|
In
1993, Bangladesh successfully completed a three-year
ESAF program, meeting all the IMF fiscal and monetary
targets. In view of the continuing need for structural
reform, which was brought into focus by the recent
flood-induced economic crisis, Bangladesh has indicated
a willingness to enter into another three-year ESAF
program, with negotiations scheduled in late 1998. A new
ESAF program is expected to include three components:
tax reform with better tax administration and a
broadening of the tax base; financial sector reform with
stronger oversight and supervision by the central bank,
privatization of state-owned commercial banks, and
improvement of loan portfolios; and, public sector
reform with an acceleration in privatization of
state-owned enterprises.
While
Bangladesh has managed to maintain a laudable measure of
macroeconomic stability since 1993, its macroeconomic
position at the end of 1998 remains vulnerable, with
relatively high (though falling) fiscal deficits,
increased public sector borrowing from the banking
system, an expected deterioration in the trade balance,
and stagnant tax revenues. Progress on other important
economic reforms has been halting, though the government
has instituted reforms of the capital market and taken
some market-friendly decisions to encourage foreign
investment. Overall, however, efforts at reform often
are successfully opposed by vested interest groups, such
as the bureaucracy, public sector labour unions or highly
protected domestic producers in import-competing
industries. The public sector still exercises a dominant
influence on industry and the economy; non-financial
state-owned enterprises (SOEs) lost an estimated $364
million in 1997. Most public sector industries,
including textiles, jute processing, and sugar refining,
are perennial money losers, which drain the treasury.
Their militant unions have succeeded in setting
relatively high wages which their private sector
counterparts often feel compelled to meet out of fear of
union action. Despite pledges for action, the government
failed to implement jute sector reforms under a World
Bank adjustment credit program in 1997; the program has
been suspended until reforms are carried out.
Private
sector productivity is further stunted by the state's
poor management of crucial infrastructure (power,
railroads, ports, telecommunications, and the national
airline), most of which is under government monopolies.
Recognizing this shortcoming, and in order to increase
foreign investment in the power sector, the government
formalized in October 1996 its private power policy,
which grants tax holidays and duty-free imports of plant
and equipment for private sector
power producers. As of November 1998, the government was
purchasing power from one international Independent Power
Producer, and was negotiating or had signed contracts with
others. Private investment is also allowed in the
telecommunications sector for cellular communications, and in
the hydrocarbons sectors, where international companies
initially expressed a high level of interest in a second round
of bidding for remaining exploration rights. One international
company started delivering natural gas to the government in
mid-1998, and a second company is scheduled to do so in early
1999.
The
government is also trying to attract foreign portfolio investment
in domestic capital markets, but a stock market crash in late 1996
together with turbulence in other financial markets around the
world, appears to have kept many international investors out of the
market in 1997 and 1998. Long an easy source of funds for
loss-making government corporations and preferred private sector
borrowers who did not feel obliged to repay loans, the
dysfunctional banking sector continues to be the subject of reform
programs. The banking sector is dominated by four large
nationalized commercial banks. However, entry of foreign and
domestic private banks has been permitted; a good number of new
banks have established a foothold in the market during the last
four years.
|
General Section
