BIDS Seminar Paper on Recent Performance of Bangladesh Economy

8/2/2019 BIDS Seminar Paper on Recent Performance of Bangladesh Economy

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Recent Performance of the Bangladesh Economy

An Assessment of the State of the Economy and Short-Term Outlook2009-10

by

The Bangladesh Institute of Development Studies (BIDS)

Presented at the Seminar

Jointly organized by

The Bangladesh Institute of Development Studies (BIDS)

andThe Federation of Bangladesh Chambers of Commerce and Industry (FBCCI)

23 February 2010


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Recent Performance of the Bangladesh Economy

An Assessment of the State of the Economy and Short-Term Outlook

2009-10

BIDS Research Team

The BIDS Research Team was led by Mustafa K. Mujeri and consisted of M. Asaduzzaman, Quazi

Shahabuddin, Zaid Bakht, K. M. Nabiul Islam, Nazneen Ahmed, Mohammad Yunus, S.M. Zulfiqar Ali,

Anwara Begum, Narayan Chandra Nath, Monzur Hossain, Md. Harunur Rashid Bhuyan, A.T.M Shaifullah

Mehedi, Md. Mansur Ahmed, and Md. Zabid Iqbal. The Research Team alone remains responsible for the

views expressed and analysis presented in this report.

23 February 2010

Bangladesh Institute of Development Studies

E-17, Agargaon, Sher-e-Bangla Nagar

Dhaka 1207

www.bids.org.bd


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Contents1. Introduction 12. RevitalizingtheEconomy:ExpansionofFiscalSpace 2

2.1RevenueCollection 22.2RevenueExpenditure 4

3. AcceleratingEconomicGrowth:PrioritytoAgriculture 53.1Agriculture 53.2 IndustryandServices 143.3SMEDevelopment 16

4. PromotingSocialDevelopmentandStrengtheningSocialSafetyNets 194.1Health 204.2Education 224.3 StrengtheningSocialSafetyNets 23

5. DevelopingPowerandEnergy 265.1GDPGrowthandElectricityConsumption 265.2GenerationStatusoftheElectricitySector 27

6. MaintainingMacroeconomicStability 326.1MinimizingImpactsofGlobalRecession 326.2MaintainingExternalSectorStability 356.3EnsuringPriceStability 446.4ManagingClimateChangeImpacts:FinancingIssues 48

7. EconomicWellBeing 507.1MovementsinWages 507.2PerceptionofChangesinWellBeing 55

8. LookingAhead:ChallengesandCriticalPolicyIssues 578.1BoostingInvestments 578.2AcceleratingEconomicGrowthandEnsuringFoodSecurity 598.3ManagingInflationandContainingInflationExpectations 598.4ReducingRegionalVariationinEconomicPerformance 608.5 ImprovingGovernanceacrosstheBoard 61

9. ConcludingRemarks 61


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Review of Recent Performance of the Bangladesh Economy

1. IntroductionThe fiscal year 2009-10 (FY10) is both unique and challenging for Bangladesh in many respects.The FY10 budget is the first budget of the newly elected democratic government which came topower with pledges to bring definite changes in the socioeconomic life of the common peoplealong with time bound targets in key areas under Vision 2021. The pledges were made in thebackdrop of rising strains in the economy in the face of heightened impacts of the globalrecession.

The global and domestic economic perspectives of FY10 were very different from a normalyear facing Bangladesh due to a number of reasons. At the beginning of 2009, the Bangladesheconomy started to experience the adverse impacts of the global recession in different sectorsand, by the beginning of FY10, many of these impacts deepened to create longer term

socioeconomic consequences. Economic growth decelerated in FY09, and export started to showabsolute decline since the beginning of FY10. Sluggishness in investment assumed a persistentcharacter and long neglect, corruption, and indecision in the power and energy sector contributedto further worsening of the investment climate. Although global recession and supplyaugmenting measures of the government somewhat eased the inflation situation in the first halfof 2009, inflation started to pick up since the beginning of FY10 largely fueled by importinduced inflation. In addition, the domestic economy faced two consecutive floods and cyclones(Sidr and Aila) which hampered normal economic activities. The economy, however, showedconsiderable resilience and succeeded in maintaining respectable growth and reasonablestability.

The policy responses of FY10 budget were designed in the light of these realities. The proposalsof the budget, in the words of the Finance Minister, were placed after carefully evaluating ourpreparedness to tackle the impact of global recession, analyzing the possible resource constraints,and taking into account the capacity for implementation of development programmes.1 Inparticular, the budget adopted an expansionary fiscal stance and identified agriculture and ruraldevelopment, power and energy, human resource development, industry and trade, and socialsafety nets as major sectors of priority.

The Medium Term Macroeconomic Framework (MTMF) provided the framework of the FY10budget. The assumption was that economic growth in FY10 would be 5.5 percent (revisedupwards to 6.0 percent later) and the average inflation rate would come down to 6.5 percent from7.0 percent in FY09. For the external sector, the apprehension was that the export sector would

be negatively affected by the global recession and the growth of remittances might slow down.On the other hand, it was expected that revenue collection would increase following theexpansion of tax and nontax revenue nets. The FY10 budget raised the size of the AnnualDevelopment Programme (ADP) and adopted counter-cyclical measures to stimulate domesticdemand and encourage investments. The thrust of the budget has been on generating more

1 See, Budget 2009-10: Budget Speech, Abul Maal Abdul Muhith, Minister, Ministry of Finance, Dhaka 11 June2009, p. 6.


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employment, expanding the social safety nets, creating self-employment opportunities, reducingregional disparity, providing emphasis on agriculture, achieving the target of power generation,accelerating industrialization, and building necessary infrastructure for Digital Bangladesh.

2

The government has completed its first year in January 2010 and the economy has entered thesecond half of FY10. This review provides an assessment of the performance of the economy

during the first half of FY10 keeping in perspective earlier developments especially in FY09.The purpose is to identify both current strengths and weaknesses, and challenges that theeconomy might face in maintaining macroeconomic stability and achieving key socio-economictargets in the short term. It also provides an outlook for FY10 based on past developments andlikely movements of major macroeconomic indicators during the rest of the fiscal year.

The review has been organized around seven priority areas identified in the FY10 budget. Thereview draws upon two major sources of data. First, data/information collected from differentgovernment ministries/agencies as well as published/unpublished documents. Second, a FieldSurvey carried out by BIDS in the second half of December 2009 in selected districts of thecountry. The survey, though limited in size and scope, provided useful insight on grassroots leveldynamics of the Bangladesh economy as experienced by the common people in specific contexts.

2. Revitalizing the Economy: Expansion of Fiscal Space

2.1 Revenue Collection

The FY10 budget set revenue target at Tk. 794.61 billion indicating a growth of 14.9 percentover the revised budget figure of Tk. 691.80 billion for FY09. But the actual revenue collectedduring FY09 was significantly less. According to the Ministry of Finance, actual revenuecollection during FY09 is Tk. 639.79 billion with actual NBR revenue at Tk. 502.05 billion. 3However, NBR reports a revenue collection of Tk. 525.26 billion in FY09.4 Combining thesetwo sets of information, actual revenue earning during FY09 is likely to be between Tk. 662billion and Tk. 670 billion. Compared with this figure, the revenue target for FY10 implies a

revenue growth of nearly 20 percent.

It may be mentioned here that during the 10-year period covering FY97 to FY07, yearly growthin revenue collection varied from a low of 4.9 percent to a high of 14.5 percent; the averageyearly growth being 11.2 percent. The only exception was FY08 when revenue growth shot up to22.0 percent largely because of steep rise in the prices of imports. But in the following year(FY09) growth in revenue came down to 12.0 percent.

In view of this historical trend in revenue growth, achieving the target set for revenue collectionduring FY10 would require better than usual performance in all three broad components ofrevenue, namely, NBR tax, non-NBR tax and non-tax revenue.

NBR Revenue

The budget FY10 set NBR revenue target at Tk. 610 billion. During July-November 2009,revenue collection by NBR stood at Tk. 216.67 billion, which is about 35 percent of the yearlytarget and 15.6 percent higher than the revenue collected by NBR during the same period ofFY09. It may be mentioned here that NBR revenue collected during July-December 2008 also

2 See, ibid. p. 28.3 See,Monthly Fiscal Report, September 2009,Ministry of Finance.4 NBR website, 24 December 2009.


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experienced 15.3 percent growth over the revenue collected during the same period in theprevious year.

One of the main strategies set out in the FY10 budget for resource mobilization is enhancingrevenue collection from income tax and local value added tax (VAT) and reducing dependenceon revenue from imports. The structure of revenue collected during July-November 2009 appears

consistent with this approach of the budget. Because of substantial reduction in customs duty oncapital machinery and raw materials and continued low price of imports due to global recession,revenue from import sources registered only 5.4 percent increase during July-November 2009over the import revenue collected during the same period in 2008. In contrast, revenue from localVAT and income tax during July-November 2009 grew at rates of 26.1 percent and 23.4 percentrespectively over the revenue collected during the same period in 2008. The revenue target set inbudget FY10 against actual revenue collected during FY09 implies a rate of revenue growth of11.3 percent from import source, 14.8 percent from local VAT, and 19.5 percent from incometax. As is evident, both income tax and local VAT collection rates during July-November 2009have been significantly higher than the target rates while revenue collection from import sourcessignificantly fell short of the target.

