ECONOMIC ANALYSIS OF BANGLADESH

7/30/2019 ECONOMIC ANALYSIS OF BANGLADESH

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Independent University,

Bangladesh

Introduction to Business (BUS 201) Sec: 02

Spring 2010

Submitted to: Submitted by:

Mr. Mohammad A. Arafat

Lecturer 0930083: Falil Mohiuddin Gaalib

School of Business


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Submission date: April 09, 2010

01. Introduction 01

02. Analysis and Summary of GDP and GDP Growth Rate 02

03. Analysis and Summary of Inflation Rate 05

04. Analysis and Summary of Unemployment Rate 07

05. Indication of Bangladesh Economy 09

06. Areas Bangladesh Has Progressed 10

07. Areas Where Development Is Backward Going 12

08. Areas Bangladesh Need to Focus On 13

09. Sources 15


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Bangladesh has made significant strides in its economic sector since its independence in

1971. To meet the needs of its increasing population, which is currently around 140 million,

Bangladesh has made major strides to meet the needs of its increasing population, through

increased domestic production, controlled inflation, and lowerd unemployment rate.

Economy of Bangladesh is mostly agricultural-based. Currently, Bangladesh is the third

largest rice producing country in the world. The land is devoted mainly to rice and jute

cultivation, although wheat production has increased in recent years, the country is largely self-

sufficient in rice production. Bangladesh's predominantly agricultural economy depends heavily

on an erratic monsoonal cycle, with periodic flooding and drought. Although improving,

infrastructure to support transportation, communications, and power supply is poorly

developed. The country has large reserves of natural gas and limited reserves of coal and oil.

While Bangladesh's industrial base is weak, unskilled labor is inexpensive and plentiful.

Bangladesh is maintaining a moderate inflation rate during last few years despite rise in

the prices of various commodities in the international market. The inflation rate in Bangladesh is

the second lowest among the four major South Asian countries, which is below the inflation in

Pakistan and Sri Lanka.

The rate of labour force in Bangladesh grew faster than the population and had almost

doubled between the year of independence and mid 1990s. The employment on man-year basis

has, however, increased and the absolute unemployment, as well as underemployment had

reduced. Even though more than one-third of the employed persons both at the national and

rural levels is underemployed, employment has risen drastically recently.


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1996 $ 144.5 4.6%1997 $ 155.1 4.7%

1998 $ 167 5.5%

1999 $ 175.5 4.0%

2000 $ 187 5.2%

2001 $ 203 5.3%

2002 $ 230 5.6%

2003 $ 238.2 4.8%

2004 $ 258.8 5.3%

2005 $ 275.7 4.9%

2006 $ 304.3 5.7%


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As Bangladesh was one of the world's poorest, most densely populated, and least

developed nations, the world community thought it had a solution for Bangladesh. It poured

billions of dollars of economic aid to bolster the country's economy. Many non-governmental

organizations also came forward to help. Despite the tremendous influx of foreign aid, the

country's overall economy for the general people didn't improve much even after few decades

of its existence as an independent state. It's not to say that Bangladesh hasn't made any

improvement. The country's economy is said to have grown at a rate of around 5 per cent a

year over the past decade. But the general public benefited little from it since most of the gain

was forfeited by the privileged few and part of it was offset by the population growth. The

amazing result of the aid money was the creation of an unprecedented number of billionaires in

the country. However, the most troubling fact of all, instead of making advances in

industrialization, its core industrial base continued to dwindle, though the country could claim

gains in certain service industries like garments manufacturing. Besides, Agriculture with the

cultivation of rice being the most important activity in the economy, could not grow due to

cyclones and floods, the inefficiency of state-owned enterprises, a rapidly growing labor force

that cannot be absorbed by agriculture, delays in exploiting energy resources, inadequate

power supplies and political disturbances. But economists question the viability of Bangladesh

economy based on those service industries alone. Besides, under the current globalization

process, the country is not likely to sustain them for too long. Although the CIA World Factbook

came up with an estimate of Bangladesh's GDP or annual per capita income to be $1,700-

$2,100 for last 5 years, the country is still one of the most impoverished countries in the world.

The simple answer to what went wrong is its corrupt political system that has miserably

failed to implement the kind of changes required for turning the country around. The world

pretty much knows how corrupt Bangladesh is - Transparency International has rated it as one

of the most corrupt countries of the world for four consecutive years since 2001. Here is an

example of the extent of corruption in the country. Of the billions of dollars the world sent to

Bangladesh for its economic development, only a mere 25 per cent had gone towards that

purpose. The rest of the money was one way or another misappropriated by the privileged.

