Course Title: International Business

Course Code: F-521

Submitted To

Dr. H. M. Mosarof Hossain

Professor

Department of Finance

University of Dhaka

Submitted By

Sl No. Name B.B.A. Roll

1. Md. Shariful Islam 16-023

2. Khaleda Aziz 16-024

3. K.M. Shahriar Pervej 16-057

4. Akhter-E-Tamanna 16-102

5. S.M. Nazrul Islam 16-107

Date of Submission: December 30, 2014

2

Date: December 30, 2014

Dr. H. M. Mosarof Hossain

Professor

Department of Finance

University of Dhaka

Subject: Submission of report on Trade Performance of Bangladesh for Last Five Years.

Dear Sir,

We are pleased to submit the report you have assigned to us. The report paper was to prepare

the term paper on the course named International Business course code: F-521, as a part of

our academic activities.

Working on this report was a great opportunity for us to apply our theoretical expertise,

sharpen our view and ideas.

Finally, we are very thankful to you for giving us an effective topic to prepare our report and

we are waiting eagerly for any kind of question you may have concerning our report.

Sincerely yours

On Behalf of our Group

.

Khaleda Aziz

Letter of Transmittal

3

This is high time we conveyed our deepest gratitude and sincere submission to the Almighty

ALLAH for giving us the opportunity to accomplish such an enjoyable task of preparing this

report in time.

We express our thanks to our course teacher Dr. H. M. Mosarof Hossain for assigning us a

report dealing with trade performance of Bangladesh for last five years. In this regard, we

would also like to thank ourselves for our good teamwork and successful team spirit. Without

co-operation and the support from each other, it would not be possible to prepare a

resourceful report.

The presentation of this formal study paper is of a great expectation in our M.B.A. program

and we are quite happy to submit it duly applying that we think should have to be included.

Theoretical knowledge should be valued when it is successfully applied in practical decision-

making scenario. In this respect we found this report a great opportunity to deal with some

progressive methods.

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4

Since in the independence, Bangladesh has faced so many barriers like hunger & poverty,

malnutrition, illiteracy, low life expectancy, low standard living, political instability and

natural calamities. After passing four decades, Bangladesh has improved its economic

condition by involving foreign trade.

Bangladesh's economy has grown roughly 6% per year since 1996 despite political

instability, poor infrastructure, corruption, insufficient power supplies, slow implementation

of economic reforms, and the 2008-09 global financial crisis and recession. Although more

than half of GDP is generated through the service sector, almost half of Bangladeshis are

employed in the agriculture sector with rice as the single-most-important product. Garment

exports, the backbone of Bangladeshs industrial sector and 80% of total exports, surpassed

$21 billion last year, 18% of GDP. The sector has remained resilient in recent years amidst a

series of factory accidents that have killed over 1,000 workers and crippling strikes that shut

down virtually all economic activity. Steady garment export growth combined with

remittances from overseas Bangladeshis, which totaled almost $15 billion and 13% of GDP

IN 2013, are the largest contributors to Bangladeshs current account surplus and record

foreign exchange holdings

In this report to measure the real TRADE PERFORMANCE OF BANGLADESH, we have

to focus several issues. Firstly discuss about export import policy, composition & barriers.

Secondly we have tried to focus the export & import performance, & future prospects.

Thirdly we have tried to see the trend of export & import over last five years & its impact on

our economy as well as we have also tried to see the present condition of balance of payment.

Finally we have used the multiple regression line to see how export & import impacts on

GDP & exchange rate.

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5

1. Introduction ........................................................................................................................................ 8

2. Economic Overview ............................................................................................................................ 9

3. Export Performance of Bangladesh ................................................................................................ 11

Export Value (Product and Country wise) ........................................................................................ 14

The Export sectors ............................................................................................................................ 16

Agriculture .................................................................................................................................... 16

Industry ......................................................................................................................................... 17

Manufacturing Industries .............................................................................................................. 17

Services Sector .............................................................................................................................. 18

Mode of Financing ........................................................................................................................ 18

Commodity wise export receipts (Quarterly data): ........................................................................... 19

Export of Export Processing Zones (EPZ): ....................................................................................... 22

Export price index and its break-up before 2009 .............................................................................. 23

4. Import Performance of Bangladesh ................................................................................................ 25

Total import in Bangladeshi taka is shown in figure below. ............................................................. 25

Imports of goods and services (annual % growth) in Bangladesh ................................................ 27

Mode of financing ............................................................................................................................. 29

Import price index and its break-ups before 2009 ............................................................................ 34

5. Balance of Trade of Bangladesh ..................................................................................................... 36

Country Wise Trade Deficit of Bangladesh ...................................................................................... 37

