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Successful implementation of PRSP
WB, IMF view confrontational politics, capacity constraints as major risks
S M Jahangir
2/16/2006
Major multilateral donors have identified risks emerging from confrontational politics, severe capacity constraints and lack of incentives in the civil service as major impediments to successful implementation of the poverty reduction strategy paper (PRSP) in Bangladesh.
A joint finding by the World Bank (WB) and the International Monetary Fund (IMF) also cautioned that the biggest implementation hurdle was often the lack of a concrete strategy 'backed by adequate resources.'
Both the donors, however, observed that the PRS outlined in the National Strategy for Accelerated Poverty Reduction (NSAPR) is comprehensive and contains critical policy actions that, over time, could help foster accelerated growth and poverty reduction.
The WB and the IMF made the observations under a Joint Staff Advisory Note (JSAN) of the PRSP for Bangladesh, according to the IMF website.
"Despite many challenges, its development record thus far has been quite impressive. Overall, the steady improvement in indicators of social and economic well-being gives ground for cautious optimism about the future, though formidable challenges in the areas of human development and governance remain," the JSAN said.
It, however, suggested that the government should develop a time-bound public financial management programme that systematically improves the quality of its internal financial controls, asset inventories, accounting and audit processes and strengthens the quality and integrity of personnel responsible for managing the key budget processes.
Such a program would contribute to achieving visible progress in the country's financial management, it observed.
Mentioning that the medium-term macroeconomic framework presented in the NSAPR is broadly in line with WB and IMF staff projections under a high growth scenario, it said a sustained high growth would be necessary to meet the country's millennium development goal (MDG) for poverty reduction.
However, to achieve such an ambitious target, a steadfast implementation of reform policies presented in the document will be needed, together with favourable economic conditions, it observed.
Hailing the government's commitment to maintain macroeconomic stability and support the thrust of macroeconomic policies proposed in the NSAPR, it said despite a difficult political environment and external shocks, the authorities have generally maintained prudent macroeconomic policies.
However, implementation of the strategy outlined in the paper, including funding social expenditures without jeopardizing fiscal and debt sustainability will depend crucially on successful efforts to improve revenue collections and eliminate quasi-fiscal losses currently being recorded in the state enterprises.
The donors also urged the authorities to speed up the implementation of the revenue administration reforms.
Besides, steps to rationalise the system of tax exemptions and incentives are needed to reduce the associated revenue losses, they said, calling for a monetary policy that ensures price stability and commitment to market-based instruments.
Low inflation and maintain policy interest rates that are positive in real terms will also help promote stability of the exchange rate, they observed.
Appreciating the government's commitment to a flexible exchange rate policy, it also encouraged the authorities to further improve the functioning of the forex market and allow the exchange rate to move in response to changes in economic fundamentals.
The donors also said that the government's commitment in the NSAPR to restrain domestic borrowing and rely on concessional external borrowing would contribute to maintaining debt sustainability.
It also called for more discussion in future PRS documents on macroeconomic impact, including fiscal sustainability, of substantial quasi-fiscal costs associated with the ongoing operating losses in the nationalised commercial banks (NCBs) and the pricing of petroleum and natural gas products.
New external borrowing would also need to be carefully screened with any non-concessional loans kept to a minimum, it suggested.
Moreover, external debt monitoring and management capacity also need to be considerably strengthened to support policy analysis and decision making, it added.
It also recommended that the NSAPR should have given FDI a higher prominence, perhaps as one of the key drivers of improving the country's overall competitiveness.
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