Trends in the main

macroeconomics

indicators of Bangladesh

Table of contents

Contents Page no

Executive summary 1

Introduction 2

Objectives of the Study3

Overview of Bangladesh  Economy

4

Trends in Main/Major

Macroeconomic Indicators5-19

Conclusion 20

References 21

Executive summary This paper briefly presents the macroeconomic trends of Bangladesh since the 1970s.

The analyses presented in the paper provide first hand information about the

potentials as well as the constraints and

challenges for the economy. The GDP growth rate of Bangladesh started picking up

since the 1990s and over the last 5 (five) years has maintained a growth rate of around

6%. It is recognized that the economy has the potential to grow at an even higher

growth rate if the growth constraints such as poor governance, rampant corruption,

infrastructure bottlenecks, underdeveloped financial markets and failure to attract FDI

are removed Over time, there has been structural transformation in the economy with

a shift from predominantly agriculture-led economy towards industry-led economy;

the contribution of agricultural sector to GDP was 38% in early 70s but declined to

21% in 2007-08, while the contribution of industrial sector increased from 15% to

30% during the same period of time. Over time, the average Revenue-to-GDP ratio

improved gradually and increasing to 10.8% during the 2006-2008 period from 7.5%

in 1973-1980 period. However, the Revenue-to-GDP ratio of Bangladesh still remains

one of the lowest in the world and even lower compared to that of Nepal. There have

been structural changes in the revenue structure replacing pre-dominance on customs

duties by income taxes and VAT financial deepening measured by the ratio of broad

money to GDP increased steadily from 11.5% in 1973-74 to 46% in 2007-08 implying

that the economy is being increasingly monetized Government has initiated reforms in

the area of debt management since 2005. It has enacted the Bangladesh Government

Treasury Bonds (BGTB) Rules, 2003 under which treasury bonds are being marketed

on a regular basis. Development of a primary market for buying and selling of

government bonds of varying maturity (5 year, 10-year, 15-year and 20-year) to raise

funds from the domestic market is one of the significant achievements of these reform

initiatives.

IntroductionBangladesh is a country of more than 140 million people, and it is one of South Asia’s

least developed countries. The country has under gone a major shift in its economic

philosophy and management in recent years. At Bangladesh’s birth, the country

embraced socialism as the economic ideology with a dominant role for the public

sector.

But, since the mid-seventies, it undertook a major restructuring towards establishing a

market economy with emphasis on private sector-led economic growth.

Bangladesh achieved good economic progress during the 1990s by adopting a series

of structural and economic reform measures. The stabilization program reduced

inflation as well as fiscal and current accounts deficit and established a healthy

foreign exchange reserve position. Economic performance improved with gross

domestic product (GDP) growth averaging 5 percent in the 1990s compared with 4

percent in the preceding decade. The acceleration in economic growth was

accompanied by decreased incidence of poverty and a distinct improvement of some

key social indicators. Rapid growth in food grain production has been a remarkable

feature of the country’s economic performance in recent years. In FY2000,

Bangladesh reached self-sufficiency in food grain production. A combination of

factors accounts for the robust growth of the agriculture sector, and in particular of

food grains.

According to a World Bank estimate, Bangladesh has the 36th largest economy in the

world in terms of GNP based on the purchasing power parity method of valuation,

and the 55th largest in terms of nominal GNP in U.S. Dollars.

This report analyses the trends in the major macro-economic indicators of

Bangladesh, taking into account economic growth and standard of living, inflation,

unemployment, balance of payment, Government Fiscal and Monetary policy and

various aspects of the economy of Bangladesh.

Objectives of the Study

The broader objective is to review the governance system of the economy

sector and to identify the trends in the main macroeconomics indicators of

Bangladesh and set a vision likely to be present in the different divisions of the

economy.

Specific Objectives of the study

To identify the existing problems and governance failure have caused to severe problem in economy.

To identify the vulnerable areas of problems and risks as at policy level, procurement, generation, transmission, distribution of resources of economy.

 To identify the factors responsible for poor HRM, accountability and transparency of resource distribution.

