World Bank: Tier-2 cities like Gazipur, Narayanganj must promote urban growth outside Dhaka

Bangladesh has made remarkable economic progress in the past five decades. To sustain and further accelerate the growth rate in the long term, the country needs a strong reform agenda, says a new report by the World Bank (WB).

The World Bank Dhaka office in a release on Thursday quoted Senior Trade Economist Nora Dihel: "Greater Dhaka generates one-fifth of the country's GDP and almost half of its formal employment. The already congested capital needs to be prepared to accommodate climate migrants,"

"Better urbanization and connectivity will help absorb the climate migrants and sustain fast productivity growth. Successful urbanization will mean attracting tradable activities to small and medium-sized cities," she said.

This will require making the next tier of cities attractive to formal firms and skilled workers. Cities will need to raise their own revenues to finance infrastructure investments and the provision of services, including affordable housing. Faster broadband speeds, better access to basic services, and easier intercity transport connectivity can lead to tier-2 cities like Gazipur and Narayanganj promoting urban growth outside Dhaka.

Although digitalization of payments has increased rapidly with 34% of adults using digital payments in 2017 in comparison to 7% of adults in 2014, about 40% of adults do not have a bank account. Strengthening credit infrastructure and promoting further digitalization of financial services will be important to reach the most underserved population.

Bangladesh has been among the top 10 fastest growing economies in the world, but there is "no room for complacency", according to a World Bank report. 

The report urges strong policy reforms in three areas critical to sustaining growth: stem the erosion of trade competitiveness, address vulnerabilities in the financial sector, and ensure an orderly urbanization process.

Bangladesh's heavy reliance on ready-made garments and protective tariff regime inhibits diversified export growth, according to a World Bank (WB) report. 

The average tariffs in Bangladesh are higher than its comparator countries: the average tariff rate on intermediate goods in Bangladesh is 18.8 percent, which is about twice the rate as in China, Thailand, and Vietnam.

Deep and comprehensive trade agreements with the European Union and India covering tariff modernization, increased trade facilitation, and services and investment reforms can boost Bangladesh's economy. Scaling up private sector financing is essential for sustaining economic growth. Bangladesh has an untapped domestic capital market, which is required for raising long-term finance for infrastructure and climate adaptation projects.

Bangladesh needs to focus on unlocking private sector financing for green and climate-related projects, said World Bank's Chief Economist Dr Shamsul Haque. 

The country also needs to expand access to finance in underserved segments, such as women and MSMEs, he added. It needs to source external resources proactively through international capital markets and ease its borrowing constraints.