The Macro-Economic Performance of Bangladesh (2008-2013)

Prepared by: Group - 6 Prepared for: Imrana Sharmin (IMSR)
Course: ECO - 102, Sec: 07, Session: Fall 13 Senior Lecturer, EWU
Macro-economic Performance of Bangladesh 1 | P a g e
1. INTRODUCTION

In real term Bangladesh's economy has grown 5.8% per year since 1996, despite political instability,
poor infrastructure, corruption, insufficient power supplies, and slow implementation of economic
reforms. Bangladesh remains a poor, overpopulated, and inefficiently governed nation. Although
more than half of GDP is generated through the service sector, 45% of Bangladeshis are employed in
the agriculture sector with rice as the single-most-important product. Bangladesh's growth was
resilient during the 2008-2009 global financial crisis and recession. Garment export, totaling $12.3
billion in the fiscal year 2009 and remittance from Bangladeshis, totaling $11 billion in fiscal year
2010, accounted for almost 12% of GDP.

The macroeconomic developments in Bangladesh since the beginning of the 1990s, until middle of
the decade, were characterized by a record-low rate of inflation, an unprecedented build-up of
external reserves and an improved resource position of the government. These developments have
been interpreted in part as evidence of successful macroeconomic stabilization, but also in part as
symptoms of economic stagnation. The changes in the macroeconomic trends in the early 1990s came
in the wake of a transition to a democratic rule along with the launching of a comprehensive
programme of market-oriented liberalizing policy reforms. After that period there was a evident in a
build-up of inflationary pressures, a deterioration in the government's budgetary balances and a rapid
draw-down on foreign exchange reserves.

Economic reform is stalled in many instances by political infighting and corruption at all levels of
government. Progress also has been blocked by opposition from the bureaucracy, public sector
unions, and other vested interest groups.

A key part of the economic environment is the strength of the macro-economy. Macroeconomics is
mainly concerned with:
Levels of employment and unemployment
The total investment made by businesses and government
The general level of prices
The rate of interest and exchange rates

The strength of the economy is always changing, although broad movements take time to occur. The
level of activity in an economy can be measured in several ways, but the most common way is to look
at the value of gross domestic product (shortened to GDP) (the main measure of economic
activity) in each period.
GDP is commonly used to measure economic growth and is made up of several parts:
The formula for is: GDP = C + I + G + (X M)
Where,
C (Consumption)
I (Investment)
G (Government spending) and
X M (Net Exports)

FIGURE 1.1 Financial Flows and the Circular Flow of Expenditure and Income
[Source: MACROECONOMICS, 10
th
Edition - MICHAEL PARKIN]

Households use their income for consumption expenditure (C), saving (S), and net taxes (T). Firms
borrow to finance their investment expenditure. Governments borrow to finance a budget deficit or
repay debt if they have a budget surplus. The rest of the world borrows to finance its deficit or lends
its surplus.

Economic growth is an increase in the value of goods and services produced by an economy
over time.
There are two main ways to measure economic growth:
Actual growth (GDP) Potential growth (trend growth)
The percentage annual increase in a countrys real
gross domestic product over a period of time
The long run expansion of an economys
productive potential
The % annual increase in national output The increase in the capacity of the economy to
produce
Caused by an increase in aggregate demand Caused by an increase in aggregate supply
Potential output is that which could be produced
if there was full employment of resources

Table: 1 Actual & Potential Growth

Economic growth is a vitally important measure for several reasons:
Economic growth is about an increase in production within the economy
It is important because our living standards are influenced by our access to goods and
services
Without growth, individuals can only enjoy rising living standards at the expense of others in
society.
With economic growth we can all (potentially) be better off.