 To identify the reasons for non-technical loss and estimate economic loss.

 To provide policy guidelines finally

Detailed study of each of the strategies and show how it is useful for the

economic

Overview of Bangladesh   Economy Macroeconomic performance of Bangladesh is satisfactory when considered in the

context of market-oriented liberalizing policy reforms (Mahmud, 2010). By looking at

the trends in fiscal, external and investment-savings balances, it is seen that despite

falling inflows of foreign aid, Bangladesh achieved macroeconomic stabilization and

an acceleration of economic growth in the 1990s. For consolidating the transition

from stabilization to growth, improvements were taken place in the areas such as

revenue mobilization, the efficiency of the financial system and the overall investment

environment.

The study found that the growth pattern of Bangladesh economy has been relatively

strong during the 1990s and 2000s showing considerable improvement over the

previous two decades. During last five years Bangladesh has managed to achieve a

continued growth of GDP above 6%. The satisfactory growth in export-import, FDI

inflow, domestic and national savings, continued flow of remittance, favourable

current account balance have stabilized the economy of Bangladesh.  However, the

country is facing inflationary pressure in last several years despite governments strive

to control inflation through combined fiscal, monetary and other supportive policies.

Domestic and national savings were 20.31 and 30.21percent of GDP, respectively, in

FY 2007- 08. The rates of domestic and national savings have become 19.18 and

29.78 percent of GDP in FY 2009-10 due to the effect of financial crisis. The study

also found total FDI inflow in Bangladesh is gradually increasing. A significant

number of people are employed in abroad and they contribute in the economy through

sending remittance. In all these counts, the economy of Bangladesh has registered

significant positive changes over the last few years.

Trends in Main/Major Macroeconomic Indicators:

Macroeconomic indicators are statistics that indicate the current status of the economy

of a state depending on a particular area of the economy (industry, labor market,

trade, etc). They are published regularly at a certain time by governmental agencies

and the private sector.

Markets.com provides an ‘Economic Calendar’ for the dates of critical fundamental

announcements and events. When properly used, these indicators can be an invaluable

resource for any Forex trader.

In truth, these statistics help Forex traders monitor the economy's pulse; thus it is not

surprising that these are religiously followed by almost everyone in the financial

markets. After publication of these indicators we can observe volatility of the market.

The degree of volatility is determined depending on the importance of an indicator.

That is why it is important to understand which indicator is important and what it

represents.

Interest Rates Announcement

Interest rates play the most important role in moving the prices of currencies in the

foreign exchange market. As the institutions that set interest rates, central banks are

therefore the most influential actors. Interest rates dictate flows of investment. Since

currencies are the representations of a country’s economy, differences in interest rates

affect the relative worth of currencies in relation to one another. When central banks

change interest rates they cause the forex market to experience movement and

volatility. In the realm of Forex trading, accurate speculation of central banks’ actions

can enhance the trader's chances for a successful trade.

Economic Growth

An increase in the capacity of an economy to produce goods and services, compared

from one period of time to another. Economic growth can be measured in nominal

terms, which include inflation, or in real terms, which are adjusted for inflation. For

comparing one country's economic growth to another, GDP or GNP per capita should

be used as these take into account population between different countries

The World Bank provides data for Bangladesh from 1998 to 2013. Bangladesh during

that period was a minimum of 4.42 percent in 2002 and a maximum of 6.71 percent in

2010.

Gross Domestic Product (GDP) Growth:

The gross domestic product (GDP) is the godfather of the indicator world. As an

aggregate measure of total economic production for a country, GDP represents the

market value of all goods and services produced by the economy during the period

measured, including personal consumption, government purchases, private

inventories, paid-in construction costs and the foreign trade balance (exports are

added, imports are subtracted).

Presented only quarterly, GDP is most often presented on an annualized percent basis.

Most of the individual data sets will also be given in real terms, meaning that the data

is adjusted for price changes, and is therefore net of inflation.