Professor Abul Barkat, the Secretary General of the Bangladesh Economic Association, in his

report of February 10, 2001, documented this astonishing fact. The presence of various NGOs

in the country has no doubt made a difference, but the economic effect is not as great as it is


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advertised. Here is another example. Bangladesh had inherited some industries, which were

immediately nationalized at independence. Later the elites, after having acquired authority over

them, used these industries for their own personal gain and put them in a precarious bankrupt

situation. As a result, thousands of industries from small to large have already closed -

estimates put the figure close to 10,000.

What happened in the field of education and healthcare is no different either. The

overall quality of education in the country has deteriorated to such an extent that every year

the so-called elites send their children to schools abroad. But, except those who feel they could

reap a big economic benefit by going back, very few of them return to the country. The medical

facilities are so inadequate and antiquated that the affluent citizens always seek healthcare

outside the country. Additionally, there is a more serious and challenging situation the country

faces now - the crime rate. The crime rate has risen so much that in 2002 the government felt

obligated to deploy the army to suppress it. But evidently that made little difference as the

crime in the country continued to rise day by day.

Therefore, for improving the economy of Bangladesh a number of measures must be taken

before the situation gets out of hand. These most obvious measures are: full democratization of

its institutions including the judiciary, control of corruption in the government, adoption of

appropriate economic policy, improvement of its education and healthcare system, and

especially control of the crime in the country. Without addressing these issues effectively,

Bangladesh couldn't be expected to come out of its poverty.


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1996 4.5%

1997 4.0%1998 9.0%

1999 7.0%

2000 9.0%

2001 5.8%

2002 5.8% (2001)

2003 3.1%

2004 5.6%

2005 6.0%

2006 6.7%


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The control of inflation has become one of the dominant objectives of government

economic policy in many countries. As Bangladesh is a developing country, inflation rate plays a

vital role for the development of Bangladesh. Inflation rate is directly related with the consumer

price index (CPI) which affects the standard of living of the people in Bangladesh. In the year

2000, inflation rate was 9.0% and this high rate of inflation brought different types of havoc in

the life of general people. It forced people to buy less food and use less services from the

domestic market. But around in 2001, the Bangladesh Bank used monetary and fiscal policy to

control the rate of inflation. Through monetary policy, the government increased the interest

rates on money it lends to banks. Banks passed this increase on to the borrowers, which slowed

the economy as businesses and households borrowed less. They also raised the mortgage

interest payment will reduce homeowners' real effective disposable income and their ability to

spend.Increased mortgage also cost reduce market demand in the housing market. Businessinvestment also fell, as the cost of borrowing funds increased. Some planned investment

projects became unprofitable and, as a result, aggregate demand fell. Through fiscal policy, the

government raised direct taxes which caused a fall in disposable income. They also reduced

government spending which increased the rate of leakages from the circular flow and reduced

injections into the circular flow of income and reduced demand pull inflation at the cost of

slower growth and little unemployment. This resulted in a period of disinflation from 2001 as

the rate of inflation started to decline. In 2003, it has decreased to 3.1% which is considered to

be quite normal. When the government removed monetary and fiscal policy to increase growth

in the other sectors, the rate of inflation started to rise again. In 2006, when the rate of

inflation was last recoreded, it raised to 6.7%.


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1996 NA%

1997 35.2%1998 35.2% (1996)

1999 35.2% (1996)

2000 35.2% (1996)

2001 35.2% (1996)

2002 35%

2003 40%

2004 40%

2005 40%

2006 2.5%


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In the year 2000, Government made a bugdet for removing poverty and illetarecy from

Bangladesh, which was a challenage in twenty-first century for the present government. But

severe floods of 1998 increased the country's reliance on large-scale international aid and it

brought high inflation rate to the product market. For that reason, so far the East Asian

financial crisis has not had major impact on the economy. Moreover, people on the rural areas

didnt believe in education. They didnt understand the importance of education. So, there was

a huge number of illeterated people on the working population. It was difficult for them to get

good jobs at that time; in fact, most people remained unemployed which brought a high rate of

unemployment in the economy of Bangladesh. The government introduced some programs like

food for education to make them aware of the situation. Recently, more people have started to

believe in education and slowly, they were getting the result. During 2003-2005, the

unemployment rate remained constant at 40% which was a severe threat for Bangladesh but

since no research was undertaken during that period, it remained unconfirmed. But in 2006, the

