented industries and indirect exporters can claim
duty-drawbacks at stated rates.
205. At present, intra-South Asian trade accounts for less than 5% of the total trade of
South Asian Association for Regional Cooperation (SAARC) member nations whereas trade
between Association of Southeast Asian Nation (ASEAN) countries accounts for more than 60%
of Southeast Asias trade. The SAARC was formed in 1980, with a view to increasing mutually
beneficial trade among its member countries: Bangladesh, Bhutan, India, the Maldives, Nepal,


USA
33%
Others
19%
Germany
13%
UK
12%
France
6%
Belgium
4%
Netherlands
4%
Italy
4%
Canada
3%
Japan
2%
Figure 6.6. Bangladesh: Country-
USA
22%
UK
9%
Germany
15%
France
7%
Belgium
3%
Italy
4%
Netherlands
5%
Canada
4%
Japan
2%
Others
29%
Figure 6.7. Bangladesh: Country-
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Pakistan and Sri Lanka. The South Asian Free-Trade Area (SAFTA) was established in 2006,
with the first tariff reductions implemented in July 2006. Full liberalization among members,
including a maximum 1-5% tariff band for the non-negative list, will apply in due course.
6.3.2 Government Strategy to Boost Foreign Trade
206. Annual GDP growth at the end of 2015 is targeted to reach 8% which will require
raising the trade-GDP ratio from the existing level of 57% of GDP to 66.4% by 2015.
Bangladesh is striving to achieve the status of a lower middle-income country over the next
decade. The SFYP and Ten Year Perspective Plan (2011-2021) are the two major policy
documents articulating the long-term economic strategies and targets related to exports and
imports during 2011-2021. Bangladeshs external trade is regulated by a number of policies,
orders and acts which are structured under a broader liberalisation framework. The Import Policy
Order 2009-2012 and Export Policy 2009-2012 are the two major policies governing
Bangladeshs international trade. They outline export and import targets, priority sectors
requiring special assistance, strategies to promote import-substituting, domestic market-oriented
and labour-intensive industries. The main objective of Bangladeshs export policy is to strengthen
export-led industrialisation through enhancing exports, increasing productive capacity of export-
oriented industries and facilitating overall export sector through capacity building of local
industries. The import policy, on the other hand, aims to make the import regime compatible to
the World Trade Organization (WTO), simplify the procedure to import capital machineries and
raw materials, provide facilities for technological innovation and allow import of essential
commodities on emergency basis.
6.3.3 Binding Constraints to Foreign Trade Sector
More Aid Dependent Economy
207. Bangladesh needs to move successfully from aid dependence towards a trade-based
economy with an emphasis on securing investment. Bangladesh economy has persevered so far
in the face of global recession, but the domestic challenges are manifold with respect to soaring
inflation, import-export imbalances, devaluation of the currency, slow growth of remittances,
increasing budget deficit and higher Government borrowing. Likewise, trade, remittances and aid
flows are the three most important channels through which growth and external balances in
Bangladesh can be affected if global growth weakens. Bangladeshs import needs are substantial;
hence the urgency is to rapidly increase exports. Trade orientation is moderately high at import
stage mainly with regard to sourcing of raw materials, intermediate products and capital
machineries for different economic activities. In order to finance imports and also to reduce the
countrys dependence on foreign aid, the Government has been trying to enhance foreign
exchange earnings through planned and increased exports. However, the global trade scenario has
exposed structural limitations of the economy, posing a variety of challenges for the country that
has underdeveloped technology and a low capital base.

