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North South University Summer 2014

BUS – 530

Research Paper on Economic Conditions of Bangladesh

Submitted By: Emrul Shahed Moon

ID: 1330567660

Submitted to: Dr. Zaid Bakth

Date of Submission: 22nd August. 2014

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Table of Contents

Introduction--------------------------------------------------------------------------------------------------------3

Objective------------------------------------------------------------------------------------------------------------4

Methodology-------------------------------------------------------------------------------------------------------4

Sources of Data----------------------------------------------------------------------------------------------------4

Limitations----------------------------------------------------------------------------------------------------------4

Inflations------------------------------------------------------------------------------------------------------------5

Reasons behind increase of inflation------------------------------------------------------------------------6

Remittance---------------------------------------------------------------------------------------------------------6

Reason behind decrease in remittance---------------------------------------------------------------------7

Export----------------------------------------------------------------------------------------------------------------8

Reason behind increase of export---------------------------------------------------------------------------9

Exchange Rate----------------------------------------------------------------------------------------------------10

Reasons behind BDT appreciation against USD---------------------------------------------------------12

Conclusion--------------------------------------------------------------------------------------------------------12

Bibliography------------------------------------------------------------------------------------------------------14

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INTRODUCTION

Bangladesh is one of the luckiest countries where people did not actually feel the effect of world

recession. Keeping this fact in mind, the overall scenario is still not very much good to be

satisfied. After the independence in 1971, although 50 years is nearing, Bangladesh is still tagged

as one of the under developed country. The optimistic news is that it is being mentioned as one

of the country with huge potential and rapidly growing economy. Despite of having numerous

problems such as poverty, over population, natural disasters, shortage in power supply, low

standard of living, corrupted administration, political unrest etc. this country has a promising

prospect of developing and improving the economical situation.

Bangladesh is trying to overcome these short comings through the development of different

macro aggregates. The macro aggregates that affect the development of the economy of

Bangladesh are such as: Inflation, National Income, Exchange Rate, Exports, Import,

Remittance, Money Supply etc.

For this research paper, four macro aggregates have been selected. Among all other indicators,

these four would be the most relevant and constructive ones in terms of explaining Bangladesh’s

economy. A comparison have been done between the reference period (October-December 2013

and October-December 2012) to analyze how these four factors influence the economy of

Bangladesh during that time.

The selected four macro aggregates are:

1. Inflation

2. Remittance

3. Export

4. Exchange Rate

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OBJECTIVE

The research paper has the following objectives:

To have general idea of Inflation, Export, Import and Remittance trend in the reference

period and how these factors influence the economy

Understanding the reasons behind the fluctuation of Inflation, Export, Import and

Remittance

METHODOLOGY

General concepts learned from this course and secondary sources have been used to conduct this

research paper.

SOURCES OF DATA

Secondary sources of information were gathered from the following sources:

Online Journals

Different Websites

Journals published by Bangladesh Bank

LIMITATIONS

Limitations confronted with while conducting the project work:

Detailed research could not be performed due to the limitation of time

Websites of different organizations of Bangladesh contains poor and limited information.

Unavailability of recent data.

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Inflation

Inflation means sustained rise in the cost of living, it is influenced by the interactions between

product market, labor market, money market, foreign exchange market and etc. Inflation causes

increase in the general level of price of goods and services within an economy and thereby

increases the circulation of money and thus the value of money decreases.

In Bangladesh, inflation occurs due to three factors, namely Demand Side Factors, Supply Side

Factors and Inflationary Expectation. Consumer Price Index (CPI) is used to measure Inflation.

Month 2012 2013

October 5.86% 7.03%

November 6.55% 7.15%

December 7.14% 7.35%

Table 1: Rate of Inflation of Bangladesh: October, November, December (2012 & 2013)

Fig 1: Rate of Inflation of Bangladesh: October, November, December (2012 & 2013)

The line chart (fig 1) shows the rate of Inflation in Bangladesh in the last quarter of both 2012

and 2013. From the chart, it is evident that the rate of inflation is higher in 2013 than in 2012.

There is a rise of rate of inflation in every month of 2013 compared to the corresponding month

of 2012. It was 7.03% in October and 7.15% in November and ended the year with a high

inflation rate of 7.35%. On the other hand, the last quarter of 2012 shows that a high rise of

inflation from 5.86% in October to 7.14% in December.

5.866.55

7.147.03 7.15 7.35

0

1

2

3

4

5

6

7

8

October November December

Rate of Infaltion

Inflation in 2012

Inflation in 2013

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Reasons behind increase of Inflation

Political unrest in October – December could be a reason behind the rise in the rate of

inflation. There was a huge number of Hartal & blockade during that period

Due to the substantial decrease of interest rate there was an increase in the aggregate

demand which increased inflation.

