Excerpt
Table of contents
1. Introduction
2. Country Background
2.1 Geography and environmental issues
2.2 Demographics
2.3 Historical background
2.4 Political system and current situation
2.5 Poverty
2.6 Corruption
3. Economic policy
3.1 Development policy approach
3.2 Participation of government in economy
3.3 Fiscal policy
3.4 Monetary Policy
4. Current Macroeconomic Situation
4.1 GDP Growth
4.2. Inflation
4.3 Unemployment
5. Economic Structure
5.1 Agricultural sector
5.2 Industry
5.3 Services
5.4 Branches of high importance
6. International Economic Relations
6.1 Foreign trade broken down by major regions/countries
6.2 Foreign trade broken down by commodities
6.3 Foreign Direct Investment (FDI)
6.4 Labour Export
6.5 Participation in customs unions/free trade areas
6.6 Foreign exchange policy
7. Conclusion
7.1 Major problems and potentials of economy
7.2 Recommendations
List of references
1. Introduction
On a global scale, Bangladesh is rather insignificant in terms of economic or political power. Furthermore, it is a country that is seldom reported about by Western media. The news coverage I have seen in the last years mainly pertained to natural disasters (heavy flooding) or political tension. More recently, however, terrible accidents in the garments factory have made the international headlines. Considering the fact that many of the clothes I wear contain a tag reminding me regularly that they are produced in this country, I was anxious to find out more. The paper begins with a background on the country. Next, its economic policy and the current macroeconomic situation are analysed followed by the economic structure and international economic relations. Last but not least, after arriving at the main hindrances and potentials of the economy, a recommendation is given on how to make things better.
2. Country Background
In this chapter, relevant background information on the geography, demographics and history is presented. The political situation and poverty are major issues in Bangladesh so they are also discussed.
2.1 Geography and environmental issues
Figure 1: Map of Bangladesh1
illustration not visible in this excerpt
Bangladesh is a country located in South Asia and is bordered by Burma, India and the Bay of Bengal.2
It is a low-lying country extending over an area of 143,998 sq. km and has a total coastline of 580 km. Moreover, the country is well-known for its largest delta system formed by the rivers Ganges and Brahmaputra flowing from the Himalaya.3 The climate in Bangladesh is generally tropical but it varies in different seasons. Due to the low-lying plain Bangladesh is affected by severe flooding and cyclones devastating cropland especially during the summer monsoon season. Bangladesh is additionally affected by droughts.
Apart from natural hazards, Bangladesh is also struggling with environmental issues such as waterborne diseases in surface water or water pollution generally caused by utilizing commercial pesticides.4
2.2 Demographics
Bangladesh has a total population of 166 million in which 89% are Muslims, 9.6% Hindus and 0.9% belong to other religious groups. 98% of the population are Bengalis and 2% are other ethnic groups. Although Bangladesh is a small country, it is ranked as the ninth most populated country due to its high population rate and is considered to be the most densely country. The capital town Dhaka with nearly 15 million inhabitants is the largest city and belongs to the major urban areas. Other major urban areas are Chittagong, Khulna and Rajshahi. The official language is Bangla and English is spoken by the majority.5 From 2004 to 2009, Bangladesh had its population growth more under control by decreasing it from 1.5% up to 1.0%. But from 2009 to 2013 it has increased to 1.2%.6 However, Bangladesh has improved the life expectancy at birth between 2004 and 2014 by increasing it from 67 years to 70 years.7 Furthermore, the infant mortality rate has been decreased from 54 deaths/1000 live births up to 45 deaths /1000 live births in the decade.8 The literacy rate of the total population is 57.7%.9
2.3 Historical background
Bangladesh, previous East Pakistan, became independent in 1971 after its independence war against West Pakistan, today Pakistan. Before independence, from 1947 to 1971, Pakistan was divided into two nations: West Pakistan and East Pakistan. In 1947, Pakistan and India became independent nations from the partition of British India.10
2.4 Political system and current situation
The government type of Bangladesh is a parliamentary democracy and the legal system consists of British common law and Islamic Law. The prime minister is the head of government and selects the cabinet. The cabinet is appointed by the president, the head of state. There are two major parties, Awami League (AL) and Bangladesh National Party (BNP) the opposition party of AL.11
The political situation in Bangladesh has always been tense. The election on 5th January 2014 was accompanied by widespread violence, a boycott by BNP and a low turnout of 20%. Widespread violence has risen due to suspicion of manipulation of the election.12
2.5 Poverty
According to the United Nation's 2011 Human Development Report, Bangladesh belongs to one of the poorest countries in the world.13
Despite a steadily high GDP of average 6% in the last ten years in Bangladesh nevertheless 53 million people of the total population of 166 million still live below the poverty line meaning that they are not able to meet basic needs. The poor often live in rural areas which are mostly affected by cyclones and flooding.14
However, Bangladesh has made progress in improving its poverty issues in the last decade. The poverty headcount ratio at national poverty line which presents the percentage of the population living below the poverty line was 40% back in 2005 but it has decreased to 31.5% in 2010.15 The fertility rate decreased from 3.1 in 2000 to 2 in 2012.16 Furthermore, in 2000 26% of the rural population had no access to improved water which has decreased until 2012 to 16%.17 Moreover, Bangladesh has forged ahead in reducing its poor population remarkably from 63 million in 2000 to 47 million in 2010 by nearly 26% in the last decade although the population is growing.18
2.6 Corruption
Bangladesh is considered to be one of the most corrupt countries of the world. According to Transparency International, Bangladesh is ranked 136 of 177 in the corruption list, with 177 meaning the most corrupt country. Furthermore, Bangladesh only has a score of 27 of 100, meaning 100 being very clean from corruption and 0 being highly corrupt. Corruption is widespread especially in the public sector in Bangladesh and is a major problem for its economic progress and development.19 The influence of corruption on economic progress will be further presented in the relevant chapters.