If the rate of growth in NBR revenue observed during July-November 2009 is sustained duringthe rest of FY10, then total NBR revenue at the end of FY10 will stand at Tk. 607.20 billion,which will be close to the NBR revenue target of Tk. 610 billion in the budget.

In FY09, imports accounted for nearly 40 percent of revenue collected by NBR while the shareof income tax and local VAT stood at 26.4 percent and 20.9 percent respectively. With globaleconomy moving gradually towards recovery, the international commodity prices are showingrising trend. This, along with acceleration in the pace of imports since November 2009, is likelyto result in higher revenue earning from import sources during the rest of FY10. At the sametime, the on-going efforts of NBR towards improved coverage and better tax administration inthe field of local VAT and income tax have started to yield results and if sustained will

contribute towards better growth in revenue earnings from these two sources. The prospects ofNBR in meeting its revenue target in FY10 thus appear bright.

Non-NBR Tax and Non-Tax Revenue

The FY10 budget set the target for non-NBR tax revenue at Tk. 29.55 billion, which is about 17percent higher than the revised budget figure of Tk. 25.26 billion in FY09. The actual non-NBRtax collected in FY09 stood at Tk. 26.53 billion. Compared against this figure, the target of non-NBR tax for FY10 implies a growth by nearly 11.40 per cent. It may be mentioned here thataccording to the Monthly Fiscal Report of the MOF, non-NBR tax increased from Tk. 18.54billion in FY07 to Tk. 23.13 in FY08 indicating a growth of nearly 25 percent.

Data on non-NBR tax revenue are available for the first quarter of FY10 and show a revenue

collection of Tk. 6.56 billion, which constitutes 22.2 per cent of the target revenue from thissource. If this trend continues about 88.8 percent of the target revenue will be collected duringthe year resulting in a shortfall of nearly Tk. 3.3 billion.

The target for non-tax revenue was set at Tk. 155.06 billion in budget FY10. This is 13.6 percenthigher than the revised budget figure of Tk. 136.54 billion in FY09. The actual collection of non-tax revenue in FY09 stood at Tk. 111.21 billion. Against this figure, the growth in revenuetargeted for FY10 works out at nearly 39.4 percent.


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The first quarter data show a collection of non-tax revenue of Tk. 64.12 billion, which is nearly41.3 percent of the yearly target. If this trend continues, non-tax revenue collection could exceedthe target of the FY10 budget.

2.2 Revenue ExpenditureThe total revenue expenditure has been set at Tk. 787 billion in FY10. During the first quarter,revenue expenditure was 13.9 percent of the total. It is likely that revenue expenditure wouldgrow faster in the coming months with the implementation of the new pay scale for thegovernment employees and picking up of the government activities in general. At the same time,subsidies to farmers and stimulus packages announced for different sectors would put pressureon revenue expenditures.

Annual Development Programme (ADP)

The size of ADP was fixed at Tk. 305 billion for FY10 which is about 75 percent higher than theactual ADP expenditure of FY09. Over the first six months of FY10, the ADP implementationrate was 29 percent, slow but better than that of the last year (24 percent). Unless theimplementation rate can be increased, shortfall in utilization of targeted ADP is likely to emergeas in the past years. The disagreement over the recently modified procurement rules has alsoaffected the implementation of donor assisted ADP projects.

The rate of implementation of ADP over the July-December period of FY10 and previous threefiscal years is given in Table 2.1. The implementation rate of FY10 ADP, despite its large size, isbetter than the last three years with 29 percent of total ADP implemented in financial terms inthe first six months. In absolute terms, this is Tk. 8,807 crore, which is 42 percent higher than theamount spent during the same period of FY09. This reflects a significant acceleration over thelast few years, but this needs to be further improved in order to reach the targets of ADP.

Table 2.1: Implementation Status of ADP, July-December

FY10 FY09 FY08 FY07

No. of projectsof which: new projects

88635

904104

93141

88643

ADP allocation (Tk. in crore)Share of project aid in total (%)

30,50042

25,60047

26,50037

26,00034

% of disbursement in total allocation 45 40 38 35

Utilization status (% of total):Total ADPTaka componentProject aid component

293028

242622

212022

252427

Source: IMED

The utilization rates of both Taka component and project aid component have improved. Therecent simplification and modification in the award process of implementing ADP projects andchanges in procurement rules might have played a role in improvement in the implementationstatus of ADP in this fiscal.5 Out of the 48 ministries/divisions included in the ADP, the fund

5 Several donors, however, reacted sharply against some of these changes and consequently there was a slowdown inthe implementation of aided projects. The issue has now been resolved with the government deciding that thechanges in the procurement rules would only be applicable to government funded projects.


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utilization rate of only 19 ministries/divisions was higher than the average (29 percent). Eightministries recorded utilization rates of more than 50 percent of the amount released: Ministry ofLabour and Employment 82 percent, Energy and Mineral Resources Division 74 percent,Ministry of Commerce 62 percent, Ministry of Land 58 percent, Internal Resources Division 54percent, Ministry of Religious Affairs 52 percent, Rural Development and Cooperatives Division

52 percent, and Ministry of Post and Telecommunications 50 percent.Five ministries (Ministries of Local Government, Rural Development and Cooperatives; Power;Communications; Health and Family Welfare; and Primary and Mass Education) received 63percent of the total ADP allocation in FY10. Most of these ministries performed better thanaverage. Incidentally, these ministries and divisions belong to the group that is included in theMTBF. The weak implementation capacity of the ministries/agencies continues to remain amajor bottleneck of public sector investment which hurts not only the progress in terms of thesocial goals but also constrains the creation of essential public goods needed to promote ahealthy and vibrant private sector.

Budget Deficit and Financing

The budget deficit in the first quarter of FY10 stood at Tk. 9.63 billion (excluding grants), muchhigher than Tk. 0.58 billion over the same period of FY09. From the external source, thegovernment borrowed Tk. 7.2 billion and amortized Tk. 9.4 billion. Net foreign financing of thedeficit was thus negative and there was a net outflow of Tk. 2.2 billion. Net domestic borrowingamounted to Tk. 11.33 billion in the first quarter of FY10 compared with a net repayment of Tk.1.6 billion in the previous year. The government borrowed about Tk. 30.5 billion from thebanking system while, in the case of nonbank borrowing, there was a net repayment of Tk. 19.1billion.

3. Accelerating Economic Growth: Priority to Agriculture

The FY10 budget initially targeted a GDP growth rate of 5.5 percent considering the depressed

global outlook. The growth rate, however, was later revised upward to 6.0 percent comparedwith 5.9 percent attained in FY09.

3.1 Agriculture

Crop Production

The FY10 budget proposes a comprehensive approach to developing the rural economy coveringboth farm and nonfarm sectors. Within the approach, one of the objectives is to achieve selfsufficiency in food by 2012. For the purpose, major actions proposed in the budget include: (i)expansion of irrigated area and creation of multiple crop production opportunities; (ii) enhancedsubsidy to agriculture; (iii) increased production and distribution of high yielding variety seedsand enhanced capacity for preservation and storage; (iv) emphasis on agricultural research and

rehabilitation; and (v) increased flow of agricultural credit.

Food grains Production

Food grains production has increased rapidly in Bangladesh from around 10 million tons in early1970s to more than 30 million tons in recent years. Total food grains production in FY09 was32.2 million metric tons (aus 1.9 million metric tons, aman 11.6 million metric tons, boro 17.8million metric tons, and wheat 0.9 million metric tons). The target for food grains production forFY10 is 35.3 million metric tons (aus 2.5 million metric tons, aman 12.7 million metric tons,


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boro 19.0 million metric tons, and wheat 1.1 million metric tons), higher by nearly 10 percentthan last years production.

The production of aus in FY10 has been estimated at 1.7 million metric tons, lower by 10 percentfrom last years production. The estimate of aman production is yet to be made. Availableinformation, however, indicates that aman production is not likely to be very different from last

years production level. Drought conditions existed in some parts of the country which affectedaman production. There were also reports of pest attacks in some areas.