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Serious Trade-Related Infrastructure Bottlenecks
208. The countrys trade is facing serious infrastructure bottlenecks in the delivery of
power, gas and telecommunications. The inefficient countrys land and sea ports, excessive
customs procedures and a weak banking system add to the existing policy constraints. Together
with weak governance and infrastructure inadequacies and cost of borrowing represent a
significant obstacle to stronger exports performance.
Lack of Focused Trade-Related Policies
209. Trade-related policies in Bangladesh lack focus as well as trade-related instruments
and institutions fail to function with due efficiency. Continuing lack of transparency,
inconsistency and unclarity in trade regulation and policy changes are amongst the major
weaknesses of trade-related policies which result in poor implementation and outcomes. The
difficulties in implementing relevant policies mostly stem from their non-binding nature (e.g.
export and industrial policy); poor linkage between relevant policies related to exports and
imports, inadequate use of trade policy tools for the development of domestic market-orientated
and import-substituting industries; and lack of institutional capacity building initiatives in the
areas of trade diplomacy; and trade promoting bodies. In addition, current customs procedures
leave significant scope for corruption, which not only increases uncertainty and the cost of
trading with Bangladesh, but also ensures inefficient allocation of resources, preventing the
country from benefiting fully from trade liberalization.
Less Focus on International Trade in Services
210. Although, service sector is the major contributor to countrys GDP (54% in 2010), its
share in international trade in services is rather small. Given the growing importance of trade
in service, there is need for policy directions to enhance competitiveness of trade related service
activities.
Weak Ease of Trading Across Borders
211. With regard to the ease of trading across borders, Bangladesh stands at 115
th
ranking
(out of 183 economies) and lowest compared to all comparator Asian economies. However,
Bangladeshs regional commerce is increasing gradually and the country is expected to be the
Asia-Pacifics second fastest-growing trade partner after Vietnam (Figure 6.8).
Under-developed Export Credit Insurance Industry
212. The export credit insurance industry in Bangladesh is under-developed. Presently,
Export Credit Insurance (ECI) services are being offered by Sadharan Bima Corporation (SBC), a
state owned general insurance enterprise established in 1973, which operates more as a general
insurance company with export credit insurance seen as an ancillary function. The SBCs role
is limited to The Export Credit Guarantee Scheme, a program which was launched in 1978. The
Scheme provides cover against risks undertaken by the country's exporters. The principal risks
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covered include insolvency of the buyers and political restrictions delaying payment. The Scheme
was undertaken at the initiative of the Export Promotion Bureau and the Ministries of Commerce,
Industry and Finance. However, the exporters and commercial banks do not have adequate
orientations. Proper functioning of the Scheme is hampered by concerns about product quality
and promptness of service delivery. Bangladesh presently does not have an independent ECA, nor
has Sadharan Bimas program been successful in addressing the needs of the exporters and
sufficient resources have not been allocated to fulfill the objectives of the program.
6.4 Public Private Partnership (PPP)
6.4.1 Overview of PPP
213. Bangladesh is one of the few countries in South Asia that adopted Public Private
Partnerships (PPPs) as one of the approaches for delivering public goods and services since
1990s. One of the earliest PPP projects in the country was automation of railway reservation and
ticketing system. In 1993, Bangladesh Railways awarded the national reservation and ticketing
system to private entity on Build-Operate-Transfer (BOT) basis. The private firm built the system
during 1994-95, operated it 2002 before transferring to Bangladesh Railways. During this period,
Bangladesh Railway's intercity passenger revenue increased substantially while reducing
ticketing staff from 400 to less than 200 due to the centralized automated ticketing system.
Towards mid-1990s, the Government introduced Private Sector Power Generation Policy the
first policy to encourage PPP investments in power generation sector. Since formulation of the
policy, over 1,500 MW of large, medium and small Independent Power Plants (IPPs) have been
developed and connected to national grid. By far, majority of the PPP projects are concentrated in
upstream power sector generation. There have also been some PPP projects in other sectors, such
as transportation and ICT.

Source: World Bank/IFC Doing Business (2012)

