Bangladesh Macroeconomic Performance Report

This report analyzes the macroeconomic performance of Bangladesh, highlighting its GDP growth, production capabilities, export and import dynamics, and the impact of fiscal and monetary policies. It discusses the challenges faced by entrepreneurs and the government's role in economic development, providing a comprehensive overview of the country's economic landscape.

Running Head: Bangladesh Economics
Bangladesh Macroeconomic Performance
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Bangladesh Economics 2
Table of Contents
Introduction..........................................................................................................................4
The Analysis of Production in Bangladesh.........................................................................4
Production in Bangladesh....................................................................................................4
Major Export Timeline in Bangladesh................................................................................4
Primary Factors Employed in Bangladesh..........................................................................6
The Distribution of Produced Goods (for Domestic Use and Exportation)........................6
The Primary Imports of Bangladesh....................................................................................6
Comparative and Absolute Advantage for Bangladesh.......................................................7
Bangladesh Self and Social Interest....................................................................................7
The Government’s Provision to the Citizens...................................................................7
Barriers Faced by Entrepreneurs......................................................................................8
Bangladesh Fiscal Policy Actions....................................................................................8
Bangladesh Monetary Policy Actions..............................................................................9
The Government Budget Balance....................................................................................9
Bangladesh GDP/Business Cycles....................................................................................10
Bangladesh GDP History...............................................................................................10
Actions to Improve Production Possibilities..................................................................11
Comparison of Bangladesh GDP with Australia and Indonesia....................................11
Notable Business Cycles................................................................................................12
Price Level / Inflation / Exchange Rate / Currency...........................................................12
Bangladesh Currency.....................................................................................................12
Common Products’ Price Level (Comparison with Canada).........................................13
History of Bangladesh Inflation Rate.............................................................................13
History of Bangladesh Exchange Rate...........................................................................14

Bangladesh Economics 3
Conclusion.........................................................................................................................14
Bibliography......................................................................................................................15

Bangladesh Economics 4
Bangladesh Macroeconomic Performance
Introduction
Bangladesh is a small sized economy of 147,000 sq. kilometers but a home to 160 million
people. In terms of popularity of the world economies, it is ranked eighth. In the past decade, this
economy has been noted to have maintained a robust growth on the economy. This has led to an
optimistic projection of its GDP growth in some years to come to be approximately 7.2%
(Ahamed, 2016). It’s per capital income is about US$ 1300 which has enabled it to offer highly
competitive wages. This economy’s performance has been very poor until the 1990s when much
improvement took place. This paper shall cover the various developments and changes that has
contributed to the increased growth of this economy.
The Analysis of Production in Bangladesh
Production in Bangladesh
Bangladesh economy is a great producer of rice since it is the dominant food crop. 75%
of agricultural land in Bangladesh is used for rice production. Since the 1980s, the production of
rice has been rising year after year considering the fact that there is a population growth every
year. In the 1980s, Bangladesh was ranked number four in terms of rice production; however, it
has been overtaken by Indonesia and Malaysia over time which has resulted in it rank to fall
back to sixth. Rich cultivators have benefited from improved yield which has resulted from the
use of more advanced inputs though at an increased cost; such inputs include; seed variety of
high yield, fertilizers and irrigation. Other than rice production, the farmers also produce jutes;
the current development of irrigation is also contributing to an increase in wheat and maize
production in this economy. There are also other production activities that are important to this
economy. Production of ready garment is an important economic activity in this economy and is
playing an important contribution in the international market. Self-sufficient industries have been
developed in steel, pharmaceuticals and food processing. This economy’s reserves of natural gas
are substantial and thus ranked 7th in production of natural gas in Asia. The economy’s deposits
of limestone are also large.
Major Export Timeline in Bangladesh
When Bangladesh was founded in 1971, Jute and tea were the major sectors of exports.
The manufacturing of garments was lower during this era. However, the government identified
the potential of growth in the textile manufacturing industries and promoted the producers

Bangladesh Economics 5
through policy easing; this led to the high development in this industry up to date. This economy
is a major clothing exporter and is ranked 2nd after China; it accounts for 6% of the total world’s
clothing (Economists-pick-research.hktdc.com, 2016). 80% of Bangladesh export earning comes
from ready garments.
Fig: Development of Bangladesh clothing Industry
Source: Economists-pick-research.hktdc.com. (2016)
In the 1980s and 90s, this sector was less developed. Much of the development has occurred in
the 2000 century. The number of factories have increased to more than 4000; this is a very big
development.
The leather industry is also an important part of Bangladesh exports as the revenue raised
annually is roughly US$ 1 billion. Other than textile and leather, the other sectors that for the
basis of this economy’s export are; Jute, shipbuilding, fish and seafood.

