Economic Condition of Bangladesh

(July 13-September 13)

Prepared for:
Dr. Zaid Bakht
Instructor- BUS530
Section: 1


Prepared by:
Md. Zahid Akhtar 132 0479 060



North South University
May 04, 2014


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Introduction
Bangladesh has observed huge economic progress since its independence. Once former national
security advisor of USA Henry Kissinger told Bangladesh as a bottomless baskets but right now
many country would borrow from this basket. Bangladesh could achieve more if they are able to
utilize their labor force efficiently. Lack of energy infrastructure, unskilled labor force and
unstable political situation may hold us to flourishing at a rate that we want.
The main objective of this report is to evaluate the economic conditions of Bangladesh by
analyzing four macro aggregates. The time frame for this report is July 2013 to August 2013
compared to the corresponding period of 2012. The selected macro aggregates are
Inflation
Exchange rate
Export
Remittance

Inflation
In July by using twelve month average basis general inflation was 6.99 where food inflation was
5.71 and Non-food inflation was 8.96. On the other hand at the same time in July 2012 general
inflation was 8.14 where food inflation was 6.71 and Non-food inflation was 10.4. It clearly
shows that inflation is reduced by a good percentage compared to 2012 but it is still high. The
inflation in 2012 shows the higher figure because of oil and food inflation in global market and
excessive credit expansion in non productive sectors. Both cases we saw that non food items are
mostly responsible for higher general inflation.
Compared to July 2013 to August 2013 general inflation increased by 2.86% because of there is
an increase in food inflation by 8.58%. There was a certain percentage increase in food inflation
because Ramadan started from 11 July 2013. In this holly month there is a huge demand for
imported food items specially onions, soya bin oil and others.
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Twelve-Month Average Basis
General-2012 Food-
2012
Non-food-
2012
General-
2013
Food-
2013
Non-food-
2013
Inflation Inflation Inflation Inflation Inflation Inflation
July 8.14 6.71 10.4 6.99 5.71 8.96
August 7.56 5.77 10.39 7.19 6.2 8.71
September 6.93 4.71 10.47 7.37 6.73 8.35
Source: Bangladesh Bank 2013
Table: Inflation data by Twelve Month Average Basis

Source: Bangladesh Bank 2013
As business persons have inflationary expectation at that time and TCB has little control over
market thats why food inflation increases at that time. Inflation continued to increase from
august 2013 to September 2013 by 8.55 % because of increase of onion price in India. Onion
prices have more than tripled over the past year, with the wholesale price up 245 per cent in
India (the financial times 2013).
As a result India stop exporting to Bangladesh and Bangladesh is not able to manage onions
within short period of time which reflected in food inflation. Increases of fuel prices in January 3
2013 put a upward pressure on production, irrigation and transportation cost. (The financial
express 2013)
IN August 2012 inflation is reduced by 7.13% compared to previous month because of reduction
of food inflation. In this particular time there is a satisfactory food production and govt.
0
5
10
15
July August September
R
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e

o
f

i
n
f
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a
t
i
o
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Inflation situation July-August 2012-2013
General-2012
Food-2012
Non-food-2012
General-2013
Food-2013
Non-food-2013
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intervene in the market with open market operations reduced the inflationary expectation of
private sectors which ultimately pulling down the 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. This situation continued for the September also.

Impact on Economy
Inflation creates a huge pressure on the economy as a whole. Although on September 2013
inflation is around 7% which is still high. As higher inflation push real wage down it is very
difficult for general people to manage their daily activities. Although it gives producer incentives
to produce more but because of labor strike govt. is forced to increase the minimum wage which
increases the cost of production. On the other hand because of oil price increases and unstable
political situation in Bangladesh eliminate an inflationary benefit which makes the business
environment difficult.
Govt. unplanned expansion of quick rental power plant required lot of fuel which creates
pressure on inflation. Government spending on big projects also creates inflationary pressure.
Although govt. trying to control inflation by monetary and fiscal policy .I think if govt. dont
discourage credit flows to unproductive sectors and dont implement a restrained and effective
monetary policy it is going to difficult to reduce inflation.
Export
Bangladesh is a country with a massive cheap labor force and constantly improving
manufacturing techniques and tools. This gives the country an edge over many developing
countries to become a well-known exporting country especially. The exports from Bangladesh to
different countries have grown in the past few years. During the global financial crisis and
subsequent economic slowdown, Bangladesh experienced only 6.0 per cent export growth in
FY12. With the recovery of the advanced economies since the later part of 2012, export growth
appears to show an upturn in recent months.