17
29
39
51
53
60
68
75
109
115
0
20
40
60
80
100
120
140
Thailand Malaysia Indonesia Philippines Sri Lanka China Vietnam Pakistan India Bangladesh
Figure 6.8 Ease of Trading Across Borders: Bangladesh and Comparator
Economies, 2011 (out of 183 countries)
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6.4.2 Government Strategy for the PPP
214. Comprehensive Regulatory Framework: Following the launch of Private Sector Power
Generation Policy in 1996 and to augment the PPP model in broader infrastructure sector, the
Government in 2004 issued Bangladesh Private Sector Infrastructure Guidelines (PSIG). To
facilitate the implementation of PPP in infrastructure projects, the Government also enacted the
Public Procurement Act (PPA) in 2006, followed by Public Procurement Rules (PPR) in
2008. The PPA and PPR specifically incorporate various procurement issues related to PPP
models. In order to further consolidate various policies issued to facilitate PPP projects and bring
the entire procedure under the purview of a comprehensive PPP framework, the Government in
2010 issued Policy and Strategy for Public Private Partnership (PPP). The GoB also established
PPP Advisory Council (PPPAC), Chaired by the Prime Minister, which makes periodic review
of the overall PPP policy and give broad guidance on PPP affairs. With the adoption of Policy
and Strategy for Public Private Partnership, the GoB has placed a comprehensive regulatory
framework to support PPP projects. For the first time in the country, the Government through its
national budget 2009-2010 introduced the concept of PPP budget. This shows strong commitment
for the development of PPP in the country.
215. Effective Institutional Support: In tandem with the development of regulatory framework,
the Government has also set up various institutions to develop and finance PPP projects. Three
institutions, set up by the Government, have been working to materialize various PPP projects. So
far direct assistance of these organizations has enabled implementation of 27 PPP projects of
which 18 projects are in the power and energy sector; six projects in telecommunication sector;
two projects in the port infrastructure sector; and one project in the information technology
sector. Activities of these three organizations are summarized below:
216. Office for Public Private Partnership: The Office for PPP (PPP-O) works directly under
the supervision of Prime Ministers Office. The PPP-O has been formed as an autonomous unit
having significant autonomy on administrative and financial matters in discharging its mandated
functions. It acts as the central point of promoting the PPP concept. It supports line Ministries in
identifying, formulating, selecting, contracting and monitoring implementation of PPP projects.
The PPP-O also coordinates among various Government and private agencies for fast tracking
PPP projects. The PPP-O is headed by a Chief Executive Officer (CEO) and reports directly to
the Prime Minister.
217. Infrastructure Development Company Ltd (IDCOL): In 1997, with the financial assistance
of the World Bank, the Government established IDCOL with a mandate to finance PPP
infrastructure projects. The IDCOL is playing a major role in bridging the financing gap for
developing medium- and large-scale infrastructure and renewable energy projects in Bangladesh.
The company now stands as the market leader in private sector energy and infrastructure
financing in the country. The IDCOL is managed by a seven-member independent Board of
Directors comprising four senior government officials, three prominent entrepreneurs from the
private sector and a full time Executive Director and Chief Executive Officer. Till date, IDCOL
has financed 22 projects worth of BDT 13 billion under PPP.
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218. Infrastructure Investment Facilitation Center (IIFC): It is an advisory body of the
Government under the Ministry of Finance. Operational since January 2000, IIFC's objective is to
promote and facilitate infrastructure projects in the country through PPP. The IIFC maintains a
pool of staff and experts in PPP. It has employee strength of above 30 and operates by engaging
local and expatriate consultants. Both the payroll staff and retainers are renowned professionals in
their respective areas of specialization and a large number of them have experience of working
overseas in multinational and multicultural teams. The company has seven members Board of
Directors. Three directors are from the Government; three from the private sector and the Chief
Executive Officer is an ex-officio member of the Board. Secretary, Economic Relations Division,
Ministry of Finance, is the Chairman of the Board. The IIFC undertook a large number of
infrastructure projects for private investment. As a result of IIFC efforts, the telecom sector has
become an active private investment area. It is also advancing well in a number of other
infrastructure sectors such as ports, power, bridges, economic zones and energy. Till now, the
IIFC has been under contract to design 30 projects, provide technical support to 8 projects and
consultancy support to 16 PPP projects.
219. Investment Promotion and Financing Facility (IPFF): In 2007, the World Bank and the
Government jointly established a five-year term IPFF. Endowed $60 million and administered by
Bangladesh Bank, IPFFs mandate is to finance Government approved PPP based infrastructure
development projects. The Bangladesh Bank has been the implementing agency of this facility on
behalf of the Government and the World Bank. Under the IPFF, the Government approved
private infrastructure development projects which are developed through PPP basis and are being
financed through selected participating banks / financial institutions (PFIs). One of the main
features of this facility is that at least 30% cost of any approved project should be borne by the
entrepreneurs' own source and maximum 70% is to be provided as debt financing; out of which
20% is to be provided by the participating financial institutions (PFIs) and the rest 80% from
IPFF. The PFIs are supposed to bear all commercial risks associated with debt financing. The
IPFF started with a 5-year term (January 2007 December 2011). About 97% of the facility has
been utilized up to June 2010 for financing seven small power plants, having a capacity of 178
MW. All the power plants are contributing electricity to the national grid. The banks and financial
institutions which have participated in financing the above are NCC Bank Limited, Eastern Bank
Limited, Dhaka Bank Limited, Dutch Bangla Bank Limited, IIDFC, Uttara Finance Limited and
IDLC Finance Limited. The World Bank has come forward with another $257 million for
financing PPP projects. Now IPFF project period have been extended up to 2014. So far, BDT
286.8 million has been disbursed under additional financing, of which BDT 100 million has been
disbursed to a Water Treatment Plant with the capacity of three million gallon per day in
Chittagong Export Processing Zone.
220. In addition to the high level objectives set by the Perspective Plan, the SFYP
emphasizes the role of private sector/PPP in infrastructure and agriculture. According to the
Plan, the Government is supporting agriculture diversification in both crop and non-crop sectors
with the aim of promoting privatization and boosting income generation. Accordingly, the
Government has put emphasis on PPP to ensure expeditious development of infrastructure and
utility services by attracting local and foreign investment and improving the expertise and
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Table 6.1 Summary of Binding Constraints to Private Sector Development