The GDP is an extremely comprehensive and detailed report. In fact, reading the GDP

report brings us back to many of the indicators covered in earlier tutorial topics, as

GDP incorporates many of them: retail sales, personal consumption and wholesale

inventories are all used to help calculate the gross domestic product. Various chain-

weighted indexes discussed in earlier topics are used to create Real GDP Quantity

Indexes with a current base year of 2010. (For further reading, see The Importance Of

Inflation And GDP.)

Growth Trend:

Economic growth is the increase of per capita gross domestic product (GDP) or other

measures of aggregate income, typically reported as the annual rate of change in real

GDP. The trend of the growth of the real GDP is called Growth Trend. Economic

growth is primarily driven by improvements in productivity, which involves

producing more goods and services with the same inputs of labour, capital, energy

and materials. The topic of economic growth is primarily concerned with the long run.

The short-run variation of economic growth is termed the business cycle.

Negative effects of economic growth  

It may be that economic growth improves the quality of life up to a point, after which

it doesn't improve the quality of life, but rather obstructs sustainable living.

Historically, sustained growth has reached its limits (and turned to catastrophic

decline) when perturbations to the environmental system last long enough to

destabilize the bases of a culture. Industries cause consumers to develop new taste,

and preferences for growth to occur. Consequently, "wants are created, and

consumers have become the servants, instead of the masters, of the economy.

Concerns about possible negative effects of growth on the environment and society

led some to advocate lower levels of growth, from which comes the ideas of

uneconomic growth anode-growth, and Green parties which argue that economies are

part of a global society and a global ecology and cannot outstrip their natural growth

without damaging them.

Current situation of GDP:

In the year of 2008-2010, the total amount of GDP in terms of taka was 115.28

billion (in current market price) in which Tk. 1403.81 billion came from agriculture

sector, Tk. 2174.88 billion from industrial sector and Tk. 4037.92 billion from service

sector. The target of GDP In the year of 2008-2010 is Tk. 8996.70 billion in which

the contribution of agriculture sector is projected to be Tk. 1506.87 billion, while

industrial and service sector might contribution Tk. 2351.10 billion and Tk. 436064

million respectively.

GDP Growth- The government has target to achieve the GDP growth rate of seven

percent In the year of 2008-2010 based on assumption of further improvements in the

global and domestic economy and taking into account the expected impacts of

reforms initiated in various sectors. In the year of 2008-2010, the growth rate of GDP

was 6.66 percent that was 59 percentage points more than that of the previous fiscal

year.

Consumer Price Index (CPI):

A measure that examines the weighted average of prices of a basket of consumer

goods and services, such as transportation, food and medical care. The CPI is

calculated by taking price changes for each item in the predetermined basket of goods

and averaging them; the goods are weighted according to their importance. Changes

in CPI are used to assess price changes associated with the cost of living.

Inflation:Inflation is the rate at which the general level of prices for goods and services is rising

and, consequently, the purchasing power of currency is falling. Central banks attempt

to limit inflation, and avoid deflation, in order to keep the economy running smoothly.

“Too much money in circulation causes the money to lose value”- this is the true

meaning of inflation. The popular opinion about the costs of inflation is that inflation

makes everyone worse off by reducing the purchasing power of incomes, eroding

living standards and adding, in many ways, to life’s uncertainties. In economics,

inflation is a rise in the general level of prices of goods and services in an economy

over a period of time. Inflation refers to a rise in prices that causes the purchasing

power of a nation to fall. Inflation is a normal economic development as long as the

annual percentage remains low; once the percentage rises over a pre-determined level,

it is considered an inflation crisis.

Effect of Inflation:

(a) General,

(b) Negative, and

(c) Positive.

General Effect

An increase in the general level of prices implies a decrease in the purchasing power

of the currency. That is, when the general level of prices rises, each monetary unit

buys fewer goods and services. Increases in the price level (inflation) erode the real

value of money (the functional currency) and other items with an underlying

monetary nature (e.g. loans and bonds). For example if one takes a loan where the

stated interest rate is 6% and the inflation rate is at 3%, the real interest rate that one

are paying for the loan is 3%. It would also hold true that if one had a loan at a fixed

interest rate of 6% and the inflation rate jumped to 20% one would have a real interest

rate of -14%.

