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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
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