Figure 3.1: Estimated Yield of Aman(maund/decimal) by Regions

0 . 2 2

0 . 3 9

0 . 3 2

0 . 3 9

0 . 3 1 0 . 3 1

0 . 2 1

0 . 3 9

0.00

0.05

0.10

0.15

0.20

0.25

0.30

0.35

0.40

0.45

Ea st ern Ce nt ra l S out he rn Nort he rn

2008 2009

Source: BIDS Field Survey 2009

Figure 3.2: Estimated Yield of Aman(maund/decimal) excluding Aila Affected Areas

The Field Survey carried out by BIDS forthis review shows that the yield rate ofaman in FY10 has significant regionalvariations (Figure 3.1). The estimated yieldof aman is highest in the northern regionfollowed by eastern and central regions. Itis lowest in the southern region (by 46percent compared with the northernregion). The yield rate in the southernregion remains the lowest even if the Ailaaffected areas are excluded (Figure 3.2).On average, the yield rate is unchanged inthe northern region compared with lastyears level while it has risen in the easternregion and declined in the central andsouthern regions. The reasons for betterperformance in eastern and northernregions are varied which include: (i)relatively flood free environment duringcultivation and harvesting periods; (ii)absence of pest attacks; (iii) improvementin supply and availability of good qualityseed, fertilizer, and diesel at reasonablecosts and consequent balanced use offertilizer; (iv) wider application of river,rain, and surface water for irrigation andavailability of diesel at subsidized prices;and (v) absence of any major droughtconditions during the cultivation period.6

0 . 2 2

0 . 3 9

0 . 2 8

0 . 3 9

0 . 3 1 0 . 3 10 . 2 7

0 . 3 9

0.00

0.05

0.10

0.15

0.20

0.25

0.300.35

0.40

0.45

Ea st ern Ce nt ra l S out he rn Nort he rn

2008 2009


The BIDS Field Survey identified several factors that affected the yield of aman crop in the

central and southern regions. The major ones are: (i) irregular rainfall during the cultivationperiod; (ii) insect/pest attack in many areas; (iii) salinity and saline water intrusion in Ailaaffected areas precluding aman and other crop cultivation due to inundation by saline water; (iv)

6 These are some general factors that helped to increase or at least maintain aman yield relative to last years level.There also exist some region specific factors. For example, aman production in Madaripur was hampered by floodlast year but there has been bumper production this year because of flood free environment. Similarly, farmers inNilphamari reported fewer problems in getting fertilizer this year which helped in raising the yield.


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drought especially in high land areas of the central region; (v) low quality of seed (includingthose of BR33 and Heera) in several areas in the central region; and (vi) inadequate marketconditions to ensure fair prices to growers.

Given the production level of aus and expected production of aman which is likely to be aroundthe same level as that of the last year, there is likely to be a shortfall of nearly 2 million metric

tons compared with the production targets of these two crops set for FY10. If the rice productiontarget of FY10 is to be achieved, boro production will have to be around 21 million metric tonscompared with the target of 19.0 million metric tons. This would obviously need more effortsthan planned for the boro season in terms of support to agriculture such as subsidies to fertilizer,diesel and electricity; timely availability of these inputs and quality seed in adequate quantities tothe farmers; proper disbursement of agricultural credit especially to small, marginal and tenantfarmers; and other support essential to raise boro production.

Food Availability and Imports

Ensuring higher production of boro would be critical to ensuring stability in the domestic ricemarket and food security in the country. Total imports of food grains was 3.01 million metric

tons (0.6 million metric tons of rice and 2.41 million metric tons of wheat) in FY09. During thefirst three months (July-September 2009) of FY10, total rice import was 3.6 thousand metric tons(all under food aid) and wheat import was 334.9 thousand metric tons (food aid 28.9 thousandmetric tons and private import 306 thousand metric tons). The import target for food grains forFY10 is 3.7 million metric tons comprising of 0.15 million metric tons of food aid, 1.05 millionmetric tons of government commercial import, and 2.50 million metric tons of private sectorimport. At the end of September 2009, public stock of food grains remained at a reasonablycomfortable level of 1.38 million metric tons. The food grains market situation during theremaining period of FY10 would depend on two critical factors: production level of boro, and thevolume of private sector import of food grains.

The import of food grains by the private sector depends on availability and prices of food grains

in the international market vis-a-vis domestic supply and prices. Although the global endingstocks of rice and wheat was higher at 311.4 million metric tons (rice 120.1 million metric tonsand wheat 191.3 million metric tons) in 2008-09 compared with 260.8 million metric tons (rice109.2 million metric tons and wheat 151.6 million metric tons) in 2007-2008, the medium termoutlook indicates rising rice and wheat prices in the global market in 2009-10 due especially todecline in global rice production. Therefore, it is more likely that Bangladesh would face a risingprice regime for both rice and wheat in the global market during the remaining period of FY10.

Prospects of Boro Production

The production of boro and wheat for FY10 is at the initial stage and it would be important toensure a bumper boro harvest to meet the shortfalls of aus and aman production and ensure

adequate supply of food grains in the domestic market.

From the BIDS Field Survey, a mixed picture emerges regarding boro production from differentregions of the country. In central and northern regions, the farmers are expecting goodproduction in the absence of any natural disaster and subject to availability of adequate water forirrigation and timely supply of other inputs. In the eastern region, boro production is expected tobe normal if adequate supply of irrigation and others inputs can be assured. In these regions, thearea under boro cultivation does not seem to have changed much compared with the cultivatedarea under boro rice last year. In the southern region, prospects are good in some areas while in


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other areas (e.g. Satkhira and adjacent areas) boro production has been hampered by saline waterintrusion. In this region, total area under boro cultivation seems to have declined relative to lastyear.

During the BIDS Field Survey, the farmers reported several problems which discouraged them togo for higher boro production. These include: (i) difficulties in accessing adequate credit; (ii)

high prices of fertilizer, diesel, and insecticides; (iii) shortage of labor for cultivation in time andabsence and/or high cost of alternative equipment (e.g. tractor); (iv) high probability of floodingin low lying areas (e.g. in eastern region) and coastal areas (southern region) having noembankments and sluice gates; (v) problem of water logging in specific locations (e.g.Madaripur); (vi) limited availability of surface water for irrigation; (vii) lack of timely andadequate supply of electricity for irrigation; (viii) problems with timely availability and qualityof seed (especially with respect to hybrid seed), fertilizer, insecticides, and other inputs; and (ix)lack of timely advice from extension agents in case of pest attack or other problems.

Overall, the BIDS Field Survey shows that the production of boro may not increase much inFY10 and it is more likely that the production of boro rice and wheat would remain closer to lastyears levels. According to the Field Survey, the yield of boro is likely to be above the normallevel or at least at the normal level in central, northern, and eastern regions but it might slightlydecline in the southern region. Normal weather conditions and the absence of any naturaldisasters are, however, essential preconditions of reaching the expected boro production. In viewof the production levels of aus and aman, and the prospects of boro and wheat, total productionof foodgrains in FY10 is likely to be around the same level as that of last year (that is around 32million metric tons) which is about 10 percent lower than the target set for FY10.

Input Subsidy, Availability of Fertilizer and Irrigation

Timely availability of chemical fertilizer (both urea and non-urea) in adequate quantities and atreasonable prices is imperative for sustained growth of food grains production. Total fertilizeruse in FY09 of 28 lakh tons was the lowest in the last five years (Table 3.1). This low use of

fertilizer, especially non-urea fertilizer (such as TSP, MOP, DAP), may largely be attributed totheir high prices particularly during the first half of FY09. The newly elected governmentdecided to provide subsidy to the non-urea fertilizer (TSP, MOP and DAP) which reduced theirprices to about half of their previous levels. It was a timely decision which contributed topromoting more balanced use of fertilizer and reducing production cost of the farmers. Followingthe reduction in international prices of fertilizer, the government further reduced theadministered prices of TSP, MOP and DAP in November 2009. This is expected to providefurther boost in fertilizer use and consequently to boro production in FY10.

The cost and availability of irrigation, especially irrigation by diesel-operated pumps whichconstitute about 75 percent of total irrigation, is another major area of concern for boro

production. The Ministry of Agricultures request for budgetary resources of Tk. 750 crore fordiesel subsidy appears to be a step in the right direction, particularly when the irrigation costclaims a large share of the total production cost of boro. But ensuring proper distribution of thesubsidy to the targeted farmers remains a challenge. The preparation of a comprehensive database and introduction of Input Delivery Card for eligible farmers is a welcome move but needs tobe efficiently done to avoid leakages and reach intended beneficiaries. The continuation with theprovision of 20 percent subsidy for electricity used for irrigation would also help the farmers.


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Table 3.1: Use of Fertilizer in Recent Years

(lakh metric ton)

FY06 FY07 FY08 FY09 FY10(projected)

Urea 24.61 25.27 26.68 24.00 28.00

TSP 4.36 3.40 4.61 2.00 5.98

MOP 2.91 2.30 4.01 1.50 4.50

DAP 1.30 1.15 2.50 0.50 2.50

Total 33.18 32.12 37.80 28.00 40.95Source: DAE, Ministry of Agriculture, GoB.

