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In Support of Bangladesh’s Sustainable LDC Graduation

Session 3: Forging Partnerships for Sustainable Graduation

Christian Eigen-Zucchi The World Bank

November 29, 2017

Outline

Distinguishing LDC vs. LIC vs. IDA graduation.

Sustaining Bangladesh’s Strong Development Trajectory.

The World Bank in Bangladesh.

LDC Classification

LDC status decided by the United Nations Economic and Social Council

(ECOSOC) based on three criteria:

Income

Three-year average of the level of GNI per capita, which the World Bank uses for

identifying low-income countries.

The threshold for inclusion in the LDC category is $1,035 (March 2015 review)

The threshold for graduation ($1,242) is set at 20% above the inclusion threshold

The income-only graduation threshold (which enables a country to be eligible for

graduation even if none of the other two criteria is met) is twice the normal

graduation threshold which is $2,484.

….Criteria LDC

Human Assets Index (HAI) is a measure of the level of human capital

Consists of four indicators: two on health and nutrition and two on education

Inclusion threshold 60 and graduation threshold is 66

Human Assets Index (HAI)

Percentage of population undernourished (1/4)

Mortality rate for children aged five years or under (1/4)

The gross secondary school enrolment ratio (1/4)

Adult literacy rate (1/4)

*Numbers in the Parenthesis indicate the weight in overall HAI

….Criteria LDC

The Economic Vulnerability Index (EVI) measures the structural vulnerability of

countries to exogenous economic and environmental shocks. The EVI contains eight

indicators

The inclusion threshold is 36 and Graduation threshold is 32

Eco

no

mic

Vu

lner

ab

ilit

y

ind

ex

Exposure Index (1/2)

Size Population(1/8)

Location Remoteness (1/8)

Economic Structure

Merchandise export concentration (1/16)

Share of agriculture, forestry, and fisheries (1/16)

Environment Share of population in low elevated costal zones (1/8)

Shock (1/2) Trade shock

Instability of exports of goods and service (1/4)

Natural shock

Victims of natural disasters (1/8)

Instability of agriculture production (1/8)

*Numbers in the Parenthesis indicate the weight in overall EVI

Bangladesh’s LDC Status

Source: The Least Developed Countries Report-2017

• Bangladesh graduated to Lower-Middle-Income Country (LMIC) in 2015

(current threshold is $1,005 GNI per capita or less in 2016).

• Government expecting to meet all three LDC criteria by 2018.

• If that happens, Bangladesh can expect LDC graduation in 2024.

2015 2018

Actual LDC

Threshold

Graduation

Threshold

Predicted

Value

Predicted

Threshold

GNI per capita $926 $1,035 $1,242 $1194-$1198 $1175-$1200

Human Assets Index (HAI) 63.8 60 or below 66 or above 70.9 66

Economic Vulnerability index

(EVI) 25.1 36 or above 32 or below 24.7 32

The World Bank Group

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IDA Cycle

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• Bangladesh is a International Development Association (IDA) only country.

IDA provides grant and low interest arm for the poorest countries.

• Bangladesh is among the largest recipients of financing from the IDA.

• During the current IDA 18 cycle (FY2018-2020), Bangladesh is likely to

receive about $4.4 billion of core country allocation.

• In addition, Bangladesh will be eligible to access a number of other innovative

financing windows including the regional window, crisis response window,

the private sector window, as well as IDA Scale-up Facility.

Different Stages of IDA

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Creditworthiness:

Declared

creditworthy by

IBRD

Jumps are

possible

IDA-only

Gap Blend IBRD

Credits more

expensive More financing

volume (+ IBRD)

Relative

poverty: below

operational cut-

off ($1,165)

Above operational

cut-off for more

than two

consecutive years

Creditworthiness:

Declared

creditworthy by

IBRD

Graduation from

IDA

IDA countries that have graduated at the end of IDA15, IDA16 and IDA17 include: Albania,

Angola, Armenia, Azerbaijan, Bolivia. Bosnia and Herzegovina, Georgia, India, Indonesia,

Montenegro, Serbia, Sri Lanka, and Vietnam. Since IDA’s founding in 1960, 44 countries have

graduated and nine of these graduates have since reentered IDA.

Bangladesh’s Journey through the IDA Stages

Bangladesh will continue to access concessional financing from IDA.

Propelled by strong economic progress over the last decade, in FY 2017 and 2018, GNI per person has

remained above the cut off for funding from IDA.

If Bangladesh’s GNI per capita exceeds the operational threshold for a third consecutive year, the country

will be classified as an IDA gap country starting in FY19.

Countries in gap status continue to access IDA resources, but on less concessional terms. This implies a

higher interest rate than the interest-free IDA financing, but the rate is still concessional and significantly

lower than alternative sources available in external and domestic markets for Bangladesh.

Bangladesh will not reach blend status automatically. To do so, a country is required to seek a credit

worthiness assessment.

A country usually stays at blend level for two IDA-cycles, or approximately six years.

The transition to IBRD borrower status, similarly, will begin when, at the country’s request, a credit

worthiness assessment is completed, allowing it to graduate to IBRD-only status.

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Sustaining Bangladesh’s Strong Development Trajectory

Bangladesh at a Crossroads

The economic transformation made a closed, agrarian society into the

world’s second largest exporter of garments and 36th largest economy.

The social transformation reduced the rate of extreme poverty from

34.3 percent in 2000 to 12.9 percent in 2016, lifting millions out of

poverty and bringing 10.5 million from farms to factories and shops

(during 2002-13).

The environmental transformation raised climate concerns as

industrialization and urbanization brought pollution and congestion.

The conditions for next phase of growth are harder.