3. Economic policy
This chapter deals with the development policy approach and the participation of government in economy. Major functions of fiscal and monetary policy are also depicted.
3.1 Development policy approach
According to government's Vision 2021 and the Outline Perspective Plan of Bangladesh 2010-2021, Bangladesh’s achievement by 2021 is to become a middle-income country.20
In order to reach this goal, Bangladesh is following two development plans: The “Millennium Development Goals” (MDG’s) and the government’s vision 2021. In 2000, 189 nations including Bangladesh have executed the declaration of the United Nation’s “Millennium Development Goals” (MDGs) in order to combat and overcome poverty. The MDGs include the following goals:
1) Eliminating extreme hunger and poverty
2) Achieving universal primary education
3) Promoting gender equality and empower women
4) Reducing child mortality
5) Improving maternal health
6) Combat HIV/AIDS, malaria and other diseases
7) Ensuring environmental sustainability
8) Developing a global partnership for development
Several goals have already been achieved like decreasing the poverty gap ratio and HIV infections, reducing the mortality rate of children under-five and the infant mortality rate.21
Bangladesh government’s Vision 2021 additionally comprises the target to become a middle income country by pursuing following targets:
1) Democracy and effective parliament
2) Political framework, decentralization of power & people’s participation
3) Good governance through establishing rule of law and avoiding political partisanship
4) Transformation of political culture
5) A society free from corruption
6) Empowerment and equal rights for women
7) Economic development & initiative
8) Bangladesh in the global arena22
In order to reach these goals, Bangladesh has to make progress in improving several sectors (further elaborated in chapter 7.1).
3.2 Participation of government in economy
The Government of Bangladesh (GOB) participates in the economy in several sectors in order to boost competitiveness and economic growth.
In Bangladesh, there are several ministries participating in economy.23 The Ministry of Commerce of Bangladesh is responsible for trade and commerce related issues. It is responsible for the import and export policy formulation, tariff policy and state trading. Furthermore, it deals with commodity affairs and regulations of internal commerce. There are several organisations owned by the Ministry of Commerce in order to concentrate on these particular activities.24 Such an organisation is the Export Promotion Bureau (EPB), which promotes export trade and improves plan and policies helpful to the private sector or the Bangladesh Tariff Commission (BTC) which works for the protection of genuine interests of local industries facing unfair competition from foreign firms. The GOB additionally promotes the development of infrastructure and energy especially in the power sector in order to prevent power shortages. Moreover, the government has made the main seaport of Chittagong more efficient and is currently improving the interregional connectivity. In addition, the Board of Investment (BOI) and the Bangladesh Export Processing Zones Authority (BEPZA) are responsible for promoting domestic and foreign investment. They promote tax incentives or preferential duties for imported equipment for registered companies.25
3.3 Fiscal policy
The term “Fiscal policy” is defined as maintaining the macroeconomic stability by taxation and government spending.26
In Bangladesh, the fiscal year (FY) is from 1st of July to 30th of June.27 In the FY2013/2014, Bangladesh had a total budget of 28.61 billion US$, 17.49% higher than the total budget of 24.35 billion of the FY2012/2013. For the FY2013/2014, a budget deficit of 4.6% to GDP was estimated. 2.72 billion US$ of the budget deficit of 7.08 billion US$ are from foreign financing.28
Figure 2: Distribution of revenue (FY2013/2014)29
illustration not visible in this excerpt
The resources are coming from tax revenue (NBR) and non-NBR which alone makes up 61.2% of the total budget including value added tax (VAT) with 36.7%, import duties with 10.8%, income tax makes up 35.5%, 15.3% Supply Duty, 1.7% others and 2.3% tax revenue non-NBR. In addition, resources are coming from non-tax revenue contributing 11.8% to the total budget. Moreover, domestic financing (15.3%), foreign loan (6.5%) and foreign grants (2.9%) are also considered in the total budget.
