The middle-income matrix
The World Bank (WB) President Robert Zoellick, who concluded his first trip to Bangladesh on November 4, appreciated the government's reform measures, especially in the financial sector, and suggested making it a priority to make Bangladesh a mid-income country (MIC) by 2016.
The recently released WB study, titled "Bangladesh: Strategy for sustained growth," said that the country could become a MIC by 2016 if it liberalised trade further, increased energy prices, privatised selected state-owned enterprises, and maintained its record of economic stability.
The WB report provided eight specific policies for transition of Bangladesh to the MIC status. These include reduction of the maximum tariff rate to 15 percent by Fiscal Year 2010, and discontinuation of the protective use of VAT by Fiscal Year 2009.
Commenting on the study, WB Country Director Xian Zhu said: "If GDP growth picks up to a sustained rate of 7.5 percent, Bangladesh can become a middle-income group by 2016. But, if average growth falls to the three percent rate seen in the 1980s, the middle-income aspiration will have to wait for another five decades."
The WB also organised a roundtable session, titled "Can Bangladesh become a MIC within a decade?" after launching of the report, where the speakers mentioned equitable distribution of wealth, ensuring of decentralised and effective governance, and the effects of climate change as some of the biggest challenges.
Country classification is entirely a WB phenomenon. The WB classifies its 185 member countries as low-income, middle-income (subdivided into lower middle and upper middle) and high-income group on the basis of their gross national income (GNI) per capita, for its operational and analytical purposes.
This economic classification was made according to 2006 GNI per capita and was calculated using the WB Atlas method. The groups are: low-income $905 or less, lower middle-income $906 - $3,595, upper middle-income $3,596 - $11,115 and high-income $11,116 or more.
The low-income countries usually do not qualify for International Bank for Reconstruction and Development (IBRD) loans unless they are creditworthy. The 79 MICs eligible for IBRD assistance, that include China and India, are indispensable to the WB's fight against global poverty as they are home to more than 70 percent of the developing world's population, living on less than $ 2 a day.
MICs are a diverse group with complex social, cultural, political and development challenges, varying development needs and different preferences. Many MICs are interested in rapid access to targeted technical expertise, and to knowledge that is based on experience the WB gained elsewhere. Often, but not always, the MICs want this knowledge and expertise combined with finance.
Many MICs are facing the daunting challenge of reducing poverty to meet the Millennium Development Goals (MDG), which set specific targets to be met by 2015. The eight targets set for Bangladesh under the MDG include reduction of extreme poverty from 28 percent to 14 percent and population growth from 58.8 percent to 29.4 percent.
A review on the MDG progress, prepared jointly by the UN Economic and Social Commission for Asia and Pacific, the UN Development Program and the Asian Development Bank, revealed that no developing country in the Asia-Pacific region was on track to achieve all the goals by 2015.
Regarding the dramatic progress in poverty reduction within the region, the report said that the number of people who suffer from hunger had fallen only slightly. It said that some 48 percent children in Afghanistan, Nepal and Bangladesh suffered from malnutrition, while in India it was 47 percent.
A research organisation, Unnayan Onneshan, in its "Bangladesh Public Policy Watch" report, said that Bangladesh would need 135 years to eliminate poverty in rural areas and 43 years to achieve the prime target of the MDG at the current rate of poverty reduction. The overall poverty eradication in general would, however, take 81 years at the current rate and 24 years to reach the MDG.
Though Bangladesh's prime concern is poverty reduction, official evidence shows that it is not on track for achieving the MDG target. The poverty rate declined 2.6 percent in the last five years, which amounted to an annual poverty reduction rate of about 0.52 percent.
The Chittagong Chamber of Commerce and Industry and the WB jointly organised a seminar on November 10 on "Challenges for Bangladesh in becoming a Middle Income Country." The speakers at the seminar expressed their cautious optimism in turning the country into a MIC by 2016, and advocated for a sustainable and pragmatic economic policy to address key economic issues to achieve the goal.
They also said that the WB's different programs and assistance aiming at poverty alleviation and economic advancement of the country have, so far, failed to a great extent to yield the desired benefit due to imposition of stiff conditions that often seem to be a barrier to the economic progress of the country.
The WB's plan for making Bangladesh a MIC by 2016 has been termed unrealistic by the country's economists and experts for very logical reasons. In terms of purchasing power parity, our per capita GDP is under $ 2,000, while it is $ 3,486 in India, $ 6,572 in China and $ 10,843 in Malaysia.
The WB says that 7.5 percent GDP growth could see Bangladesh in the MIC group. The GDP growth increased to six percent in FY 2005-06 from four percent in FY 1992-93, but the income disparity between the hardcore poor and the richest five percent increased from 18 times in 1990 to 84 times in 2004 because of the highly skewed growth distribution.
A look at the per capita income shows that it increased by 18 percent at the national level. But the share of the poor in this growth was very meager, accounting for only five percent, while the rich achieved 20 percent rise.
Bangladesh, the world's most densely populated country, beset by poverty and a lethargic GDP growth, cannot make the rapid transition to MIC status. The people have become quite unhappy with the policies of the WB for implementing its development programs in the country. The WB needs to provide financial assistance to Bangladesh on soft terms if it really wants to help the poor segment of our country.
A. N. M. Nurul Haque is a columnist of The Daily Star.
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