Binding Constraints

Private Sector
Poor Access to Finance
Frequent Outages of Electricity and Water
Unfavorable Regulatory and Administrative Procedures

SMEs
Inability to Market Products
Ability to Maintain Product Quality
Lack of Investment and Working Capital
Lack of Skilled Technicians and Workers
Poor Management Skills of Entrepreneurs
Lack of Information
Non-Tariff Barriers and Changes in World Trade Regimes
Enabling Environment for Trade and Business
Public Private Partnership Dearth of Long-term Financing in the Local Market
Currency Risk for Market Exposed Projects

Foreign Trade
More Aid Dependent Economy
Serious Trade-Related Infrastructure Bottlenecks
Lack of Focused Trade-Related Policies
Weak Ease of Trading Across Borders
Less Focus on International Trade in Services
Under-Developed Credit Insurance Industry

technology. The Sixth Five Year Plan aims for 2% of GDP to be spent on PPP related projects.
As far as the Annual Development Program goes, the Government has allocated 19.3% of its
budget on general services, of which 4.9% will go toward PPP projects. It shows upward trend in
Government allocations toward PPP projects over the years. The current budget allocated nearly
5% of the total budget towards PPP project spending. The Government has not limited PPP
activity in infrastructure and power sectors and has recognized that PPP financing can also be
utilized in improving governance. To this effect, it has launched a Digital Land Management
System that will be considered under PPP mode.
6.4.3 Binding Constraints Facing PPPs
Dearth of Long-Term Financing in the Local Market
221. The typical maximum tenor that local commercial banks can extend for six to seven years.
While the PPP projects generally require longer tenor to match the cash flow, the tenor constraint
among local banks makes this difficult to raise finance for several PPP projects without the help
of cross border financing.
Currency Risk for Market Exposed Projects
222. Projects that intend to raise hard currency financing face currency devaluation risks. The
problem is further exacerbated for lack of hedging products among local banks.
6.4 Summary of Binding Constraints to Private Sector Development
223. Summary of binding constraints to private sector development, SMEs and foreign trade is
presented in Table 6.1.

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7.1 Islamic Financial Services Industry (IFSI)
7.1.1 Structure of Financial System
224. The Islamic financial services industry in Bangladesh consists of various components such
as Banks; Takaful Companies; Microfinance Institutions/Windows; Zakat Institutions; and Awqaf
Institutions. Further, the Islamic financial services industry (IFSI) falls into all three categories of
the financial system of the country i.e. Formal, Semi-formal and Informal sectors. These sectors
have categorized in accordance with their degree of regulations. The formal sector includes all
regulated institutions like Banks, Non-Bank Financial Institutions (FIs), Insurance Companies,
Capital Market Intermediaries like Brokerage Houses, Merchant Banks; and Microfinance
Institutions (MFIs). The semi-formal sector includes those institutions which are regulated
otherwise but do not fall under the jurisdiction of Central Bank, Insurance Authority, Securities
and Exchange Commission or any other enacted financial regulator. This sector is mainly
represented by Specialized Financial Institutions like House Building Finance Corporation
(HBFC), Palli Karma Sahayak Foundation (PKSF), Samabay Bank, Grameen Bank, Non-
Governmental Organizations (NGOs and discrete government programs. The informal sector
includes private intermediaries which are completely unregulated (Figure 7.1).
7.1.2 Islamic Banking
225. Total deposits of the Islamic banks and Islamic banking branches of the conventional banks
stood at BDT 675.6 billion at end December 2010. This was 17.5% of deposits of the total
banking system. Total credit of the Islamic banks and the Islamic banking branches of the
conventional banks stood at BDT 628.7 billion during the same period. This was 19.1% of the
credit of the total banking system of the country.
226. One of the important developments in Islamic banking in last few years has been the entry
of some conventional banks in the market and their use of Islamic modes of financing through
their Islamic branches, windows or units. It necessitates and encourages the globalization of
Islamic banking, which includes some of the giants in the banking and finance industry.
Presently, 10 conventional banks have opened 21 Islamic banking branches along with their
interest based branches. These conventional banks should focus on the safeguards that ensure the
Islamic nature of these branches such as separation and compliance with Shariah. Separation of
Islamic banking branches includes separation of capital, accounts, staff employed and office.
However, the most important thing is compliance with Shariah (Table 7.1).
VII.
ISLAMIC FINANCE AND REVERSE LINKAGES