unemployment rate decreased dramatically to 2.5% which is hard to believe but probably the

truth. It is because $25 billion were invested in the country which created 1.5 million job

oportunities, mostly for women and especially in the garment industries which grew at double-

digit rates through the last few years. Despite the country's politically motivated general strikes,

poor infrastructure, and weak financial system, Bangladeshi entrepreneurs have shown

themselves adept at competing in the global garments marketplace and Bangladesh's exports to

the U.S. surpassed 10526 million US dollars. Bangladesh has done less well, however, in

expanding its export base - garments account for more than three-fourths of all exports,

dwarfing the country's historic cash crop, jute, along with leather, shrimp, pharmaceuticals and

ceramics.


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1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06

GDP (million $) 44034 45713 47125 46988 47571 51914 56498 60382 62021

Growth (%) 5.2 4.9 5.9 5.3 4.4 5.3 6.3 6 6.7

Per Capita GDP $ 348 357 363 362 361 389 418 441 447

Share to GDP (%) 19.67 19.35 19.49 25 24 23.5 23.1 22.3 21.8

Growth Rate (%) 1.63 3.24 6.92 3.1 0 3.1 4.1 2.2 4.5

Share to GDP (%) 15.88 15.60 15.40 26.2 26.7 27.2 27.7 28.3 29

Growth Rate (%) 8.54 3.19 4.76 7.4 6.5 7.3 7.6 8.3 9.6

Money Supply(million US$)

3495 3589 3952 4083 4207 4619 5178 5786 6484

Money Supply (M2)(million US$)

11890 13114 14860 15427 17171 19688 22032 24688 26871

Total Deposits(million US$)

11440 12275 14109 15708 16020 18407 20592 23226 24980

Bank Credit (millionUS$)

61229 67210 75652 845546 940521 1075688 1198890 1404093 1628427

Exchange Rate(US$)

45.46 48.06 50.31 53.96 57.43 57.90 58.90 63.50 69.08

As % of GDP

Investment 9524.86 10145.6 10850.73 10848.78 11011.7 12150 13581 14178 15821

Foreign Assistance(Net)

2.0 1.8 1.9 2.0 2.1 2.2 1.0 1.3 1.2

Gross Domestic

Savings 7666.08 8094.05 8425.76 8456.26 8638.34 9457 11044 11698 12201

CPI (1985-6=100) 112.96 120.94 124.31 126.72 130.26 135.97 143.90 151.46 164.21

% Change in CPI 8.66 7.06 2.79 1.94 2.79 4.38 5.83 6.48 7.17


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Natural gas production in Bangladesh has more than doubled from a decade

earlier. Natural gas reserve estimates vary widely for Bangladesh. Oil & Gas Journal (OGJ)

reported that Bangladesh had 5 trillion cubic feet (Tcf) of proven natural gas reserves as of

January 2006, down significantly from OGJs January 2005 estimate of 10.6 Tcf. It is not clear

why the large downgrade of Bangladeshs natural gas reserves occurred. In mid-2004,

estimates from stateowned Petrobangla put net proven reserves at 15.3 Tcf. Bangladeshs

Ministry of Finance estimated in 2004 that the country holds 28.4 Tcf of total gas reserves, of

which 20.5 Tcf is recoverable. In June 2001, the U.S. Geological Survey estimated that

Bangladesh contains 32.1 Tcf of additional undiscovered reserves. While estimates of the

countrys reserves vary, natural gas is Bangladeshs only significant source of commercial

energy. The government of Bangladesh estimates that natural gas accounts for 80 percent of

the countrys commercial energy consumption. In 2004, Bangaldesh produced 463 billion cubic

feet (Bcf) of natural gas, up from 429 Bcf in 2003 and more than doubling the 1994 level.

Despite increasing production levels, Bangladesh has never been a net exporter of natural gas.

Given the uncertain size of the countrys natural gas reserves, the government has been

reluctant to export natural gas and has instead focused on meeting current and future domestic

energy needs.