According to the provisional estimates from Bangladesh Bureau of Statistics (BBS), GDP growth for
the current fiscal year is expected to be 6.0 per cent; i.e. 1.2 percentage points lower than the target
(7.2 percent) and 0.2 percentage point lower from final GDP growth estimate for FY2012.In FY2013,
per capita GNI of Bangladesh has been estimated to be about USD 923, which is USD 83 more than
that of the preceding year. On the other hand, per capita GDP also increased to USD 838 in FY2013
from USD 816 in FY2012, i.e. USD 72 increase. The faster acceleration of GNI per capita compared
to GDP per capita was attributed to robust growth of remittances. However, the slowdown of GDP
growth rate with its consequences in terms of domestic multiplier impacts, is a setback when the
target of Bangladesh becoming a middle income country by 2021 is considered. Even though the
forthcoming revision of national income accounting in the country is likely to raise the GDP (and
hence the per capita income), the growth acceleration needed to move towards middle income status
will remain a question.

1.1 Origin of the Report

The report was originated to make a study on the overall Macroeconomic Performance of Bangladesh
over the past years that includes the various aspects of the macro-economic factors which makes up
the economy of Bangladesh as a part of the fulfillment of thesis program required for the completion
of the BBA program Introduction to Macro Economics (ECO - 102) East West University,
Bangladesh. The report was prepared under the supervision of Ms. Imrana Sharmin, (Senior Lecturer)
Economics Department, East West University.

1.2 Objective of the Report

The main objectives of this report are to analyze the Macroeconomic Performance of Bangladesh
over the past 5 years and understanding how it operates in the context of Consumption, Investment,
Government spending and Net Exports of Bangladesh.

The specific objectives of the report are:
To study the macroeconomic situation of Bangladesh and identify its various aspects.
To study the Saving and Investment pattern of Bangladeshs economy over the past 5
years.
To study the Consumer Price Index and Inflation rate of Bangladesh.
To study the Prices, Wages and Employment situation of Bangladesh.
To study the Fiscal Policy and Fiscal Management situation of Bangladesh.
To study the Monetary Policy and Monetary Management of Bangladesh.
To study the Import & Export situation of Bangladesh.

1.3 Scope of the Report

Macroeconomic of Bangladesh is a broad area. Within the limited time period given to us for the
preparation of this report, it is virtually impossible to cover all aspects of Macroeconomic of
Bangladesh. So, the scope of our report is limited only to the study of the basic components of the
Macroeconomic Performance of Bangladesh & understanding it basic operation. In preparing the
report, we reviewed and analyzed the information published in the website of Bangladesh Bank,
Ministry of Finance & CPD (Centre for Policy Dialogue). We also took help from our
macroeconomics text books to gain some preliminary knowledge about the Macroeconomic System
of Bangladesh. Any change in the Macroeconomic Performance of Bangladesh in respect of
providing information after this period is beyond the scope of our report.

1.4 Methodology

The data needed to prepare this assignment has been collected mainly from secondary sources.
- Primary Data Source: No primary data was collected for preparing this report.
- Secondary Data Source: The secondary data have been collected from website of Bangladesh
Bank, Ministry of Finance & CPD (Centre for Policy Dialogue), etc. We also collected data from
different newspapers and published business magazines.

Data collected from secondary sources have been processed manually and qualitative approach in
general and quantitative approach in some cases has been used throughout the study. Qualitative
approach has been adopted for data analysis and interpretation taking the processed data as the base.
So the report relies primarily on an analytical judgment and critical reasoning.

1.5 Limitations

While preparing this report, we faced some obstacles. These are given below:-

- Preparing a fully accurate and complete report on the Macroeconomic Performance of
Bangladesh requires a good amount time and resources, but we had to complete our report in
a relatively short amount of time. Research work requires enormous time and effort. But the
time provided to us was not enough to do the report with 100% accuracy.

- Due to the current political situation and numerous strikes (hartals), we were unable to
regular group meeting. As our university was closed during these strikes (hartals) we were
unable to make regular group meetings and do brainstorming for this report. We believe this
affected the overall quality of this assignment.

- Our lack of experience in preparing this type of project was one of the main constraints of the
study.


