The government has recently approved its Poverty Reduction Strategy Paper (PRSP), titled "Unlocking the Potential: National Strategy for Accelerated Poverty Reduction." The PRSP has benefited from a comprehensive participatory process, including consultations at the regional levels with representations from a wide spectrum of the society. The PRSP has been fully owned by government, who managed and financed the process, while welcoming donors' interest.
The main national level development goals set by the PRSP are: (i) employment generation; (ii) nutrition; (iii) maternal health; (iv) quality education (at primary, secondary, and vocational levels); (v) sanitation and safe water; (vi) criminal justice; (vii) local governance; and (viii) monitoring. In addition to the still daunting levels of income poverty, the PRSP raises the profile on women's advancement, rising inequality, and making governance work especially for the poor. In setting these goals, it acknowledges Bangladesh's encouraging development record but cautions against complacency and slippages in areas where progress has been good. Recognising the growing significance of the meso-level economy (rural market centers), it advocates greater policy attention to it for growth and employment generation. It rightly emphasises addressing implementation problems and capacity constraints within the Government: particularly by improving (i) the budgetary framework for development spending, (ii) the quality of the civil service, and (iii) the flow of information.
Espousing a broad definition of poverty, including human deprivations in income, food security, quality of life, and vulnerability, the PRSP seeks to address it through a strategically prioritised policy framework that has pro-poor growth, human development, and governance as its main pillars. It aims to unlock the full potential of the country through a sensible mix of public action, private initiatives, and community mobilisation. The priority policy areas identified in the PRSP are: (i) macroeconomic stability; (ii) critical sectors for pro-poor growth, including rural, agricultural, informal and SMEs, rural electrification, roads, and telecommunications; (iii) safety nets for the poor and the vulnerable; (iv) human development of the poor; (v) participation and empowerment of the poor; (vi) good governance; (vii) improved delivery of basic services; and (viii) environmental sustainability.
Preliminary PRSP implementation measures: Operationalizing the PRSP via a Medium Term Expenditure Framework (MTEF); the government has set out its PRSP implementation targets in the Medium Term Macroeconoic Framework. The FY06 budget corresponds to the first year of PRSP implementation, and focuses on the operationalization of strategic elements in the PRSP, including good governance, improved service delivery and broad-based participation.
The focus is on key building blocks including investments in social and physical infrastructure, private sector development and non-government organisation (NGO) partnerships, streamlined tax instruments and administration, employment generation for farm and non-farm sectors and small & medium enterprises (SMEs), social safety-nets and targeted poverty reduction programmes. Effective prioritization remains key.
The path of the fiscal policy in the Government's medium-term fiscal framework is consistent with Bangladesh's reform needs and public debt sustainability. In light of the growing development spending needs and the envisaged reductions in trade taxes, strengthening domestic tax mobilisation is at the core of the medium-term budget strategy. The fiscal framework envisages an increase in tax collection by 1.3 percentage point of GDP and non-tax revenue collection by 0.1 percentage point of GDP over next four years (FY06-09). Total expenditure is projected to rise to 15.2 per cent of GDP in FY06, and then increasing further to 15.4 per cent over the following three years. Overall budget deficit is projected to peak at 4.2 per cent of GDP in FY06 followed by gradual decline to 3.8 per cent through FY09. Domestic financing is projected to decline from 2 per cent of GDP in FY05 to 1.7 per cent through FY09. This implies that net foreign financing will need to increase from 1.5 per cent of GDP in FY05 to around 2.2 per cent in FY06 and onwards. While ambitious, this is not beyond the realm of possibility if macroeconomic stability is sustained and progress with policy and structural reforms continue.
Monitoring and Evaluation: Improving the quality and effectiveness of economic and social policies will require more timely and reliable information for policy analysis and assessing outcomes. The PRSP outlines a monitoring framework, which includes monitoring indicators (inputs, outputs and impacts), data sources, and institutional arrangements for monitoring and providing feedback to policymakers. Sources include existing data as well as planned annual surveys for tracking intermediate indicators related to access, usage, and satisfaction with public services. The ongoing Household and Income Expenditure Survey will provide an important basis for updated poverty monitoring and analysis. The Public Expenditure Framework of Accountability (PEFA) which Government is actively considering to adopt will also provide useful tool to monitor performance in public financial management and improve accountability. Development partners will be actively supporting the development of sound monitoring arrangements.
