[The second part of the three-part article on Just and Green Transition in Bangladesh]
In Bangladesh, economic growth has been the priority focus for policymaking. For the last three decades, Bangladesh has achieved an average growth rate of around 6 per cent. As a result, from the devastated economy inherited after its independence from Pakistan in 1971, Bangladesh has already met all the conditions necessary to graduate out of Least Developed Country (LDC) status. Its per capita income now stands at around U.S. $2,500, higher than both India and Pakistan. This growth focus continues to drive the national development strategy. In this process, the private sector played the main role, led by the garment sector, which earns over U.S. $40 billion a year (80 per cent of export earnings) and employs more than three million women and girls. The sector is adopting sustainable practices; Bangladesh has the highest number of Leadership in Energy and Environmental Design (LEED)-certified clean and green garment factories in the world.
However, major brown issues of water and air pollution persist. All water bodies are extremely polluted from industrial, poultry, and agricultural activities. The entry of more than a million Rohingya refugees has caused ecological damage in the southeastern part of Bangladesh, where makeshift rehabilitation shelters have been built. Now, about 28,000 refugees have been settled in Bhasan Char, a newly emerged sandbar of land along the bank of the Bay of Bengal. The Government of Bangladesh (GoB) plans to resettle up to 100,000 refugees in Bhasan Char.
However, not all the news is bad. Forest cover has gone up and now stands at around 20 percent of Bangladesh. Agricultural productivity has risen, with mechanisation based on endogenous technologies bringing efficiency in the use of water, fertiliser, and energy. Absent any major disaster, Bangladesh is self-sufficient in food production. But a natural disaster happens almost every year, so food imports continue.
INVESTMENT PATTERNS IN ADAPTATION AND MITIGATION IN BANGLADESH: From the perspective of climate change impacts, the geographic location of Bangladesh is very disadvantageous. All assessments rank Bangladesh as one of the top ten most vulnerable countries in the world. The country currently loses around 1.1 per cent of its GDP a year due to climate events, which may rise to 2 percent per year by 2050. The Government spends 6 to 7 percent of its annual budget (about U.S. $1 billion) on climate change adaptation, with more than 75 per cent of this amount coming from domestic sources. The adaptation finance needs would undoubtedly increase with slow onset and frequent extreme events.
The GoB mobilises climate finance from six main international and domestic sources: (1) Revenue budget; (2) Annual Development Programme (ADP); (3) Bangladesh Climate Change Trust Fund (government fund); (4) Bangladesh Climate Change Resilience Fund (donor funds); (5) Multilateral climate funds, and (6) Bilateral and multilateral development bank funds.
DOMESTIC CLIMATE FUNDING IN BANGLADESH: The NDC estimates the amount required for mitigation activities. Through 2030, it estimates that for implementation of the conditional part of the updated NDC, mitigation activities will cost about U.S. $14 billion per year, of which about 95 per cent is estimated as the need for support in the energy sector only. On the other hand, the NAP of Bangladesh defined a total investment of U.S. $230 billion for 27 years (2023-2050), an implementation period that runs until the 13th Five Year Planning cycle of Bangladesh. The NAP proposes to mobilise around 72.5 per cent of the total investment cost by 2040. Developing climate resilience will require seven times the current spending to transform adaptation, at a rate of $8.5 billion per year, with $6.0 billion per year from external sources or international climate funds and development partners. The World Bank (2010) reports that super-cyclonic storms (with winds greater than 220 km/hour) have a return period of around ten years; currently, a single such storm would result in damage and losses averaging 2.4 percent of GDP. An International Institute for Environment and Development (IIED) study reports that to protect against frequent climate disasters, the households of Bangladesh have already invested U.S. $2 billion.
The domestic budget that is allocated for climate financing has proved to be more effective than official development assistance (ODA), as it uses local institutions. It is oriented toward five thematic areas: (1) Food security, social protection, and health; (2) comprehensive disaster management; (3) infrastructure research and knowledge management; (4) mitigation and low carbon development; and (5) capacity building and institutional strengthening.
GoB has introduced a budget line for climate investments in its ADP and in FY2020-21. Twenty five ministries were allocated budgets for such activities, which amounts to 7.26 per cent of the annual development plan. A study conducted by Rahman et al. (2020) states that, between 2009 and 2017, 61 percent of climate adaptation development funds, amounting to around US $3.7 billion, were sourced domestically (BCCTF- and ADP-based funds).
INFLOW OF INTERNATIONAL FINANCE IN BANGLADESH: Developed countries have assumed obligatory responsibilities to financially support vulnerable developing countries under the UNFCCC and the Paris Agreement. Priority is given to the LDCs and Small Island Developing States (SIDS). Bangladesh receives climate funding from various multilateral and bilateral sources, but international support is dwarfed by Bangladesh's own domestic resources. Rahman et al. (2020) calculated that from 2009-2017, the GoB cumulatively allocated U.S. $3.7 billion to climate change funding, mostly funded by international agencies, such as the World Bank ($1.2 billion), Japan ($234 million), the Asian Development Bank ($239 million), the International Fund for Agricultural Development ($238 million), the UK Department for International Development ($132 million), and the World Food Program ($129 million).
