This Country Program Evaluation (CPE) assesses the development effectiveness of the World Bank Group’s engagement with Bangladesh during the past decade (fiscal year [FY]11–20). The CPE reviews the extent to which the Bank Group’s support was effective and strategically focused and how it evolved to remain relevant during the decade in relation to changes in country context, lessons from experience, development priorities, and Bank Group corporate and International Development Association (IDA) priorities. The CPE includes a special focus on two thematic areas supported by the Bank Group and of particular relevance to Bangladesh: the jobs agenda and clean energy. In these and other areas, the CPE assesses how well the Bank Group leveraged partnerships to achieve objectives. Finally, the CPE provides lessons that may be of relevance to the next Country Partnership Framework (CPF) with Bangladesh, which is expected in FY23. The lessons may also be relevant to countries facing similar challenges.

The CPE is organized as follows: Chapter 1 presents the country context, highlighting the key socioeconomic achievements and development challenges faced by Bangladesh during the review period. Chapter 2 presents the Bank Group–supported program during the review period and its evolution and assesses its overall design, performance, risk assessment, and quality of internal and external partnerships. Chapter 3 assesses the Bank Group–supported program in the three focus areas of Bank Group–supported strategies. Chapter 4 reviews the Bank Group’s contributions to key IDA themes (gender, governance, and displaced populations), and chapter 5 assesses the Bank Group’s contributions to the jobs agenda and clean energy. Chapter 6 presents conclusions and lessons.

Country Context

In 1975, Bangladesh had one of the world’s lowest per capita incomes, but during the ensuing years, Bangladesh grew rapidly, with growth driven by the ready-made garment (RMG) sector and fueled by remittances. The rapid expansion of the RMG sector facilitated a structural transformation from agriculture to a more manufacturing-based economy. The transformation created jobs in manufacturing, and women accounted for half of the net increase in total employment. Between 2011 and 2020, the country registered average annual gross domestic product (GDP) growth of 6.4 percent (or an average of 6.3 percent between 2011 and 2015 and 6.6 percent between 2016 and 2020), allowing Bangladesh to cross the lower-middle-income threshold in 2016. Although Bangladesh’s average per capita income growth has been consistently high relative to its comparators, it is still low compared with India, Sri Lanka, and Vietnam and with averages for lower- middle-income countries and upper-middle-income countries. Bangladesh’s per capita health expenditure is the lowest among its peers, as is its Human Capital Index score. Bangladesh’s performance on a number of socioeconomic indicators lags behind its peer countries (table 1.1).

Bangladesh has made good progress toward achieving the United Nations (UN) Sustainable Development Goals. It has achieved this progress by reducing extreme poverty, decreasing under-five mortality rates, increasing gross enrollment in primary and secondary education, and improving gender parity (table 1.2). In 2021, Bangladesh ranked 65th out of 156 countries on the Global Gender Gap Index, ahead of other South Asian countries, with a score of 0.721. Bangladesh’s score suggests it closed 72 percent of its gender gap. At the same time, Bangladesh has been (and remains) highly vulnerable to natural disasters and climate change. The Global Climate Risk Index ranks Bangladesh as seventh among the countries most affected by climate change events over the past 20 years.1

Sources: World Development Indicators database, World Bank, Washington, DC (last updated September 23, 2021); World Economic Outlook (database), International Monetary Fund, Washington, DC (accessed April 2021).

Note: GDP = gross domestic product; HCI = Human Capital Index; LMIC = lower- middle-income countries; PPP = purchasing power parity; UMIC = upper-middle-income countries; — = not available.

a. Average based on selected years.

b. HCI based on 2020 data only.

c. Bangladesh average based on 2017–18 only.

Sources: Corruption Perceptions Index (database), Transparency International (accessed 2021), https://www.transparency.org/en/cpi/2020; Schwab and Zahidi 2020; World Bank 2019c, 2020f; World Economic Forum 2021; Worldwide Governance Indicators (database), World Bank, Washington, DC, https://databank.worldbank.org/source/worldwide-governance-indicators.

Note: PPP = purchasing power parity.

a. The Global Competitiveness Index (GCI) ranking covers 141 economies in 2019. The GCI measures national competitiveness, defined as the set of institutions, policies, and factors that determine the level of productivity. The GCI score has a scale of 0 to 100, where 100 represents the “frontier,” a state where an issue ceases to be a constraint to productivity growth. As of 2020, the GCI rankings have been paused.

Despite the increase in manufacturing employment, half of all workers remain in agriculture and the informal sector. Unemployment and underemployment are high, accentuating vulnerability (especially among youth), and labor productivity is low by international standards. The Bank Group’s 2015 Systematic Country Diagnostic (SCD; World Bank 2015a) concludes that Bangladesh has a fundamental challenge of creating “more and better jobs” for continued growth and poverty reduction. But the pace of job creation has slowed in recent years. There is also a significant gender gap, with low female nonagricultural labor force participation. The coronavirus (COVID-19) pandemic has disproportionately affected urban poor people and women, given the population concentration in cities. Women are employed in sectors (for example, garment production and household services) that have been heavily affected by the pandemic.

COVID-19 has significantly affected Bangladesh’s growth prospects. The country’s GDP grew by an estimated 3.5 percent in 2020, lower than the prepandemic World Bank projection of 7.4 percent for 2020. This was due, in part, to contraction in external demand for the RMG sector. In 2020, average household per capita consumption was estimated to have declined by 13 percent, with national poverty rates rising from 23 percent to 35 percent (implying an additional 21 million people falling into poverty; Genoni et al. 2020). Finally, challenging domestic and international economic conditions have affected the government’s already low fiscal revenue and, together with spending related to COVID-19, are likely to result in a budget deficit of more than the government target of 5 percent of the GDP. The severity of the impact has the potential to lead to significant losses for the banking sector.

