Posted on March 4, 2009 - by Gavin

Poverty reduction: Insight from other countries…

The Guardian

BANGLADESH has about the most vulnerable economy in the world because of its low resource base, high incidence of natural disasters and socio-political upheavals.

Other negative images of the country include economic mismanagement and the difficulties of installing a democratic government.

But in recent years, Bangladesh has made remarkable improvement in some essential areas of life and especially in human development.

Its achievements are remarkable in a situation where the country has been characterised by poor institutional environment and being ranked as the country with the most corrupt government.

However, Bangladesh has attained more reputation based on its good investment climate rather on corruption in recent years.

Bangladesh has achieved success in three areas with a direct bearing on the basic capabilities of the poor: Population, basic health and basic education.

The country’s breakthrough include the ability of the state to promote pro-poor public investment strategy through increased allocation to many infrastructural and social sectors.

How did Bangladesh achieve pro-poor growth?

Placing Bangladesh’s experience in a post-independence historical context, analysts observed that despite the fact that the country is locked in a below-poverty-level equilibrium trap impervious to any policy-based solution short of radical restructuring, progress has been achieved through macroeconomic stability and openness, which created fiscal space for sustained investment in rural infrastructure and social services.

Analysts pointed out that public expenditure is but one channel through which sound policy choices can accelerate pro-poor growth.

In their report titled: “Explaining pro-poor growth in Bangladesh: Puzzles, evidence, and implications,” economic analysts, Sen, Mujeri and Shahabuddin observed that improved vulnerability management and a generally constructive relationship between the government and civil society have allowed the country to overcome its challenging environment.

The troika said, explanations for pro-poor growth in Bangladesh can be rooted in a stable macroeconomic environment that created fiscal space for public expenditures favouring the poor.

In addition, political commitments to social development have been reflected in policy consistency cutting across regime types since independence.

The report explained that in the 1990s, Bangladesh’s macroeconomic policies achieved relatively low inflation, a stable exchange rate, a low current account deficit and a low fiscal deficit.

“Fiscal, monetary and exchange rate management improved appreciably from 1989 to 1993, providing a reasonably sound basis for higher growth during the next ten years,” said the report.

Also, said the troika, since the mid 1980s, management of the exchange rate has been characterised by a remarkable stability in the real exchange rate and by avoiding significant real exchange rate appreciation, the country preserved the competitiveness of its export sector.

According to the report, Bangladesh’s inward orientation restrictive trade and exchange rate practices (an economic ideology common to most of south Asia-created distortions in product and factor market.

Therefore, as part of the reform process, the Bangladesh economy opened significantly during the 1990s. Consequently, the external sector substantially liberalised in terms of external trade and foreign exchange regimes.

Since a rapid increase in Bangladesh’s global economic integration has also taken place, an open trade regime was on the whole beneficial to growth acceleration. Thereby, accordingly to the World Bank, Bangladesh’s exports grew at an average rate of 11 per cent per year in the 1990s and generated substantial employment.

According to Sen etal, after successive years of high and unsustainable fiscal deficit in the 1980s, which culminated in the fiscal crisis of 1988/89, the country made an impressive effort to stay on course in balancing the budget.

It pursued reasonably prudent fiscal policies in the 1990s in the face of a rapid fall in foreign aid and inadequate revenue raising measures.

Concerning rural infrastructure development, the troika observed that government policies have traditionally emphasised development of the rural economy as a means to alleviate poverty and contain the impact of natural calamities.

The Local Government Engineering Department also initiated the development of feeder roads, connecting roads and nascent market centres throughout the country. The road projects helped increase farm and non-farm output, employment and income, especially of the rural poor and women.

Large scale microsurvey data suggest that the number of small to medium size market centres more than doubled between 1994 and 2000 in rural areas, indicating the growing vibrancy of the rural economy.

Also, consistent with Bangladesh’s emphasis on human resources development, public spending on health has been increasing in both nominal and real terms over the last three decades.

The troika noted that, although this spending is much lower than recommended by the World Health Organisation, yet, it is higher than that of many developing countries.

Successive Bangladesh governments also scored high on better investments climate. The World Bank rated the country higher than India or Sri Lanka on ease of doing business.

The analysts stated another island of excellence, which is the Palli Karma Sahayak Foundation, an autonomous microcredit fund that is insulated from the weaknesses of the public finance bureaucracy.

The Foundation furnishes microfinance to medium size, which in term provide microcredit services to the poor, particularly those usually excluded from microfinancing programmes.

Source: http://www.ngrguardiannews.com/moneywatch/article01/indexn2_html?pdate=040309&ptitle=Poverty%20reduction:%20Insight%20from%20other%20countries%20(2)