Disbursement of Agricultural Credit

In the Annual Agricultural/ Rural Credit Policy and Programme for FY10, special emphasis hasbeen given on expansion of agricultural credit. Along with state owned banks, privatecommercial banks (PCBs) and NGOs have been encouraged to disburse agricultural credit to

farmers, especially in agriculturally underdeveloped areas. The government allocated Tk. 11,512crore in FY10 budget for the purpose, which is 24 percent higher than actual disbursement inFY09. During July-November 2009, total disbursement of agricultural credit was Tk. 4,250 crorewhich exceeded, by more than 25 percent, the credit disbursement during the correspondingperiod of FY09. The recovery of agricultural credit during the period was also higher by 87percent than the amount during the corresponding period of FY09. Thus both disbursement andrecovery of agricultural credit increased. An important feature of agricultural credit of FY10 isthe allocation of Tk. 500 crore by the Bangladesh Bank exclusively for the sharecroppers. Thiswould be disbursed to the tenant farmers through BRAC. The attempt, if successful, would nodoubt ameliorate the sufferings of the poor tenant farmers who cannot make requiredinvestments in crop cultivation due to severe cash constraints.

Field Experience of Aman and Boro Production

The BIDS Field Survey 2009 brings out several problems that the farmers faced with respect tokey inputs during aman cultivation: (i) inadequate quantity and low quality of seeds during thecritical period of plantation in several areas; (ii) fertilizers were not available in the open marketand could only be purchased from the dealers at higher than government determined prices; (iii)higher prices of pesticides but the major problem was its quality; (iv) irrigation cost wasrelatively high; the farmers had to spend, for irrigating 30 decimals of land, between Tk. 500-600for diesel and Tk. 300-400 for electricity; (v) accessing agricultural credit from the banks wasdifficult due to harassment by bank officials (e.g. demanding bribes and asking for documentswhich the farmers found difficult to produce) which compelled many farmers to turn to local

landlords/mahajans for informal credit at very high rates; (vi) Bank officials often showreluctance to provide credit to small farmers (e.g. those having less than 2 acres of land) whichconstrain the poor farmers in accessing agriculture credit. In addition, the amount of loan is lessthat the farmers require. Farmers need a loan amount of Tk. 5 to 6 thousand per bigha forcultivation of boro, but the banks tend to give only Tk. 2 to 3 thousand which is not adequate tomeet cash cost especially for the poor farmers; and (vii) little cooperation of block supervisorsand upazila agriculture extension workers in times of need.


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Regarding changes in the intensity of the problems compared with the previous year, the opinionof the farmers indicates improvements (Table 3.2). Most farmers reported that they had facedfewer problems in FY10 relative to FY09 with respect to getting seeds, fertilizer, pesticides anddiesel, but the situation did not improve in case of irrigation, accessing agricultural credit, andgetting extension support.

Table 3.2: Change in Overall Problems faced by Farmers during Aman Cultivation

Input Overall problems faced byfarmers in FY10 relative to

FY09

Suggestions

Seed Less Ensure timely supply of quality seeds in theopen market.

Fertilizer Less Adopt measures to ensure adequate supplyof all fertilizers in rural locations/markets atgovernment determined prices. .

Pesticides Less Ensure timely supply of quality pesticides in

adequate quantities in rural areas.Irrigation No change Subsidy for irrigation needs well targeting

and timely and uninterrupted supply ofdiesel/electricity needed.

Diesel Less Ensure well targeted diesel subsidy.

Agricultural credit No change Ensure easy and corruption free distribution.Extension supportfrom blocksupervisors andagricultural officers

No change More intensive monitoring at the field levelneeded to ensure timely availability ofrequired extension services and support.


Figure 3.3: Cultivation Cost of Aman perDecimal (Tk.)

The BIDS Field Survey shows that the totalcost per decimal of aman cultivation variessubstantially over the regions in the country(Figure 3.3). Although this is not a measure ofprofitability, it shows the wide variation incosts that the farmers had to incur incultivating the aman crop. On the other hand,compared with the earlier year, total cost perdecimal of cultivating aman declined ineastern, central, and southern regions but

increased in the northern region in FY10. InFY10, the lowest cost was in the eastern regionwhich was lower by more than 43 percent ofthe cost in the northern region. With loweryield of aman during 2009 over 2008 except inthe eastern region, these cost figures mean asubstantial lowering of unit costs of inputs in

0.00

10.0 0

20.00

30.00

40.00

50.00

60.00

70.00

80.00

90.00

100.0 0

Eastern Central Southern Northern

2008 2009



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all regions except in the northern region. Given that the northern region is a major amanproducing zone, the rise in costs in this region is a major cause of concern both for the farmersas well as the consumers.

For the FY10 upcoming boro crop, the farmers reported some problems for which quick actionsare needed to ensure a good harvest:

Ensuring proper irrigation for boro is necessary. The availability of surface water in mostareas is limited and not much investment has been made in recent years underprivate/public initiatives to install new deep/shallow tubewells and/or to replace the oldones. In this situation, optimal utilization of existing facilities is essential along withensuring adequate supply of diesel and uninterrupted supply of electricity to meetirrigation needs in a timely manner.

The supply of quality fertilizer and pesticides in adequate quantity needs to be ensured inall locations.

The diesel subsidy needs to be distributed to target farmers in a transparent manner.

Sensitization and effective field level monitoring of block supervisors and upazilaagriculture extension workers are needed to assist the farmers in mitigating any emergingproblems in boro production.

For the future, the farmers recommended that (i) the government needs to find out variousoptions (e.g. public private partnership, involvement of NGOs), if necessary, to expand surfacewater irrigation and install deep/shallow tube wells to increase irrigation facilities; (ii) thegovernment needs to strengthen the mechanism for ensuring the quality of seeds and seed marketmonitoring; (iii) the subsidies on fertilizer and irrigation are critical for the farmers in order toensure profitability of crop production and these should be expanded and well targeted; (iv) themarket for inputs, especially that of fertilizer, should be made competitive through expandingavailability in the open market and shrinking the monopoly power of the fertilizer dealers; (v)agricultural credit delivery system should be made more efficient that can ensure easy access topoor and tenant farmers along with adequate quantities; and (vi) embankments, dykes, and floodprotection measures should be built in appropriate locations to protect crop outputs.

Future Challenges

Boro rice accounts for nearly 55 percent of the countrys total rice output while the rest comesmostly from the aman crop. Aus rice is now concentrated in specific locations and the scope ofincreasing its production is limited. Area under aman rice has remained mostly unchanged overyears. Producing more rice out of a shrinking base of rice land is unlikely without improvementsin yield per unit of land. The governments strategy is to put more emphasis on aman rice whichis a step in the right direction particularly as boro which is dependent on ground water irrigation

has the possibility of arsenic contamination in food chain. However, aman rice is susceptible tofloods during its early phases of growth and moisture stress or drought in the later phase. Thisrequires emphasis on research to evolve flood and drought tolerant and/or shorter maturityvarieties which can avoid the moisture stress period. Some such varieties of rice are alreadyavailable. Now the government needs to provide adequate extension services to popularize thecultivation of these varieties and address any field level problems that may arise. The challengeis to devote adequate resources for research and technology development in these areas and makeextension a more responsive activity.


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Non-Rice Crops

The BIDS Field Survey 2009 reveals better performance of non-rice crops during the first half ofFY10 compared with the same period of the last fiscal year except in the aila affected areas. Thereduced prices of non-urea fertilizers enabled the farmers to use more of these fertilizers therebycontributing to higher production. The period was relatively flood free with no major natural

disasters which helped in vegetables and other crop cultivation. The expectation is that the betterproduction performance will continue during the rest of the year if availability of credit for non-rice crop sub-sector is ensured; supply of non-urea fertilizer at reasonable prices is ensured;water for irrigation is available; and no major natural disasters occur.

Fisheries

Fisheries fall broadly into three main categories: inland capture, inland culture and marinefisheries. Inland capture fishery plays the dominant role in this sub-sector. Bangladesh has alarge number of big and small rivers. All these rivers have extensive floodplains along bothbanks. All the floodplains remain inundated with flood water of varying depths during themonsoon. Within floodplains, there exist some deep depressions, locally called as beels or haors,

some of which retain water throughout the year. All these rivers, floodplains, beels and haorsconstitute the source of countrys inland (open water) capture fisheries.

Inland culture fisheries include pond culture, ox-bow lakes (baors) and shrimp farms. Thecountry has thousands of manmade ponds and reservoirs, 52 percent of which are currently beingused for fish culture, 32 percent are reported as culturable, and the remainder are consideredderelict. Marine fisheries of the country are made up of marine industrial (trawl) and marineartisanal fisheries. The coast line of the country is approximately 480 km. in length and area ofthe sea as exclusive economic zone (EEZ) is about 70,000 sq. km.

Inland capture fisheries still dominates the whole sector and constitutes more than 41 percent ofthe total fish production with an average annual rate of growth of 5.6 percent. Inland culture

fisheries contribute about 39 percent of total production with an average annual growth of 6percent. Marine fisheries constitutes about 20 percent of total fish production (with a growth of5.4 percent per annum), of which marine artisanal alone contributes 19 percent.