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227. Though there is no complete Islamic banking act for controlling, guiding and
supervising the Islamic banks in Bangladesh, some Islamic banking provisions have been
incorporated in the amended Banking Companies Act, 1991 (Act No. 14 of 1991). The
Bangladesh Bank has not yet set up any separate department at its head office to control, guide
and supervise the operation of the Islamic banks. Inspection and supervision of the Islamic

Source: Bangladesh Bank (www.bb.org.bd)

Figure 7.1. Bangladesh Financial System
Financial Market
Money Market
(Banks, NBFIs,
Primary Dealers)
Capital Market
(Investment Banks,
Stock Exchanges,
Credit Rating
Companies etc.)
Foreign Exchange
Market
(Authorized Dealers)
Formal Sector
Regulators & Institutions
Bangladesh Bank
- 47 Scheduled Banks and
4 Non-Scheduled Banks
- 31 Non-Bank Financial
Institutions
Securities and Exchange
Commission
Stock Exchanges, Stock
Dealers & Brokers,
Merchants Banks,
AMCs, Credit Rating
Agencies etc.
Insurance
Development and
Regulatory Authority
- 18 Life and 44 Non-
Life Insurance Cos.
Microcredit
Regulatory Authority
- 599 Microfinance
Institutions

Semi Formal Sector
Specialized Financial Institutions:
1. House Building Financial
Corporation(HBFC)
2. Palli Karma Sahayak
Foundation(PKSF)
3. Samabay Bank
4. Grameen Bank
Informal Sector
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banking operations are conducted by the Bangladesh Bank as per the general guidelines framed
for the conventional banks.
Takaful
228. Takaful sector is relatively well developed in the country with 7 companies (3 Life and 4
Non-Life companies) operating to provide various types of insurance including micro insurance.

Islamic Capital Market
229. In October 2004, Bangladesh Bank issued a Mudaraba bond named Bangladesh
Government Islamic Investment Bond on behalf of the Government as a first ever Islamic
financial instrument in Bangladesh to facilitate the Islamic banks and financial institutions to
invest their funds. The Government Islamic Investment Bond has been playing an important role
in developing the Islamic financial instruments in Bangladesh. Islamic banks and financial
institutions are actively participating to park their cash surpluses and enhance their return on their
investments.
Zakat
230. Bangladesh does not have a Government organization responsible for Zakat. Most
persons pay their Zakat individually to needy persons whom they deem fit to receive Zakat. This
is one area which needs to be developed further in coordination with various public and private
sector entities jointly with the assistance of countries where Zakat sector is well-developed.

Awqaf
231. Waqf properties are controlled by the Waqf Administrator under the Ministry of
Religious Affairs. Currently the Waqf Administrator controls 11,545 public and 2,262 private
Awqaf assets. The total number of mosques under the Administrators control is 9,395. In
Table 7.1 Comparative Position of the Islamic Banking Sector
Particulars
Islamic Banks
Islamic Banking
Branches
Total Islamic
Banking Sector
Total Banking Sector
2010 2009 2010 2009 2010 2009 2010 2009
No. of Banks 7 7 16 9 23 23 47 47
Deposits 627.6 470.2 48.0 62.4 675.6 532.6 3,383.9 3,037.8
Credits 587.2 456.0 41.6 36.9 628.7 492.9 3297.5 2,439.8
Credits Deposits Ratio 93.6 96.98 86.7 59.1 93.1 92.5 85.5 80.3
Liquidity: Excess(+) /
Shortfall(-)
25.5 33.8 0.5 - 26.0 - 211.8 335.0
Note: Conventional banks having Islamic banking branches do not maintain SLR individually. The Head offices of these banks
maintain a combined SLR and liquidity position. (Source: Bangladesh Bank)