Natural gas exploration and production is dominated by three

state-owned companies, all of which are subsidiaries of Petrobangla. Bangladeshs largest gas

production company, Bangladesh Gas Fields Company Ltd. (BGFCL), operates the Sylhet,

Kailashtila MSTE, Kailashtia, Rashidpur, and Beanibazar gas fields. From these five fields, BGFCL

produces 810 million cubic feet per day (Mmcf/d), or roughly half of the countrys total natural

gas production. The Sylhet Gas Field Company Ltd. (SGFCL) is Bangladeshs second largest

production company, producing 162 Mmcf/d of natural gas. SGFCL operates the Sylhet,

Kailashtila MSTE, Kailashtia, Rashidpur, and Beanibazar gas fields. The third state-owned

company involved in natural gas production and exploration is BAPEX, which produces about 58

Mmcf/d of natural gas from the Salda and Fenchuganj fields. To encourage natural gas

exploration, the government opened the natural gas sector to foreign investment in 1993, after

initiating the First Bidding Round of Production Sharing Contracts. Foreign companies today

produce 501 Mmcf/d of natural gas from four gas fields. The leading foreign producer is


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Chevron, which produces 331 Mmcf/d from the Jalalabad and Moulavibazar fields. Chevron also

expects to begin producing an estimated 300 Mmcf/d of natural gas from the Bibiana field in

October 2006. The UKs Cairn Energy is the second largest foreign natural gas production

company, producing 146 Mmcf/d of natural gas from Bangladeshs lone offshore gas field at

Sangu. Canadas Niko Resources has been involved in disputes with the government after two

blowouts that occurred in 2005 at the companys Chattak (formerly known as Tengratila) gas

field. There are several other fields that may prove to hold additional natural gas resources.

Petrobangla estimates that the Bibiana field, currently operated by Chevron, may contain as

much as 2.4 Tcf in recoverable natural gas reserves. Offshore natural gas fields also present

large possible reserves, although minimal offshore exploration has occurred to date due to

lingering border disputes with India and Myanmar.

The government of Bangladesh is hoping to exploit its mostly untapped coal reserves to

relieve pressures on the countrys depleting natural gas reserves. Bangladesh has small coal

reserves, and has consumed little coal in the past. Bangladesh began commercial coal

production in April 2003 with the opening of the Barapukuria Coal Mine, which is expected to

produce one million short tons of coal per year (Mmst/y), principally for electricity generation.

This mine is being used to fuel the 250-MW Barapukuria Coal-Fired Power Plant in Parbotipur,

which began commercial operation in January 2006. Another possible coal mining project at

Khalashpir is under consideration as well. Despite Bangladeshs small reserves, the government

has recently promoted the development of coal to ease its reliance on natural gas for power

generation. Bangladeshs coal reserves have so far not been developed, mainly owing to a lack

of domestic financing. To attract investment, the government has opened the coal sector to

foreign bidding. Although estimates vary, Bangladeshs Energy Ministry judges that the country

has up to 2.7 billion short tons of high-quality coal reserves. According to the latest EIA figures,

in 2004 Bangladesh has no domestic coal reserves or production. The government is currently

crafting a new national coal policy that will govern foreign involvement in Bangladeshs coal

sector. Some analysts anticipate the new coal policy will hike the royalty rate on coal projects

from 6 percent to 16 percent and place limits on coal exports from the country, among other

guidelines.In July 2005, UK-based Asia Energy Corp. (AEC) submitted a proposal to develop a

coal mine in Bangladeshs Phulbari region. According to a Scheme of Development and

Feasibility Study submitted to the government, AEC declares that the Phulbari site contains an


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estimated 572 million short tons of recoverable coal reserves. The initial investment in the

project would be $1.4 billion, and the open-pit mine is expected to produce 15 Mmst/y of coal

to fuel a planned 500-megawatt power station. AEC is awaiting formal approval from the

government, which hasdeclared that it will not approve any new coal development projects until

its new coal policy isenacted. AEC also faces a number of other obstacles in gaining approval for

the project. According to the Feasibility Study submitted by Asia Energy, up to 40,000 people

would gradually be relocated away from the Phulbari area that currently live on or near the

planned mining locations.

Bangladesh has small oil reserves and imports almost all of its crude oil and petroleum

products. According to Oil & Gas Journal (OGJ), Bangladesh has 28 million barrels of proven oil

reserves as of January 2006, down from 56 million barrels in 2005. The country produced an

estimated 4,000 barrels per day (bbl/d) of oil in 2005, flat from the previous year. Bangladeshs

relatively low level of domestic reserves and production capacity make it a net oil importer, as

the Bangladesh Energy Data, Statistics and Analysis - Oil, Gas, Electricity, Coal 8 consumed an

estimated 91,000 bbl/d of oil in 2005.