The availability of fish in the open water capture fisheries is decreasing in recent times becauseof over exploitation of resources and contamination of the environment with pollutants like agro-chemicals, industrial wastes and urban sewers. Urbanization, development of housing projects,and construction of flood control embankments and roads are also the causes of resourcedegradation which adversely affect the breeding and spawning of many indigenous fish species.Because if these factors, rivers like Buriganga, Turag, Balu and part of Sitalakkhya have becomebiologically dead.

Inland aquaculture production is constrained by the unavailability of appropriate seed, feed andextension services. Main constraints for the expansion of shrimp farming and coastal aquacultureinclude inadequacy of proper water management infrastructure, scarcity of good quality shrimppost larvae, inadequate technological support, and failure to maintain quality between harvest toprocessing. For sustainable exploitation of marine resources, main constraints include lack ofknowledge of resource availability and location of resources, alleged over-fishing, andencroachment of trawlers of neighbouring countries.


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Growth Potentials

Average yield in open water capture fisheries is around 200 kg/ha which can be doubled throughproper management and enforcing fisheries legislation. There are some examples of goodpractices of open water fisheries management where yield has reached significantly higher thanthe average yield of capture fisheries. Institutionalizing community-based fisheries management,

maintaining sanctuaries and no-fishing period; encouraging beel nursery and artificial re-stocking in the fishery; and proving training and extension services can help achieve highergrowth in the open water capture fisheries in the future.

The average annual yield of the cultured ponds is around 2 tons/ha, which is lower than somehighly productive private farms and projects run by NGOs. Some fish farmers are achievingyield of 4-5 tons/ha, or even more. The average yield of culturable and derelict ponds is evenlower; 928 and 508 kg/ha respectively. However, inland culture fishery is increasing steadily andit has considerable potential for future development.

For the marine fisheries, exploration of external markets is necessary for enhancing productiongiven the limited size of domestic market for these products.

Way Forward

In order support the fisheries sub-sector to grow further, the following strategies may be takeninto consideration:

Control of pollution of the rivers and prevention of further deterioration of water-logging,blockade of water flows, and shrinkage of water-bodies by development of roads,embankments and housing projects;

Establishment and maintenance of sanctuaries and enforcing conservation strategies (e.g.,ban on fishing for certain period of the year, etc.);

Introducing community-based fisheries management and replicating best practice

management in other places;

Regulating the operation of hatcheries, nurseries and supply of spawn and fry, andproduction, import and marketing of fish and shrimp feed, feed ingredients, and otherinputs;

Promoting penculture and cageculture;

Defining and maintaining shrimp culture zones in the coastal areas;

Providing adequate training, technological support and extension services in all sub-sectorsof fisheries; and

Carrying out a comprehensive survey of marine fisheries resources and regular updatingand determining maximum sustainable yield.

In addition, several other things need to be taken into consideration in order to improve theimplementation capacity of the public sector programmes/projects. These include: trainedmanpower and promoting skills, avoiding too many small projects of similar nature, providingadequate infrastructural and transport support; providing adequate operation fund and somedecision making power at the field levels, and facilitating GO-NGO collaboration.


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Livestock and Poultry

Around 3.7 million cattle (and buffaloes) are slaughtered annually in the country of which 20percent are imported through cross-border trade. Due to increased demand and consumerpreferences for meat of local bred animals, cattle and goat fattening has become an importantincome generating activity for small holder farmers. However, livestock and poultry farming in

Bangladesh is suffering from many constraints some of which include limited knowledge andtechnical skills, scarcity of quality feed and fodder, frequent occurrences of diseases, limitedcoverage of extension services including veterinary services, and absence of appropriateregulatory body. The commercial poultry farmers are also facing acute scarcity of good qualitychick, feed and other inputs like vitamin premix, medicine, etc., and lack of extension servicesand increased threats of diseases.

The acute shortages of feed and fodder in the single most important obstacles to livestockdevelopment in Bangladesh. Most of the dairy and poultry farmers are also facing problems ofadulterated and inferior quality of commercial feed and feed ingredients.

There are, however, potentials for increasing milk and meat yield if the quality feeding, better

veterinary care, intensive extension services and improved management can be ensured. Forpoultry, a mix of increasing number of farms and birds together with quality improvement isexpected to produce good results.

Farmers perception regarding expected production of some major non-rice crops and fisheriesand poultry sub-sectors are given in Table 3.3.

Table 3.3: Farmers Perception on Performance of Non-Rice andNon-Crop Sub-Sectors, July-December 2009

Performance relative to same period last yearRegion

Wheat Pulses Potato Vegetables Poultry Fisheries

Southern Good Good Good Same Same MixedCentral Very good Very

goodVery good Same Very

goodVery good

Eastern Slightlybetter

Better Very good good Verygood

Very good

Northern Same Same Bumperproduction

Very good Verygood

Same


3.2 Industry and Services

The industry sector, especially the manufacturing activities, has experienced significantdepression in the wake of global recession and downturn of economic activities during the firstsix months of FY10. Recent data on industry sector performance are not readily available and itis therefore difficult to identify the emerging trends.

But whatever data are available, these indicate a rather poor performance of large and mediumscale manufacturing industries. These industries registered a growth of only 2.2 percent duringthe first two months of FY10 over the same period of the previous fiscal year. The major exportoriented industries registered little growth during the first two months, responding especially tothe negative export growth of the period.


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On the other hand, manufacturing industries catering mainly to the domestic market (includingthe small scale industries) have performed better during the period. Some indirect evidence, e.g.electricity and gas consumption by industrial establishments shows some picking up of industrialproduction especially during the second quarter of FY10. The gas consumption in differentindustry related activities (e.g. power generation, industrial and commercial activities) rose

between 10 percent and 20 percent during July-October 2009 indicating revival of the industrysector growth.

The disbursement of industrial term loan rose by 9 percent during July-September 2009compared with the same period of the previous year which indicates positive investments in theindustry sector. The distribution of outstanding advances shows that most of the term loans wentto domestic market oriented industries. The service related industries, on the other hand,accounted for a low share of term loans but advances for working capital financing grew robustly(at about 37 percent). Several service sector activities showed good performance in this respectincluding hospitals, IT services, travel agencies, and entertainment while a poor performancewas recorded by cold storage, and hotels and restaurants. The trade sector also got a boost with35 percent of total advances going to various trading activities during the period.

Investment Registration with the Board of Investment

During July-December 2009, a total of 686 investment proposals amounting to Tk. 95,849million were registered with the Board of Investment (BOI) against 627 proposals involvingTaka 88,213 million during the same period in 2008 showing an increase of 8.7 percent (Table3.4). As in the earlier year, textiles and chemical industries were the two main sub-sectors ofinvestment and accounted for almost 60 percent of the proposed investment during July-December 2009.

Table 3.4: Sector-wise Registration of Investment with the BOI

July-December 2008 July-December 2009Sector

No. Amount(Million

Tk.)

Share intotal (%)

No. Amount(Million

Tk.)

Share intotal (%)

Agro-based industry 23 2,806 3.2 71 9,302 9.7

Food processing 19 1,686 1.9 21 8,880 9.3

Textiles 369 49,099 55.7 309 32,288 40.0

Printing & publication 17 1,312 1.5 19 1,797 1.9

Leather & leather products 2 30 0.03 2 40 0.04

Chemical industries 62 19,684 22.3 97 19,262 20.1

Glass and ceramics 2 1,910 2.2 2 180 0.2

Engineering 81 7,666 8.7 123 9,322 9.7

Service industry 48 3,950 4.5 34 8,488 8.9

Miscellaneous 4 70 0.08 8 289 0.3

Total 627 88,213 100 686 95,849 100

Source: BoI


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If registered investment is taken as an expression of intent, then the above reflects positiveexpectations regarding the economys short term outlook. This means that the investors considergovernments policy measures are in the right track and expect the investment climate toimprove following effective implementation of these measures.

3.3 SME Development

For small and medium enterprises (SMEs), the focus of FY10 budget is mostly on expandingaccess of SMEs to financial services.7 Credit to SMEs experienced significant rise at the end ofJune 2009 compared with the previous year, when the overall outstanding balance reached Tk47,495 crore. The outstanding loans to SMEs, however, came down to Tk. 42,486 crore at theend of the first quarter (July-September 2009) of FY10 but still remained 4.4 per cent higher thanthe amount during the same period of the previous fiscal year. The share of outstanding SMEloans in total outstanding loans declined to 18 percent in September 2009 from 21 percent inJune 2009 (Figure 3.4).

Figure 3.4: SME Financing by Banks/FIs

June

June

Sep,09

Sep,09

0

50000

100000

150000

200000

250000

300000

To tal outstanding

loan

Outstanding loans

to SMEs

(ValueincroreTk.)