The Bangladesh Bank has struggled to monitor the money market which has caused

increase in inflation.

Comparatively lower inflow of remittance has further decreased the foreign exchange

reserve which increased inflation.

Remittance:

Remittance means transfer of money by foreign workers to their home country. This Remittance

constitutes the second largest financial inflow of many developing countries. Inflow of

remittance also helps to increase the Gross National Product.

The economy in Bangladesh is widely influenced by the remittance. Because of its involvement

towards growth and its function in retaining the overall balance of the economy it is very

significant. The unemployment crisis of Bangladesh is reduced to some extent by the migration

of Bangladeshi workers to foreign countries. Thus part of their earned money enters into

Bangladesh’s economy as remittance.

Month 2012

US MILLION $

2013

US MILLION $

October 1453.7 1230.68

November 1102.15 1061.45

December 1287.31 1210.21

Table 2: Inflow of Remittance in Bangladesh: October, November, December (2012 & 2013)(USD Million)

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Fig 2: Inflow of Remittance (USD Million, Oct, Nov, Dec 2012 & 2013)

The bar chart (fig2) shows the inflow of remittance in Bangladesh in the first quarter of 2012 and

2013. The graph shows a decline in remittance in 2013 compared to the year 2012. In addition,

inflow of remittance in the last quarter of 2013 exhibits an erratic trend. It was the highest in

October which was very low in November but trended to rise again in December.

Reasons behind decrease in Remittance

Due to political unrest, hartal, blockades remittance inflow was impacted.

Fewer workers went to abroad during this period which has decreased the inflow of

remittance.

BDT appreciated in 2013 comparing to 2012 that’s why remittance was decreased.

October November December

1453.7

1102.151287.311230.68

1061.45

1210.21

Remittance in USD

Remittance in 2012 Remittance in 2013

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Export

Export means to sell goods and services produced in the home country to other countries. The

sale of such goods and services increases the gross output of the producer nation. Moreover, each

and every country tries to export those goods and services in which it has absolute and

comparative advantage.

When the level of export of a country increases, there is an increase in the national income and

production of goods but reduction of the level of unemployment. It also improves the balance of

trade which helps the country to pay its national debt, stabilize business operation and diversify

market.

Bangladesh is one of the world's leading exporters of textiles and garments, as well as fish,

seafood and jute. Bangladesh significantly relies on exports to provide the requirements of its

densely populated nation. Thus, when a large amount of goods are exported, a lot of foreign

currency enters into the economy of Bangladesh every year. Bangladesh exports mainly

readymade garments including knit wear and hosiery (75% of exports revenue). Others include:

Shrimps, jute goods (including Carpet), leather goods and tea. Bangladesh main exports partners

are United States (23% of total), Germany, United Kingdom, France, Japan and India.

Export: Billion BDT

Month 2012 2013

October 161.83 189.84

November 137.35 161.27

December 152.12 176.23

Table 3: Export of Bangladesh (Oct, Nov, Dec 2012 & 2013)

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Fig 3: Export of Bangladesh: October, November, Decmber (2012 & 2013) (BDT Billion)

The bar chart (fig 3) shows the export data of Bangladesh of the last quarter of 2012 and 2013. It

is evident that the overall export was higher in 2013 than in 2012. The charts also show that the

earning from export has increased in each month of 2013 compared to the corresponding month

of 2012. By comparing the export growth of the last quarter of the two years, it can be seen that

the total export receipts increased from BDT 451.3 Billion to BDT 527.34 Billion making 16.85

% growth over the corresponding period of the previous year. It is also to observe that From

October to December the export was declined from 189.84 Billion BDT to 176.23 Billion BDT.

Reasons behind increase of Export

Huge amount of orders was received in the readymade garments sector in the last quarter

of 2013 than 2012.

The qualities of domestic products have improved and foreign importers are attracted by

that.

Production cost of many products is lower in Bangladesh which attracted other countries

to import goods from Bangladesh.

Appreciation of the local currency results in higher import for the country.

OctoberNovember

December

161.83

137.35 152.12

189.84

161.27 176.23

Export in Billion BDT

Export in 2012 Export in 2013

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Exchange Rate

Exchange rate also called foreign exchange rate or currency exchange rate is the price of one

currency in terms of other. It is one of the important indicators in the world which is influenced

by interest rates, inflation, political situation of the country and etc.

