Bangladesh is among the five fastest growing economies of the world, in spite of

insufficient private sector investment.

Bangladesh’s growth outlook remains strong and stable. Sound macroeconomic

policies – such as keeping the budget deficit below 5 percent of GDP – and resilient
domestic demand have led to growth in manufacturing and construction industries on
the supply side. On the demand side, growth is led by private consumption and
exports. After a modest performance last year, export earnings and remittances have
bounced back helping the rural economy grow faster. In addition, the country has
substantially improved its electricity generation and a bumper agricultural harvest has
further stimulated growth.

Private Sector Investments Remain weak. Foreign Direct Investment (FDI) remains
low at less than 1 percent of GDP. Net FDI inflow amounted to $910 million in the
first half of FY19, compared with $823 million in the first half of FY18. The share of
machinery in total imports for leading industries such as textiles, garments,
pharmaceuticals, packing and leather has also declined, reaching 31.8 percent in July-
November 2018 from 55.6 percent in 2009. For Bangladesh to be an attractive
destination for industries, it is critical to make resources such as land, electricity and
gas available.

Lack of Regulatory Predictability. Businesses face regulatory uncertainty on

various fronts. Regulatory predictability matters because it makes property rights
insecure, thereby constraining investment. This leads to uncertainty for businesses –
medium-size firms seem to bear the brunt more than large or small firms – and with
inconsistencies in policy implementation, it can adversely affect employment growth.
Based on a survey of 72 businesses operating in Bangladesh, the following issues
were marked as critical to address:

- Use regulatory assessment

- Review and overhaul of existing laws, rules and Statutory Regulatory Orders
(SROs)

- Create a website and automatically publish all new laws, SROs

- Introduce online feedback mechanism and business-to-government feedback

loops on regulatory service quality

Bangladesh’s regulatory system needs the establishment of a technical regulatory

oversight body at the center of government to oversee, lead and report on regulatory
reforms.

Rise of non-performing loans (NPLs). Directed lending, poor risk management, and
weak corporate governance lead to the rise in NPL. The practice of loan rescheduling
and write-offs also increased, creating further stress on banks. Bangladesh Bank (BB)
approved loan rescheduling of BDT 191 billion in 2017 and BDT 200 billion in 2018.
NPLs are increasing despite these wholesale approvals of loan rescheduling. NPLs are
not evenly distributed among banks with five banks accounting for almost half of the
total NPLs.

How can Bangladesh continue to grow?

In order to become an upper middle-income country by 2031 and achieve high income
country status by 2041, Bangladesh will require huge investments in physical capital,
human capital, and innovation enabled by reforms in areas such as financial sector,
business regulation, and addressing the infrastructure gap.
The World Bank continues to support the government’s reform efforts to create large-
scale, inclusive jobs, besides addressing the needs of other development challenges.
Sustained reform efforts are needed in the following areas:

- Banking sector

- Tax structure along with addressing bottlenecks in public financial

management

- Infrastructure financing strategy in partnership with the private sector

- Skills for jobs growth starting with a skills development strategy

- Ease of doing business

“Bangladesh is known for its remarkable progress in reducing poverty and creating
opportunities for its citizens. It is among the 10 fastest growing economies in the
world and has made commendable progress on human development,” said Qimiao
Fan, World Bank Country Director for Bangladesh, Bhutan, and Nepal. “To
maintain the current growth trajectory, it needs to promote entrepreneurship,
innovation and structural transformation. Bangladesh should also focus on improving
education, skills, nutrition and adaptability to enable its workforce to thrive in an
environment of rapidly changing technology and global demands.

“To realize its goals of achieving upper-middle income status, Bangladesh must make
sure its economic fundamentals are sound,” said Zahid Hussain, World Bank Lead
Economist and author of the report. “As immediate measures, the country needs
policies to contain inflation, correct the exchange rate, and remove interest rate
distortions.”