Dhaka and Chittagong dominated with 78% of total loan disbursal in Bangladesh in FY24, indicating an excessive concentration of economic activity in these two cities, according to study findings revealed by the Policy Research Institute (PRI) on Thursday.
The report also said that despite Bangladesh’s progress in economic and human development, weak local governance and poor accountability are eroding public services and basic infrastructure in both urban and rural areas.
PRI on Thursday hosted the second seminar in its two-part seminar series, titled “Can Bangladesh Develop Without Decentralizing? Some Lessons from East Asia and Thoughts on the Local Government Reform and Other Commissions’ Reports” in the capital.
Ahmad Ahsan, director at PRI, delivered the keynote presentation.
Presenting findings from his research, he presented evidence that, de facto, Bangladesh may be the most centralized country in the world for its size and that it would not be possible to sustain economic development under such a centralized structure.
He said that: “Bangladesh’s banking and credit sectors have grown, but most loans and services are still concentrated in Dhaka and Chittagong, leaving SME development in other areas weak. About 78% of loans are issued in Dhaka and Chittagong, while SMEs across other districts struggle to access credit.”
This heavy financial concentration limits new enterprise creation outside the two cities, stifling employment opportunities and deepening regional inequalities, he added.
“While Bangladesh had made impressive progress in economic and human development, the weaknesses of local governments and the absence of local-level accountability were now leading to poor public services and a decline in education, health, water, sanitation, and basic infrastructure in both urban and rural areas in Bangladesh.”
Research shows, this has significant implications employment growth in urban industrial sectors has slowed between 2017 and 2022 compared to 2010–2017.
The underdevelopment of SMEs and the lack of decentralized banking reduce the prospects of inclusive industrialization.
He pointed out that improving these services and developing well-functioning cities and towns would require local governments that serve with accountability.
Drawing on the lessons of how dynamic local Governments helped the rapid development of East Asia, Ahsan stressed that the design of decentralization, ensuring accountability and transparency through the use of performance indicators, and identifying the main tiers of local government would be key to success.
In this regard, he suggested that the 64 Districts of Bangladesh and the towns and cities should be regarded as the main hubs of decentralized governments because they could provide the technical capacity, be closer to the people, and be easier to coordinate.
The PRI director also praised the work of the Local Government Reform Commission and endorsed many of its reform proposals, and in particular, their support for well-functioning Zila Parishads.
However, he also suggested the Commission’s recommendations for the indirect election of the chairperson of district and Upazila governments would weaken their powers.
He also indicated that the proposal to have overlaying wards of three governments, as proposed by the LGRC, would create confusion and weaken accountability.
The proposal to have Central Government administrative officials working in parallel with elected Local Governments could also deepen fragmentation in local government services. Finally, Dr. Ahsan pointed out the detailed work that needed to be done in designing and implementing fiscal and administrative decentralization, financial management, and performance indicators monitoring systems.
Findings
The study recommended increasing the local government allocation to at least 1% of GDP initially, strengthening property tax collection in Dhaka and Chittagong (currently only 0.13% and 0.06% of GDP, respectively), and introducing annual scorecards for local governments on services, investment climate, and financial management.
Badiul Alam Majumdar, member, National Consensus Commission, remarked about living standards: “We have developed, but have we truly progressed?”
He argued that political reform is indispensable to bringing positive change.
But he also warned that if politics continues to operate as a business rather than a public service, individuals with integrity will remain reluctant to enter the arena, that change will remain in paper, as usual.
He concluded by focusing on the principle of subsidiarity, the idea that problems should be solved at the level closest to where they arise, as the guiding motto for decentralization in Bangladesh.
Crowded in 2 districts
M Masrur Reaz, chairman and CEO of the Policy Exchange of Bangladesh, highlighted that economic activities in Bangladesh remain heavily concentrated in the Dhaka and Chittagong divisions, particularly within the metropolitan areas of these cities.
This overconcentration leads to acute congestion in Dhaka, with traffic jams alone resulting in an estimated annual economic loss of $4 billion, he also said.
He stressed the need to connect local governments with central government initiatives in a more coordinated and planned manner to reduce wastage and maximize public service delivery.