SME loans as % of to tal

16

17

18

19

20

21

June,09 Sep,09

Source: Bangladesh Bank

Table 3.5: No. of SMEs Accessing Loans by Banks/FIs

The number of SMEs accessinginstitutional finance experiencedsignificant rise at the end ofSeptember 2009 to about 390thousand compared with 381thousand in June 2009, the rate

of increase being 2.3 per cent (Table 3.5). In terms of number of SMEs accessing loans frombanks/FIs, the manufacturing units experienced highest growth of 10 percent. The access to

Period Manufacturing Services Trading Total

June 2009 48,782 11,131 321,559 381,472

September 2009 53,691 11,740 324,903 390,334


7 When micro enterprises are included, SMEs comprise over 99 percent of all industrial units, contributing morethan 85 percent of industrial employment in Bangladesh. The SME contribution to manufacturing value added is inthe range of 20 to 25 percent and the micro, small and medium enterprises (MSMEs) together employ a total of 31million people, aged 15 years and above. More than three quarters of the household income in both urban and ruralareas are provided by MSMEs.


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institutional finance for SMEs is still extremely limited and only less than 18 percent of theSMEs have access to institutional loans. An important policy challenge is therefore to find outways of effectively increasing the coverage of institutional loans to SMEs.

An ongoing BIDS study suggests that adopting more prudent interest rate policies, ensuringeffective risk management by banks/FIs, increasing effectiveness of Bangladesh Banks

refinancing scheme, installing more effective mechanisms for encouraging womenentrepreneurs, and strengthening the capacity of the SME Foundation to lead SME developmentwithin a comprehensive strategy are important considerations in bringing required dynamism inthe sector.

Pragmatic policies are also needed to make loans collateral-free for the SMEs as well as risk-freefor the financing banks. A recent survey conducted by BIDS in selected bank branchesadvancing loans to SMEs shows that the recovery rates of SME loans vary between 80 and 100percent with a low average default rate (Table 3.6).

Table 3.6: Recovery Rates of SME Loans for Sample Banks

Bank Branch Recovery rate (%)*

Jamuna Bank Limited Motijheel 98

Mutual Trust Bank Limited Dholaikhal 100

Islami Bank Bangladesh Limited Nawabpur 90

BASIC Bank Limited Mirpur 80Bank Asia Mirpur 80

Bangladesh Krishi Bank Savar 80

BRAC Bank limited HQ 95

BASIC Bank Limited Gazipur 96

NCC Bank Savar 98

Shahjalal Bank Limited Jaydevpur 100

Trust Bank Limited Joydevpur 100Uttara Bank Limited Joydevpur 90National Bank limited Savar 98

NCC Bank Motijheel 97*Figures are for August 2009Source: BIDS Survey 2009

Bangladesh Banks Refinancing Scheme

The Bangladesh Bank introduced a refinance scheme in FY05 with Tk.100 crore asrevolving fund for refinancing the scheduled banks and financial institutions againstloans given to the SMEs at Bank Rate. The scheme has been widened since then with

support from ADB and IDA and a total of about Tk. 1,118 crore has been put in place forrefinancing. Under the scheme, more than 11,000 beneficiaries have so far been covered.In terms of type of financing, working capital constitutes 28.7 per cent, followed by mid-term and long-term loans constituting 44.7 percent and 26.7 per cent respectively.


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Table 3.7: SME Refinancing to Women Entrepreneurs

SME Refinancing to WomenEntrepreneurs

The refinancing scheme isavailable for women at an interestrate of 10 percent in line with theguidelines of the BangladeshBank. Although the absolutenumber of women entrepreneurscovered under the scheme is low, some rise is noticed in recent months with a total of 498 inDecember 2009 (Table 3.7). .

No. of women entrepreneursPeriod

Industry Services Trade Total

May 2009 101 27 83 211

August 2009 144 50 132 326

December 2009 206 73 219 498


Total amount of loan disbursed towomen entrepreneurs also increasedfrom Tk. 13.8 crore in May 2009 toTk. 22.0 crore in August 2009 and

further to 35.4 crore in December2009 (Figure 3.5). During the May-December 2009 period, mid-termrefinanced loans to womenentrepreneurs experienced the highestincrease (224 per cent) followed byshort term (118 percent) and long term(100 per cent) loans

Figure 3.5: SME Refinancing to WomenEntrepreneurs

0

50000

100000

150000

200000

250000

300000350000

400000

Industry Service T rade Total

Amountofrefinanced(00

0Tk.)

May,09

August,09

December,09


Loan Processing and Service Centers

Access to bank financing by the SMEs remains constrained by many factors. An ongoing BIDSstudy shows that, on average, it takes 56 days to process applications to get loans whereas theaverage number of visits required is around 17. These figures do not show much improvementover the past. The commercial banks have now come up with special packages for SMEdevelopment. Several banks/FIs have established SME Cells/Service Centers for ensuring moreefficient channeling of funds to the SME sector (Table 3.8). While the number of service centershas risen, it is still not adequate. The banks/FIs need to expand active SME wings in each bankespecially in remote and potential locations to cater to the credit needs of the SMEs.


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Table 3.8: SME Service Centers of Selected Banks

Number of service centersBank

June 2009 December 2009

Mutual Trust Bank Limited 10 12

Eastern Bank Limited 31 34

City Bank Limited 5 6

Islami Bank Bangladesh Limited 20 22

BRAC Bank Limited 30 30

AB Bank Limited 5 6

Bangladesh Krishi Bank 1 2

Jamuna Bank Limited 5 8

SIBL Bank Limited 5 6

NCC Bank Limited 2 3

Exim Bank Limited 2 2

Shahajal Islamic Bank Limited 10 11

National Bank Limited 5 6

IFIC Bank limited 3 4

Southeast Bank Limited 5 10

Premier Bank Limited 3 5

Bank Asia Limited 1 3

Dutch-Bangla Bank Limited 5 9

All banks 148 179

Source: Relevant websites

4. Promoting Social Development and Strengthening Social Safety Nets

Following the election manifesto of the government, the FY10 budget reflects the priority tosocial sectors especially on education, health, and social protection in terms of both allocationand new initiatives. Total allocations to the social sectors in FY10 budget amount to Tk. 7,562crore, higher by about 19 percent in nominal terms over the revised allocations under the ADP of

FY09 (Table 4.1). During July-December 2009, 34 percent of ADP allocations to social sectorshave been utilized. The utilization rate is 39 percent for the education sector but rather low at 29percent for the health sector.


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Table 4.1: Allocation to Social Sectors under ADP

FY09 FY10

Revised ADPallocation (Tk. in

crore)

Exp. as % ofrevised

allocation

ADP allocation(Tk. in crore)

Exp. as % of allocation(Jul-Dec 2009)

Health 2,615 77 3,064 29Education 3,205 97 3,915 39

Others 527 84 583 31

Total 6,347 87 7,562 34Note: Health includes the Ministry of Health and Family Welfare; Education includes the Ministries of Primary andMass Education, Education, and Science Information and Communication Technology; Others include theMinistries of Women and Children Affairs, Social Welfare, Food and Disaster Management, Labour andEmployment, and Youth and Sports.Source: IMED

4.1 Health

The total allocation for health and family welfare in the ADP of FY10 is Tk. 3,064 crore. Of thetotal amount, 29 percent has been utilized by December 2009. If the present momentum ismaintained, the utilization of fund could be higher in FY10 than in the last fiscal.

The delivery of health services, especially to the poor people and remote areas, faces severalchallenges that include: (i) establishing good governance by resolving structural constraints at alllevel, particularly at upazila level and below; (ii) providing health card to 20 percent of thepeople who are extremely poor enabling them to receive free health care services from anypublic health facilities; (iii) introducing system of charging users fee at hospitals and UpazilaHealth Complexes; (iv) capacity development in terms of recruiting doctors, nurses, dentalsurgeons, technologists and the like; (v) hospital autonomy; (vi) creating a conduciveenvironment for health providers, particularly doctors, so that they are motivated to stay at ruralsettings for certain years; (vii) creating a separate Directorate for Medical Education andTraining; and (viii) establishing separate Dental Health Education and Dental Health ServicesUnits in the Directorate General of Health Services.

The allocation for Health Nutrition and Population Sector Programme (HNPSP) in FY10 budgetis Tk. 2,871 crore, Available information shows that only about 25 percent of the amount hasbeen spent till November 2009. The HNPSP was planned until FY10 but extended till FY11 asthe activities could not be completed. Another important project for which Tk. 173 crore hasbeen allocated in FY10 budget is the National Nutrition Programme but its progress is very slowwith only Tk. 77 lakh spent till November 2009. The target is to extend the programme toanother 63 upazilas from 109 upazilas at present. The health sector budget for FY10 contains

several important measures, the implementation of which requires pragmatic decisions and theirtimely implementation.

Rural Health Care through Community Clinics

The government plans to establish 13,500 community clinics in the country to provide a packageof essential health services (covering health, nutrition, and family planning services) to the ruralpeople. Under the Revitalization of Healthcare Initiatives of Bangladesh, Community Clinic(CC) programme has been re-introduced in January 2009. So far, 10,639 CCs have been builtout of which 9,525 are providing basic healthcare services to the rural people.


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Maternal Healthcare Voucher Scheme

The scheme has been started in 35 upazilas and will be expanded to another 10 upazilas in FY10.The aim is to render better reproductive health care and population control services. The FY10budget has allocated Tk. 70 crore for the scheme of which about 26 percent has been utilized tillNovember 2009.