Negative Effect

High or unpredictable inflation rates are regarded as harmful to an overall economy.

They add inefficiencies in the market and make it difficult for companies to budget or

plan long-term. Inflation can act as a drag on productivity as companies are forced to

shift resources away from products and services in order to focus on profit and losses

from currency inflation. Uncertainty about the future purchasing power of money

discourages investment and saving and inflation can impose hidden tax increases. In

case of international trade, ‘Higher inflation in one economy than another will cause

the first economy's exports to become more expensive and affect the balance of trade.

Positive Effect

Positive effects include ensuring central banks can adjust nominal interest rates

(intended to mitigate recessions), and encouraging investment in non-monetary capital

projects. It puts impact on Labour-market adjustments, Room to manoeuvre with

Deflation etc.

Inflation rate:

The inflation rate is the percentage rate of change of a price index over time. 

 Lists of inflation rate from 1991-2010

Year Inflation rate

(Consumer Price)

Year Inflation Rate

(Consumer Price)

1991 8.0 2001 5.8

1992 3.8 2008 5.8

1993 3.0 2003 3.1

1994 3.5 2004 5.6

1995 8.8 2005 6.0

1996 7.0 2006 7.0

1997 2.6 2007 7.2

1998 7.0 2008 9.1

1999 9.0 2009 8.9

2000 9.0 2010 (H1) 5.4

 

Source- CIA World Facebook (2) Bangladesh Bank (3) Bangladesh Bureau of

Statistics. 

 Current situation of Inflation Rate:

In the year of 1990-2010, the government has targeted the rate of inflation at 4%while

it was 10% in the year of 2010-2011 and 10%. In November 2011, general inflation

rate is 10.51% while it was 10% in November 2010.

Employment Indicators:

Employment indicators reflect the overall health of an economy or business cycle. In

order to understand how an economy is functioning, it is important to know how

many jobs are being created or destructed, what percentage of the work force is

actively working, and how many new people are claiming unemployment. For

inflation measurement, it is also important to monitor the speed at which wages are

growing.

Unemployment Condition:

Labor market situation in Bangladesh is fragile as high population growth continues

to expand the economically active population and privatized industries simultaneously

lay off employees. Relatively high rates of inflation combined with high levels of

unemployment may lower real wages. The government has not taken enough

initiatives to create job opportunities and set up new industries to overcome these

problems.

The percentage of the work force that is unemployed at any given date is known as

unemployment rate. In another word, “An economic condition marked by the fact that

individuals actively seeking jobs remain unemployed is known as unemployment”.

According to International Labor Organization (ILO), “Unemployment occurs when

people are without jobs and they have actively looked for work within the past four

weeks”.

Unemployment Rate

The percentage of the total labor force that is unemployed but actively seeking

employment and willing to work is treated as unemployment rate. A person who

simply expresses interest in having a job is classified as unemployed. The

unemployment rate represents the number unemployed as a percent of the labor force.

It is a serious social evil & the rate of unemployment is an indicator of the health of

an economy"

.

Effect of unemployment-

It is believed that unemployment is a serious social evil & the high rate of

unemployment indicates unhealthy situation of an economy. If the full level of

employment can be used then it is possible for a country to enrich itself.

Each and every country in this world is trying to reduce the rate of unemployment for

their betterment. During unemployment, it puts a great effect on the economy that is

given below:-

Effect of unemployment –

(a) Economic effect

(b) Social effect

Effect of unemployment on the economy-

(a)  Wasted production

(b) Unemployment financial costs

(c) Spending power 

(d) Reduced spending power of the employed

(e) Recession

Effect of unemployment on the society-

(a) Standard of living

(b) Tension over taxes rise

(c) Insecurity amongst employees

(d) Crime and violence

(e) Employment gaps 

Import and Export:

An increasing trend has been observed in import payments and export earnings over

the year. In FY 2009-2010 imports payments and export earnings are estimated by the

government at USD 35400 million and 25700 million respectively. However, in 2010-

2011, import payments was USD 33660 million and export earning was USD 22930

million.