Successful monitoring depends critically on institutional arrangements and their capacity. A National Poverty Focal Point has been created in the General Economics Division (GED) of the Planning Commission to monitor poverty and track progress in implementing the PRSP. The NPFP is expected to grow and function as an institutionally effective and technically competent Poverty Monitoring Unit with strong inter-ministerial linkages and interactions with various stakeholders outside the Government, including civil society.
Moving ahead, the poverty diagnostics, drawing on quantitative and qualitative information, should be used to set medium and long-term outcome-oriented targets. These should be linked to macroeconomic, structural and social policies. The Poverty Monitoring Unit should consult civil society regularly on the progress of the Poverty Reduction Strategy. The Bangladesh Bureau of Statistics (BBS) and the Ministry of Planning plan to develop a National Databank to provide an integrated database accessible to all government departments and BBS. All these monitoring and evaluation systems, if implemented properly, should further improve the quality of information and analysis for decision-making and inculcate a stronger results orientation within Government.
Development challenges ahead: Despite the remarkable gains that Bangladesh has made, it still remains a very poor country. The country ranks 174th in per capita income out of 201 countries - India ranks 159th . The number of people living in absolute poverty remains at the same level - some 63 million - as a decade and a half ago, a sobering reminder of the large unfinished development agenda. Poverty has fallen unevenly across regions, with most of the gains in the Dhaka division while Rajshahi, Chittagong and Khulna have large pockets of poverty. Moreover, inequality is rising, making the task of reducing poverty that much more difficult.
Adult illiteracy is very persistent and coming down slowly, particularly for women. In other non-income measures of poverty, malnutrition levels in South Asia generally, remain among the highest in the world, and even though Bangladesh has the lowest malnutrition in the region, over half the children between the ages of one to three are underweight, while over 40% of adult Bangladeshi women are severely malnourished. Inadequate access to health services during pregnancy and childbirth and the nutritional status of pregnant women account for the high levels of maternal mortality.
To achieve the millennium development goals (MDGs), Bangladesh will need to substantially accelerate growth to 6-7% per annum, and ensure that such growth is much more pro-poor and better distributed. For the key income poverty goal, it involves a substantial acceleration in the rate of reduction of income poverty over the 1.5% per annum achieved in the 1990-2002 period. Moreover, while the initial gains in social indicators have taken up the slack, reaching the targets will require a greater investment in the quality of health and education services, particularly in lagging areas such as maternal mortality or adult literacy.
Accelerating growth will be a challenge. Two major sources of growth are highly vulnerable. Garments exports are threatened by increased competition from low cost countries like China in a post-Multi-Fibre Arrangement (MFA) world. Growth in agriculture is threatened by continued decline in the availability of cultivable land. These potential threats call for urgent efforts to enhance Bangladesh's export competitiveness.
The diversification of outputs and enhanced agricultural productivity will also be critical and will require policies which strengthen the rural investment climate and encourage non-farm agricultural output. So will a substantial improvement in the investment climate that encourages foreign direct investment as well as creates a level playing field for domestic investors. Improving the investment climate in turn will require decisive action to address critical constraints facing investors.
Further gains in human development to ensure the poor's participation in the growth process are a serious challenge. With government highly centralised, the poor find it difficult to hold government accountable and responsive to the needs of the poor. Recent efforts to strengthen local level democracy and to make greater resources available to local governments provide an opportunity to strengthen local governance and enhance the voice of the poor in the identification, design and implementation of programmes for rural infrastructure and social services. Reaching the MDG goals will also require improvements in the quality of services, particularly attendance of health personnel at birth and during pregnancy.
Finally, Governance matters. Service delivery is also adversely affected by the low revenue effort and weaknesses in the public financial management process. Corruption casts a large shadow over the integrity of tax administration and public procurement.
It also diverts scarce funds intended for social services to unintended purposes. Reforming tax administration, strengthening public financial management and making procurement more transparent and competitive will be important to the effective delivery of public services. This will need to be accompanied by strengthening the quality and accountability of the civil service. Inevitably progress will also depend on strengthening deterrents to corruption by making the new anti-corruption commission effective and strengthening the legal and judicial system.
This is the eighth instalment of a report -- Bangladesh Poverty Reduction Strategy Paper Forum Economic Update: Recent Developments and Future Perspectives -- prepared by the World Bank that the FE is publishing in a serialised form. The seventh instalment of the report was published on January 25