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Source: Bangladesh Bank 2013
Table: Export Data

Source: Bangladesh Bank 2013
Chart : Export of Bangladesh
Export growth increased by 21% to 7.62 billion during the June- September period of 2013-14
fiscal years compared to 2012-13 fiscal year due to increase shipments in garments products in
the market.
In 2013 exports of woven garments, knitwear, frozen food, leather chemical products, and
agricultural products experienced some increase compared to the same period of the previous
year. On the other hand, there is some decrease in the exports of raw jute, jute goods
(excl.carpet), and tea during July-August, 2013 compared to the same period of the previous
year.


0
500
1000
1500
2000
2500
3000
3500
July August September
2012 - 2013
2013 - 2014
Month 2012 - 2013 2013 - 2014 Growth
July 2439.08 3024.29
0.05%
August 1951.48 2013.44 3.18%
September 1900.89 2590.24
36.26%
Total
6291.45 7627.97 21%
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Impact on economy
The increasing export shows that Bangladesh is not that much affected by the global economy
down. From the above data we can say that Bangladesh is not that much affected because most
of the exported item is a necessary item. As the world economy is down and most people want to
cut down their expenses it gives Bangladesh an opportunity to export more because Bangladesh
is producing it at a lower price. A positive growth rate in export will help to improve the balance
of payment. It will also create more employment opportunity and ensure better utilization of
comparative advantage. More exporting means more income which gives people opportunity to
spend more which will ultimately help to boost the economy of the country.
Exchange Rate
In July 2013-14 season BDT is appreciated by -5% to 77.7570. During the time period on
average BDT maintained 77.7536 against dollar. In 2013-14 seasons we show that exchange rate
showing stability in the market. Strong remittance inflows and flow of foreign aid with
rationalization of import payment and moderate growth of export (21 percent) helped to keep
Bangladesh Taka competitive in this fiscal year.
However in 2012 the scenario is reversed we show that exchange rate is unstable and it is
depreciated compared to this year because of wake of the growth of remittances, export earnings
and fuel price hike in global market. Overall, Bangladesh depreciated its currency by 9.28
percent against US dollar in FY 2011-12 due to higher import demand for enhanced domestic
investment activities (caused huge foreign exchange demand for import of capital goods) and
increased fuel price.
Month 2013-14 2012-13 Growth
July 77.7570 81.7715 -5%
August 77.7537 81.5150 -5%
September 77.7502 81.7286 -5%
On average 77.7536 81.6717 -5%
Source:Bangladeh Bank 2013
Table: Exchange rate of Bangladesh
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Source: Bangladesh Bank 2013
Chart: Exchange rate of Bangladesh
Impact on economy
We show that currency of Bangladesh is appreciated compared to same period in previous year.
Theoretically we know that appreciation in currency discourage export. As other countries find it
that exporting become more expensive. I think appreciation of BDT dont hamper the export of
Bangladesh because most of the exporting products Bangladesh produce is labor intensive
products. Still labor is cheap in Bangladesh so although importing from Bangladesh become
expensive because of appreciation of BDT, importer will find it worthwhile to import from
Bangladesh if they compare it with other countries.
On the other hand as BDT is appreciated importer will find out that it become less expensive to
import. As a result demand for imported item will increase. To overcome this situation
Bangladesh bank can add the increased imported item to luxury goods sector so that they can
charge higher import duty on it.