2. MACROECONOMIC SITUATION

Economic Growth of Bangladesh - Although the growth of Bangladesh economy slowed down in the
context of negative growth in world trade at the beginning of the global financial crisis in FY 2008-
09, next year this growth bounced back and average growth remained above 6 percent in the last three
years. According to BBS, GDP grew to 6.71 in FY 2010-11 and the estimated GDP growth rate for
FY 2011-12 is 6.32 percent. However, because of high base effect induced by more than 5 percent
growth in agriculture sector during the last two years, the growth of FY 2011-12 dipped a little which
is still satisfactory. Alongside, substantial growth in industry and service sector has contributed to
overall GDP growth. In FY2011-12, growth in agriculture, industry and service sectors has been
estimated to 2.53 percent, 9.47 percent and 6.06 percent respectively. This year GDP and GNI per
capita stood at US$ 772 and US$ 848 which were US$ 748 and US$ 816 respectively in the last fiscal
year.

2.1 Savings and Investment

Estimated domestic savings slightly increased from 19.3 percent of GDP in FY 2010-11 to 19.4
percent of GDP in FY 2011-12. Investment in FY 2011-12 also showed similar feature with a slight
increase and stood at 25.4 percent of GDP in FY 2011-12 from 25.2 percent of GDP in FY2010-11.
Of which the share of private investment stood at 19.1 percent of GDP while that of public
investment was 6.3 percent in FY 2011-12. In FY 2010-11, the private and the public sector
investments were 19.5 and 5.6 percent of GDP respectively. Major initiatives of the Government
implemented in infrastructure sector including power and reduction in cost of doing business helped
create investment-friendly environment. In addition to this, because of satisfactory growth of
remittances, national savings in FY 2011-12 upturned to 29.4 percent of GDP from 28.8 percent of
GDP in the previous year.

2.2 Inflation

The 12 month average inflation rate reached to 10.62 percent in FY 2011-12 which was 8.80 percent
in FY2010-11. Oil and food inflation in global market and excessive credit flows to unproductive
sectors were mainly responsible for this upturn. Inflation on point to point basis in June 2012 stood at
8.56 percent. From the trend analysis of inflation in Bangladesh, it is clear that in the first half of FY
2011- 2012 general inflation went up because of food inflation. However, at the end of FY2011-12,
non-food inflation was the key factor in pushing general inflation upward. At this point in time, food
inflation receded to 7.08 (monthly rate, point to point basis) percent from about 13 percent in the
same month of FY2010-11.
Satisfactory food production and supply of essential commodities including demand management
through Open Market Sale (OMS) of the essential commodities and sufficient stock of food grains
contributed to the efforts of pulling down food inflation. On the other hand, there was a non-food
inflationary pressure due to price hike in international market, depreciation in exchange rate and
adjustment of oil price. In order to contain inflation, the Government has undertaken necessary steps
by forging better coordination between fiscal and monetary policies. Although there was a pressure of
oil price adjustment on food price, it was transitory. It is expected that actions like discouraging credit
flows to unproductive sector alongside adopting restrained and effective monetary policy will reduce
the inflationary pressure.

2.3 Fiscal Situation

Revenue- A target for revenue receipt was set at Tk.1, 18,385 crore (12.94 percent of GDP) in FY
2011-12 of which NBR tax revenue accounted for Tk. 9, 1870.00 crore (10.0 percent of GDP), non-
NBR revenue, Tk. 3,915 crore (0.4 percent of GDP) and non-tax revenue Tk. 22,600 crore (2.47
percent of GDP). Against these targets, tax revenue from NBR sources stood at Tk. 91,597 crore
while revenue receipts from non-NBR source and non-tax revenue receipts were Tk. 3,633 crore and
Tk. 18,550 core respectively in FY 2011-12. Total revenue receipts increased by 19.53 percent from
Tk. 95,188 crore in FY 2010-11 to Tk. 1,13,781 crore in FY 2011-12.The growth of tax revenues
from NBR sources was 17.47 percent in FY 2011-12 which was 20.95 percent in FY 2010-11. During
this period, VAT at import level registered a remarkable growth of 16.06 percent and VAT at local
level 17.48 percent and income tax 24.68 percent.

2.4 Government Expenditure

In FY 2011-12, the total expenditure was raised by 15.59 percent from Tk. 1, 30,011 crore (15.79
percent of GDP) in FY 2010-11 to Tk. 1, 50,286 crore (16.43 percent of GDP) in FY 2011-12. Of
this, the total expenditure under non-development budget increased to Tk.1,03,339 crore in FY 2011-
12 which was 24.23 percent higher than Tk. 83,177 crore in FY 2010-11. Annual Development
Programme (ADP) expenditure increased by only 9.7 percent in FY 2011-12 against 30.25 percent
growth in FY 2010-11.