Figure 3: Distribution of government expenditures (FY2013/2014)30
illustration not visible in this excerpt
According to Bangladesh’s Vision 2021 target Economic development & initiative, Bangladesh wants to improve health care, education, infrastructure, energy supply, industry etc.
However, Bangladesh’s expenditures in some of these sectors are very low. It only spends 4.3% in healthcare, even 0.7% less than in FY2012/2013. When looking at figure 4, it is noticeable that Bangladesh spends more in defence than in health although it strives for an improved healthcare system. Since FY2011/2012, the overall spending for health has continuously decreased. Furthermore, in FY2013/2014 only 5.1% of the expenditures were spent for energy and power although Bangladesh heavily struggles with its deficient power supply. Since FY2011/2012, there was no significant rise in this expenditure. Moreover, Bangladesh spends 7.9% in agriculture, only 0.4% more since FY2011/2012. This expenditure is still very low as31 47% of the total labour force is occupied in this sector which comprises 17.2% of the GDP and needs to be developed due to its vulnerability to natural disasters.32
Figure 4: Resource distribution of FY2011/2012 – FY2013/201433
illustration not visible in this excerpt
Nevertheless, it should be considered that Bangladesh also has made progress in improving the distribution of its expenditures in some particular sectors. It has remarkably improved the infrastructure by spending overall 9.3% in transport and communication, 2.5% more than in the FY2012/2013. Furthermore, Bangladesh is impressively striving for improving education as it spends 11.7% of the total expenditures in education but the expenditures for education have been higher between FY2011/2012 and FY2012/2013. Corruption plays a major role in fiscal policy as tax evasion especially by multinational companies is heavily widespread leading to a decrease of the national revenue.34 Between 1990 and 2008, $34.12 billion have been evaded35
3.4 Monetary Policy
The term “Monetary Policy” describes a macroeconomic policy operated by the central bank by managing money supply, interest rates and inflation.36
The independent central bank of Bangladesh called Bangladesh Bank is working as a regulatory body for the country’s financial and monetary system.37
[...]
1 Figure taken from: The World Factbook
2 Paragraph based on: The World Factbook (a)
3 Paragraph based on: Infoplease (a)
4 Paragraph based on: The World Factbook (a)
5 Paragraph based on: The World Factbook (b)
6 Paragraph based on: World Bank Data (a)
7 Data based on: World Bank Data (b)
8 Data based on: World Bank Data (c)
9 Paragraph based on: The World Factbook (b)
10 Paragraph based on: Infoplease (b)
11 Paragraph based on: The World Factbook (c)
12 Paragraph based on: Infoplease (c)
13 Paragraph based on: Infoplease (d)
14 Paragraph based on: World Bank (a)
15 Data based on: World Bank Data (d)
16 Data based on: World Bank Data (e)
17 Data based on: World Bank Data (f)
18 Paragraph based on: World Bank (a)
19 Paragraph based on: Transparency International
20 Paragraph based on: World Bank (b)
21 Paragraph based on: UNDP
22 Paragraph based on: BOI (a)
23 Paragraph based on: Ministry of Commerce, Bangladesh
24 Paragraph based on: Export Promotion Bureau Bangladesh
25 Paragraph based on: U.S Department of State
26 Definition based on: The Library of Economics and Liberty (a)
27 Paragraph based on: The World Factbook (d)
28 Paragraph based on: Citybrokerage
29 Own chart based on: Ministry of Finance, Bangladesh (a)
30 Own chart based on: Ministry of Finance, Bangladesh (b)
31 Own conclusion based on figure 4
32 Paragraph based on: The World Factbook (d)
33 Own chart based on: Ministry of finance, Bangladesh (b), (d), (e)
34 Paragraph based on: Sarkar, Amin U.
35 Paragraph based on: The Financial Express
36 Definition based on: The Economic Times
37 Paragraph based on: Bangladesh Bank (a)