Bangladesh Economics 6
Primary Factors Employed in Bangladesh
This economy is more labor intensive and is more interested in human capital
development. The economy chief source of growth comes from international trade. Thus, their
main investment lies on the development of its international trade. The development of
international trade in the 1990s saw a huge growth of this economy. The free trade agreement
further made in 2000s boosted the international trade with other economies. However, this
economy has been operating for many years at an international trade deficit. Despite the growth
of its export level, this economy’s importation level has grown rapidly and has exceeded the
exportation level; it is importing more than its exportation. The manufacturing sector is the
primary sector for its exportation.
The Distribution of Produced Goods (for Domestic Use and Exportation)
The production of goods like tea has gone up over the years although the level of
exportation for this product has fallen over the years. Between 1985 and 1990, this economy
used to export nearly 90% of its produced tea. However, there has been an increased demand for
domestic consumption of tea which has led to a massive drop in the amount of tea exported from
this economy. Chittagong (2009) noted that as at 2009, this economy’s domestic demand was
approximately 90% which left only 10% for exportation. This was also a projection that in some
years to come that this economy will turn from a tea exporter to tea importer given the domestic
demand growth. This also explains why currently Bangladesh is not a tea exporting economy;
the previous importers have already lost interest in its tea and looked for a market elsewhere.
The Primary Imports of Bangladesh
The major commodities imported by the Bangladesh economy include; Machinery and
equipment including computers: US$8.4 billion, Iron and steel: $2 billion, Chemicals,
Foodstuffs, Petroleum products and Textiles (Foot, 2010). In additional to these imports,
Workman (2017) noted the following commodities; Cotton: $4.6 billion, Mineral fuels including
oil: $2 billion, Vehicles: $1.7 billion, Plastics, plastic articles: $1.8 billion, Animal/vegetable
fats, and oils, waxes: $1.5 billion, Manmade staple fibers: $1.5 billion, Knit or crochet fabric:
$987.4 million. He also noted that the value of imports in Bangladesh is over US$ 40 billion. The
major import destinations are China, India, Singapore, Hong Kong and Japan (Simoes, 2017)

Bangladesh Economics 7
Comparative and Absolute Advantage for Bangladesh
According to Heracles (2016), a country is considered to have a comparative advantage
in the production of a particular good if the opportunity cost involved is lower than for another
country. Bangladesh’s labor costs are too low compared to other producing economies such as
China and Indonesia. This has created a very favorable environment for the manufacturing
industry. This has led to the conclusion that Bangladesh has a strong comparative advantage in
this manufacturing sector. Many Pearl River Delta region manufacturers in China are exploring
the possibilities of relocating their industries to Bangladesh, or rather to diversify in this region
so as to avoid the high wage costs in China. There are over 80 million labor suppliers in
Bangladesh.
The free trade policies introduction in the year 2000s resulted in an increased expansion
in the textile industry and currently accounting for 80% of Bangladesh’s exports. Heracles
(2016) noted that this is a form of specialization in this industry and thus the economy has a
comparative advantage on textile production. Bangladesh also have a comparative advantage in
wages; its wage rate is too low compared to that of India, China and Indonesia (Hussain, 2013).
If a country can produce more goods with the same resources as another country, it is said to
have an absolute advantage (Chamlagai, 2013). For instance, Bangladesh was an absolute
advantage in textile production while French has one in wine production because its soil is
favorable.
Bangladesh Self and Social Interest
The Government’s Provision to the Citizens
It is a primary responsibility of the government to ensure that there is a stable economic
growth by implementing various actions. The government thus has a sole responsibility of
ensuring that there is an improvement in the standard of living for its citizens. There are many
provisions the government advance to its citizens. Some of the provisions include; free and
compulsory education, the provision of medical cover, provision of food assistance especially in
time of severe drought, provision of equal fundamental rights irrespective of sex, religion, race
or even the place of birth. The government is also responsible for providing efficient
infrastructure to enable movement from one place to another. The government has also provided
electrification in the rural areas as an initiative to promote development and the competitiveness
of these areas. The Bangladesh constitution provides for equal opportunity in public