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addition to the Waqf properties under the control of the Waqf Administrator, there are private
Waqf properties which are operating in the private sector (Table 7.2).
232. In Bangladesh, financial resource mobilization through issuance of Islamic financial
instruments is at a nascent stage. No Islamic bank or financial institution other than Islami
Bank Bangladesh Limited (IBBL) has issued any Islamic financial instruments like bonds,
debentures, or mutual funds in the primary or secondary market for mobilizing financial
resources. The IBBLs Perpetual Mudaraba Bond is the only private sector Islamic capital market
instrument which is also listed on the stock exchange. All other Islamic financial institutions are
fully dependent on the deposit funds.
233. In the public sector, the Government has introduced a Mudaraba Bond named Bangladesh
Government Islamic Investment Bond (Islamic Bond) in October 2004 with a view to mitigating
the long-felt need for a Shariah-based monetary instrument which can be used as an approved
security for the purpose of maintaining the statutory liquidity reserve (SLR) as well as providing
an outlet for investment or procurement of funds by the Islamic banks. This bond is also open for
investment by the private individuals, companies or corporations. The total cumulative sale of
this instrument was approximately BDT 25 billion upto the end of 2011.
7.1.3 Government Strategy for Islamic Financial Services Industry
234. Bangladesh, despite being a secular country, has majority Muslim population and its
Government has undertaken many efforts to allow the Islamic financial services industry to
operate with ease. As can be observed from the above description of the financial system of the
country, there are many types of Islamic financial institutions operating successfully. However,
currently there is no specific legal framework or strategy for Islamic Banking, Sukuk, Takaful or
Zakat.
Table 7.2. Bangladesh: Awqaf Properties by Division
Name of the Division
No. of Waqf
Estates
Classes of Waqf
No of Mosques
Total Land
(acre)
Public Private
Dhaka 3,058 2,735 323 2,099 32,572
Chittagong 4,505 4,040 464 3,818 146,663
Rajshahi 3,287 2,830 457 2,135 123,677
Khulna 386 305 81 149 4,240
Sylhet 571 449 122 515 237,015
Barisal 2,001 1,186 815 679 61,940
Total 13,807 11,545 2,262 9,395 606,107
Source: Office of the Bangladesh Waqf Administrator, Dhaka (www.waqf.gov.bd), (25 February 2013)

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7.1.4 Constraints to Islamic Financial Services Industry
235. The major challenge to the growth of Islamic finance in the country is the absence of the
requisite legal, regulatory, supervisory and Shariah frameworks. Once these frameworks are in
place for each component of the IFSI, Bangladesh can look forward to a flourishing alternate
financial industry which may be able to boost the countrys growth through influx of additional
foreign direct investments and employment generation.
7.2 Reverse Linkage Opportunities
7.2.1 Solar Energy Usage
236. One of the major areas where Bangladesh can provide expertise to IDB member countries
is the Rural Electrification and Renewable Energy Development Program, also known as Solar
Home System (SHS) Program for rural electrification. The SHS Program is one of the most
successful off-grid solar electrification programs in the world. This Program has been established
as a viable model for increasing access to electricity in rural areas where the electric power grid is
not presently economically feasible or available. More than 1.3 million SHSs have been installed
to date. The Government has a goal of providing SHSs to 2.5 million households by 2014 with
the financial support from the World Bank, Global Environment Facility (GEF), KfW, GTZ,
Asian Development Bank and Islamic Development Bank. The SHS Program can be replicated in
IDB member countries.
7.2.2 Microfinance
237. Bangladesh is known as the birth place of modern microfinance. As per the Microfinance
Regulatory Authority, there are 599 Microfinance Institutions (MFIs) in the country excluding
Grameen Bank, which has its own legislation. The expertise developed by the country in this field
is already being exported and the IDB Group can assist in this process by introducing
Bangladeshi expertise to other MFIs in its member countries.
7.3 Summary of Binding Constraints to Islamic Finance and Reverse Linkages
238. Based on the above analysis, summary of binding constraints to Islamic Financial Services
Industry and Reverse Linkages is given in Table 7.3.
Table 7.3 Summary of Binding Constraints to Islamic Financial Services Industry
Binding Constraints
Islamic Financial Services
Industry
Absence of Requisite Legal, Regulatory, Supervisory and Shariah
Frameworks
Reverse Linkages
Transferring Knowledge and Expertise of Solar Energy to Other IDB MCs
Transferring Knowledge and Expertise of Microfinance to Other IDB MCs

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World Bank (2010), Sector Analysis Chittagong Water Supply Improvement and Sanitation
Project.
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World Bank (2007), Bangladesh: Strategy for Sustained Growth.
World Economic Forum (2012), Global Competitiveness Report 2011-2012.

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