Bangladesh has been one of the biggest development success stories of recent decades and the private sector here has been the biggest contributor to the economic part of the story, said the International Finance Corporation (IFC).
International Finance Corporation (IFC), the private sector investment arm of the World Bank Group, said the country has nonetheless reached the limit of its current development model.
Moving to the next stage of development will require a new round of reforms to strengthen and modernise the private sector, which faces an economic policy environment that increasingly undermines its potential to drive diversified, export-led growth, IFC said in its Country Private Sector Diagnostic (CPSD) report published on Wednesday.
At a virtual webinar organised to discuss the report, Salman F Rahman, private sector industry and investment adviser to the prime minister, said, "The CPSD recommendations are well aligned with the priorities of the government's Eighth Five-Year Plan for setting a trajectory towards a prosperous Bangladesh by 2041."
IFC experts highlighted the key areas Bangladesh needs to address reforms and modernisation to unlock the potentials of the private sector for a sustainable economic development.
These include creating and protecting the market, process simplification, improvement in logistics, financial sector reforms that include microfinance, the banking sector and also the capital market, development of agriculture, energy sector sustainability, export diversification and securing post-LDC market edges, and most importantly attracting large investments for development and creating quality jobs.
The report said sustained growth has been made possible by prudent government policy choices, along with the successful development of the ready-made garment (RMG) sector and the strong inflow of remittances.
The Bangladesh government's Perspective Plan 2021–41 sets the objective of becoming an upper-middle-income country by 2031, along with reaching full employment and eliminating extreme poverty.
On the other hand, nearly half the population is vulnerable to falling back into poverty. It is therefore critical to boosting the development of a broad-based private sector that can grow, export, and create quality jobs at scale.
"Bangladesh's private sector faces one of the most burdensome business environments in the world," the IFC commented to stress the need for making private sector's task easier.
High import tariffs and the discretionary use of regulations protect well-established businesses and sectors at the expense of the rest, and this impedes innovation, IFC said.
Their top priority reform suggestions include reforms in the Companies Act, Foreign Exchange Act, rationalisation of tariffs, implementation of Customs Modernisation Strategic action plans whit IFC termed as game-changers while one stop services to the investors, commercial foreign borrowing, bonded warehouse regime expansion and process simplification there, effective trade and transport facilitation, testing, and certification strengthening are regarded as the low-hanging fruits Bangladesh can avail soon.
Besides, banking and capital market reforms have been put on the list of priority areas which would bridge the gap between savers and the entrepreneurs.
"The financial sector lacks the capacity to efficiently channel domestic savings into a productive investment because of an elevated ratio of nonperforming loans (NPLs) and weak capital buffers, underscored by inadequate corporate governance, weak supervision, and a lack of breadth," said the IFC report.
On the third list of reform recommendations, IFC named transport, energy, digital infrastructure, and industrial land.
Limited progress in opening the infrastructure sector for competitive private participation – with the exception of power generation – holds back investment and modernisation.
"As a result, Bangladesh's private sector has not moved beyond its initial success and is becoming increasingly concentrated and inward-looking, seeking to maximise rents from existing markets instead of embracing openness and competitiveness," said IFC. "Large investments are needed to overcome development gaps and continue growth."
Alfonso Garcia Mora, IFC's Vice President for Asia and Pacific, Yulia Mironova, IFC's Regional Economist and CPSD co-author, South Asia, and Mercy Tembon, World Bank's Country Director for Bangladesh and Bhutan, also addressed the programme hosted by IFC Dhaka Office Officer Ahsan Z Khan.
In a panel discussion moderated by Wendy Werner, IFC country manager for Bangladesh, Bhutan, and Nepal; Md Tofazzel Hossain Miah, secretary to the Prime Minister's Office; Mamun Rashid, managing partner of PricewaterhouseCoopers Bangladesh Private Limited; and Ahsan Khan Chowdhury, chairman and chief executive officer at Pran-RFL Group; shared their views and opinions.