Trade Deficit as percent of GDP ....................................................................................................... 38

Foreign Exchange Movement with Respect to Trade Deficit: .......................................................... 39

6. Trade Policy of Bangladesh ............................................................................................................. 40

Salient Features of the Current Trade Policy and Rationale for a New Policy ................................. 40

BRIEF REVIEW OF CURRENT TRADE-RELATED POLICIES ................................................. 42

Trade-related Policies of Bangladesh during the 2000s: Rules/regulations, Instruments and

Institutions..................................................................................................................................... 42

Rules and Regulations under Different Policies ........................................................................... 43

Instruments: Tariffs, Para-tariffs, Exchange Rates and Taxes ...................................................... 43

Reforms in the Tariff Structure ......................................................................................................... 46

FRAMEWORK FOR FUTURE TRADE POLICY .......................................................................... 48

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6

Proposed Comprehensive Trade Policy: Objectives and Pillars ................................................... 48

Pillars of the Proposed Comprehensive Trade Policy ................................................................... 49

Export Policy 2012-2015 .................................................................................................................. 52

Objectives ..................................................................................................................................... 52

Implementation Strategy ............................................................................................................... 52

IMPORT POLICY ORDER 2012-2015 ........................................................................................... 53

Regulation of Import: .................................................................................................................... 53

Terms of Trade .................................................................................................................................. 54

Trends in Terms of Trade in Bangladesh ...................................................................................... 54

Terms of Trade and Trade Performance ....................................................................................... 55

Trade Barriers ................................................................................................................................... 57

Import controls .............................................................................................................................. 57

Import Duties (Tariffs) .................................................................................................................. 57

Import Duties (Quotas) ................................................................................................................. 57

Tariffs and Quantitative Restrictions ............................................................................................ 58

Anti-Dumping and Countervailing ............................................................................................... 58

Additional taxes ............................................................................................................................ 58

Intellectual Property ...................................................................................................................... 58

Exchange controls ......................................................................................................................... 58

Trade Barriers ............................................................................................................................... 59

Export Controls ............................................................................................................................. 59

General import regulations and requirements ............................................................................... 60

Prohibited or highly restricted imports ......................................................................................... 60

Import customs tariff ..................................................................................................................... 60

General import license/permit requirements ................................................................................. 61

Export-related Problems and Solution .............................................................................................. 61

7. MULTIPLEREGRESSION LINE OUTPUT ................................................................................ 64

MODEL 1: MULTIPLE REGRESSION EQUATION ................................................................ 64

Considering Total Export as Independent variable for Model: 1 ...................................................... 65

Considering Total Import as Independent variable for Model: 1 ...................................................... 65

MULTIPLE REGRESSION LINE OUTPUT: MODEL 2 ............................................................... 65

MODEL 2: MULTIPLE REGRESSION EQUATION ................................................................ 65

Considering Total Import as Independent variable for Model: 2 ...................................................... 66

Considering Total Export as Independent variable for Model: 2 ...................................................... 67

8. Conclusion ........................................................................................................................................ 68

9. References ........................................................................................................................................ 69

7

10. Appendix ......................................................................................................................................... 70

FROIGEN TRADE ....................................................................................................................... 73

REGRESSION ON GDP .............................................................................................................. 74

REGRESSION ON EXCHANGE RATE ..................................................................................... 74

8

Origin

This report is written for Course no.F-521(International Business) which is the part of 1st

semester of M.B.A. program of Department of Finance. From this report we have learnt more

about trade performance of Bangladesh for last five years.

Objectives

The primary objective of the report is to identify trade performance of Bangladesh for last

five years.. The specific objectives of our report are:

To know about export performance and policies of Bangladesh

To know about import performance and policies of Bangladesh

To know trade barriers of Bangladesh

To know about the situation of balance of payments

Methodology

We collect all these information from various websites. So, we considered this information as

secondary source of information. Before using the information, we have examined the

following aspects:

Limitations

Though we tried our level best to make the report more effective, we faced some barriers

regarding its making.

Lack of use different analytical tools.

Limitation of Knowledge

Lack of Experience

In many cases, up to date information is not published.

11 .. II nn tt rr oo dd uu cc tt ii oo nn

9

The performance of Bangladesh economy in fiscal 2012-13 was mixed. The 6.03 percent

GDP growth realized in FY13 was lower than the 6.32 percent growth achieved in FY12 and

it also fell short of the 7.2 percent annual target. Nevertheless, the performance of the

economy during the fiscal was pretty satisfactory. But for some adverse international factors,

and more so the inadequate supplies of power and gas, poor physical infrastructure, high cost

of bank credit, and political unrest, the actual GDP growth could be much higher.

