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The Hon'ble Finance and Planning
Minister M. Saifur Rahman
Speech by
Mr. M. Saifur Rahman
Minister for Finance and Planning

The State of the Economy and the Economic Stabilisation Programme
at Bangladesh Development Forum Meeting held in Paris

Excellencies, Ladies and Gentlemen

It is an honour and pleasure for me to welcome all of you this morning to the Bangladesh Development Forum being held in the beautiful city of Paris. On behalf of the new Government of Bangladesh and my delegation as well, let me express my thanks and gratitude to all of you for undertaking long journeys to be with us to play supporting and participatory roles in the development of Bangladesh.

2. It is only five months since our government came to power with resounding people's verdict (more than two third majority) to build a prosperous Bangladesh free from all dimensions of poverty, corruption and violence, establish rule of law and promote human rights. In its election manifesto, BNP committed itself to reforms in policies and institutions for promoting good governance, principles of market economy, poverty reduction, and economic growth with macro-economic stability and participatory local government. We are pledge-bound to achieve our commitments.

3. These development goals, we are fully aware, cannot be achieved in an environment of poor governance. Reforms in governance and macro economic management, within the framework of the globalized economy, were initiated through a well thought-out strategy by the BNP government in the first half of the nineties. However, these initiatives were either stalled or not carried through in right earnest by the Awami League government in the second half of the nineties. As a result, the overall standard of governance deteriorated, law and order situation posed serious threats to human rights and economic development, corruption multiplied and the functioning of the government machinery became ineffective and debilitating due to excessive politicisation.

Ladies and Gentlemen

4. On the economic front - in the backdrop of the sluggish global economy and depressed investment climate in the domestic front along with the burden of mounting public debt - the present government started with falling foreign exchange reserves, export earnings and industrial output. Besides, the post-September shock and its subsequent fall-outs spreading all over the world have added further challenges to the already faltering global economy. In this situation, Bangladesh could not be an exception. Our export earnings were hard hit by these global shocks. About seventy five percent of our total export earnings come from RMG and Knitwear industries with a narrow market-base dependent upon USA and the European Union. Setback in exports caused downturn in growth, investment and savings; increased unemployment and imbalances in the external sector.

5. Expansionary fiscal policy pursued during the last few years of the Awami League regime combined with global downturn, made the macro economic environment even more fragile. The current expenditure grew unabated. The consolidated budget deficit rose to 8 percent of GDP in FY01. Continued operation of the loss-making SOEs has been a major drain on resources of the economy. Losses of the SOEs increased to TK. 33 billion in FY01 from TK. 2 billion in FY96, causing an unprecedented wastage of public resources. Increased domestic borrowing, accentuated by declining foreign aid, financed the deficit and this increase was phenomenonal during the last few years. Consequently, during FY01, interest payments on the domestic debt as a percentage of total revenue increased to 14.0 percent from 5 percent in FY96. Expansionary fiscal policy also led to monetary expansion and widened current account deficit. The trade balance weakened. Imports increased at a higher rate than exports. Foreign exchange reserves declined to an alarmingly low level of less than two months' imports.

Ladies and Gentlemen

6. The Government of Prime Minister Begum Khaleda Zia was fully aware of the uphill tasks that were lying before it. So without losing time, it rose up to the occasion to reactivate the economy, restore macroeconomic balances, establish law and order, and institute good governance.

7. Swiftly and decisively, our government has taken a number of steps in order to address the issues of immediate concerns. It reduced the bank rate to inject adequate flow of credit to the productive sectors and made provision of refinance for agro-processing industries for generating employment and reducing poverty. It also created facility for refinancing for distressed export industries. Lending rates for exports of RMG, frozen food and agro-products have been reduced. Exchange rate of Taka was refixed for maintaining competitiveness of exports.

8. Even the new government did not hesitate to take politically hard decisions like freezing of public sector employment, cancellation of the Non Aligned Movement (NAM) Summit in Dhaka, planned reduction of public expenditure by about Taka 30 billion from the budget of current fiscal year, increase of revenue collection target by Taka 5 billion, decrease of interest rates on savings certificates. The Government also increased fuel price, and revised power and gas tariff upward. These decisions were imprudently postponed by the previous government on political consideration year after year bequeathing an un-sustainable fiscal mess on our shoulder. We are determined to restore fiscal discipline, reactivate capital market, create greater room for private investment and bring down real borrowing costs.

Ladies and Gentlemen

9. Nevertheless, owing largely to our timely and measured intervention, despite the deceleration in the global economy, the Bangladesh economy is projected to grow by around 5 percent during FY02. Private investment would grow. So would national savings, as the present upward trend of the workers' remittances is likely to continue. Current account deficit, however, is projected to be widened. It is anticipated that exports will be 6 percent less than that of the previous year and imports will grow by 2.0 percent. Fiscal deficit would be within sustainable limit and so monetary expansion would remain within rational bound.

