Bangladesh Economy

Introduction: During the just concluded fiscal year 1997-98, Bangladesh experienced an economic growth rate of 5.6%. Despite the positive contribution of relatively strong external demand, real GDP growth decelerated slightly due to weakening of domestic demand, which is reflected in the decline in gross fixed capital creation and also in private consumption. Dependence of the domestic demand on foreign resources, as measured by current account deficit, increased while the national saving-investment gap narrowed as a result of a weakening of investment activity.

Per capita GDP in dollar terms stood at US $263 compared to US $264 in the previous year, reflecting the effect of exchange rate changes.

Measured by the development in the CPI, inflation was 6.3% in 1997-98 compared to 3.9% in 1996-97. The increase in the prices as measured by GDP deflator was 3.9% in 1996-97.The wage rate index increased by 10.0% in 1996-97.The average devaluation of Bangladesh Taka reached 7.8% in 1997-98 compared to 4.4% in 1996-97.

INDUSTRY

The growth rate in the industrial sector increased to 8.1% in 1997-98 from 3.5% in 1996-97. Growth of large scale manufacturing output increased significantly by 10.1% in 1997-98 compared to only 3.4% in 1996-97.Much of the growth was concentrated in export oriented industries particularly readymade garments and hosiery. Production in domestic industries also increased, mainly because of strong domestic demand for construction-related materials. Production in various sectors of industry changed as follows: Garments (+33%).Cement (+ 32%),Sugar (+23%),Cotton textile (+9%) Fertilizer (+9%),Iron and steel (+8%),Jute textile (+7%),Natural gas (+7),Electricity (+5%),Edible oil (-2%),Leather products(-30%),News print (-75%).

AGRICULTURE

Agricultural production declined in 1997-98.,owing largely to decreased crop production (in particular rice).The growth rate of agriculture sector was 3.1% in 1997-98 compared to 6.4% in 1996-97. Even the volume growth in agriculture was somewhat offset by lower agricultural commodity prices. The target for foodgrains production during 1997-98 was 21.1 million tons: due to unfavorable weather conditions actual foodgrains production, according to the latest estimate, would be 20.5 million tons, as against actual production of 20.34 million tons in 1996-97,showing an increase of about 0.79%.

INVESTMENT AND SAVINGS

Gross investment as percent of GDP declined to 16.3% from 17.3% in the previous year. Both public and private investment shared in the decline. National savings as percentage of GDP remained unchanged but the domestic savings GDP ratio rose slightly i.e from 7.5% in 1996-97 to 7.9% in 1997-98.

MONETARY DEVELOPMENT

Total domestic credit rose by 12.6% to Tk.556.40 billion compared to 13.7% increase in 1996-97 to Tk.493.96 billion. In 1997-98,net credit to government increased by 15.7% to Tk. 92.72 billion, compared to a 27.1% increase 1996-97 to Tk. 80.17 billion. Credit to other public sectors increased by 6.4% to Tk. 62.50 billion, compared to 7.1% increase in 1996-97 to Tk. 58.74 billion. Credit to private sector increased by13.0% to Tk. 401.18 billion compared to 12.1% increase in 1996-97 to Tk.355.05 billion. Net domestic assets of the banking system increased by 11.0% compared to 13.2% increase in the previous year. while net foreign assets of the banking system increased by 3.8% in contrast to 2.8% decline in the previous year. Total liquidity grew by 10.1% to Tk. 557.24 billion in 1997-98,compared to 10.8% increase to Tk.506.28 billion in 1996-97. The bank rate was raised to 8.0% from 7.5% in 1996-97.The interest rate band remained between 8% in 1997-98.

BALANCE OF PAYMENTS

The current account deficit increased by 13.1% to US $604 million (1.8% of GDP) in the preceding year. Trade deficit declined by 19.1% to US$2,219 million (6.7% GDP) from US$2,744 million (8.3% of GDP) in the previous year.

EXPORTS

Total export earnings for 1997-98 amounted to US$5,161 million (15.5% of GDP) compared to US$4,418 million (13.4% of GDP) in 1996-97.This indicates an increase of 16.8% compared to 13.8% in 1996-97.Garments had the major share (55.1%) followed by knitwear and hosiery (18.2%), frozen food (5.7%), jute goods (5.5%), leather (3.7%), raw jute (2.8%). Chemical products (1.4%) and tea (0.9%).

IMPORTS

WAGE EARNERS REMITTANCES

Remittances of Bangladesh nationals working abroad amounted to US$1,433 million as against US$1,475 million in the preceding year, indicating a decrease of 2.8%, compared to 21.2% growth in the previous year. Number of workers in overseas employment in 1997-98 decreased to 218.000 from 228.000 in 1996-97. A huge amount of 20% to 30% of official remittances was missing due to use of illegal 'Hindi ' channel.

FOREIGN ASSISTANCE

In 1997-98 foreign aid disbursement amounted to US$1350 million compared to US$1481 million in 1996-97.It indicates a decrease of 8.8% compared to 2.6% increase in the previous year. The disbursed aid amount included US$562 million as grants and US$788 million as loans. Total aid commitment for 1997-98 amounted to US$1900 million compared to US$ 1661 million in 1996-97.

FOREIGN EXCHANGE RESERVES

PRICE SITUATION

Due to Unfavorable food production and increased production cost relative to productivity, the general price level registered a rising trend during 1997-98, with the inflation rate increasing by 2.4 percentage point to 6.3% from 3.9% in 1996-97, and from an average of 4.3% during the period 1990-97

BUDGET FOR 1998-99

The government budget for 1998-99 envisages revenue receipt of US $4,155 million and revenue expenditure of US $3,187 million. In 1997-98 revised budget, revenue receipts amounted to US $4,055 million as against the revenue expenditure of US $ 3,132 million. In 1998-99 budget gross revenue surplus is projected at US $ 968 million. After adjusting the capital and food accounts and non (ADP) project, the net contribution to the annual development program (ADP) from the revenue budget is expected to be US $ 1,251 million. The annual development program (ADP) for 1998-99 has been projected at US $2,720 million indicating a 3.2% increase over the revised development budget of US $2,635 million in 1997-98. Domestic resources are expected to finance more than 46% of development budget of 1998-99 compared to 45% during the previous year. The 1998-99 budget calls for an increase in development expenditure on projects in economic and social sectors with an emphasis on reactivating work in rural areas and poverty alleviation. For industry-led growth and distribution of the fiscal burden more equitably, efforts are being made to improve tax administration, reduce duties on raw materials and intermediate goods, lower the corporate tax rate from 40% to 35% withdraw duties and VAT from computer and its accessories and offers other investment incentives.

Economic Growth: Growth was strong in industry, energy and construction sectors, but a sharp fall in the growth rate in agriculture from 6.4% in 1996-97 to 3.1% in 1997-98, kept the overall GDP growth rate lower than in 1996-97. Growth rates of different sectors in 1997-98 were as follows:

MAJOR ECONOMIC INDICATORS

EXPORTS (VOLUME AND VALUE)

MAJOR TRADING PARTNERS (MILLION US$)

NEW INVESTMENTS (In Million US$)