On the positive side, there was a significant improvement in several social sector indicators

and reduction of poverty. The power situation improved, though the supply of power was

inadequate to meet the growing demand. FDI inflow increased though the absolute volume

of FDI in the country was still very low. The current account balance improved and reverted

to a surplus from the previous years deficit, and the surplus in the overall balance of

payments increased ten-fold during the fiscal. The inflation rate dropped to single digit and

stabilized close to the target. On the negative side, governments revenue collection remained

below target because of underperformance of customs and supplementary duties. Saving and

investment as proportion of GDP were too low to enable a faster rate of GDP growth. Some

glaring irregularities that came to light in the banking sector, viz., loan scams, debt default,

and capital shortfalls have endangered the stability of the financial sector. High costs of bank

credit discouraged private investment. Development imports fell drastically because of the

uncertain business environment created by weak physical infrastructure and political unrest.

The robust remittance growth in the first half of the fiscal waned in the second half due to a

sharp fall of the US dollar and a drop in manpower exports in some Middle-Eastern countries,

as well as the spate of political unrest, hartals and shutdowns that might have discouraged the

expatriates to send remittances.

In order to accelerate economic growth, strong policy action will be required on a number of

fronts. Governments major tasks will be to develop the physical infrastructure, solve the

acute power and energy crisis, widen the tax base and raise more revenue from non-trade

sources, enhance public savings by cutting fiscal deficit and encourage private savings by

bringing improvements in financial intermediation, and keep inflation under check by

adopting prudent fiscal policy measures to complement monetary policy actions. The central

bank will need to ease its monetary policy stance to encourage private sector credit growth

and at the same time take strong action to restore discipline in the banking sector. The most

important challenge, however, is to shun political violence and solve the present political

uncertainty, which is destabilizing the economy. Timely action on all fronts will allow

Bangladesh to reap full gains from a global economic recovery.

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10

PRESENT SCENARIO OF BANGLADESH FROM DIFFERENT SURVEYS OR REPORTS

SURVEY/REPORT POSITION ACROSS THE

COUNTRIES

AMONG THE SARRACS

COUNTRIES

GLOBAL FINANCE MAGAZINE

[GDP-PPP]

HIGHEST QATAR MALDIVES[92]

BANGLADESH 34 6

LOWEST DR CONGO[184] AFGHANISTAN[175]

WORLD DOING BUSINESS

HIGHEST SINGAPORE SRILANKA[99]

BANGLADESH 173 7

LOWEST ERITREA[189] AFGHANISTAN[183]

HUMAN DEVELOPMENT

INDEX - UNDP

HIGHEST NORWAY SRILANKA

BANGLADESH 142 5

LOWEST NIGER AFGHANISTAN[175]

WORLD ECONOMIC FORUM

[WORLD BUSINESS

SUSTAINABILITY]

HIGHEST SINGAPORE SRILANKA[84]

BANGLADESH 115 5

LOWEST CHAD NEPAL

Source: CIA World Factbook

INDICATORS PERCENTAGE

GDP - real growth rate 6.03% (2013 est.) Per capita national income $ 1190 GDP - per capita (PPP) $2,100 (2013 est.) Population below poverty line 31.5% (2010 est.) Unemployment rate 5% (2013 est.) Inflation rate (consumer prices) 7.6% (2013 est.) Commercial bank prime lending rate 13% (31 December 2013 est.) Industrial production growth rate 9% (2013 est.) Source: CIA World Factbook

11

Bangladeshs export sector has played a key role in the countrys economic development

over the past three decades and continues to play an important role in the economy in terms

of (i) employment, empowerment and social change; (ii) investment; (iii) foreign exchange

earnings; and (iv) multiplier impacts.

The countrys export earnings stood at US $27,027 million in the Financial Year (FY) 2012-

13, showing an increase of 11.22 percent over FY 2011-12 (table below). The details export

information of in 2013-14 is not available and thats why we have discussed the total export

performance with the information available till 2013. Although export receipts fell 3.47

percent short of the annual target of US$ 28,000 million, the overall export performance of

the country during FY 2013 can on the whole be considered satisfactory, given the adverse

impact of the domestic political turbulence, the financial meltdown in major export

destinations amid economic crises in EU and US, and above all, the series of tragic incidents

that hit the countrys RMG sector. The exporters are worried that their exports might be badly

affected if the ongoing political impasse is prolonged, especially in this election year.

Exports in Bangladesh decreased to 191.43 Bangladesh Taka Billion in September of 2014

from 208.10 Bangladesh Taka Billion in August of 2014. Exports in Bangladesh averaged

29.98 Bangladesh Taka Billion from 1972 until 2014, reaching an all-time high of 208.10

Bangladesh Taka Billion in August of 2014 and a record low of 0.05 Bangladesh Taka

Billion in February of 1972.