2.5 Budget Balance and Financing

Overall budget deficit stood at Tk.36, 505 crore which was 4 percent of GDP this year. The deficit
was financed by an amount of Tk. 5,980 crore (3.43 percent) from external sources and Tk. 30,940
crore (0.57) from domestic sources.

2.6 External Sector

Export - In the wake of the recovery from global financial recession, the export trade of Bangladesh
made a turnaround. However, sovereign credit crisis in Eurozone which is one of Bangladeshs main
export destinations is having its impact on export trade. The export earnings of Bangladesh stood at
US $ 24,288 million in FY 2011-12, which was 5.9 percent higher than the export earnings (US $
22,928 million) of FY 2010-11. Export earnings in FY 2011-12 by major categories increased mainly
for footwear (30.1 percent), engineering products (21.1 percent), woven garments (13.9 percent) and
leather (10.8 percent). On the other hand, export earnings dipped in respect of raw jute (25.4 percent),
ceramic product (10.2 percent) and jute goods (7.5 percent). Some of the facilities under the incentive
package declared by the Government are still continuing. Assistance for the entrepreneurs tiled New
Market Exploration Assistance announced under the incentive package is also being extended this
year for diversification of goods and exploration of new export market. In the meantime, export
markets have been created in Japan, Korea, South Africa and Turkey. Besides, due to reduction of
duties by India, Bangladeshi commodities are having gainful access to India.

Import - The total import payments (C&F) stood at US $35,516 million during FY 2011-12, which
was 5.5 percent higher than the import payments of US $33,657 million of the preceding year.
Although import payments increased at the beginning of this fiscal year due to price hike of fuel in
the global market and higher demand of fuel for electricity generation , it slowed down towards the
end of the year as import of unimportant goods were discouraged. Analyzing the category of imported
goods, it is observed that, import payments for industrial raw materials, petroleum and petroleum
products increased by 22.75 percent, 11.15 percent and 21.76 percent respectively, while import of
capital machinery and primary commodities decreased by 13.73 percent and 25.79 percent
respectively.

3. GDP, SAVINGS AND INVESTMENT

Bangladesh has been able to achieve GDP growth at more than 6 percent on an average even during
the period of global financial crisis. According to the final estimate of Bangladesh Bureau of
Statistics, GDP growth stood at 6.71 percent in FY 2010-11 which was higher than 6.07 percent
growth in FY 2010-11. The economy recorded 6.31 percent GDP growth rate in the current fiscal
year 2011-12 as per the provisional estimate. In attaining GDP growth, three main sectors of the
economy like agriculture, industry and service sector made major contributions. Because of high base
effect induced by more than 5 percent growth in agriculture sector during the last two years, the
growth of agriculture sector reduced slightly to 2.53 percent in the current fiscal year, which was still
satisfactory.
In FY 2011-12 at constant prices, share of agriculture, industry and service sectors stood at 19.29
percent, 31.26 percent and 49.45 percent respectively.
According to the provisional estimate, on expenditure side, in FY 2011-12 consumption expenditure
decreased by 0.09 percentage point of GDP to 80.63 percent of GDP compared to 80.71 percent in
FY 2010-11. On the contrary, domestic savings accelerated to 19.37 percent of GDP in this fiscal year
from 19.29 percent of GDP in FY 2010-11. However, because of positive growth in remittance
inflows, national savings increased to 29.40 percent of GDP in FY 2011-12 from 28.78 percent of
GDP a year earlier. Furthermore, investment-GDP ratio stood at 25.45 percent in the fiscal year
which was 25.15 percent in FY 2010-11.