Ladies and Gentlemen

10. I would now like to share with you our vision of reforms and good governance and give some indications of our reform and good governance plans for the future.

11. In order to bring the economy back on track, the Government has initiated reforms in areas of governance and economic management including financial and banking sectors, energy, telecommunication, the SOEs, administration of justice, mobilization of resources, rationalization of government expenditure, human development and local government. It moved immediately to plan and implement measures embracing all the important areas of reforms and governance. The Government formed five Secretaries' Committees to prepare reports on administrative reforms, improvement of law and order situation, poverty reduction, human resource development and macroeconomic management. Most of the recommendations of these Committees have been accepted by the Government for implementation.

12. The Government immediately adopted a 100-day programme to address 25 broad categories of issues identified for implementation in the reports of five Secretaries' Committees. This is the first time in the history of Bangladesh that such a unique programme for the first 100 days of a new government was launched. The programme included, among others, recovery of illegal arms, arrest of identified miscreants, opening of closed educational institutions, issuance of guidelines for procurement under suppliers' credit, opening of more exchange houses abroad by the Nationalized Commercial Banks (NCBs), judicial enquiry into the bombing incidents in public gatherings, initiating the process to repeal the Public Safety Act, framing of Money Laundering Prevention Act and improvement of the port services. The 100-day programme has been implemented satisfactorily.

13. The hundred days' programme also included improvement of law and order situation. In this connection, a law and order monitoring committee, composing Cabinet Ministers and senior government officials as members, has been formed to review the law and order situation every week and take appropriate measures. The committee works under the direct supervision of the Prime Minister. Similar Law and order committees have been formed at District and Upazila levels to ensure rule of law and provide safety and security to the citizen. Prime Minister Khaleda Zia attaches high priority to nabbing criminals and terrorists, including the influential ones. These measures will be further strengthened in future.

Ladies and Gentlemen

14. Steps are underway now to set up a National Human Rights Commission. The Ombudsman Act, 1980 has recently been made effective through a gazette notification. The Office of the Ombudsman will be operational soon. The Government has undertaken some specific measures to establish an independent Anti-Corruption Commission. The government has formed a high-powered inter-ministerial task force to determine an effective strategy to prevent corruption. The government has been undertaking necessary measures for a strong and independent judicial system and separating it from the executive. The rules for constitution of separate judicial service commission and judicial pay commission have been drafted.

Ladies and Gentlemen

15. New government is committed to develop and maintain efficient, effective and transparent financial system compatible with the Market Economy and basic democratic norms. In order to liberalize the banking sector from unnecessary bureaucratic shackles and imbuing it with market-led dynamism, government has taken some definite steps. Role and power of the board and management of NCBs and specialized financial institutions have been redefined. Incentive schemes for recovery of defaulted loans have been introduced. Non-profitable branches of NCBs are being rationalized through closures and mergers. Bangladesh Bank Order 1972 and the Bank Companies Act 1991 are in the process of amendment to give the central bank reasonable operational autonomy. A new Money Laundering Prevention Act is awaiting enactment. The recent amendment of Securities and Exchange Commission Act has empowered the Securities and Exchange Commission (SEC) to make rules. A Bond Market study is underway to create a viable bond market in the country.

16. New policy guidelines for processing projects financed by suppliers' credit has been adopted. A ceiling for such credit will be set considering the macroeconomic status of the country, foreign loan liabilities and the state of loan repayment. VAT and Income Tax offices have been restructured to tighten VAT and Income Tax administration. Current discretionary VAT exemptions will be gradually eliminated. The process of modernizing the income tax laws and tax administration has been continuing as well. Import-based tax processes are being modernized and simplified. The Government has decided to set up by June of this year a Public Expenditure Review Commission as well as a Revenue Reforms Commission. Steps have been undertaken as well to improve efficiency, transparency and accountability in respect of procurement processing under the development projects. The Government has also started implementation of the recommendations of the Public Administration Reforms Commission in phases.

17. The government is committed to pursue a prudent fiscal and monetary policy, maintain fiscal deficit within sustainable limit and implement necessary reforms in the exchange rate regime in the near future. The poor performance of the SOEs has acted as a drag on the development of the country. The present government is determined to privatise SOEs phase-wise irrespective of whether they are profit-making or losing concerns. The privatisation policy has been amended to make it broad based.

Ladies and Gentlemen

18. Human development will remain the top most priority agenda of the government. The Government has undertaken some reform measures in the education sector and is contemplating several others for expanding education, improving its quality and governance. It has decided to expand the existing female stipend programme from secondary level to higher secondary level and to offer free tuition to all girl students up to higher secondary level and scholarships to meritorious girls. Under an epoch-making new programme, all children from poor-families will be given free primary education and to encourage income-poor parents to send their children to the schools, government has decided to give each child of a family - a stipend of Taka 100 per month and two children Taka 125.