Expansion of Healthcare Infrastructure

Under the FY10 budget, allocations have been made to upgrade and modernize health carefacilities. The number of beds has been increased to 50 from 31 in 135 upazila hospitals andsimilar expansion will be made in another 286 hospitals. The number of beds has been increasedto 250 in several district level hospitals. Five new medical colleges and 6 health technologyinstitutes, 6 nursing institutes will be upgraded to nursing colleges and 12 new nursing instituteswill be established. Reconstruction and repair of old medical colleges and hospitals will be takenup.

Other Measures

The government has a long agenda to take up in the health sector such as finalizing the HealthPolicy, updating the Drug Policy, and modernizing the Department of Drug Administration. Ithas also been planned to fill in the vacant posts of 5,000 doctors, 5,000 nurses, 6,000 healthassistants, and recruit 16,000 other health staff. The restructuring of the Health and FamilyWelfare Administration is also under consideration. While many of these actions are longoverdue, it would be important to determine priority in implementation keeping in view theurgent need to improve service delivery and expand access to the disadvantaged groups.

Agenda for Action

The Community Clinics require immediate recruitment of health personnel. The PP for 13,500clinics was approved in November 2009 but the process of implementation needs to be

expedited. Moreover, the new recruits (being HSC graduates) would need proper training. HealthAssistants (under DG Health), could be of either sex but Family Welfare Assistants (FWAs)should be females. At present, the roles and responsibilities of Health Assistants and FWAs aresomewhat overlapping (3 days + 3 days duty at CCs). The onus of additional responsibility ofvisiting homes on a door-to-door basis falls on FWAs who, being women, are preferred. Anamenable division of responsibilities is required. In climatically vulnerable areas, special mobileclinics with dedicated teams of medical personnel could be deployed. There are 1,200 union sub-centre clinics which have been included within the 13,500 CCs. These need up-gradation toprovide essential healthcare services.

A very high inequality prevails in urban-rural distribution of doctors and needs urgent action.The Expanded Programme of Immunization (EPI) is a core programme for childrens health

which needs strengthening in the underserved areas.

An urgent priority is to increase the number of Skilled Birth Attendants (SBA) because themajority of maternal deaths occur due to excessive bleeding and obstructed labour which arepreventable if attended by SBAs backed with required supplies and logistics. The SBAs must betrained to become more competent; they also require mentoring for a change in attitude.Engender Health has begun, on a pilot basis, with the administration of three pills (Misoprostol)before the onset of labour. It has proven effective in arresting post-partum haemorrhage andneeds expansion in coverage.


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The EOC centres must be made fully functional. The training received by the Medical Team(comprising of one surgeon, one anaesthetist, nurses and assistants) often remains underutilized.Moreover, once training is received, the tendency is to move from upazila level (where the EOCsare established) to district levels. The Family Welfare Visitors Training Institute under the DG,Family Planning Services requires upgrading. There are 3,500 centres that require 3,500 Family

Welfare Visitors who undergo an 18 month course. Previously, they were recruited andsubsequently received training. Now, they undergo training (which is privately financed) andthen compete for recruitment. Since there is an urgent need for such FWVs, there must beconcerted efforts expended towards motivation and coordination.

4.2 Education

In the FY10 budget, education has been considered as a fundamental human right and a socialcapital that is critical to the development of the country. Total ADP allocation for the educationsector is Tk. 3,915 crore in FY10. During July-December 2009, an amount of Tk. 1,514 crore hasbeen spent which is 39 percent of the total allocation.

The new programmes of the government in the sector include: free education up to graduation in

phases; continuing stipend programme for female students, introducing stipends to malestudents, reducing session jams in educational institutions, modernization of madrasaheducation, and enhancing science related studies and research.

One major positive achievement of the government is the successful distribution of around 19crore text books to all students of primary and secondary schools at a cost of about Tk. 310 crore.The government has extended the implementation time of the second phase of the PrimaryEducation Development Programme (PEDP II) which began in 2003. The PEDP II goals arelaudable, but its implementation needs streamlining so that the goals are achieved within thestipulated time. For the first time, 20 lakh primary school students sat for the Primary EducationTerminal Examination at the national level in November 2009 with a success rate of 89 percent.

In the education sector, another important initiative is the plan to implement the National SchoolFeeding Programme from FY10. Initially, 87 highest poverty stricken upazilas would be coveredfor which the estimated cost is Tk. 1,200 crore.

8Another proposed project for FY10 is to

establish Child Friendly Learning Centres in 209 upazilas in 44 districts. The government hasapproved full subvention to registered and primary community school teachers in deservingareas. Satisfactory progress in these efforts will no doubt contribute to expanding coverage ofeducation to poorest and underserved areas.

Despite major success in enrolling both boys and girls in primary schools, there seems to beemerging a recent trend of falling enrollment rate for both boys and girls as reported in theEducation Watch Report. The high dropout rates and low completion rates of five years ofprimary schooling are also persisting along with low quality.

In order to increase enrolment and improve the quality of secondary education, several new andongoing projects are included in FY10 budget.9 The government plans to establish at least one

8 Two similar programmes are currently in operation e.g. Food for Education Programme and School FeedingProgramme in some poverty stricken and remote areas with assistance from WFP and EC respectively. Theproposed programme will be financed jointly by the government and WFP.9 These include: Teaching Quality Improvement in Secondary Education Project; Secondary Education SectorDevelopment Project; Secondary Education Quality and Access Enhancement Project, and Life Skills basedReproductive Health Education for In-School Youth and Adolescents through Peer Approach.


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government secondary school and one government technical institute in each upazila especiallyto encourage employment-oriented education. The plan is also to modernize madrasah educationand set up laboratories in each secondary school for developing science and IT education by2013.The challenge, however, is to effectively implement these efforts for which theimplementation capacity seems to be the greatest constraint.

The government plans to expand opportunities and facilities of higher education. Threeuniversities were set up in Jessore, Pabna, and Rangpur; while three more are planned in Barisal,Rangamati, and Gopalganj. The Private University Act will be amended to make it moreeffective in providing quality education. Education loan programmes are being introduced forhigh achievers among higher secondary school graduates and other levels.

Despite the commendable progress achieved in education, the challenges facing the nation in thesector are still formidable covering several aspects e.g. achieving universal primary educationand extending it to grade eight; elimination of illiteracy; creating a new generation equipped withtechnical and scientific knowledge; ensuring better quality teachers and teaching institutions;providing accessible and affordable education for the vulnerable sections of society; introducinguniversal curriculum with standardized education system as well as extensive and compulsorydigital technology; and ensuring gainfully-employed, productivity-oriented schooling system andgender equality. The New Education Policy has already been framed incorporating the vision ofthe government. The present budgetary allocation for education is extremely low (one of thelowest in South Asia) at around 2.5 percent of GDP. It needs to be raised progressively to around6-7 percent in the next 3/4 years so that quality education can become universally accessible andaffordable.

4.3Strengthening Social Safety NetsThe FY10 budget puts emphasis on strengthening social safety nets from two perspectives: (i)support the consumption of the poorest especially due to the adverse shocks of the global crisisand make them less vulnerable; and (ii) allow them to continue to invest in human and other

forms of capital that reduce intergenerational transmission of poverty.

Overall, the countrys social safety nets framework covers four major areas: (i) specialallowances for different underprivileged groups; (ii) employment creation through microcreditand other support programs; (iii) food security enhancing activities especially in the aftermath ofdisasters or during difficult times; and (iv) capacity building activities through education, health,training, and technical assistance services.

The FY10 budget enhanced the amount of allowances and the coverage of beneficiaries for mostof the cash support programs including those for the freedom fighters, aged and disabled persons,destitute women, and poor as well as low income working lactating mothers. Obviously,effective targeting of these programs would help alleviate, at least partly, the sufferings of the

most disadvantaged groups in society.

One important project of FY10 is the One Household One Farm Program initiated to rehabilitatethe poor people with houses, credit, training for self employment, and khas land if available. Thetarget of the project is to cover nearly 0.58 million rural families (with a total beneficiary of 2.9million people) at a cost of nearly Tk. 12 billion during July 2009 to June 2014. 10 Under the

10 The project intends to cover female headed households, families having only homestead land, marginal farmershaving less than 0.5 acre of land, and wage laborers.


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project, direct and/or indirect employment opportunities would be created for 2.9 million people.The FY10 budget allocated Tk. 920 million for this project. If the project is well implemented, itwould contribute not only to poverty reduction but would also create positive impact on rural-urban migration through strengthening the Ghore Phera (Returning Home) programme of thegovernment.

The increase in allowances and benefits and wider coverage of cash support programs is awelcome move to support the most disadvantaged groups in society. Despite the increase, theircoverage and impact still remains low and needs to be expanded in future in order to makevisible impacts.