3.1 Gross Domestic Product (GDP) at Current Prices

The provisional value of GDP at current market prices stands at Tk. 9,14,784 crore in FY 2011-12,
which was 14.82 percent higher than that of the previous year. At current prices, the estimated per
capita GDP for FY 2011-12 is TK. 60,350 which has increased by 13.35 percent from the per capita
GDP of Tk. 53,238 in FY 2010-11. On the other hand, per capita national income stood at Tk. 66,283
which was Tk. 58,083 a year earlier. In US dollar, per capita GNI and GDP stood at US$ 848 and
US$ 772 respectively during this year, compared to US$ 816 and US$ 748 respectively in FY 2010-
11. GDP, GNI, per capita GDP and national income during the period from FY 2005-06 to FY 2011-
12 are shown in Table 3.1: GDP, GNI, Per Capita GDP and GNI at Current Market Prices.
[Source: Bangladesh Bureau of Statistics (BBS) * Provisional]

4. PRICES, WAGES AND EMPLOYMENT

Prices, wages and employment are the three most important indicators for an economy. Price level is
explained by the Consumer Price Index (CPI). According to CPI, the inflation rate in FY 2011-12 was
10.62 percent at the national level, which was 8.80 percent in FY 2010-11. During this period, the
Item 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12*
GDP (In Crore Tk.) 415728 472477 545822 614795 694324 796704 914786
GNI (In Crore Tk.) 442935 507752 594212 670696 758928 869217 1004723
Population (In Crore) 13.88 14.06 14.24 14.42 14.61 14.97 15.16
Per Capita GDP (In Tk.) 29955 33607 38330 42628 47536 53238 60350
Per Capita GNI (In Tk.) 31915 36116 41728 46504 51959 58083 66283
Per Capita GDP (In US$) 447 487 559 620 687 748 772
Per Capita GNI (In US$) 476 523 608 676 751 816 848
non- food inflation rose to 11.15 percent. To contain inflation, the government has taken a range of
measures which include ensuring smooth supply of food items. According to the latest survey
conducted by BBS, the number of economically active population (above 15 years in the country is
5.67 crore, out of which, a labour force of 5.40 crore (male 3.78 crore and female 1.62 crore) is
engaged in a number of professions. However, agriculture still remains the highest source of
employment that absorbs 48.10 percent of the workforce.
According to the Wages Rate Index, both nominal and real wage rates have been on the rise. A
sizeable number of Bangladeshi labour force is employed abroad, of which a total of 691000
Bangladeshi workers went abroad for employment during FY 2011-12. The remittances of the
expatriate workers stood at US$ 12,843.40 million in FY 2011-12. Of the total expatriate workers,
more than 70 percent are employed in the Middle East. In order to ensure smooth inflow of
remittances, the Government has taken a range of measures which include among others
establishment of Probashi Kalyan Bank, introducing arrangements for remittance through mobile
phone, providing CIP facilities to the large remitters.

Bangladesh Bureau of Statistics (BBS) computes National Consumer Price Index (CPI) using food
and non-food commodities basket and services consumed by the consumers in their day-to-day life.
The current CPI of Tables 3.1a and 3.1b have been constructed using both 1995-96 and 2005-06 as
the base years. In order to construct the price index, the commodity and weight of the index basket
from the Household Income and Expenditure Survey (HIES), both 1995-96 and 2005-06 have been
used. All rural and urban price indices were compiled using the lists of consumer goods of rural and
urban households based on the survey. And finally, the national price index is computed by taking
into account the weighted average of consumption expenditures of the two areas. All indices are
shown separately in food and non-food groups which are again divided into a number of sub groups.
Consumer Price Index and inflation during FY 2002-03 to FY 2011-12 are shown in Tables 4.1
(Base year 1995-96)

2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12
General
(% change)
135.97
(4.38)
143.90
(5.83)
153.23
(6.48)
164.21
(7.17)
176.06
(7.22)
193.54
(9.93)
206.43
(6.66)
221.53
(7.31)
241.02
(8.80)
266.61
(10.62)
Food
(% change)
137.01
(3.46)
146.50
(6.93)
158.08
(7.91)
170.34
(7.76)
184.18
(8.12)
206.79
(12.28)
221.64
(7.18)
240.55
(8.53)
267.83
(11.34)
295.86
(10.47)
Non-food
(% change)
135.13
(5.66)
141.03
(4.37)
147.14
(4.33)
156.56
(6.40)
165.79
(5.90)
176.26
(6.32)
186.67
(5.91)
196.84
(5.45)
205.01
(4.15)
227.87
(11.15)
Table 4.1: Consumer Price Index and Inflation [Source: Bangladesh Bureau of Statistics]

