• Sunday, October 26, 2014

Time to fortify institutions

WB country director says Bangladesh needs institutions that fit a middle-income country

Star Business Report

Bangladesh needs to develop its weak institutions to make them appropriate for a middle-income country as the existing ones only fit a low-income nation, the World Bank said yesterday.

"We are living in a country that has institutions that are developed for a low-income country. Understandably, it was a low-income country when those institutions were developed," said Johannes Zutt, country director of the global lender.

But the reality is the country is now on the way to becoming a lower middle-income country, he said.

"So, it needs to have institutions that are appropriate for a middle-income country. The country needs institutions that can handle much larger and much more complex projects and problems." 

The WB official spoke during a presentation at the monthly meeting of American Chamber of Commerce in Bangladesh (AmCham) at Ruposhi Bangla Hotel in the city.

Zutt said the country has some weak oversight institutions such as the Anti-Corruption Commission and Election Commission. "They are quite weak for a country at this level of development."

"They need to be strengthened and need to have their independence assured. They should be given freedom from political interference and also a degree of financial independence."  

Zutt also said record keeping is quite poor in the country. "Bangladesh still has a budget system that is not run on an integrated financial management system. There is problem with land records. There are a lot of opportunities for information and communication technology to enhance service delivery."

The WB official also praised Bangladesh's overall macroeconomic management, saying the country has made remarkable progress since its independence.

"In addition, Bangladesh is one of the few developing countries that are doing quite well in case of achieving the Millennium Development Goals."

He said Bangladesh is trending in the right direction in the medium term, but the slope of the trend is a bit disappointing.

"If the right things are done the trend of positive growth and poverty reduction could be much better."

Zutt also talked about the challenges the country faces.

He said Dhaka is an important generator of gross domestic product. But the liveability of a city is tremendously important for ensuring that it continues to be a driver of the GDP growth.

Citing a study on China, Zutt said the WB found the cities that made huge investment in enhancing liveability were also growing much better because they were attracting people to live in the cities having the capacities to contribute to the growth.

On the transport sector, he said the capital city is close to becoming unliveable due to its transport problem.

He said the major transport corridor between Dhaka and Chittagong is dismal, and needs to be expanded.

The WB official called upon the government to expand the capacity of the Chittagong port as it is not growing with the pace of the economy.

Zutt said the number of economic zones, which are performing better, should be increased from the existing eight.

"If we want to tap growth potential in the areas other than garments we need to provide places that are conducive to those businesses. We need to support them to grow."

Zutt said Bangladesh scores badly in the World Bank's Country Policy Institutional Assessment, scoring 3.3, which is slightly above the fragile or conflict-affected states.

"Politics are divisive and tend to confrontational. It is very hard for this country to undertake the type of actions needed to tackle the long-term problems the country is facing."

He said there is a considerable amount of rent-seeking within the economy. "Businessmen deal with it to keep their business going. People are very open about this and see as a cost of doing business."

He said the effect of this behaviour is quite large and it distorts investment decision and lowers growth.

Zutt also called for diversification of export basket instead of relying on garments, which at present account for about 80 percent of the total overseas sales.

"Still, there is potential for growth in the garment sector. But we need a more diversified economy," he said.

Sectors such as pharmaceuticals, shipbuilding, footwear, jute, bicycles and leather goods are areas where Bangladesh has already shown some competency and can do much more.

Zutt said Bangladesh needs to diversify its energy sources to get it ahead of the demand curve rather than running after it the way the country has been doing for decades.

He said regional power trade could find solutions to meeting the rising electricity demand. "This will also help regional connectivity, which is absolutely essential for the growth of all countries in South Asia."

He said a regional power pool could be a viable option for South Asia. "That power pool could function in the same way the coal and steel union functioned in Europe after the World War II."

Bangladesh is the largest recipient of the WB's low-cost fund, accounting for roughly 10 percent of the credit going to the developing nations from the multilateral lender. 

Zutt said Bangladesh would get more than $5 billion in development assistance in the next three years, including the current fiscal year.

AmCham President Aftab Ul Islam said the biggest hindrance the private sector is facing today is not the lack of electricity and gas, labour unrest or port mismanagement. "It is simply the threat, fear, uncertainty and poor governance."

US Ambassador Dan Mozena also spoke. 

Published: 12:00 am Thursday, August 14, 2014

TAGS: Johannes Zutt weak institutions middle-income country low-income nation

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