Figure: Total Export of 2009-2013 and 2014P*

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12

Year Export (Billion US $ ) 2001-02 5.99 2002-03 6.55 2003-04 7.60 2004-05 8.65 2005-06 10.53 2006-07 12.18 2007-08 14.11 2008-09 15.57 2009-10 16.20 2010-11 22.92 2011-12 24.30 2012-13 27.03 2013-14 30.18

Source: Foreign Exchange Policy Department, Bangladesh Bank, CCI&E and EPB

Of the major products, Bangladesh exported knitwear worth US$10,476 million and woven

products worth US$11,040 million in FY 2013, a 10.43 percent and 14.96 percent year-on-

year increase, respectively. The export of knit products failed to meet the target by 1.27

percent while that of woven products surpassed the target by 1.03 percent during the period.

Diversification of products and markets, especially in Japan, China, Russia, Latin America

and Africa, played the major role behind the growth of exports during the fiscal.

Among other products, export earnings from jute goods during the fiscal exceeded the

annual target by 2.5 percent and also surpassed the previous years record by 13.9 percent.

Exports of agricultural products, pharmaceuticals, leather and leather products, handicrafts,

footwear, furniture, copper wire, computer services, and optical, photographic, medical

instruments etc. increased significantly.

Table: Bangladesh Export Performance (in Million US $)

Products Target for FY-

2013

Exports in FY-

2013

Primary Commodities:

1. Frozen Food

a. Frozen Fish

b. Shrimps

2. Agricultural Products

1145.68

700.00

133.82

545.23

445.68

1079.58

543.84

57.99

454.93

535.74

13

Manufactured Products:

1. Petroleum bi-products

2. Chemical Products

a. Pharmaceuticals

3. Plastic Products

4. Leather

5. Leather Products

6. Cotton and Cotton Prods.

7. Jute and Jute Goods:

a. Raw Jute

b. Jute Goods

8. Specialized Textiles:

a. Terry Towel

9. Knitwear

10. Woven Garments

11. Home Textile

12. Footwear

13. Engineering Products

14. Computer Services

15. All Others

26854.32

334.02

133.77

60.00

119.95

400.00

135.45

130.00

1082.56

301.98

726.01

149.29

102.73

10610.89

10927.37

1150.00

410.05

500.00

85.69

685.28

25947.78

313.95

93.01

59.82

84.51

399.73

161.62

124.96

1030.61

229.92

744.16

124.52

81.96

10475.88

11039.85

791.52

419.32

367.47

101.63

419.20

Total 28000.00 27027.36

Source: Bangladesh Export Promotion Bureau.

On the other hand, the export of frozen foods recorded a negative growth of 9.12 percent

during FY 2013 compared to the previous fiscal, and also fell 22.31 percent short of the

target. In fact, the frozen fish export was severely affected by the global recession that hit the

major export markets in the EU and USA. Likewise, raw jute exports during FY 2013 were

13.65 percent lower than in the previous fiscal, and also fell 23.86 percent short of the target.

Exports of home textile also registered a negative growth of 12.64 percent in FY 2013 and

also fell 31.17 percent short of the target.

Bangladesh Export Processing Zones Authority (BEPZA) achieved good growth in exports

during FY13 despite political unrest and the global meltdown. According to the BEPZA

statistics, its exports increased by 15.44 percent in FY 2013, compared to 13.88 percent in FY

2012. The companies inside the EPZs exported goods worth US$4.86 billion in FY 2013,

compared to US$4.21 billion in FY 2012. The contribution of EPZs to the total national

export is increasing every year. Export earnings from EPZs accounted for about 18 percent of

total export in FY 2013, as against 17.31 percent in the previous fiscal. Readymade garments

and garment accessories, towels, footwear and leather goods, sweater, bags, electronic goods,

lance, golf shaft, weaving, yarn, paper converting, under-garments, embroidery, power

generating sets, bicycles, tent, cap, padding and auto spare parts are the leading foreign

exchange earner from the countrys 8 EPZs.

