Country Report Bangladesh January 1996 Main report

Economic Policy & Economy: World Bank criticises slow pace--

The World Bank, as the representative of the country's foreign donors, warned the Bangladeshi government at the end of September about the slow pace of reforms, particularly in the industrial sector. According to the Bank's resident representative in Dhaka, Pierre Landell-Mills, talks with all the political parties indicated that they were all in favour of the reform programme. This plans to eliminate the losses of public-sector firms mainly by slimming down their workforces and improving their working practices before selling them into the private sector. However, such was the fear of each political party that one of its opponents would take advantage of any stand it took, for example on reducing overmanning, that none was prepared to back change publicly or even criticise the position of its political opponents on the issue. Mr Landell-Mills was particularly critical of the poor implementation of the Jute Sector Reform Programme. This was allocated funds of $250m by the Bank, but the second tranche of $75m was suspended last July after the government had failed to sell off a single mill (4th quarter 1995). He made it clear that the programme would not be resumed unless the government carried out the reforms to which it had agreed.

At the end of December Mr Landell-Mills again spoke of the need for any future government of Bangladesh to push ahead with the reform programme. He expressed his disappointment that no political party perceived any electoral advantage in supporting a policy of privatisation, an attitude which he attributed to the strength of the trade unions in the formal sector, despite the fact that every job in the loss making state-owned industries was costing the country Tk57,000 ($1,400) per year in public funds.

--urges the government to disengage from the labour market--

A recent report from the World Bank, Labour Market Policies for Higher Employment, urges the government to cease its intervention in the labour market, in the interests of the country's workforce as a whole. According to the study only 12% of the workforce, which is estimated at 59 million, is employed in the formal sector, with government employees accounting for between one-third and one-half of this segment. A small but significant proportion of the workforce is thus employed on terms set by the government, leading to the politicisation of industrial relations and inequitable and inefficient wage levels for these workers. A direct consequence is that the 88% of the workforce in the informal sector (employed in both agriculture and small industries), who have no safeguards against unfair employment practices, have even less hope of obtaining a better job in the formal sector. As an example, the report noted that the introduction of a minimum wage of Tk900 per month in the formal sector had led to a reduction in the real wage level in the informal sector of around 2.5%, as employment in the formal sector shrank because of the higher wage costs and as more people were forced into the informal sector. The World Bank therefore reiterated that public-sector enterprises producing essentially private-sector goods (such as jute and textiles) should be privatised and that government safeguards should be introduced to protect the most vulnerable workers, particularly women and children. It also advocated an expansion of the Food for Work programme, which helps the most disadvantaged members of the workforce without taking away jobs from others.

--and blames political chaos for the slow growth rate

In another report, published in early November, the World Bank blamed Bangladesh's sluggish rate of growth on the strikes and transport blockades which have regularly paralysed the country during the lengthy political impasse (see The political scene). The cost of each day in lost output of the strikes has been estimated at between $30m and $60m by publications such as the Far Eastern Economic Review and The Economist, and the strikes have undoubtedly deterred many potential foreign investors. Some analysts believe that, in the absence of the strikes, GDP growth could be as much as 3.6 percentage points higher than at present. This estimate is almost certainly too high since most businesses manage to catch up on some lost production once the stoppages are over, but the irretrievable cost is certainly substantial. In addition, the report was pessimistic about whether an incoming government of either party would have the political will to carry through the reform programme.

The one bright spot in the report related to the growing collaboration of government and non-governmental organisations (NGOs), which is particularly important in improving the access of the poorest groups to credit and in monitoring development programmes on the ground.

© 1996 The Economist lntelligence Unit Ltd. All rights reserved
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