1

Globalization Status of

Bangladesh

2

Balance of Payments• The balance of payments is a measurement of all transactions

between domestic and foreign residents over a specified period of time. The transactions are presented in three groups – a current account, a capital account, and a financial account.

• The current account summarizes the flow of funds between one specified country and all other countries due to the purchases of goods or services, the provision of income on financial assets, or unilateral current transfers (like gift, grants, private remittances). A current account deficit suggests a greater outflow of funds (like import) than inflow of funds (like export) of the specified country for its current transactions. The current account includes the balance of trade, which is simply the difference between merchandise exports and merchandise imports.

• Capital account records the transfer of non financial assets like land or machines

• Financial account records inflow and outflow of foreign aid, and Foreign Direct Investment.

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Million US Dollar2012-2013 2013-2014

Balance of Trade (Deficit) -7,009 -6806   Export (fob) 26,567 29,765   Import 33,576 36,571  Services   -3,162 -4,189  Primary income -2,369 -2,370    Of which: Official interest payments 476 538  Secondary income 14,928 14,912    Of which : Workers' remittances

(current a/c portion) 14,338 14,114  Current Account Balance 2,388 1,547  Capital account 629 644  Financial account 2,863 2,788   Foreign direct investment (net) 1,726 1,550   Portfolio investment (net) 368 825   Other investment (net) 769 413  Errors and omissions -752 504  Overall Balance 5128 5483

BOP Bangladesh

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BOP BangladeshCurrent Account 2005-06 2006-07Export 10,412 12,053Import -13,301 -15,511Trade Deficit -2889 -3458Services -1023 -1261Income -702 -883Current transfers (Remittances)

5,438 6,554

Current Account Balance 824  952 Capital Account 375 490Financial Account Including Foreign Aid inflow Repayment

-141487

-743

7211289-797

Million US $

5

BOP BangladeshCurrent Account 2009-10 20110-11Export 16,233 23,008Import 21,388 30,336Trade Deficit -5,155 -7,328Services -1,233 -2,398Income -1,484 -1,354Current transfers

(Remittances) 11,596 12,075Current Account Balance 3,724 995Capital Account 512 600Financial Account -651 -1584 Including Foreign Aid inflow 720 -646 Repayment -2,685 -635

Million US $

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Import Composition (Percentage) 2006-07Food grains (Rice 1%, Wheat 2.34%) 3.38Edible oil 4.02Other food items (Like milk, spices, sugar,

pulse, etc) 3.94Petroleum 13.02Cement clinker 1.40Raw materials (Chemical, pharmaceutical,

Fertilizer, Plastic, iron & Steel) 15.68Dyeing & Tanning 0.94Cotton, yarn, textile article, staple fibre 20.00Capital machinery 11.26Other (Inc. EPZ) 26.36Total 100.

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Export composition 2006-07Export Percentage Edited Raw Jute 1.25 3.18Jute goods 3.3 8.48Tea 0.05 0.14Leather 2.9 7.46Fish & shrimp 4.69 12.06RMG 65.74 33.82Naphtha 0.41 1.06Fertilizer 0.34 0.88Others (Incl EPZ) 21.33 32.92Total 100.00 100

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Country-Wise Workers’ Remittances 2006-07

(In percentage)Saudi Arabia 29.02USA 15.56UK 14.86UAE 13.47Kuwait 11.39Qatar 3.90Oman 3.29Singapore 1.34Bahrain 1.34Others 5.84Total 100

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Credit Lines of World Bank-IMF

• Special Drawing Rights• Compensatory Financing• Stand-by facility• Extended Fund Facility• Structural Adjustment Facility (SAF)• Special Structural Adjustment Facility (SSAF)

• Poverty Reduction and Growth Facility (PRGF)

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Features of IMF Stabilization Package

• Abolition of Import control• Import liberalization• Devaluation of the official exchange rate

• Familiarization of market mechanism and with drawl of subsidies

• Reduction of government expenditure• Promotion of government revenue• Reduction of budget deficit• Control of wage increase• Stringent anti-inflationary program• Greater hospitality to foreign investment

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Conclusion:All these features represents globalization. Bangladesh had to depend on foreign aid, particularly the World Bank-IMF financing for the management of her balance of payment crisis. So, Bangladesh is now more globalized a country than the comparable countries like India and Pakistan.

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Effectiveness of Devaluation

$1=Tk

O Q1 Q2 Q3 Q4

D

S

Tk.55Tk.50

Source Before After EffectExport OQ1 OQ2IncreaseImport OQ4 OQ3DecreaseDeficit Q1Q4 Q2Q3Decrease

Context: Bangladesh made use of almost all credit lines of IMF-World Bank. Devaluation is a condition of stabilization package of some of these credit lines. During the period 1975-2003 Bangladesh devalued its currency for more than hundred times by the suggestion of IMF. The argument is:

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Ineffectiveness of Devaluation: Bangladesh case

$1=Tk

O Q1 Q2 Q4 Q3

D1

S

Tk.55Tk.50

Source Before After EffectExport OQ1 OQ2 increased slightlyImport OQ4 OQ3 Increased a lotDeficit Q1Q4 Q2Q3Increased

D2

Composition of export suggests that most of the items have less elasticity of supply. Similarly, composition of import shows inelasticity of demand. The demand curve shifts right as well.