14

Export Value (Product and Country wise)

Table: Value (in Million US $) and Share (%) in

Total Exports, 2011-12 and 2012-13

Commodity and

Country

2011-12 2012-13

Commodity Export

Value

Share Export

Value

Share

Apparel 19089.73 78.55 21515.73 79.61

Jute and jute goods 973.61 4.01 1030.61 3.81

Frozen Fish 598.42 2.46 543.84 2.01

Leather and Leather

Goods

429.52 4.65 561.35 2.08

Home Textile 906.07 3.73 791.52 2.93

Other 2304.55 9.48 2584.31 9.56

Total 24301.90 100.00 27027.36 100.00

Country wise

USA 5100.91 21.00 5419.60 20.05

EU Countries 12740.33 52.46 14141.80 52.32

Canada 993.67 4.09 1090.01 4.03

Japan 600.52 2.47 750.26 2.78

Turkey 551.88 2.27 637.81 2.36

India 498.42 2.05 563.96 2.08

Other 3816.17 15.66 4423.92 16.37

Total 24301.90 100.00 27027.36 100.00

Source: Export Promotion Bureau.

The high commodity and country concentration makes exports vulnerable to often adverse

international circumstances. Diversification of export products may enhance opportunities to

15

increase export earnings from traditional as well as new export markets. Bangladesh now

enjoys duty-free access to the EU market under its EBA (everything but arms) initiative as

well as its recently relaxed Rules of Origin. Product diversification will further widen

opportunities for availing duty-free access for many more products to the EU markets.

Product diversification will also open export opportunities in the US market. Prior to the

suspension of the GSP benefits in June, 2013 the US government used to allow duty-free

import of some 4800 products from Bangladesh under its GSP scheme. Although the value of

such GSP-eligible exports was no more than 0.5 percent of Bangladeshs total exports to the

US, product diversification beyond ready-made garments is very likely to enhance

opportunities for Bangladesh to export more products to the US under the US-GSP facility,

once the suspension will be withdrawn, for which negotiations are currently underway with

the US government. Similarly, country diversification will enable Bangladesh enter the

markets of a growing number of fast growing emerging economies with rising incomes and

increased import demand and thus lessen the dependence on the traditional trading partners in

the West where incomes are growing slowly and import demand remains stagnant.

Alongside intensifying efforts to diversify exports as means of increasing Bangladeshs

export earnings, it will be necessary to improve competitiveness of the countrys export

products. For raising export competitiveness, it will be necessary to invest in infrastructure,

technology and skills development, broaden the product range, and improve product quality

and safety standards.

Figure: Export value trend

Table below shows in greater detail the growth rates of different sectors and sub-sectors of

the economy in the three most recent years. The BBS attributes the achievement of a lower-

than-targeted GDP growth in FY 2013 to the deceleration in agriculture and services sector

growth. The industrial sector, too, which comprises of manufacturing, construction, power

and gas, water supply, and mining and quarrying, experienced only a mildly higher growth in

FY 2013, compared to the preceding fiscal (FY 2012). But for the slowing demand for the

05000

100001500020000

25000

Export Value Trend 2011-12

Export Value Trend 2012-13

16

countrys exports in some major markets and some national constraints, mainly the acute

shortage of power and gas, the sector might have grown faster.

Table: Growth Rates of Different Sectors/Sub-sectors of GDP (in percent)

Sector 2010-11 2011-12 2012-13

Agriculture: 5.13

3.11 2.17

Agriculture and Forestry 5.09 2.46 1.18 Fishing 5.25 5.39 5.52

Industry: 8.20 8.90 8.99 Mining and Quarrying 4.80 7.79 11.12

Manufacturing: 9.45 9.37 9.34 Large and medium scale 10.94 10.52 10.32

Small scale 5.84 6.45 6.76

Electricity, Gas and Water: 6.63 12.03 8.57

Construction: 6.51 7.57 8.05

Services: 6.22 5.96 5.73 Wholesale and Retail Trade 6.31 5.63 4.69

Hotel and Restaurants 7.55 7.58 7.63 Transport, Storage &

Communication

5.69 6.62 6.70 Financial Intermediation 9.64 11.04 8.99 Real-estate, Renting etc. 3.96 4.05 4.07

Public Administration & Defense 9.67 5.81 5.07 Education 9.36 7.21 9.66

Health and Social Works 8.35 7.91 7.51 Community, Social & Personal

Services

4.70 4.76 4.86

GDP at constant (1995-96) market

prices

6.71 6.23 6.03

Source: Bangladesh Bureau of Statistics.

The Export sectors

Agriculture

The agriculture sector employs about 47.5 percent of the country's total labor force and

accounts for about 19 percent of its GDP. The sector provides the much-needed food and

nutritional security and, since agriculture is primarily a rural activity and 83 percent of the

countrys poor live in rural areas, the sector plays a big role in income generation and poverty

reduction. The sector also contributes significantly to the country's export earnings.