75
76
77
78
79
80
81
82
83
July August September
2013-14
2012-13
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Remittance
Remittance has already emerged as prime driving force to the economic growth and poverty
alleviation in Bangladesh. It has maintaining the second position in terms of foreign currency
earning.
Month 2013-14 2012-13 growth
July 1238.49 1201.15 3%
August 1005.78 1178.65 -15%
September 1025.69 1178.83 -13%
Average 1089.986667 1186.21 -8%
Source: Bangladesh Bank 2013
Chart: Remittance of Bangladesh

Source: Bangladesh Bank 2013
Chart: Remittance of Bangladesh.
In 2013-14 time periods we can say that monthly remittance inflow is reduced on average 8%
and become $1090 million. In July we only see a growth of 3% in terms of 2012 rather than this
all through 2013 gives us lower remittance returns than previous year.
This is mainly due to declining number of people going abroad to work. The flow of migrated
workers was so good until 2008. After that the migration start to reduce due to economic
recession, collapse of real estate sector in Middle East, stopped Malaysia and UAE labor
markets. Market opportunity limited for Bangladesh because most of the cases Bangladesh
targeted labor intensive markets but they ignored the blue collar market. As labor intensive
markets is shrinking like 45,643 workers left from UAE in 2013. Also hazards in channeling
0
1000
2000
3000
July August September
2012-13
2013-14
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remittances through banks and appreciated exchange rate discourage workers to send money in
Bangladesh.
Impact on economy
Inflow of remittance not only helps to increase the GDP of Bangladesh it also helps to keep CAB
positive. If a person is migrated it helps to reduce the unemployment rate in Bangladesh. Beside
this foreign expatriates are now taking initiative to invest in Bangladesh which also creates
employment opportunity.
Overall assessment of the economy
Bangladesh is able to maintain a stable inflation during the targeted time period. In September
2013 the inflation is 7.31 where target inflation is 7.5 . So in case of inflation Bangladesh bank is
doing well to keep it stable. This was possible because of stable rice price, declining
international commodity price and strong domestic currency.
Exchange rate of Bangladesh is remaining stable in 2013 compared to 2012. BDT is appreciated
against Dollar in this time frame. An appreciated currency discouraged the expatriates to send
money in Bangladesh as they think they are losing some value. During the time period we saw
that exchange rate is remain stable so gradually expatriate will accept the rate and start sending
money to Bangladesh.
We saw a 21% growth in export compared to 2012 which gives a good sign to the economy. I
think we have to wait to see the impact of RANA plaza on our export because most of the export
earning comes from garments sector. Right now the image of the Bangladeshi garments is not
impressive to the world market. Beside this most of the garments industry is facing trouble after
increasing the minimum wage of the labors. Overall the garments industry is going through a
change so we need to wait to see the impact on our export. Beside this the cancelation of GSP
facilities in USA hampered the export of lather, frozen foods and some minor items. So although
in current period we have a pretty good export growth but recent incidents gives an alarming sign
to export related industry. If we failed to cope with the situation then we might be in problem.
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Remittance inflow during the time period is declining compared to previous year. Bangladesh is
losing market in terms of expatriate labors after 2008. The current situation is alarming for the
economy of Bangladesh. Government need to find new labor markets otherwise we will be in
danger. Government need to find market for blue collar people because this market has a huge
potential. Each year different universities produce many educated graduates. As investment
situation is not good so employment creation reduced. So if govt. find job market for those
educated persons it will boost the remittance inflow.
















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References
Bangladesh Bank.(2013). Major economic indicators. Monthly updates, 11/2013,1-25. Retrieved
from http://www.bb.org.bd/pub/monthly/selectedecooind/magecoindnov2013.pdf
Mellent, V. (2013, September 16). Onion prices brings tears to Indian eyes. Financial Times.
Retrieved from http://www.ft.com/cms/s/0/633c29f6-1eba-11e3-b80b-
00144feab7de.html#axzz30cbaJQfE
Sarker,L.(2013, January 11). Fuel price hike casts a pall of gloom on economy. The Financial
Express. Retrieved from
http://www.thefinancialexpressbd.com/old/index.php?ref=MjBfMDFfMDZfMTNfMV85Ml8xN
TU3NDY=