ANALYSIS of BANGLADESH ECONOMY BASED

on SELECTED MACRO AGGREGATES

1 INTRODUCTION
This report has been conducted on a brief analysis of the Bangladesh
economy based on some selected macro aggregates by comparing them
within a specific time period, which is July to September of the year 2012 and
2013. The macro aggregates in this report are divided into 4 major
categories, which are:
1. Price Level: Inflation (general)
2. Foreign Exchange: Exchange Rate and Foreign Exchange Reserve
3. Trade: Trade Balance (Export and Import)
4. Investment and Banking Sector: Investment climate and Interest Rate
of DMBs
1.1 Methodology
Raw data for this report has been collected for each of the macro aggregates
for the months of July, August and September of 2012 and 2013. The figures
were then compared against each other and the changes were identified,
analyzed

and

showed

in

graphical

representation.

2. DATA & ANALYSIS

2.1 INFLATION:
Food inflation weights 58.84% of the CPI basket for calculating inflation in
Bangladesh, and thus it has a greater impact on the general or headline
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inflation. In July and august, 2013, price of both food and non-food items fall
that gives downward pressure on overall inflation compared to July and
august, 2012s inflation. Major reasons include lower international food and
commodity prices, and slower growth of private credit and appreciation of
the taka against dollar etc. In August 2013, Bangladesh Bureau of Statistics
implemented a new consumer price index (CPI) series using 2005/06 to
reflect changing consumption patterns. Food inflation eased, as the new CPI
assigns a higher weight to rice, the price of which declined. Nonfood prices
also declined responding to slower growth in credit and appreciation of the
taka. For these reasons, inflation started to soften in July and august 2013
compared to July and august 2012s.
INFLATION (%)
10
8
6

INFLATION

2012

2013

Change

4
2
0
-2

July

August

September

In
Inflations has started to increase.

September

2013,

Countrywide political interest plays a

major role behind this situation. There were multiple countrywide strikes and
political programs which adversely affected the

transportation sector.

Farmers and other suppliers were unable to transport their goods to major
markets. This affected supply of foods adversely. Because of supply side
disruptions, food inflation was rising during the period compared to 2012s.
Another major issue during this period of 2013 was the collapse of Rana
Plaza along with death of more than 1,500 workers. Now, workers safety in
RMG sector becomes a criticized issue in the view of international buyers.
Many buyers cancelled or postponed their work orders with Bangladeshi
2

garment factories. This puts an upward pressure on inflation compared to

2012s. The expected rise in public and private (garment) sector wages may
put pressure on prices in august 2013. Wage increases may spill over into
the rest of the economy creating demand pressures. Because of growing
political unrest, domestic fuel and power prices was expected to be raised.
All of these major reasons have created price pressures in August which
increased inflation in August 2013 compared to August 2012s inflation.

2.2 EXCHANGE RATE & FOREIGN EXCHANGE RESERVE:

Exchange rate is price of one currency in terms of others.

Changes in

remittance heavily influence a countrys balance of payment. During the

latter part of 2011, Bangladesh had experienced decline in value of
Bangladeshi Taka. Then Bangladesh government had practiced tightening
monetary policy as well as tightening credit policy. Banks gave less credit so
money supply of Bangladeshi Taka had reduced. This caused the exchange
rate of Taka to appreciate over time. It was reflected in the exchange rate
figures of July-September 2013 with the same period of previous year. For
instance, Taka has appreciated by 4.90 Tk. per USD from July 2012 to July
2013.

90
77.88

80

81.51
77.83

81.89
77.36

70
60
50
40

2012

2013

Change

30
20
10
0
-10

-3.6742
82.08July
-4.1955

August

September
-4.5367

The weighted average nominal (takadollar) exchange rate appreciated from

Tk81.8949= $1.00 at the end of September 2012 to Tk77.3582= $1.00 at
the end of September 2013.

This is because demand for dollar was

weakening, as import growth was slower than export growth during the
period July-September, 2013.

The reason behind gradual appreciation of Taka is directly related to the high
inflow of remittance, combined with a lower import of luxury items due to
tightened import barriers. The high inflow of remittance also contributed to
the successive rise of Foreign Exchange Reserve of the economy, which had
increased by a larger amount in each of the month July to September 2013
compared to the same months of 2012. However, this rise of reserve was not
just because of high remittance inflow; rather the improving trade balance
also had contributed to it. Besides, government had also financed many
some large construction projects by local contractors instead of the foreign
parties, which made a positive impact on the valuable foreign exchange
reserve.
Chang
Macro Aggregate

Month

2012

2013

e
4

Foreign

Exchange

(Million USD)

July
Reserve August
Septemb
er

10570
11435

16155
16252

5585
4817

11252

15534

4282

2.3 TRADE BALANCE (EXPORT & IMPORT):

Export earnings rose in July & September period of the current fiscal year
compared to the same period last year due to increased shipment of
garment products in the markets. During July & September, 2013 revenue
from exports of woven garments, knitwear, frozen food, leather, engineering
& electric goods, chemical products, and agricultural products experienced
some increase compared to the same period of the previous year. On the
other hand, there is some decrease in the exports of raw jute, jute goods
(e.g. carpet), and tea during October, 2013 compared to the same period of
the previous year. So revenue from export reduced on October, 2013
compared to 2012s.
4000
3000
2000
1000
0

2012

2013

-1000
-2000
-3000

Besides, the import payments show a sharp decline during the period. This
is because; Bangladesh government heavily discouraged the import of luxury
items during 2013. For instance, consumer loan on purchasing cars had been
strictly tightened and same was applicable for import and purchase of nonproductive foreign goods.