Bangladesh Economics 8
employment. The government is the sole provider of defense for the citizens; this is also
accompanied by maintaining peace and justice which promotes the fair economic operations.
Barriers Faced by Entrepreneurs
There are several barriers facing the Bangladesh entrepreneurs especially the women who
are joining the market at a small scale and contributing to increased economic growth of this
economy. One of the problem according to Abdin (2010) and Chowdhury (2017) is the scarcity
of funds; some entrepreneurs have no sound securities to offer in order to receive capital from
financial institutions. Hughes & Jennings (2012) pointed out that women entrepreneurs in the
SMEs have difficulties accessing finances from banks. Another challenge is the lack of sufficient
knowledge; most of these entrepreneurs do not have adequate information on the markets and of
doing business. Another challenge posted by Kashfia (2013) is that of increased barriers to
entrepreneurship. Some of the noted barriers include; power and gas shortage, political instability
and heavy traffic.
Bangladesh Fiscal Policy Actions
There are two policy actions mostly in use by many governments including Bangladesh;
one is influencing the spending by the governments. This is the spending on investment areas
that are meant to expand the economy’s income which is aimed at stimulating the aggregate
demand and subsequently the economy’s production level. When the economy is performing
poorly, the government need to stimulate the economic growth; it does this by increasing its
spending. An example of fiscal policy action is during the global financial crisis where
governments raised their spending to stimulate growth. On the other hand, when economy is
performing well, the government may decide to lower its spending so as to cover for its deficits;
this is especially when the economy’s debt level is very high. The Bangladesh government has
spent more on infrastructure development and poverty alleviation (En.banglapedia.org, 2017).
The other fiscal policy action involves the influence on the economy’s tax rate; this is
where the government takes discretionary policy of cutting or raising taxes depending on the
economic state. During a state of low performance, e.g. during a recession like the global
recession, the government cuts it tax so as to ensure households has additional disposable income
to stimulate demand. On the other hand, the government raise its tax when the economy is
performing well; for instance, during a period of high inflation rate, the government raise taxes
to dampen the augmented demand.

Bangladesh Economics 9
Bangladesh Monetary Policy Actions
Monetary policy actions are supplementary to the fiscal policies. There two monetary
policies of the government. One is that of influencing the interest rate. This is where the central
bank of the government raise or lower its interest rate so as get the economy at control. During a
period of low economic growth, the interest rate is lowered so as to lower the borrowing costs for
capital. More borrowing takes place as a result and there is an expansion of investments. On the
other side, the government may raise the interest rate so as to control the inflation rate. This is
because higher interest rate causes the demand for loans to fall and thus the economy’s demand
falls since the reduction in investment contracts the economy’s income.
The other monetary policy involves the direct manipulation of the money supply. This is
where the government raise or lower the money supply depending on the economic state. The
government does this through various processes such as buying or selling of government
securities through open market operations, influencing the reserve requirement for banks, and
influence on the short term interest rate (Tarver, 2015). During a period of depressed economic
growth, the government may raise the money supply to initiate a stimulus. It can do this by the
central bank lowering the reserve requirement so as to raise money available for the other banks
to lend, lowering the short term interest rate to enable the other banks to lend at a lower rate, or
buying of securities from the public; the payment the central bank makes to the security sellers
raises the money supply. On the other hand, the central bank may lower the money supply by
raising the reserve requirement to reduce money available for lending, increasing the short term
interest rate so that loans are advanced at a higher interest rate so as to discourage borrowing,
and finally a sell of securities (Gallant, 2017). When the government sell securities, people pay
the government and money is withdrawn from the economy.
The Government Budget Balance
The government budget balance is given by the difference between its revenues and
spending. When the government spends more than the revenue raised from taxes, it operates at a
budget balance deficit. The Bangladesh government is relying on borrowing to facilitate its
spending. This means that this economy is raising less revenue but is spending more. The
economy thus operates at a budget balance deficit.

Bangladesh Economics 10
Fig: Bangladesh Government Budget balance deficit
Source: Tradingeconomics.com (2017)
Since the 1990s, the Bangladesh government has operated at a budget balance deficit. In
the 1990s the deficit was lower but it has increased since the 2000s. Currently the deficit level is
very high and is projected to increase further in the coming years. Kallol (2017) noted that the
government has proposed a higher budget in the coming year and this is the reason for the
increment in the deficit. This deficit will be covered by borrowing from its banking sector and
from foreign sources.
Bangladesh GDP/Business Cycles
Bangladesh GDP History
Fig: Bangladesh GDP
Source: Tradingeconomics.com (2017)