Exchange rate plays a vital role in the economy of Bangladesh. Thus, the economy gets affected

when there is fluctuation of BDT. For instance, when the value of taka depreciates, export,

production of goods and inflation increase but import and the level of unemployment decrease.

Similarly, when BDT appreciates against USD, export and inflation decrease whereas import and

foreign investment go up.

Month 2012 BUY 2013 BUY

October US $1 = BDT 81.28 US $1 = BDT 77.75

November US $1 = BDT 81.42 US $1 = BDT 77.75

December US $1 = BDT 80.49 US $1 = BDT 77.75

Month 2012 SELL 2013 SELL

October US $1 = BDT 81.32 US $1 = BDT 77.75

November US $1 = BDT 81.55 US $1 = BDT 77.75

December US $1 = BDT 80.55 US $1 =BDT 77.75

Table 1: Exchange Rate (Buying and Selling Rates, Jan, Feb, Mar 2102 & 2013)

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Figure 4: Exchange Rate (Buying)

Figure 5: Exchange Rate (Selling)

The charts (fig4 and fig5) show the buying and selling rates of USD of the last quarter of 2012

and 2013. It also shows that the value of BDT against each dollar has appreciated in the last

quarter of 2013 compared to the last quarter of 2012. In fact it was fixed to 77.75 BDT for last 3

months of the year 2013. It is evident that there is an increase of the value of BDT against each

USD in every month of 2013 compared to the corresponding month of 2012. The selling pattern

(fig2) of the first quarter of 2013 and 2012 is similar to the buying pattern.

81.2881.42

80.49

77.75 77.7577.75

75

76

77

78

79

80

81

82

October November December

Exchange Rate

$1 in BDT 2012 BUY

$1 in BDT 2013 BUY

81.32 81.55

80.55

77.75 77.75 77.76

75

76

77

78

79

80

81

82

October November December

Exchnage Rate

$1 in BDT 2012 SELL

$1 in BDT 2013 SELL

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Reasons behind BDT appreciation against USD

Due to high export growth, the supply of USD has increased in the economy thereby

appreciating BDT against each USD.

The foreign exchange reserve increased in the last quarter of 2013 compared to the last

quarter of 2012 which appreciated the value of BDT.

Conclusion

If we compare the data collected on four major aggregates then we can find that in terms of

inflation Bangladesh is hugely impacted. Inflation is causing too much problems for the general

people. As inflation increased, the purchasing power of general people has decreased.

Price of products has risen so that the real wage is going down. So in this situation government

should take necessary measures as the self correcting mechanism takes a bit longer time to move

this inflationary gap.

Remittance inflow in 2013 was little lower compared to the year 2012. This was because of the

appreciation of BDT against USD. It has a significant impact on overall economy. People

depending on the foreign money were financially insolvent during that period.

Next is the export and we have found improvement in the export in 2013 comparing to the year

2012. It is because of the growth of RMG sector and worldwide recognition for low cost of

production and good quality. Export was highly boosted up by RMG sector, although RMG

sector suffers a lot from some unfortunate events and political unrest during the last quarter of

2013.

Last is the exchange rate and we have found a positive scenario here. We have seen the

appreciation of BDT against USD. Appreciation of the local currency results in higher import for the

country. As the value of BDT has increased in terms of USD, it has positively affected the people of

Bangladesh.

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After analyzing all these data we can put some comments about the overall economic situation of

Bangladesh. The selected four major aggregates Inflation, Remittance, Export and Exchange

Rates are directly affecting our overall economy. We might say the economy of Bangladesh is

progressing. It might not be as much we are expecting to do but still it has huge potential to

sustain a continuous growth. The main challenge is to be stable with various negative

externalities such as political unrest, diplomatic influences, decision making errors by our policy

makers etc. With such potential, good work infrastructure, skilled labor, appropriate monetary

policy and govt. support Bangladesh economy can be noted as a developed one in near future.

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Bibliography

1. Inflation. Retrieved August 19, 2014.

http://www.bb.org.bd/econdata/inflation.php

2. Remittance. Retrieved August 19, 2014.

http://www.bb.org.bd/econdata/wageremitance.php

3. Export. Retrieved August 19, 2014.

http://www.tradingeconomics.com/bangladesh/exports

4. Exchange rate. Retrieved August 19, 2014.

http://www.bb.org.bd/econdata/exchangerate.php

5. Country wise export of commodities. Retrieved on August 19, 2014.

http://www.epb.gov.bd/quaterlyexportdata.php

6. Economy of Bangladesh. Retrieved on August 19, 2014.

http://en.wikipedia.org/wiki/Economy_of_Bangladesh