To date oil exploration has been rather unsuccessful in

Bangladesh, with most companies choosing to focus instead on the countrys plentiful natural

gas reserves. Exploration and production activities are primarily carried out by the Bangladesh

Petroleum Exploration and Production Company (BAPEX), a subsidiary of the state-owned

Bangladesh Oil, Gas & Mineral Corporation (Petrobangla). However, the country has also

initiated several Production Sharing Contracts (PSCs) with foreign oil companies and has

employed tax incentives to attract foreign company involvement. In 1993, after the formation of

a new National Energy policy, the government of Bangladesh divided its territory and offshore

sites into 23 blocks and opened them to foreign bidding for oil and gas exploration. During the

First Bidding Round in 1993, eight blocks were awarded to four companies through PSCs. In

1997 during the Second Bidding Round, three PSCs were awarded covering four additional


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blocks. The government planned to hold a third round of bidding focusing on the offshore Bay

of Bengal region in 2006, but it has so far been delayed. Before new bidding is opened, the

government will complete a geological and seismic survey to identify potential exploration sites.

Bangladesh must also accurately mark its deep sea territory and settle ongoing maritime border

disputes with India and Myanmar.

According to OGJ, Bangladesh has 33,000-bbl/d of crude oil refining

capacity at Eastern Refinery Ltd.s (ERL) facility at Chittagong. The ERL complex is a subsidiary

of the state-owned Bangladesh Petroleum Corporation (BPC).

Almost all of Bangladeshs commercial electricity supply comes from natural gas-

fired plants. In 2004, Bangladesh had 4.7 gigawatts (GW) of installed generation capacity, up

from 3.6 GW in 2002. 95 percent of this capacity was conventional thermal power (primarily

natural gas) and theremaining 5 percent hydroelectric power. Electricity generation per capita is

one of the lowest in the world, at about 155 kilowatt-hours (kwh) in 2005. According to the

World Bank, only 32percent of the population has access to electricity, primarily in the more

developed eastern zone of the country. Since much of the country is disconnected from the

national electricity grid, noncommercial sources of energy such as biomass are estimated to

represent more than half of Bangladeshs energy consumption.

: Education is the backbone of a nation. The rate illiteracy in Bangladesh is very high.

More than 25% people of Bangladesh have no light on knowledge and education. Due to lack of

education, the number of skilled labor force is very poor compare to the requirement in the

production sectors. Thus the demand of skilled labor force is increaseing day by day. If proper

light of education is given to these people, the lack of unskilled labor will be deminished. More

unemployed people will be employed as skilled labor which will reduce the unemployment

rate as well as help to increase the GDP.


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The rate of population in Bangladesh is increasing rapidly. But the production in

agricultural sector is not fulfilling the needs of these huge population, so the extra amount of

agricultural products are being imported from the foreign countries which possess a negative

effect on the balance of payment. If government can help the agricultural sectors with

providing better technology and skilled labor, the imported amount of agricultural products can

be easily produced inside the country.

The cost of production in garments sector is very cheap compare to most of the

countries in the world. If we can utilize the labor force and available technologies to produce

good quality products, it will definitly increase exports which will bring positive effects in the

balance of payment.

Bangladesh has bright future in the leather sector. Due to lack of proper technology it

lags behind. Leather is not only used to produce domestic product but it can also be exported.

If the government can help the leather industries by providing subsidies and with latest

technology, leather export will rise to a very high extent.

The growing population of the country requires more electricity than what the

country can offer. Since the population is likely to rise, more electricity has to be produced for

the well-being of the people in the country.

Due to lack of knowledge, fishermen catches small fishes and sell them in the market.

If they get the proper knowledge about fishing, these small fishes will lay they eggs after they

grow up and it will have a multiplier effect.

Putting more focus on small industries and cottage can be

beneficial to the country as well.

It is a business that saves life. Many countries have progressed a lot with

pharmaceutical industries and if this intustry can take Bangladesh one step ahead as well.


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Ceramic industries has recently showed so good progress. It is believed that the

ceramic industries can to create a good image of Bangladesh in the world market.

Before the collapse of just industries, jute from Bangladesh was know to be one of the

best in the world. After the collapse, it couldnt progress enough. Some experts believe that it

can again take its previous established position in the world market.

Bangladesh Bureau of Statistics

The World Bank

IMF Fact Book

Ministry of Finance

Bangladesh Bank

Wikipedia

Export Promotion Bureau

Economic Trends and Bangladesh Economic Survey

Bangladesh Sangbad Sangstha

Oil and Gas Journal

International Gas Report

BBC

Metropolitan Chamber of Commerce and Industry, Dhaka

Documents

ECONOMIC ANALYSIS OF BANGLADESH