19. In the health sector, Health and Population Sector Programme (HPSP) achieved remarkable success in certain areas, while it also faced operational problems in some others. In order to make this programme effective, the Government has commissioned a full review of the operational strengths and weaknesses of this new approach. The government remains committed to the sector-side approach and recognizes the obvious advantages of this approach.

Ladies and Gentlemen

20. The government plans to emphasize development of infrastructure for economic growth as well as for poverty reduction. It has undertaken a series of reform measures in the energy and power sector in order to create an appropriate enabling environment. The Private Sector Power Generation Policy has been brought into operation. A power sector area-restructuring programme has recently been approved by the Cabinet. The draft Bangladesh Electricity Reforms Act 2002 has been approved by the Cabinet Committee to form a 5-member Energy Regulatory Commission. The Energy Ministry is finalizing a draft of the Bangladesh Gas Act with a view to expediting long-term development of the gas sector. In order to promote efficient energy use, the Government will try to maintain the price of energy at a level, which reflects the current market conditions.

21. In view of the positive impact of telecommunication and the new information and communication technology on poverty alleviation and growth, the Government has been undertaking reforms in the telecommunication sector. The Bangladesh Telecommunication Act, 2001 has been enacted for the creation of the Bangladesh Telecommunication Regulatory Commission to facilitate the growth and development of telecommunication activities in a multi-operator competitive environment where the private sector will play the key role. Such a Commission has already been set up and have started showing their teeth right from the beginning by stopping BTTB from increasing tariff. Tariffs in the Telecommunication Sector have been recently rationalized to generate fair competition in the sector. Reforms in this sector will continue in future.

Ladies and Gentlemen

22. Pollution of environment will get the priority it deserves for sustainable development. The Government has meanwhile banned the use and marketing of the polythene bags. The bags have been seriously polluting the soil and water and adversely affecting the environment and bio-diversity. A new law will be enacted to ban production, marketing and use of all types of polythene shopping bags. The Government has also decided to phase out three wheelers from Dhaka city to eliminate one of the major sources of air pollution.

Ladies and Gentlemen

23. All development plans of Bangladesh have attached priority to poverty reduction as one of the major targets. A number of innovative poverty reducing programmes have been launched by the Government and Non-Government Organizations (NGOs) with remarkable success. As a result, the incidence of poverty has declined significantly by nearly twenty percentage points during the last three decades. Available poverty indicators suggest that the rate of poverty reduction was highest during the previous BNP government in the first half of the nineties. However, poverty has remained a pervasive feature of the country, as about sixty five million people still live below the poverty line. Currently, the Government is preparing the Interim Poverty Reduction Strategy Paper (I-PRSP), which will embody poverty trends, economic growth and poverty reduction strategies, action plan, financing and instruments for poverty monitoring and assessment. The Paper is expected to be formulated on the basis of broad-based consultations making it a homegrown and country-owned document. The Government remains firmly committed to this new concept and strategy for poverty reduction and economic growth.

24. The proposed anti-poverty policy strategies and development of institutions would follow four broad action paths. The first set of policies would expand the scope for pro-poor economic growth for increasing income and employment of the poor. The second would foster human development of the poor. The third would provide social safety net to the poor against various anticipated and unanticipated income (consumption) shocks. The fourth would ensure participatory governance and enhance voice of the poor by strengthening women's empowerment and creating pro-poor institutions.

Ladies and Gentlemen

25. The government believes that economic growth will be a key factor in sustained poverty reduction. A stable macroeconomic framework would create an enabling environment for implementing policies crucial to accelerating the pace of growth and poverty reduction. Therefore, maintaining a stable and sustainable macroeconomic framework will be at the heart of our future poverty reduction and growth policy initiatives.

26. The government hopes to finalise the draft I-PRSP by June of this year. In the process, we would like to hold further extensive consultations with all stakeholders including our development partners.

Excellencies, Ladies and Gentlemen,

27. I have shared with you briefly my honest assessment of the prevailing political, socio-economic situation and also our vision for the future. Reform is a process and so is its outcome. The impact of some reform initiatives is already visible while in case of some others, we need some more time to have tangible results. We recognize the need to address more effectively certain issues relating to law and order, and governance. I can assure you - we will not lag behind in those areas. We are committed to materialize our vision of reforms in all spheres of the society and economy. As all of us are aware, the challenge to our economic development is very daunting but we want to prove ourselves equal to this task. I feel confident that our friends in this forum will continue to support us in facing this challenge.

I thank you all, Excellencies, Ladies and Gentlemen, for a patient hearing.

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