Governance challenges persisted, with no significant improvement (and some deterioration) in a range of governance indicators over the CPE period. Most governance indicators, including Worldwide Governance Indicators and others,2 have shown no significant improvement for Bangladesh, with the exception of the rule of law and political stability indicators; indicators for voice and accountability deteriorated sharply (table 1.3).

Transparency International ranked Bangladesh 147th out of 180 countries in 2021 on perceived levels of public sector corruption. Bangladesh’s Corruption Perceptions Index score of 26 is among the lowest in the South Asia Region.3 Transparency International reported that corruption in Bangladesh has been pervasive during the pandemic, ranging from bribery to misappropriation and related to the procurement of medical supplies and contracts among business and government authorities.4

Institutional shortcomings pose a significant risk to Bangladesh’s aspirations to reach and maintain upper-middle-income country status. Stronger public institutions will be needed to manage an increasingly complex and open economy and create an environment conducive to private sector–led growth and investment. The World Bank’s Country Policy and Institutional Assessment (CPIA) rating for Bangladesh declined over the CPE period and relative to averages for the South Asia Region and lower-middle-income countries (figure 1.1a). The CPIA subrating for public sector management and institutions, which influences IDA’s performance-based allocation (PBA) of concessional financing, has been declining since 2016 (figure 1.1b). Other CPIA subratings also declined over the CPE period, including for economic management (despite a single-year increase in 2014). Much of the decline in the overall CPIA rating and subrating for public sector management and institutions took place after completion of the program supported by the International Monetary Fund (IMF) in October 2015.

Source: Worldwide Governance Indicators (database), World Bank, Washington, DC (accessed 2021), https://databank.worldbank.org/source/worldwide-governance-indicators.

Note: Percentile rank indicates rank among all countries in the world (0 = lowest rank; 100 = highest rank). CPIA = Country Policy and Institutional Assessment; – = not available.

a. World Development Indicators database. The economic management cluster includes macroeconomic management, fiscal policy, and debt policy. The public sector management and institutions cluster includes property rights and rule-based governance; quality of budgetary and financial management; efficiency of revenue mobilization; quality of public administration; and transparency, accountability, and corruption in the public sector. CPIA cluster average (1 = low to 6 = high).

b. The Corruption Perceptions Index ranks 180 countries and territories around the world by their perceived levels of public sector corruption. The results are given on a scale of 0 (highly corrupt) to 100 (very clean).

The central government’s fiscal position was sound in 2010 but deteriorated steadily thereafter, and fiscal and financial sector vulnerabilities increased after the completion of the IMF program in 2015 (table 1.4). Until recently, Bangladesh’s headline annual fiscal deficit was contained below 5 percent

Figure 1.1. CPIA Ratings: Bangladesh, South Asia, Lower-Middle-Income Countries (FY11–20)

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Figure 1.1. CPIA Ratings: Bangladesh, South Asia, Lower-Middle-Income Countries (FY11–20)

Source: World Development Indicators (database), World Bank, Washington, DC, accessed April 19, 2022.

Note: CPE = Country Program Evaluation; CPIA = Country Policy and Institutional Assessment; FY = fiscal year; LMIC = lower-middle-income countries; mgt = management; SAR = South Asia Region.

Sources: a. IMF Fiscal Monitor (2021). b. IMF World Longitudinal Data (last updated August 27, 2020). Compilation of government tax and nontax revenue from the Government Finance Statistics and the World Economic Outlook. c. IMF Article IV Consultations, d. World Development Indicators database (last updated February 15, 2022).

Note: In percentage of GDP, unless otherwise stated.

of GDP, including through slower-than-programmed implementation of the Annual Development Program. But on average over the past decade, Bangladesh had one of the lowest revenue-to-GDP ratios in the world, reflecting a narrow base, extensive use of ad hoc tax exemptions and incentives, significant informality, and slow progress in the automation of revenue collection processes. The current expenditure-to-GDP ratio was increasing, driven by high growth in wages, interest, subsidies, transfers, and large, unplanned expenditures resulting from the Rohingya refugee crisis. These pressures have been further exacerbated by COVID-19.

At the same time, the government faced rising fiscal vulnerabilities. The 2015 Public Expenditure Review update identified a number of core fiscal challenges including poorly targeted subsidies (including for agriculture/fuel), and a doubling of interest costs since 2010, accounting for 25 percent of current expenditure (equivalent to public spending on education, health, and welfare combined). The debt-to-GDP ratio was regularly assessed as modest. However, this did not reflect contingent liabilities from state-owned enterprises (SOEs) and what the World Bank described as “glaring inadequacies of expenditure accounting which resulted in an overstatement of economic growth” (Macro Poverty Outlooks 2017/18 Annual Spring Meetings; World Bank 2016–20).

Bangladesh’s financial sector also faced significant challenges over the evaluation period. State-owned commercial banks (SOCBs) were weak and a source of systemic risk despite corporatization efforts supported by the Bank Group and earlier efforts to strengthen banking sector governance (under the 2006 Country Assistance Strategy [CAS]). The 2011 CAS warned that a return to populist policies on bank lending, including politically motivated appointments to the boards of SOCBs and a return to directed lending for agriculture, could worsen the condition of SOCBs. The World Bank’s Macro Poverty Outlook (MPO) for Bangladesh (spring 2016) raised concerns about mounting nonperforming loans (NPLs), which were described as a “major concern,” and noted that the main factor holding back the recovery of defaulted loans was inadequate enforcement of laws and slow execution of decrees. The SCD cautioned that the integrity of the financial sector had been compromised by banking sector loan scams and embezzlements and by weaknesses in the regulatory and supervisory frameworks, which contributed to underreporting of NPLs.