Agricultural exports fetched US$535.74 million in FY13, registering a 33 percent growth

over the previous fiscal year. According to preliminary BBS data, the sector recorded a low

growth of 2.17 percent in FY13, compared to 3.11 percent in FY12. The BBS attributes the

decline to the high base in the previous few years. According to the BBS, crop production

growth rate was a very low 0.15 percent in FY13. Provisional estimate by the BBS shows that

the production of Boro, which accounts for 55 percent of annual rice production, increased by

a modest 0.11 percent from the previous (2011-12) season.

Agriculture sector includes:

17

Food Situation

The essential elements of food security are the availability of food, access to food, and

utilization of food. Availability of food in turn is a function of domestic production, imports,

food aid, and the stock of food. Recognizing that rice constitutes an important part of food

security, government took adequate measures for further increase in rice production, for

importing rice and wheat to meet domestic shortfalls, building food grain stock, and efficient

handling of the Public Food Distribution System (PFDS) to distribute food grains through

Food for Works (FFW), Test Relief (TR), Open Market Sale (OMS), Fair Price Card (FPC),

Vulnerable Group Development (VGD), and Essential Priorities (EP) channels to poor

households.

Because of improved domestic supplies, total food grains import in FY 2013 was lower at

18.87 in lakh metric tons (lmt), compared to 22.90 lmt in the past fiscal. In the total food

grains import, 0.3 lmt was rice and 18.6 lmt was wheat.

Industry

The broad industry sector grew by 8.99 percent in FY 2013, which was just 0.09 percent

higher than the previous years growth of 8.90 percent. The absence of dynamism in the

industrial sector growth may be due to an unfavorable business environment caused by the

political unrest and also by the central banks 'contractionary' monetary policy pursued during

the last one and a half

years. All industrial

imports declined sharply,

and also the settlement of

letters of credit (LCs) for

industrial raw materials

and capital machinery

registered a negative

growth in FY 2013

compared to the previous

fiscal. Power and gas

supplies to industrial

establishments no doubt

improved a bit but these still remained inadequate to meet the sectors needs. However,

despite this unfavorable situation, the share of the broad industrial sector in the country's

GDP increased to 31.99 percent in FY13 from 31.13 percent in FY 2012. There is a general

feeling that if there were no energy and infrastructural constraints, and no political unrest,

hartals, shutdowns and the associated destructions since December, 2012, the sector could

have performed better and occupied a higher share in GDP.

Manufacturing Industries

Within the industry sector, the performance of different sub-sectors was mixed. The

manufacturing industries, in particular, depicted a lower growth of 9.34 percent in FY 2013,

compared to 9.37 percent in FY 2012 but its share in GDP rose to 19.54 percent from 18.96

13%

53%

34%

Growth Rates of Different Sectors of GDP (%) 2012-13

Agriculture: Industry: Services:

18

percent in FY 2012. Within manufacturing, the growth of large and medium industries

decelerated from 10.52 percent in FY 2012 to 10.32 percent in FY13, but small industries

recorded a slightly higher growth of 6.76 percent as against 6.45 percent in FY 2012. Low

disbursement of industrial term loans, a drastic decline in private sector credit growth, erratic

supply of power and gas, and political chaos were the major constraints to the growth of the

manufacturing sub-sector.

Among other industry sub-sectors, the performance of mining and quarrying was relatively

better than in the previous fiscal.

Services Sector

The services sector recorded a slightly lower growth of 5.73 percent in FY 2013 compared to

5.96 percent in the previous fiscal. The lower growth was mainly due to lower growth in

agriculture and large-scale industry, and slower expansion in trade activities. The broad

services sector has nine sub-sectors, data on which are yet insufficient to enable an

understanding of how they fared in the year under review. Nevertheless, there are indications

that activities of most sub-sectors, community & social services, financial intermediation,

transport, hotels & restaurants, education, and wholesale & retail trade suffered due to

political unrest. A much faster growth of overall services sector is possible in the present

fiscal (FY 2014) if the heightened political tensions can be stopped and production in real

sectors increases at a greater pace.

According to a recent (2012) survey on selected business services by the BBS, the

contribution of four service sub-sectors decorators, recruiting agencies, security, and

cleaning services is growing remarkably in the economy but these activities are not

considered while counting the countrys gross domestic product (GDP). The BBS survey

notes that if the real value of security, cleaning and sweeping, decoration and recruiting

agency sectors were added to the GDP, the size of the country's GDP would have gone up by

0.48 percent in FY 2013. There are reportedly a total of 18,931 agencies in the country under

these sectors.

