FINANCIAL MANAGEMENT ASSIGNMENT

‘BANGLADESH ECONOMY REVIEW’

Prepared By:
Mohd Nabhan Bin Sanusi
ZP00975

Prepared For:
Dr. Saiful Bahri Sufar
 BANGLADESH ECONOMY REVIEW

Bangladesh is one of the poorest nation and least developed economy in Asia due to
its past political turbulence and military coups since gaining independence in 1971, worsen
by frequent natural disaster such as cyclone and flood, lack of proper infrastructure,
inadequate power supplies, high growth population with high unemployment rate and slow
implementation of economic reform.

Its economy was mainly contributed from service sector although about half of its
population were employed in agriculture sector with the primary crops being rice and jute
while maize and vegetables are assuming greater importance.

Dhaka and Chittagong (the country's chief port) are the principal industrial centres;
clothing and cotton textiles, jute products, newsprint, and chemical fertilizers are
manufactured, and tea is processed. In addition to clothing, jute, and jute products, exports
include tea, leather, fish, and shrimp. Remittances from several million Bangladeshis working
abroad are the second largest source of foreign income. Garment exports, totalling $12.3
billion in 2009 and remittances from overseas Bangladeshis totalling $9.7 billion in 2009
accounted for almost 25% of GDP. Capital goods, chemicals, iron and steel, textiles, food,
and petroleum products are the major imports. Western Europe, the United States, India, and
China are the main trading partners.

Bangladesh's textile industry, which includes knitwear and ready-made garments

along with specialized textile products, is the nation's number one export earner, accounting
for 80% of Bangladesh's exports of $15.56 billion in 2009. Bangladesh is third in world
textile exports behind Turkey, another low volume exporter, and China which exported
$120.1 billion worth of textiles in 2009. The industry employs nearly 3.5 million workers.
Current exports have doubled since 2004. Wages in Bangladesh's textile industry were the
lowest in the world as of 2010. The country was considered the most formidable rival to
China where wages were rapidly rising and currency was appreciating.

Since the past 10 years Bangladesh has shown a sound and consistent economic
growth between 4.8 to 6.5 % and was considerably resilient during global financial crisis in
2008-2009, mainly due to strong recovery in agriculture sector coupled with moderate growth
in industry and service sector. Its Gross Domestic Product (GDP) at purchasing power parity
(PPP) expanded from USD 120.524 billion in 2001 to 243.293 billion in 2010 (estimation). In
2010 the GDP growth rate is assumed slightly lower compared to the previous fiscal year due
to the adverse effects of global recession and the decline of growth in manufacturing and
wholesale and retail trade sectors.

The growth rate of agriculture sector is estimated an increase of 2 percentage points in

2008-09. Growth rate of industry sector, in particular, manufacturing sector is assumed to
decline slightly. In spite of growth in some sectors, overall growth in services sector
estimated to decline.

Bangladesh inflation rate (consumer price) has rose from 3.10 % in 2003 to a peak of
9.10 % in 2008 global recession stemming from global prices and domestic demand due
shocks originating from two rounds of flood and the destructions caused by the cyclone Sidr.
However the inflationary pressure on Bangladesh economy can still be considered as
reasonable. The somewhat higher level of inflation in Bangladesh is not a bad sign, it is
essentially a reflection of its relatively robust domestic demand condition.

To check this upward trend of inflation and also to keep the prices of essentials within
the reach of the consumers, several steps were taken by the Government which include,
among others, open market sale of the essential commodities, market monitoring, and ban on
hoarding. Side by side, the Government pursued an accommodative monetary policy to keep
the inflation at the tolerable level.

The stock market capitalization of the Dhaka Stock Exchange in Bangladesh crossed
USD 10 billion in November 2007 and the USD 30 billion dollar mark in 2009, and USD 50
billion in August 2010. Bangladesh had one of the best performing stock markets in the world
during the recent global recession, as its economy is not so dependent on international capital
and foreign investment hence relatively low correlations with developed country stock
markets. This has helped to lower to reduce the immediate impact of the crisis due to
relatively low correlations with developed country stock markets.

The number of securities listed with the Dhaka Stock Exchange (DSE) reached 443 as
of June 2009 from 412 as of June 2008. By the end of June 2009, the issued capital of listed
securities and debenture stood at Tk. 457.9 billion, which is 23.1 percent higher than Tk.
372.2 billion registered at the end of June 2008.

The number of securities listed with the Chittagong Stock Exchange (CSE) reached
245 as of June 2009 from 231 as of June 2008. The issued capital of listed securities and
debenture of this stock exchange stood at Tk. 142.5 billion, which is 39.4 percent higher than
Tk. 102.2 billion recorded at the end of June 2008. As of June 2009, market capitalisation of
securities reached Tk. 975.0 billion. General share price index of the CSE reached 10,477.7 at
the end of June 2009, which was 9,050.6 at the end of June, 2008.

The interest rate of Bangladesh was considered to be too high by the International
Monetary Fund (IMF). The World Bank (1995) mentioned that a Bangladeshi bank assuming
40 percent of loans to be non-performing required a spread of 20 percent between lending
rates and the bank’s costs of funds just to break-even. Owing to the existence of a large
number of non-performing firms (201 firms) as well as high default rates, banks in
Bangladesh resort to high interest rates which, again, compounds the default rate. In this way,
banks were caught in the vicious circle of high interest rate and high loan default rate.