Bangladesh has ADB’s rapt attention
The Daily Star was in Nadi, Fiji for the 52nd Annual Meeting of the Asian Development Bank’s Board of Governors at the invitation of the Manila-based multilateral lender. During the five-day event, the newspaper’s senior reporter Rejaul Karim Byron sat down with Hun Kim, ADB’s director general for South Asian operations, for an interview. Kim is sanguine about Bangladesh’s future and affirmed the ADB’s continued support upon the country’s graduation to the middle-income bracket.
Bangladesh has performed well on many social and economic indicators. What has been the role of the ADB to this effect?
Over the last five years, the Bangladesh economy has grown by an average of 7 percent a year and recorded 7.9 percent growth in fiscal 2017-18, the fastest in Asia and the Pacific.
We have forecast 8 percent gross domestic product (GDP) growth in fiscal 2018-19 and fiscal 2019-20, which is likely to be the highest growth in Asia-Pacific in the next two years.
Since Bangladesh became a member of the Asian Development Bank (ADB) in 1973, our partnership has extended to almost all areas of the economy.
By the end of 2018, the ADB had committed a total of $22.9 billion for 282 loans, $269.18 million for 429 technical assistance, and $931.5 million for 44 grant projects.
In 2018, the ADB committed its highest level of support to Bangladesh, with eight sovereign projects totalling $2.1 billion in loans and grants, $16.5 million in technical assistance and $1.9 billion mobilised in co-financing.
Soon after the partnership began, the government and ADB began to focus on reconstructing infrastructure damaged during the war of independence, and on boosting the rural economy to feed a new but impoverished nation of 70 million.
In the first decade, agriculture and natural resources received 37 percent of ADB assistance. This expanded farmers’ access to credit and inputs such as seed and fertiliser and strengthened irrigation, drainage and flood protection, natural resource management, fisheries and livestock, and market and rural development. A concessional loan in 1975, for example, established the Ashuganj fertiliser plant using natural gas.
In 1974, the ADB extended its first loan for a rail project, which repaired and improved the Dhaka–Chittagong line and other parts of the national rail system. Support for infrastructure eased the movement of basic commodities such as food.
In the 1980s, the focus turned to policy and institutional reform across sectors, in keeping with the government’s shift in emphasis toward a leading role for the private sector. Transport and electric power became high priorities, together receiving 55 percent of allocations.
The ADB also added gas development to the portfolio of large energy and transport projects. Support for education, health, urban development and other social infrastructure development started to pick up to serve the overriding objective of poverty reduction.
Since 2000, the ADB has expanded support for smaller-scale infrastructure such as for water supply and sanitation, small and medium-sized enterprise development, primary education and health, disaster risk management, and improved governance through capacity enhancement and policy advice.
ADB has been providing financial support for sub-regional cooperation in South Asia for the last several years. It would be great if you please share the progress on sub-regional cooperation. What are the challenges in strengthening sub-regional cooperation?
ADB indeed promotes regional and sub-regional cooperation and integration (RCI) as a strategic priority in helping countries benefit from each other’s strength and take advantage of the complementarities amongst them. Aligned with the strategic development priorities of the countries in the region, the ADB has supported cooperation in South Asia at the regional, sub-regional and interregional levels.
We are proud that we are supporting 3 power grid interconnection projects between Bangladesh and India.
After a grid connectivity project between Tripura in eastern India and Bangladesh is completed in a couple of years, a total of 1,500-megawatt electricity will be traded between the two countries.
Transport connectivity and motor vehicle agreement among Bangladesh, Bhutan, India and Nepal are the other milestone achievements under our South Asia Sub-regional Economic Cooperation (SASEC) initiative.
Our future RCI interventions aim at broader issues including trans-boundary river management, disaster management, climate change and environment.
You are aware that Bangladesh, Bhutan, India and Nepal signed the motor vehicle agreement earlier to expedite trade and connectivity. Would you please comment on this? How would Bangladesh be benefitted through the agreement?
The ADB is proud to be able to support the Bangladesh-Bhutan-India-Nepal motor vehicle agreement under the SASEC initiative. This will certainly expedite trade and connectivity among the countries and boost economic activities in the sub-region.
The ADB earlier identified some challenges and bottlenecks to implement development projects in Bangladesh. And it is said that the problems still persist. What is your take on this?
Faster implementation of development projects is critical for delivering development benefits to the people. Lengthy internal business processes often delay project approvals. Limited capacity of few executing and implementing agencies often lead to delays in project implementation. In 2018, we conducted extensive outreach for stronger support for ADB operations, enhanced business and more efficient procurement accomplishments.
These include special initiatives to help strengthen the implementation capacity of the government, finance project preparatory works to improve project readiness, and enhance technical design covering environment, land acquisition and involuntary resettlement.
The ADB’s new procurement policy and regulations were rolled out and operationalised in 2017. The new policy ensures faster procurement and consultant recruitment as well as simpler and more effective fiduciary systems throughout the project cycle. We will continue to work closely with the government in this area.
In recent times, Bangladesh has borrowed from China, Russia and India. Can this become a risk for Bangladesh?
Bangladesh needs huge investment for infrastructure and social sector to achieve higher growth and development. The recent bilateral borrowings are mostly being used for mega projects that are expected to generate employment, income and export and thus be beneficial for the economy. Bangladesh’s government debt is equivalent to around 27 percent of the country’s GDP. This rate is sustainable, and it poses no risks to the economy.
Bangladesh’s revenue collection in terms of GDP was the lowest in Asia. As per the ADB Outlook 2019, Bangladesh’s revenue collection was 9.6 percent of GDP in 2018, whereas among the other South Asian countries revenue collection was 13.4 percent at least and 32 percent at most. Despite higher GDP growth in Bangladesh compared to other Asian countries, why do you think that the revenue collection in Bangladesh is low? How can Bangladesh increase its revenue collection?
Bangladesh needs to significantly increase revenue collection to become a developed country by 2041 as envisaged by the government. Bangladesh’s tax-GDP ratio is below 10 percent, which is very low for a booming economy like Bangladesh.
There are many reasons for low revenue collection, including high tax evasion, high tax rates, multiple tax rates and complexity of tax laws. Good governance in tax collection and efficiency of tax authorities also need to be enhanced.
Bangladesh needs to take multiple measures to increase revenue collection. The entire revenue collection system needs to be made more transparent, friendlier and supportive.
The possible measures for raising revenue collection include cuts in tax rates, simplifications of tax laws, removing loopholes in the tax system and proper processing of information available under the annual tax return. Raising awareness on tax issues and creating taxpayer-friendly environment are also needed.
Bangladesh’s loans from ADB have been growing steadily and last year it was among the top three recipients. What is the reason?
The country’s absorptive capacity is high and tax-GDP ratio is low. The country needs a lot of investment for socioeconomic development. We are happy to provide funds based on readiness of suitable projects. I feel Bangladesh can borrow more from institutions like the ADB if the project implantation can further be improved.
Bangladesh is set to become a middle-income country. How will the graduation affect the ADB’s lending and assistance in short, middle and long term? Bangladesh’s middle-income country status will not affect its partnership with the ADB. The strong partnership will rather be strengthened as the country grows.
