Economic Overview Despite sustained domestic and international efforts to improve economic and demographic prospects, Bangladesh remains one of the world's poorest, most densely populated, and least developed nations. The economy is largely agricultural, with the cultivation of rice the single most important activity in the economy. Major impediments to growth include frequent 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 (natural gas), inadequate power supplies, and slow implementation of economic reforms.
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Prime Minister Sheikh Hasina Wajed's Awami League government has made some headway improving the climate for foreign investors and liberalizing the capital markets; for example, it has negotiated with foreign firms for oil and gas exploration, better countrywide distribution of cooking gas, and the construction of natural gas pipelines and power plants.
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Progress on other economic reforms has been halting because of opposition from the bureaucracy, public sector unions, and other vested interest groups. Severe floods, lasting from July to October 1998, endangered the livelihoods of more than 20 million people. Food grain production fell by 4 million tons, forcing Dhaka to triple its normal food grain imports and placing severe pressure on Bangladesh's balance of payments. The floods increased the country's reliance on large-scale international aid. So far the East Asian financial crisis has not had major impact on the economy.
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The GDP in terms of purchasing power parity in 1998 was $175.5 billion. 30% was attributed to agriculture, 17% to industry, and 53% from services. Agriculture is made of rice, jute, tea, wheat, sugarcane, potatoes; beef, milk, and poultry. Industries include jute manufacturing, cotton textiles, food processing, steel, and fertilizer. Industrial production has a growth rate of 3.6%. In 1998 there was a real growth rate of 4%, and an inflation rate of 7% based on consumer prices.
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Per capita GDP was $1,380. 35% of the population live below the poverty line, the highest 10% of the income to be made by 4.1% of the population, the lowest 10% earned by 24% of the people. Unemployment rate in 1996 was 35%. The labor force is comprised of approximately 56 million people, with an extensive export of labor going to Saudi Arabia, Kuwait, UAE, and Oman. By occupation, 65% are in agriculture, 10% in industry work, and 25% in services.
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11.5 billion kWh of electricity were produced in 1997, 97% of which came from fossil fuel, 2.65% from hydra, and zero nuclear power. About 11.3 billion kWh were consumed, with no imports or exports of the electricity.
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Exports is a $4.4 billion industry. Export commodities include garments, jute and jute goods, leather, frozen fish and seafood. Export partners are mainly in Western Europe 42%, US 30%, Hong Kong 4%, and Japan 3%. Imports cost the country $7.1 billion annually. They include capital goods, textiles, food, and petroleum products. India is the biggest import partner, taking 21% of business, China 10%, Western Europe 8%, Hong Kong 7%, and Singapore with 6%. Due to the greater imports, there is external debt of over 20 billion. Bangladesh was the recipient of economic aid totaling $1.475 billion in FY96/97.
Currency: 1 taka (Tk) = 100 poisha.
There is an international dispute regarding a portion of the boundary with India. The dispute is with India over South Talpatty/New Moore Island. In addition, Bangladesh is a transit country for illegal drugs produced in neighboring countries.
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The present government has offered a variety of incentives for attracting foreign investments. These include provision for setting up Export Processing Zones (EPZs) in the private sector, establishment of new EPZs and expansion of Dhaka EPZ. For attracting foreign investment, facilities such as tax holiday, rationalization of tariff structure, scope for 100% foreign equity and repatriation of profits are offered.
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Timely measures have been taken by the government for trade liberalization and reforms in the tax structure. The ceiling for tax rebate has been raised to taka 150,000 from taka 100,000. In its FY99 budget, the government announced several incremental fiscal reforms, including a reduction in the number of personal income tax rate bands from 5 to 4, which should have a positive impact on the fiscal health of the economy over the medium term. Tax on financial institutions has been reduced to 35%. Self assessment of returns by private companies has been simplified. In case of imports, the tariff rate has been reduced to a maximum 40%. Duty for 107 similar commodities included in HS code has been made uniform. Duties on many items like equipment for treatment of heart and kidney patients and computers have been withdrawn. Duty on raw materials and intermediate goods have been reduced to encourage industrial investment. The export earnings rose by 16.8 per cent during 1997-98 to US $ 5,172 million, while remittances sent by expatriate Bangladeshis rose to US $ 1,525 million. Imports rose by 5.1 per cent during the year to US $ 7,524 million.
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At present, the central bank follows a semi flexible exchange rate policy, re-valuing the currency on the basis of the real effective exchange rate, taking account of the nominal exchange rates and inflation rates of major trading partners. A level of reserves equal to 2.6 months of imports and a black market rate close to the official rate suggest the central bank has fixed the exchange rate close to the equilibrium level in the short term. Foreign reserves have stabilized at around $1.7 billion through 1997 and 1998. While this level is considered normal for Bangladesh, its foreign exchange position is vulnerable as flood related food and capital equipment imports increase in the coming months. The World Bank and IMF emergency balance of payments funds will provide relief, but further devaluation of the taka is expected, possibly as part of an IMF-sponsored ESAF program. While the taka remains under pressure, its market value is bolstered by annual aid receipts and by remittances from overseas workers. The taka is nearly fully convertible on the current account. The official exchange rate on November 9, 1998 was taka 48.7 to $1.Foreign firms are able to repatriate profits, dividends, royalty payments and technical fees without difficulty, provided the appropriate documentation is presented to the Bangladesh Bank, the country's central bank. Outbound foreign investment by Bangladeshi nationals requires government approval and must be in support of export activities. Bangladeshi travelers are limited by law to taking no more than $3,000 out of the country per year. Dollars are bought and sold in the black market, fueled by the informal economy. U.S. exports do not appear to have been negatively affected by the taka devaluation in 1998.
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