4.1 Labour Force and Employment

In order to assess the overall situation of employment, Bangladesh Bureau of Statistics conducts the
Labour Force Survey (LFS). According to the latest survey of BBS titled Labour Force Survey
2010, the number of economically active population (above 15 years) is 5.67 crore. Out of this, as
many as 5.40 crore people (male 3.78 crore and female 1.62 crore) are engaged in a number of
professions, the highest (47.33 percent) still being in agriculture. According to the Labour Force
Survey, 2005-06, the total labour force of over 15 years of age was 4.74 crore (male 3.61 crore and
female 1.13 crore) with agriculture remained the highest (48.10 percent) source of employment.
Between the two survey periods, the number of agricultural workers decreased by nearly 1 percent.
According to LFS 2010, it is observed that 44.4 percent (25.5 percent in agriculture and 18.9 others)
of labour force is engaged in self-employment while it was 41.98 percent in FY 2005-06. It may be
noted that during the two survey periods, the number of self-employed labour force increased by 2.42
percent. The survey indicated that 21.8 percent of labour force was daily labourers and 19.7 percent
unpaid family workers, which was 18.14 percent and 21.73 percent respectively according to the
previous surveys. The latest survey also indicated that 14.60 percent of the labour force was engaged
as full time employees implying a decrease by 2.46 percent. The share of employed labour force
(above 15 years) by different sectors of the economy according to the Labour Force Surveys 1995-96,
1999-00, 2002-03, 2005-06 and 2010 is shown in Table 3.4.

Sector 1995-96 1999-00 2002-03 2005-06 2010
Agriculture, forestry and fishery 48.85 50.77 51.69 48.10 47.33
Mining & quarrying - 0.51 0.23 0.21 0.18
Manufacturing 10.06 9.49 9.71 10.97 12.34
Power, gas & water 0.29 0.26 0.23 0.21 0.18
Construction 2.87 2.82 3.39 3.16 4.79
Trade, hotel & restaurant 17.24 15.64 15.34 16.45 15.47
Transport, maintenance & communication 6.32 6.41 6.77 8.44 7.37
Finance, business & services 0.57 1.03 0.68 1.48 1.84
Commodities & personal services 13.79 13.08 5.64 5.49 6.26
Public administration and defense - - 6.32 5.49 4.24
Total 100.00 100.00 100.00 100.00 100.00

Table 4.2: Share of Employed Labour Force (Above 15 years) by Sector
[Source: Labour Force Survey (LFS), 1995-96, 1999-00, 2002-03, 2005-06 & 2010 BBS.]

Steps taken to Improve Employment Situation -

Generation of employment for the labour force is essential for raising productivity within the
economy. The employers and workers of factories and other outfits play a vital role in this regard.
Maintaining industrial relations, labour welfare, industrial dispute settlement, skill development
training and workers education are also important to scale up the productivity of the labour force.
Important steps taken by the government are stated below:
a) Skill Development Training
b) Discouraging Hazardous Child Labour with Proper Rehabilitation
c) Women Development and Training
d) Reforms Undertaken to Ensure Labour Welfare

5. FISCAL POLICY AND FISCAL MANAGEMENT

Fiscal policy essentially governs the aggregate management of Governments revenue and
expenditure. Within the broad premise of the fiscal policy the Government has to -
(a) Prepare estimate of revenue collection
(b) Prepare expenditure plans and
(c) Identify the probable sources for financing the budget deficit.

The prime objective of the fiscal policy is to maintain the balance between Governments revenue and
expenditure programmes. A well balanced fiscal policy plays a very important role in meeting the
spending priorities with the available resources, creating congenial environment for achieving rapid
economic growth and maintaining macroeconomic stability of the country. Currently, the
Government is implementing wide ranging reforms to streamline both revenue and expenditure
management to bring about improvements in the delivery of public service.