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Moving forward

Average 6% plus GDP growth over a decade is very good performance! (Only 17 out of

58 countries with 20 million plus population have achieved such growth).

Aspirations have increased—HIC by 2041

There is consensus that Bangladesh can do better than 6% needed to be HIC by 2041.

Why: Strategic geographic location; young population; global connectivity

Over 50% of the world’s consumers live within 3,000 miles of Bangladesh.

Positioned between India and China, Bangladesh is well placed to become the next

generation of export hubs.

57% of labor force under 25.

A domestic market of 160 million people.

As an LDC, duty and quota free access to EU, Japan, Canada, Australia and other

countries.

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What would it take?

Bangladesh is well into third phase of demographic transition; shifted

from a high mortality-high fertility regime to a low one.

A. Reinventing the demographic dividend

Increasing population growth—not desirable and sustainable

Increasing growth of working age population—no room for maneuverability

Increasing employment rate—already 95.7%; little room for further increase

Increase female labor force participation—35.6% in 2016

B. Increasing labor productivity through investments and innovation

Barriers to Increasing Investments

Weak institutions and low quality infrastructure

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Comparison of GCI Ranking and Score (2017-2018)

Country Overall

Ranking Overall Score Institutions Infrastructure

Macroeconomic

Environment

South Asia

Bangladesh 99 3.9 3.4 2.9 4.9

India 40 4.6 4.4 4.2 4.5

Sri Lanka 85 4.1 3.8 3.8 4.3

Nepal 88 4.0 3.6 2.6 5.6

Bhutan 82 4.1 4.8 3.6 4.6

Pakistan 115 3.7 3.5 3.0 4.0

East Asia

Korea, Rep 26 5.1 4.0 6.1 6.6

China 27 5.0 4.4 4.7 6.0

Thailand 32 4.7 3.8 4.7 6.2

Indonesia 36 4.7 4.3 4.5 5.7

Philippine 56 4.4 3.5 3.4 5.8

Vietnam 55 4.4 3.8 3.9 4.6

Cambodia 94 3.9 3.4 3.1 4.6

Source: Global Competitiveness Report 2017-18

Low quality of infrastructure

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Source: Global Competitiveness Report 2017-18, World Economic Forum

Infrastructure Ranking for Bangladesh

Rank Score

Quality of air transport infrastructure 115 3.3

Quality of roads 105 3.1

Quality of port infrastructure 85 3.6

Quality of electric supply 101 3.7

Difficulties of Doing Business

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Source: Doing Business Report 2018

*Ranking among 190 countries. The rankings are in descending order with “1” as the best performer.

Comparison of Ranking in Ease of Doing Business, 2018

Country

Ease of

Doing

Business

Rank

Starting

Business

Dealing with

Construction

Permits

Getting

Electricity

Registering

Property

Getting

Credit

Protecting

Minority

Investors

Paying

Taxes

Trading

Across

Borders

Enforcing

Contracts

Resolving

Insolvency

South Asia

Bangladesh 177 131 130 185 185 159 76 152 173 189 152

Bhutan 75 88 82 56 56 77 124 17 26 25 168

Nepal 105 109 157 133 84 90 62 146 76 153 76

Sri lanka 111 77 76 93 157 122 43 158 86 165 88

Maldives 136 68 54 143 174 133 132 118 152 106 139

India 100 156 181 29 154 29 4 119 146 164 103

Pakistan 147 142 141 167 170 105 20 172 171 156 82

East Asia

Korea, Rep 4 9 28 2 39 55 20 24 33 1 5

Thailand 26 36 43 13 68 42 16 67 57 34 26

China 78 93 172 98 41 68 119 130 97 5 56

Vietnam 68 123 20 64 63 29 81 86 94 66 129

Philippine 113 173 101 31 114 142 146 105 99 149 59

Indonesia 72 144 108 38 106 55 43 114 112 145 38

Cambodia 135 183 179 137 123 20 108 136 108 179 74

Most Binding Constraints

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A New Normal is Needed

Speed: faster as well as more inclusive and sustainable—require sustained GDP

growth of 8% plus to make visible progress towards Upper Middle Income (UMIC)

and the Sustainable Development Goals (SDG)

Structure: flexible to adapt to changing environment

Market forces need to be made more efficient

Engine: capital accumulation and efficiency driven

Capital per worker needs to increase to increase labor productivity

At the same time, growth will increasingly be associated with taking advantage

of higher economic concentration (agglomeration), greater economies of scale

(specialization) and more efficient allocation of factors of production (mobility).

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World Bank in Bangladesh

Supporting Bangladesh to achieve its vision of becoming an upper-

middle-income country by 2021 (current threshold $3,956 GNI per

capita).

Largest and longest-standing development partner of Bangladesh,

supporting Bangladesh’s aspirations since 1972.

First loan after independence of US $50 million for relief and

rehabilitation.

Since then have committed over $26 billion.

IDA has a portfolio of about $10 billion and includes 41 projects.

All credits to Bangladesh are interest free IDA financing.

World Bank in Bangladesh

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;

Yearly Commitments to Bangladesh (in US$ million)

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Forging Partnerships

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Working closely with GoB counterparts, partnership with development partners and

other stakeholders will be essential to effective support for Bangladesh’s continued

strong development progress.

The World Bank Group continues to collaborate closely, including:

Lending: Primary Education Development Program III – ADB, JICA, DfID, Canada,

Australia, UNICEF, SIDA.

Trust Funds: Strengthening Public Expenditure Management Program – CIDA, DfID, EU.

Open to suggestions on how to strengthen partnerships further, and requests for more

collaborative engagement.

Thank You

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