Retail Sales

The retail sales indicator is released on a monthly basis and is important to the foreign

exchange trader because it shows the overall strength of consumer spending and the

success of retail stores. The report is particularly useful because it is a timely indicator

of broad consumer spending patterns that is adjusted for seasonal variables. It can be

used to predict the performance of more important lagging indicators, and to assess

the immediate direction of an economy.

Balance of Payments

The Balance of Payments represents the ratio between the amount of payments

received from abroad and the amount of payments going abroad. In other words, it

shows the total foreign trade operations, trade balance, and balance between export

and import, transfer payments. If coming payment exceeds payments to other

countries and international organizations the balance of payments is positive. The

surplus is a favourable factor for growth of the national currency.

Government Fiscal and Monetary policy

Stabilization of the economy (e.g., full employment, control of inflation, and an

equitable balance of payments) is one of the goals that governments attempt to

achieve through manipulation of fiscal and monetary policies. Fiscal policy relates to

taxes and expenditures, monetary policy to financial markets and the supply of credit,

money, and other financial assets.

Poverty and Inequality:

Despite considerable thrust on poverty alleviation in all plan documents since the

independence of Bangladesh, a significant portion of population is still living below

the poverty line. It is a constitutional obligation of the government to provide a decent

living standard for the citizens by alleviation poverty.

In its election manifesto, the present government has therefore laid special emphasis

on poverty alleviation and pledged to reduce poverty. They made a commitment to

reduce the rate of poverty to 25% and 15% by calendar year 2013 and 2021

respectively.

Human Development:

 

Human development index measures three basic dimensions of human development-

long and healthy life, knowledge, and decent standard of living. Four indicators are

used to calculate the index: life expectancy at birth, mean years of schooling,

Expected years of schooling and gross national income per capital. The United

Nations provides date for Bangladesh from 1980 to 2010. The average value for

Bangladesh during that period was 0.45 pints with a minimum of 0.4 points in 1980

and a maximum of 0.55 points in 2010.In the 2010 Human Development Index (HDI),

Bangladesh has ranked 129 among 164 countries.

Conclusion:

There are many economic indicators, and even more private reports that can be used

to evaluate the fundamentals of forex. It's important to take the time to not only look

at the numbers, but also understand what they mean and how they affect a nation's

economy.

In the long run after taking into account the economic situation of Bangladesh the

government has targeted to achieve the GDP growth rate of 7% in FY 2009-2010 on

assumptions of further improvements in the global and domestic economy and taking

into account expected impacts of reforms initiated in various sectors.

According to a World Bank estimate, Bangladesh has the 36th largest economy in the

world in terms of GNP based on the purchasing power parity method of valuation,

and the 55th largest in terms of nominal GNP in U.S. Dollars.

This report analyses the trends in the major macro-economic indicators of

Bangladesh, taking into account economic growth and standard of living, inflation,

unemployment, balance of payment, Government Fiscal and Monetary policy and

various aspects of the economy of Bangladesh.

References

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2. http://www.academia.edu

3. http://www.icab.org.bd

4. http://data.worldbank.org/country/bangladesh

5. http://mof.gov.bd.com

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success and failure factors for E-governance projects implem- entation in

developing countries: a study on the perception of government officials of

Bangladesh,2011

7. Population and housing census 2011 Bangladesh at a glance, 2011

8. Ziauddin Ahmed, Electricity Crisis of Bangladesh: Result of Organizational

Inefficiency, Energy and Environment Research Vol. 1, No. 1; December

2011 K.A.M. Morshed, E-Governance: Bangladesh Perspective,

9. http://www.unpanl.un.org/intradoc/groups/public/documents/AP

CITY/UNPANO26253.[8]Country Reports on Local

GovernmentSystems:angladesh,http://www.unescap.org/huset/Igstudy/new-

countrypaper/ Bangladesh/ Bangladesh.pdf.