Economy and Trade
Bangladesh, one of the world’s poorest and most densely populated countries, faces some difficult challenges. With much of the country situated on low-lying land on the delta of the confluence of three rivers, the Ganges, the Brahmaputra, and the Meghna, around one-third of the country is subject to annual flooding. Nevertheless, the economy has grown by between 5% and 6% per year since 1996, despite inefficient state-owned enterprises, delays in exploiting natural gas resources, insufficient power supplies, slow implementation of economic reforms, and a turbulent political scene that saw the army taking a caretaker role prior to fresh elections on December 29, 2008. Although more than half of GDP is generated through the service sector, nearly two-thirds of Bangladeshis are employed in the agriculture sector, with rice as the single most important product. Garment exports and remittances from Bangladeshis working overseas, mainly in the Middle East and East Asia, have been the main source of economic growth.
Economic Policy over 12 Months
In June 2009, Bangladesh announced a Tk1.14 trillion (US$16.5 billion) budget for the 2009–10 fiscal year beginning July 2009, with the aim of shielding the economy from the global economic crisis. It was the first budget of Prime Minister Sheikh Hasina’s government, which won office in a December 2008 election with promises of price cuts, improved utilities, jobs, higher civil servant pay, and poverty alleviation. Finance Minister Abul Maal Abdul Muhith said that the budget would focus on cutting poverty, boosting agriculture, enhancing rural and industrial development, and boosting the social safety net for the poor. He said that efforts would be strengthened to create more jobs and curb corruption and crime, to attract more foreign aid and investment.
In April 2010, the finance minister said that the 2010–11 budget would be around Tk1.30 trillion (US$18.7 billion), 14% bigger than the 2009–10 budget. The minister said the budget would aim to achieve 6.7% growth and keep inflation within 6.5%. He added that improving power supplies and the energy sector and controlling prices of essential goods would be top priorities for the government’s next budget. Annual inflation in January 2010 increased to 8.99% from 8.51% in the previous month on a spike in food prices, which is a major concern for the government, given that 40% of Bangladeshis live on less than US$1 per day and spend 70% of their income on food.
The government helped the vitally important textile sector during the global economic outturn by announcing nearly US$650 million of support during the course of 2009.
Raising power supplies is also a major objective for the government, given that the country faces 1,500 megawatts of electricity shortages per day, which the World Bank estimates costs it up to 2% in lost GDP growth each year. About 80% of electricity is produced from natural gas, but at present the country faces up to 300 million cubic feet of gas shortages per day. Industrial production including that of apparel, ceramics, fabrics, steel, and particles, is being affected.
In 2009, the Bangladesh Bank adopted a relatively loose monetary policy to support the economy and offset the impact of the global economic downturn. Faced with a possible pickup in inflation and a rapid rise in share prices, monetary conditions were tightened from the later summer onward. In April 2010, the central bank stepped up its efforts to curb inflation in the country, introducing a slew of new measures to mop up excess liquidity. Among other measures, the central bank resumed the auction of its 30-day bills after a hiatus of nearly two months, and raised interest rates on government securities, especially bonds.
Economic Performance over 12 Months
Bangladesh’s agricultural sector is largely focused on rice and jute production, with the country just about keeping pace with the food requirements of its population. Yields of rice and vegetables, together with the cash crop of jute for fiber production, have gone up in recent years, thanks to better flood control and irrigation, and the more efficient use of fertilizers.
Bangladesh’s economy held up remarkably well, despite the global recession. Growth decelerated only modestly from the pace recorded in recent years, helped by a favorable harvest in the fall of 2009, when rice output grew by more than 12% year on year. In addition, remittances continued to grow strongly—increasing by more than 10% year on year in January 2010—further boosting domestic consumption. Consequently, the economy is expected to grow by 6% in the fiscal year ending June 2010, according to official estimates, while the finance minister said in April 2010 that he anticipated an expansion of 6.7% in the fiscal year beginning July 2010.
The export sector suffered in 2009, but textiles, which account for 80% of exports, are well placed to benefit from the global economic upturn. The industry gained global market share in 2009 as US and EU demand shifted toward lower-priced Bangladeshi garments. The textile industry also weathered the global downturn well by implementing aggressive price cuts. Even so, around 100 factories closed down between August and October 2009 because of falling orders.
The ready-made garment sector, which is growing at around 20% per year, is one of the better performing sectors of the Bangladesh economy over the long term. This industry gained from the ending of quotas under the Multi-Fiber Arrangement. However, the whole sector is under enormous cost-cutting pressure globally, and Bangladesh has to keep driving down costs if it wants this sector to stay competitive internationally.
Rising income inequality, as shown by a series of household income and expenditure surveys, is becoming a real problem for the government and is frustrating its poverty reduction programs. Although the country achieved poverty reduction of 2% per year from 2000 to 2005, for example, income inequality continued to rise. The situation worsened in 2006 to 2008. The Centre for Policy Dialogue estimates that some 8.5% of Bangladeshi homes have experienced a high enough degree of income erosion over the period (mainly through rising food prices) to push them below the poverty line.
Support for Inward Investment and Imports
The body set up to promote and facilitate both domestic and foreign investment in the private sector is the Board of Investment (BOI), founded in 1989. It is headed by the prime minister and is part of the Prime Minister’s Office.
Tax Exemptions
There is a range of tax exemptions, with exemptions from tax for the first five to seven years being possible by arrangement. Power generation ventures can obtain 15 years’ general exemption from taxation. Contact the BOI for further details.
Statistics
GDP growth: 5.6% (2009 est.)
GDP per capita: US$1,600 (2009 est.)
CPI: 5.1% (2009 est.)
Key interest rate: 13% (September 30, 2009)
Exchange rate versus US dollar: Tk69.047
Unemployment: 2.5% (2009 est.)
FDI: US$7.235 billion (December 31, 2009 est.)
Current account deficit/surplus: US$2.808 billion (2009 est.)
Population: 158,065,841 (July 2010 est.)
* Bangladeshi taka
Source: CIA World Factbook except where stated
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