Although Bangladesh receives comparatively more than other LDCs for climate-related projects, the money invested is inadequate to offset climate change impacts and vulnerabilities as well as other economic and social priorities, so lack of finance pushes the country back in its quest for green and climate-resilient growth. The mobilization of international climate/adaptation finance is too slow. Foreign aid is going down, and Bangladesh now receives less than 1 per cent of its GDP in total aid (OECD, 2020; World Bank, 2021).
As is evident from the above data, about 75 per cent of investments in climate change management come from domestic sources. Once Bangladesh graduates from LDC status, foreign aid will go down even more. Therefore, there is a challenge for the government and the private sector to mobilise international investments on a competitive basis.
EXTERNAL DEBT: Bangladesh's external debt is around 20 per cent of 2021 GDP and is mostly from official creditors on concessional terms. As of March 2022, multilateral debt constituted 61 per cent of
Bangladesh's total external debt, while bilateral debt was about 39 per cent. The sustainable debt outlook of the country is attributable to robust GDP growth rates and a prudent fiscal policy that consistently maintains a deficit of around 5 per cent of GDP.
External total public and publicly guaranteed (PPG) debt stood at U.S. $62 billion in FY21. This debt has helped finance infrastructure projects and is expected to decrease gradually to about 11.6 per cent of GDP by 2042. The large share of concessional external borrowing has helped the external PPG debt-to-GDP ratio remain on a downward path.
Therefore, the risk of external debt distress for Bangladesh is still low.
DOMESTIC DEBT: Overall, the public debt-to-GDP, amounting to U.S. $147.8 billion (41.4 per cent in FY2021), is expected to stabilise by FY2031. The majority of public debt over the last decade is domestic and denominated in local currency. The external debt burden has changed little over the last decade, but the domestic debt burden has risen in the last two years. The main reason is the building of the Padma Bridge based on domestic borrowing. Roughly half of the outstanding domestic debt is composed of National Savings Certificates.
POLITICAL: The political leadership remains committed to economic growth and is also very active in environment and climate diplomacy. However, most elected parliamentarians are former businessmen and corporate leaders. Bangladeshi business is not yet well aligned with green economy thinking, and the private sector response has not been encouraging so far, except in the export-oriented garment sector. Therefore, there is a need for the government to nudge businesses to follow a green and climate-resilient trajectory by adding fresh policy prescriptions to support green banking and green funds.
The governance process around policy change and public financing is not very transparent and accountable. Lack of inter-ministerial and inter-agency cooperation results in institutional weaknesses in the whole process. There is some pressure from civil society that is growing in recent times.
ENVIRONMENTAL: With its physical and socio-economic parameters, Bangladesh presents a test case of sustainable development. About 165 million people, exactly half of the United States (US) population, live in a territory that is just 1.5 per cent the size of the US. Obviously, the population-resource base is very imbalanced and tends to surpass the carrying capacity of the source and sink functions of nature. So the importance of a sound policy-management framework cannot be over-emphasised in Bangladesh. Both the brown issues (the pollution from all types of economic activities) and the green issues (the degradation of the natural resource base) are extremely challenging for Bangladesh.
The industrial world and even many developing countries now apply more economic and social instruments for environmental management. Based on the polluter-pays principle, many countries have successfully introduced green/carbon taxes. Bangladesh's fiscal framework and budget contain some incentives and tax provisions encouraging or discouraging domestic production or import of goods that can be tailored to incentivise green production. Community participation in resource protection has been accepted at the policy level, but implementation details lack clarity and direction, so genuine participation on the part of communities is not yet an active process.
However, the last decade saw some consolidation of the policy-legal and institutional framework of environmental management. During this time, the most important environment and climate-change-related policies and regulations were adopted. In climate change management, Bangladesh stands out as a leader among the least developed and many other developing countries in terms of mainstreaming climate change considerations into its development plans and strategies. This has evolved to ensure its physical survival. For the right reasons, Bangladesh is looked at by the world as a model or teacher of adaptation and disaster management. Forest cover also has increased significantly over the last two decades, with almost 17 per cent of land being under forest cover.
However, in terms of brown pollution, which greatly impacts environmental health, Bangladesh has not yet reached the plateau of the environmental Kuznets curve. For example, rapid growth in Dhaka cannot be said to lead to sustainable development in terms of improving the quality of life of its citizens. However, there is recognition in the latest GoB plans that more should be done to embrace environmental protection simultaneously with rapid economic growth. There are policy pronouncements about imposing higher penalties for violation of environmental rules, as well as an intent to impose environmental taxes. Therefore, there are reflections of the thought that both the environment and long-run growth can progress together through a sustainable development approach. It can be expected that the pollution curve will start bending down in the next few years as demand for better environmental quality will ramp up from civil society groups. But we are still far from the ecological school of thought, where the focus will be on qualitative development, rather than quantitative growth. This may happen after 2040 when Bangladesh hopes to reach developed country status.
Dr Saleemul Huq is Director and Mizan Khan is Deputy Director, International Centre for Climate Change and Development, The Brookings Institution. www.brookings.edu
[The piece originally published as a part of the working paper titled "Keys to Climate Action: How developing countries could drive global success and local prosperity," edited by Amar Bhattacharya, Homi Kharas, and John W McArthur and published by The Brookings Institution based in Washington, DC.]