A well balanced fiscal policy plays a very important role in maintaining macroeconomic stability,
creating congenial environment for the achieving rapid economic growth and reducing poverty.
Revenue-GDP ratio continues to grow though the rate of growth is slow. In FY 2010-11, the total
revenue collection by NBR stood at Tk.79, 402.83 crore surpassing the targets of Tk. 75,600 crore. In
FY 2011-12, the revenue collection grew by 19.33 percent over that of the previous fiscal year.
Especially income tax collection witnessed 22.84 percent growth compared to that of the previous
fiscal year showing the progress of direct tax collection. Government expenditure as percentage of
GDP has been on the increase. The utilization of ADP increased significantly and it stood to 93
percent in FY 2011-12. Currently, the larger portion of ADP is financed from domestic sources. Aid
flow has slightly decreased due to non-utilization of external resources. Though the Government
expenditure has increased, the budget deficit remained below 5 percent of GDP in FY 2011-12.

6. MONETARY POLICY AND MANAGEMENT

Bangladesh Bank (BB) pursued an accommodative monetary policy stance in previous years.
However, following the global financial crisis had to be adjusted to respond to the changes in the
global and domestic economic scenario. BB maintained a restrained monetary policy stance and rein
in on money supply and credit growth in FY2011-12 in order to curb inflation which edged up to
double digit due to a number of factors including the lagged effect of high domestic credit growth in
previous year, transmission of global higher prices of essential commodities including food items and
huge borrowing from the banking system to meet government expenditure.
The monetary policy stance ensured adequate credit to private sectors for inclusive growth while
bringing down inflation and balance of payment pressures. In particular, adequate credit flows to
industry sector along with agriculture and SME sectors was ensured. BB raised repo and reverse repo
rates twice by a total of 100 basis points to 7.75 and 5.75 respectively during FY 2011-12.

7. NET EXPORTS

International trade was in turmoil due to global economic recession in 2008 and 2009. During this
period the growth rate of international trade was far squeezed to world GDP growth rate, though it
made a turnaround in 2010. Besides this, the political crisis in North Africa and the Middle East
aggravated the situation. This crisis had an impact on the economy of Bangladesh. Import expenditure
and export earning both plummeted during the first six months of FY 2011-12. Investment in the
power sector and the oil price-hike in the international market created pressure on the foreign
exchange reserve of Bangladesh which resulted in depreciation of Taka against Dollar and the current
account fell under pressure. However, in FY 2010-11 and FY 2011-12 export earnings and import
expenditure increased by 29.31 and 5.66 percent and 41.8 and 5.5 percent respectively. Current
account balance of FY 2010-11 and FY2011-12 stood at US$ 995 and US$ 1630 million respectively.
Foreign exchange reserve as on 30 June, 2012 was US$10.364 billion External sector of Bangladesh
showed its resilience against the crisis at the beginning of 2012 of the previous fiscal year.

8. CONCLUSION

Bangladesh has made significant strides in its economic sector performance since independence in
1971. Although the economy has improved vastly in the 1990s, Bangladesh still suffers in the area of
foreign trade in South Asian region. Despite major impediments to growth like the inefficiency of
state-owned enterprises, a rapidly growing labor force that cannot be absorbed by agriculture,
inadequate power supplies, and slow implementation of economic reforms, Bangladesh has made
some headway improving the climate for foreign investors and liberalizing the capital markets; for
example, it has negotiated with foreign firms for oil and gas exploration, better countrywide
distribution of cooking gas, and the construction of natural gas pipelines and power stations. Progress
on other economic reforms has been halting because of opposition from the bureaucracy, public
sector unions, and other vested interest groups. Foreign aid has seen a gradual decline over the last
few decades but economists see this as a good sign for self-reliance. There has been a dramatic
growth in exports and remittance inflow which has helped the economy to expand at a steady rate.

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MACROECONOMICS, 10th Edition - MICHAEL PARKIN

The Macro-Economic Performance of Bangladesh (2008-2013)

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Prepared by: Group - 6 Prepared for: Imrana Sharmin (IMSR)

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