Bangladesh - From stabilization to growth

Bangladesh has achieved much in its quest for economic and social development, but much is left undone. Significant achievements in population, food production, and stabilization of the macroeconomy have not been accompanied by the faster economic growth and employment generation needed to alleviate massive poverty. Raising economic growth to a sustainable level approaching 7 percent over the medium term remains the overriding policy goal for the country. How government policy and actions can help achieve the goal of faster growth by promoting an export push in manufacturing by the private sector is the basic theme of this report. The Government has successfully stablized the economy. This affords an unprecedented window of opportunity to accelerate pro-growth reforms in four priority areas. The Government's first priority must be to raise investment: by giving the private sector the reform confidence necessary to invest in export-oriented manufacturing activities, and by urgently and substantially improving implementation of public investment in infrastructure and human resource development. Faster trade liberalization would go far toward increasing the private sector's confidence in the reforms. To further reduce the costs of policy uncertainty for the private sector, the Government's second priority should be to make the deregulation of the private sector much more effective, giving it the flexibility to make unfettered business decisions relating toinvestments, production, trade, international payments, and employment. The Government's third priority should be to enter into long-term arrangements with domestic and overseas private investors in infrastructure and the utilities to promote their entry, enhance competition, raise efficiency, and improve service quality; in the short term, the Government must rapidly complete the long-delayed privatization of state-owned enterprises in the manufacturing sector. To support an export push by the private sector, financial and industrial labor markets must function efficiently: therefore, the Government's fourth priority should be to implement fundamental reforms aimed at easing its dominant ownership of the financial sector, further improving financial supervision and regulation, and substantially increasing competition and the quality of intermediation. In labor markets, government dealings with labor and employers must emphasize the overriding importance for international competitiveness of keeping wages and employment adequately flexible to adjust to productivity growth, skill requirements, and the market outlook for final products.