Mode of Financing A comparative position of export receipts by mode of financing for the quarters April-June,

2014, January-March, 2014 and April-June, 2013 is shown below in Table-(A). Table-(B)

19

Table-(A): Mode of financing in taka

(Taka in Millions)

Mode of financing April-

June,

2014

January-

March,

2014

April-

June,

2013

Changes

(1)-(2)

Changes

(1)-(3)

Amount Amount Amount

1 2 3 4 5

Cash 461021 456308 424798 4713.00 36223.00

Exports of EPZ 96873 86735 83864 10138.00 13009.00

Total 557894 543043 508662 14851.00 49232.00

(Changes in %) (2.7) (9.7)

Table-(B): Mode of financing in US Dollar

(US dollar in Millions)

Mode of financing April-

June,

2014

January-

March,

2014

April-

June,

2013

Changes

(1)-(2)

Changes

(1)-(3)

Amount Amount Amount

1 2 3 4 5

Cash 5938 5870 5455 68.00 483.00

Exports of EPZ 1248 1116 1077 132.00 171.00

Total 7186 6986 6532 200.00 654.00

(Changes in %) (2.9) (10)

Source : Statistics Department, Bangladesh Bank

Commodity wise export receipts (Quarterly data): In classification of Export Receipts by commodities it is revealed that Exports in the quarter

April-June, 2014 increases in Readymade Garments by Tk.5676 million (of which Knitwear

increases by Tk.12410 million and Woven garments decreases by Tk.6734 million), Jute

Manufactures by Tk.1009 million, Bicycle by 862 million, Raw jute by Tk.48 million, Terry

Towel by Tk.48 million, Tea by Tk.35 million, Fertilizer by 4 million. On the other hand

export receipts decreases in Home Textile by Tk.7981 million, Leather & Leather

manufactures by Tk.2576 million (of which Leather decreases by Tk.1338 million and

Leather manufactures decreases by Tk.1238 million),Fish, shrimps and prawns by Tk.1249

million ,Petroleum & petroleum products by Tk.77 million, Handicrafts by Tk.15 million and

Pharmaceutical products by Tk.10 million over the previous quarter.

Table-II(Taka in million) & Table-II.A(In million US$) below shows a comparative position

of export receipts by major commodities during the quarters April-June,2014,January-

March,2014 and April-June,2013.

20

Table (A): Commodity wise export receipts in taka

(Taka in Millions)

Commodity

group

April-June,

2014

January-

March, 2014

April-June,

2013

Changes

(1)-(2)

Changes

(1)-(3)

Amount %

of

A

Amount %

of

A

Amount %

of

A

1 2 3

Readymade

garments

381652 83 375976 82 342363 81 5676 39289

a) Knitwear 217699 47 205289 45 185395 44 12410 32304

b) Woven

garments

163953 36 170687 37 156968 37 -6734 6985

Jute

manufactures

13716 3 12707 3 16080 4 1009 -2364

Fish, shrimps

and prawns

7390 2 8639 2 9313 2 -1249 -1923

a) Fish 1759 0 1971 0 1617 0 -212 142

b) Shrimps and

prawns

5631 1 6668 1 7696 2 -1037 -2065

Leather and

leather

manufactures

16955 4 19531 4 16333 4 -2576 622

a) Leather 9214 2 10552 2 9563 2 -1338 -349

b) Leather

manufactures

7741 2 8979 2 6770 2 -1238 971

Home Textile 8727 2 10316 2 7645 2 -1589 1082

Raw jute 2335 1 2287 0 4498 1 48 -2163

Petroleum and

petroleum

products

1304 0 1381 0 3924 1 -77 -2620

Terry Towel 280 0 232 0 187 0 48 93

Bicycle 1409 0 547 0 1307 0 862 102

Pharmaceutical

products

1226 0 1236 0 1246 0 -10 -20

Handicraft 137 0 152 0 114 0 -15 23

Tea 66 0 31 0 0 0 35 66

Fertilizer 5 0 1 0 5 0 4 0

Others 25819 6 23272 5 21783 5 2547 4036

A. Sub-total 461021 100 456308 100 424798 100 4713 36223

B. Exports of 96873 0 86735 0 83864 0 10138 13009

21

EPZ

Grand

total:(A+B)

557894 0 543043 0 508662 0 14851 49232

Table (B): Commodity wise export receipts in US Dollar

(In million US$)

Commodity

group

April-June,

2014

January-

March, 2014

April-June,

2013

Changes

(1)-(2)

Changes

(1)-(3)

