In Support of Bangladesh s Sustainable LDC Graduation

In Support of Bangladesh s Sustainable LDC Graduation Session 3: Forging Partnerships for Sustainable Graduation Christian Eigen-Zucchi The World Bank November 29, 2017 1

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 Percentage of population undernourished (1/4) Human Assets Index (HAI) 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

Economic Vulnerability index.criteria LDC The Economic Vulnerability Index (EVI) measures the structural vulnerability of countries to exogenous economic and environmental shocks. The EVI contains eight indicators Size Population(1/8) Location Remoteness (1/8) Exposure Index (1/2) 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 Natural shock Instability of exports of goods and service (1/4) Victims of natural disasters (1/8) Instability of agriculture production (1/8) *Numbers in the Parenthesis indicate the weight in overall EVI The inclusion threshold is 36 and Graduation threshold is 32

Bangladesh s LDC Status Actual LDC Threshold 2015 2018 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 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.

The World Bank Group 7

IDA Cycle 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. 8

Different Stages of IDA Credits more expensive Jumps are possible More financing volume (+ IBRD) IDAonly Gap Blend IBRD Relative Above operational Creditworthiness: Graduation from poverty: below cut-off for more Declared IDA operational cutoff than two creditworthy by ($1,165) consecutive years IBRD Creditworthiness: Declared IDA countries that have graduated at the end of IDA15, creditworthy IDA16 and by IDA17 include: Albania, Angola, Armenia, Azerbaijan, Bolivia. Bosnia and Herzegovina, IBRD 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. 9

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. 10

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 36 th 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. 12

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. 13

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 Country Comparison of GCI Ranking and Score (2017-2018) 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 15

Low quality of infrastructure 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 Source: Global Competitiveness Report 2017-18, World Economic Forum 16

Country Ease of Doing Business Rank Source: Doing Business Report 2018 Difficulties of Doing Business Starting Business Comparison of Ranking in Ease of Doing Business, 2018 Dealing with Construction Permits Getting Registering Electricity Property Getting Credit Protecting Minority Investors *Ranking among 190 countries. The rankings are in descending order with 1 as the best performer. Paying Taxes Trading Across Borders 17 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 18

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). 19

World Bank in Bangladesh

World Bank in Bangladesh Supporting Bangladesh to achieve its vision of becoming an uppermiddle-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. 21

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Yearly Commitments to Bangladesh (in US$ million) 23

Forging Partnerships 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. 24

Thank You 25