Employment Generation Programmes

The government has proposed a new Employment Generation for the Hardcore Poor project inplace of the discontinued 100-Day Employment Generation Programme. The FY10 budget madean allocation of Tk. 1,176 crore for the project especially targeted to distressed regions includingriver erosion prone and monga affected areas. Under the project, employment opportunitieswould be created in these highly poverty prone areas during two lean periods (e.g. September-

November and March-April). The amount earmarked for the September-November 2009 periodwas only Tk. 177.5 crore for wage payment to labourers although income earning opportunitiesbecome more limited in the target areas during this time compared with the later phase. ByDecember 2009, nearly 0.44 million cards were distributed and more than 85 percent of theactivities were completed.

In terms of geographical area, the project intends to cover about 300 upazilas where the majorityof the poor (including the poorest) live. The phase implemented in September-November 2009covered 124 upazilas in 16 districts. Hence, the impact of the project remained limited due to lowcoverage both in terms of area and target population.

It would be important to apply the lessons learned from the administrative and implementation

experiences of this phase to the next phase (March-April 2010) so that the project can bereplicated more effectively over the entire target area along with ensuring the flow of theanticipated benefits to the poorest.

Another programme proposed in FY10 budget is the National Service for Youth. With anallocation of Tk. 20 crore, the target group is the youth in Kurigram and Barguna districts havingSSC level of education. So far, more than 44,000 applications have been received and Tk. 15crore disbursed for selection survey. The overall situation indicates that successfulimplementation and replication of the project would require more resources, adoption ofappropriate selection criteria, provision of training, and job placement which need effectiveplanning and intense administrative skills.

Public Food Distribution System

Total public food distribution during FY09 was 2.16 million metric tons of which 1.76 millionmetric tons was rice and the rest was wheat. The governments plan is to distribute 2.68 milliontons in FY10, nearly 26 percent higher than last fiscal. The major channels of distribution will beVulnerable Group Feeding (VGF) and Open Market Sale (OMS) having 0.55 million and 0.50million metric tons respectively. Besides, 0.10 million metric tons of wheat will be distributedthrough OMS.


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Table 4.2: Distribution of Food grains through Different Channels

Distribution inFY09 (thousand

metric tons)

Allocation inFY10 (thousand

metric tons)

Distribution during July-December(thousand metric tons)

FY09 FY10

Monetized channels

Essential Priorities(EP)Other priorities (OP)Large employers(LE)Open market sale(OMS)Total

21922

10

194445

27945

22

600946

989

4

188299

1139

6

2130

Non-monetized channels

Food for Work(FFW)Test Relief (TR)

Vulnerable GroupDevelopment (VGD)Vulnerable GroupFeeding (VGF)Gratuity Relief (GR)OthersTotal

395368

279

50743123

1,715

375400

265

5506475

1,729

832

125

3266

30527

180

120

2212212

393

Total 2,160 2,675 827 523Source: FPMU

The distribution through different channels during July-December 2009 is given in Table 4.2.

The total distribution during the period was 523 thousand metric tons which is lower by nearly37 percent during the same period of the last fiscal. The distribution through both monetized andnon-monetized channels fell, by 57 percent and 25 percent respectively. Each Member of theParliament (MP) has been allocated 350 metric tons of rice (the allocation to female MPs is 150metric tons) under TR. For rural infrastructure development during January-February 2010, thegovernment has earmarked 0.29 million metric tons of rice under FFW. Also, 0.11 million metrictons of rice has been allocated under TR.

The lower delivery under two channels, OMS and VGF, has mainly contributed to the decline intotal distribution under PFDS. The lower distribution under OMS is somewhat puzzling asdespite substantially lower price of rice under OMS (Tk. 22 per kg compared with the marketprice of Tk. 25-26 for coarse rice) the uptake has been rather poor. There may be two reasons:

either the consumers are more conscious about quality or the quality of the coarse rice that isdistributed under OMS is substantially inferior than the coarse rice available in the market.Additionally, there may be management and other problems in the operation of OMS. On theother hand, VGF is more a sign of distress situation regarding access to or availability of food.There has not been any major occurrence of such situations during the first six months of FY10except some cases of localized nature.


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5. Developing Power and Energy

This section examines the developments in the power and energy sector over the first six monthsof FY10 keeping a historical perspective in view since development of the sector requires alonger term perspective. The supply of electricity to the consumers depends on an integratedfunctioning of the inter-locked systems of generation, transmission, and distribution. A

successful story of power supply to the people requires efficient functioning of all threecomponents of the system. Of course, generation is the key starting point and the present reviewis confined to this aspect only.

Figure 5.1: GDP, Predicted GDP andElectricity Generation

0

50

100

150

200

250

300

350

1981

1983

1985

1987

1989

1991

1993

1995

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1999

2001

2003

2005

2007

GDP(

Kc

roreT

k)

0

5

10

15

20

25

30

GW

H(

K)

gdp pred ic ted gdp gwh

Source: Asaduzzaman and Ahmed (2009) op.cit.

Figure 5.2: Electricity Intensity(GWH/Tk. 1,000 crore GDP)

5.1 GDP Growth and Electricity Consumption

The level of energy use is positively related to thelevel of development. Higher levels of GDP andhigher levels of energy go together.11 Given such arelationship, one would expect a similar situation inBangladesh for commercial energy in general and forelectricity in particular since electricity is the mostversatile form of energy and is at the apex of the socalled energy ladder. Figure 5.1 shows that actualGDP and predicted GDP on the basis of aneconometrically estimated relationship with electricityare pretty close. The implication of this relationship isthat for achieving higher growth, greater availabilityof electricity generation is essential. Figure 5.1 alsoshows that electricity generation has somewhat keptpace with GDP growth. However, there is anotheraspect to growth in electricity generation as indicatedin Figure 5.2. Electricity intensity of GDP iscontinuously rising. Electricity intensity has beenonly about 30 GWH per Taka thousand crore in theearly 1980s but crossed 80 GWH per Taka thousandcrore of GDP in 2002. The change in the structure ofGDP may be a major reason behind this increase ofelectricity intensity. As industry sector requires moreelectricity than agriculture per unit of output and theshare of industry in GDP is rising, electricity intensityis rising too (Table 5.2). Services which includewholesale and retail outlets of various types may alsohave contributed to the growth in electricity intensity.

20

30

40

50

60

70

80

90

11 There is of course a chicken and egg problem here in that the literature is replete with attempts to show that higher level of useof energy, particularly commercial energy including electricity, leads to higher level of growth or the other way round.

For an attempt to explain the situation in Bangladesh, see Asaduzzaman, M, and M. Ahmed, Power and EnergyDevelopment in Bangladesh: A Benchmark and Future PoliciesBackground Paper prepared for Sixth FiveYear Plan, Planning Commission, Dhaka, 2009.


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Table 5.1: Sectoral Share of GDP (%) at Constant 1995/96 Prices

Fiscal Year 1980-81 1985-86 1990-91 1995-96 2000-01 2005-06 2007-08 2008-09

Agriculture 33.1 31.2 29.2 25.7 25.0 21.8 20.8 20.6

Industry 17.3 19.1 21.1 24.9 26.2 29.0 29.7 29.7

Services 49.6 49.7 49.7 49.4 48.8 49.2 49.5 49.7

Total 100 100 100 100 100 100 100 100

Source: GoB, Bangladesh Economic Review, 2009.

Another causal factor of rising electricity intensity may have to do with inefficiency inconsumption of power and consequent wastage. Particularly, anecdotal evidence suggests that, inmany cases, industrial and commercial establishments pay only a fraction of the actual cost ofelectricity making it cheaper to them compared with others. This is part of the so called non-technical system loss and does certainly breed inefficiency and wastage. The estimation of

relative contribution of structural change in the economy and inefficiency and wastage toincreased energy intensity would require deeper analysis.

Despite low level of use of power, the country is unable to meet the present aggregate demand.Even those, who have access to electricity, do complain about the quality of its supply asfrequent load shedding, voltage fluctuations and billing anomalies are common problems. At thesame time, system losses had been ubiquitous and far above the acceptable technical loss. Thelack of adequate and reliable electricity supply has thus emerged as a major impediment to theexpansion of investment, especially foreign investment, and economic growth of the country.

Figure 5.3: Installed and MaximumProduction Capacities (MW)

5.2 Generation Status of the Electricity Sector

The generation capacity of electricity has

increased over the years, but only by fits andstarts (Figure 5.3). The gap between installedcapacity and generation capacity is also highlyvariable and mostly fluctuates around 25 percent.For the period for which data are available inFY10, it rose to 28 percent.

For Bangladesh, the elasticity of generation(consumption) with respect to GDP is estimatedat 1.73.12 This means that every 1 percent rise inGDP would raise the demand for grossgeneration by 1.73 percent. The growth of

electricity generation has always been below 10percent which increased the gap between demand

0

1000

2000

3000

4000

5000

6000

7000

1

990-91

1

991-92

1

992-93

1

993-94

1

994-95

1

995-96

1

99

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BIDS Seminar Paper on Recent Performance of Bangladesh Economy

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