Bangladesh Economics 11
The representation of the Bangladesh GDP history in the graph above shows that this economy
was performing poorly at a GDP of close to zero from 1960s to 1990s. However, as from the
year 2000s, this economy has experienced a fast GDP expansion which has been attributed by
the free trade agreement. The current GDP level for Bangladesh is well above 200 USD Billion.
The growth of this GDP in the fiscal year 2015-16 hit a higher level of 7.11% and for 2016-17, a
further increment to 7.2% (Dhakatribune.com, 2017)
Actions to Improve Production Possibilities
The economy is fighting to expand its production level by creating good international
relationships with other economies. There is much development in infrastructure taking place for
example the highway being constructed from Dhaka to Chittagong as part of the China’s belt and
road initiative (Economists-pick-research.hktdc.com, 2017). This economy has also maintained a
huge supply of labor at a lower cost which is attracting many foreign investors and is also
making the domestic firms more competitive in the international market. There is an increased
investment in human capital which has seen a rise in the Bangladesh stock of human capital.
Inclusivity of the poor in economic development is rising by the introduction of equal
opportunity.
Comparison of Bangladesh GDP with Australia and Indonesia
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
0
1
2
3
4
5
6
7
8
Comparison between Bangladesh, Australia and Indonesia
Real GDP Growth Rates
Australia
Bangladesh
Indonesia
Year
Real GDP Growth Rate
Data source: Imf.org (2017)

Bangladesh Economics 12
The comparison between Bangladesh, Australia and Indonesia real GDP growth rate as
presented in the graph above shows that Bangladesh has the highest real GDP growth rate,
followed by Indonesia with Australia experiencing the lowest growth rate. In the year 2007, the
three economies were having a high performance but fell in 2008-09. After the recovery in 2010,
Bangladesh has exhibited a positive real GDP growth rate trend whereas for the others the
growth rate has been poor.
Notable Business Cycles
Source: Hussain (2013)
The graph above represents the impacts of elections on the Bangladesh economy.
Hussain (2012) noted that before an election, the political leaders tend to manipulate the fiscal
and monetary policy tools to impress the people with a hope of being reelected. The use of
expansionary monetary and fiscal policy has palatable political consequences in the short run.
This does not limit the consequences to the short run as excess use of the expansionary policy
also has long term consequences of increasing the inflation rate, a reduction in savings and poor
trade balance. For the past 5 elections, Bangladesh has experienced a reduction in its GDP
(Mukti, 2017). Immediately after elections, the leaders tend to stimulate the economy by raising
taxes, reducing the government spending, raising interest rate and slowing money supply growth.
Booms and bursts are experienced as a result of regular holding of elections.
Price Level / Inflation / Exchange Rate / Currency
Bangladesh Currency
The Bangladesh currency is the Bangladesh Taka. This currency was created in 1972 to replace
the Pakistan rupees that were initially used as the major currency. At its introduction, it was set

Bangladesh Economics 13
at the same value as the Indian rupee. Tk 18.9677 to the sterling and Tk 7.2797 to the USD. The
value of the currency has been changed many times and has resulted in a fall in the exchange
rate.
Common Products’ Price Level (Comparison with Canada)
Indices Difference
Canada Consumer Prices are 119.59% higher than that in Bangladesh
Canada Consumer Prices Including Rent are 164.01% higher than that in Bangladesh
Canada Rent Prices in 451.13% higher than that in Bangladesh
Canada Restaurant Prices are 214.04% higher than that in Bangladesh
Canada Groceries Prices are 130.86% higher than that in Bangladesh
Canada Local Purchasing Power is 165.43% higher than that in Bangladesh
Source: Numbeo.com (2017)
The table above shows that the cost of living in Bangladesh is lower than that of Canada; the
Canadian price for common goods is very high.
History of Bangladesh Inflation Rate
Source: Tradingeconomics.com
The information derived from trading economics is represented in the above graph indicating the
improvement in Bangladesh’s inflation rate. The past inflation levels for Bangladesh has been
very high and detrimental to the economy. However, there has been a falling trend for this
inflation rate. The current level is lower.

Bangladesh Economics 14
History of Bangladesh Exchange Rate
Fig: Bangladesh exchange rate, new LCU per USD extended backward, period average
(Tradingeconomics.com, 2017)
Source: Tradingeconomics.com (2017)
The graph shows that exchange rate in Bangladesh has risen within the past decade. Initially
Bangladesh exchange rate was lower at an average of 69 between 2006 and 2010. However,
from 2011 to 2017, the average exchange rate is 78.
Conclusion
This economy’s performance was very poor in the past but the current economic growth
is very high. The development has been as a result of various policies employed by the policy
makers. Bangladesh’s entrepreneurs are faced with many challenges that need to be resolved. A
deficit in government budget balance is not an indicator that an economy is not performing well.
Many government even those that are performing well have budget balance deficit. As long as
the government is efficient in managing its deficit, it is not a problem. Mismanagement results in
a risk of loss of an economies credit worthiness for the countries like Bangladesh who are reliant
on borrowing to supplement the deficit.

Bangladesh Economics 15
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