2012

(Million USD)

July
August
Septem

-598.28
-178.26

-396.82
-568.62

improvement

ber

-1847.92

-1076.01

compared to the same

Export

USD)

trade shows quite an

(Million

USD)

Import

2013

Hence the balance of

Macro Aggregate Month

Trade
Balance

during

July-September, 2013
period of the previous

July
August
Septem

2339.52
2376.74

2439.08
1951.48

year.

ber

1449.98

1900.89

reduced by a larger

(Million

trade

Our

negative

balance

has

amount because our

July
August
Septem

2937.8
2555

2835.9
2520.1

export has increased

ber

3297.9

2976.9

import.

compared

to

our

2.4 INVESMENT CLIMATE AND INTEREST RATE on DMB:

Interest rate on DBMs (Loan) on banking sector decreased during the period
July-September 2013 as demand for credit in the private sector dropped due
to an unfriendly business situation amid political unrest.
Credit demand in the private sector had fallen continuously during JulySeptember 2013 due to the ongoing political violence, shortage of gas and
electricity. The interest rate spread of Depository Money Banks (DMBs) had
declined during July-September 2013 to around 8% from 10% of the previous
year. However, most of the foreign banks failed to maintain the proposed
spread rate of 5% by the Bangladesh Bank, as the spread of most of the
foreign banks was as high as 8% to 10%.

Macro Aggregate

Month

Interest Rate of DMBs July

(Loan)
August
Septemb
er
Interest Rate of DMBs July

201

201

Chang

2
13.7

3
13.6

e
-0.14

7
13.9

3
13.5

-0.34

13.9

6
13.5

-0.42

3
8.3

1
8.61

0.31

8.34
8.4

8.55
8.5

0.21
0.1

5.47

5.02

-0.45

5.56
5.53

5.01
5.01

-0.55
-0.52

(Deposit)
August
Septemb
Interest

Rate

er
Spread July

of DMBs
August
Septemb
er
During July-September 2013, the commercial banks also had a situation of
excess liquidity due to lack of good investment climate and high rate of
interest. Because of this excess liquidity in the banking sector, being amiable
in excess of what the banks could disburse as credits and loans, the call
money rate - the rate at which banks borrow funds are might from
themselves hovered around 7.44%-8.11% during July-September 2013
against 8.91%-11.51% during July-September 2012. Spread on Interest rate
on DBMs (Deposit) between July-September 2013 and July-September 2012
had decreased from 0.31 to 0.10 because of excess liquidity in the banking
sector.

3. OVERALL PROGRESS OF THE ECONOMY

We have seen a growing improvement on some macro aggregates such as
the balance of trade, high inflow of remittance, and foreign exchange reserve
in

the

last

quarter

of

the

financial

year

2012-13.

Despite

these

improvements, this quarter was a difficult one for Bangladesh due to the lack
of proper investment and supply disruptions caused by the contentious
political unrest and safety and regulatory issues with the RMG sector.
During July-September 2013, the exchange rate was appreciating, export
was increasing, import was reducing and foreign exchange reserve was
improving. All these things would make the economy more stable besides
the gradual exchange rate appreciation might hurt the countrys export in
the long.
Although our supply side had faced many disruptions because of lowering
commodity price in the international market, our inflation situation was
mostly stable during the time. However, of the political continues, it may
hurt the agricultural sector and also the food inflation to a great extent.
Economic

Vibe

Indicator

Indicators
General Inflation
Exchange Rate
Foreign

Exchange

=
Improvement

Reserve
Trade Balance
=
Banking Sector and

Slowdown

Investment Climate
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4 POLICY RECOMMENDATIONS
Based on the analysis of the data presented above, here are some policy
recommendations that could help the economy:
Political Stability: For the Bangladeshs economy, the most important
thing in make our country political stable. All the sectors of the economy
have been affected badly because of instable political situations
Investment Climate: Due to lack of demand for loans due to unstable
investment climate in the country, the commercial banks and financial
institutions of the country are sitting on huge amount of idle money.
Government will have to take steps to bring back the confidence among
the investors so that investment sector boots up.

Control on Inflation: In Bangladesh inflation tends to be affected

greatly by inflationary expectation of the people and due to Governments
failure to operate controlling bodies like TCB effectively. There should be
more price adjustments with the international market.

Shaping the RMG sector: The collapse of Rana Plaza in April 2013 puts
lots of negative remarks about Bangladeshs RMG sector. For this reason,
several international buyers cancelled or reduced their work orders due to
safety issues and non-compliances of the factories in Bangladesh.
Government needs to ensure that safety issues are taken care of strictly
in all factories. Besides issues related to minimum wage had caused
worker unrest which also needs to be addressed.

Public investment in productive sector: The government needs to

invest more in the productive sectors of the economy including education,
vocational training, infrastructure building etc. Investment in the training
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and development of the human resource is particularly important because

a large number of Bangladeshis go abroad each year with minimum or no
technical skills; hence they have to employ themselves in very low paying
and tedious jobs. However, with proper training and skills they could have
earned a lot more remittance to propel the economy.
Developed

Land:

Bangladesh is a very good place for foreign

investment. Due to lack of developed land, foreign investment is not

booting up. There is a problem of electricity, gas, water connection, and
availability roadways. The government has to come up with a long term
solutions of these structural issues.

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REFERENCES

Bangladesh Bank: Economic Update

Bangladesh Bank: Monthly Major Economic Trends
Asian Development Bank: Bangladesh Economic Update
World Bank: Bangladesh Development Update
Newspapers: The Financial Express, The Daily Star, The New Age, The Prothom
Alo
Economic Reports by other organizations:
o Keystone Quarterly Update
o Monthly Update by Unnayan Onnesha
o Economic Update by AT Capital

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