Amount %

of

A

Amount %

of

A

Amount %

of

A

1 2 3

Readymade

garments

4916 83 4837 82 4397 81 79 519

a) Knitwear 2804 47 2641 45 2381 44 163 423

b) Woven

garments

2112 36 2196 37 2016 37 -84 96

Jute

manufactures

177 3 163 3 206 4 14 -29

Fish, shrimps

and prawns

96 2 111 2 120 2 -15 -24

a) Fish 23 0 25 0 21 0 -2 2

b) Shrimps and

prawns

73 1 86 1 99 2 -13 -26

Leather and

leather

manufactures

219 4 251 4 210 4 -32 9

a) Leather 119 2 136 2 123 2 -17 -4

b) Leather

manufactures

100 2 115 2 87 2 -15 13

Home Textile 112 2 133 2 98 2 -21 14

Raw jute 30 1 29 0 58 1 1 -28

Petroleum and

petroleum

products

17 0 18 0 50 1 -1 -33

Terry Towel 4 0 3 0 2 0 1 2

Bicycle 18 0 7 0 17 0 11 1

Pharmaceutical

products

16 0 16 0 16 0 0 0

Handicraft 2 0 2 0 1 0 0 1

Tea 1 0 0 0 0 0 1 1

22

Fertilizer 0 0 0 0 0 0 0 0

Others 330 6 300 5 280 5 30 50

A. Sub-total 5938 100 5870 100 5455 100 68 483

B. Exports of

EPZ

1248 0 1116 0 1077 0 132 171

Grand

total:(A+B)

7186 0 6986 0 6532 0 200 654

Source : Statistics Department, Bangladesh Bank

Export of Export Processing Zones (EPZ): Export of Export Processing Zones (EPZ) In order to achieve rapid economic growth of the

country by increasing the inflow of foreign investment, particularly through industrialization,

special steps have been taken since 1980 by setting up Export processing Zones (EPZ) in the

country. Initially three special zones were set up in Chittagong (Halishahar), Dhaka (Savar)

and Khulna (Mongla) where favorable facilities/assistance are provided to the potential

investors both Bangladeshi and foreigners. The Chittagong Export Processing Zone (CEPZ)

started from 1983-84 while the Dhaka Export Processing Zone (DEPZ) started from 1993-94.

Later, EPZs have also been established in Mongla of Khulna, Ishwardi of Pabna , Comilla,

Uttara of Syedpur in the district of Nilphamary, Adamjee of Narayanganj and Karnaphuli of

Chittagong which are classified into three types i.e. A-type (100% foreign investment), B-

type (Joint venture between Bangladeshi and foreigners) and C-type (100% Bangladeshi

enterprises).

At the end of June, 2014 type-wise number of functioning enterprise is shown in Table.

EPZ Zones Type of Enterprise Total no. of

Enterprises

operation

A B C

Chittagong 88 24 58 170

Dhaka 67 14 21 102

Mongla 8 4 5 17

Ishwardi 6 1 8 15

Comilla 15 8 9 32

Uttara (Nilphamary) 6 1 5 12

Adamjee 21 8 10 39

Karnaphuli 28 2 11 41

Total 239 62 127 428

Source : Bangladesh Export Processing Zone Authority (BEPZA)

23

Below table shows the export receipts by the EPZ enterprises since 1988-89. The data are

collected from Bangladesh Export Processing Zone Authority (BEPZA).

Year Amount in Crore Taka Amount in Million US $

2008-09 13074.3 1900

2009-10 14879.1 2150

2010-11 20001.9 2801

2011-12 27085.5 3426

2012-13 30548.9 3829

2013-14 34819.8 4480

Source : Bangladesh Export Processing Zone Authority (BEPZA)

Export price index and its break-up before 2009 The export price index1 was influenced by prices of fish, jute goods, leather and RMG

among which RMG price was determinant (figure-3). From figure-3, it is observed that on an

average, the prices of all major exportable commodities (except leather) doubled during

1990-2008. The price of leather increased by 10% only, whereas prices of fish, RMG and jute

goods increased by 157%, 111% and 80%, respectively. However, the price of RMG

increased smoothly without any large fluctuation, while the prices of other exportable

commodities increased with sharp fluctuations during several years, which induced a

slowdown in the rise in the export price index.

Figure: Export price index and price of major exportable commodities

(Base 2002-03=100)

It is clearer from figure that whenever the increase in the prices of exportable commodities

other than RMG does not cope with the increase in the price of RMG, the increase in export

price index becomes slower.

24

Figure: Export price index and price of RMG and Nom-RMG products

(Base 2002-03=100)

For example, in FY92 and FY05 the price of readymade garments increased but the prices of

other exportable commodities, especially jute goods declined, which contributed to a

moderate increase in export price index. In the following year, there was a sharp increase in

export price index as the prices of all major exportable commodities went up. On the other

hand, in FY2000, there was a slight decline in export price index mainly due to a decrease in

the prices of commodities other than RMG (basically jute goods) in spite of the increase in

the prices of RMG. In contrast, quite different influential factors were found when

decomposing the import price index.

25

Imports in Bangladesh decreased to 274.26 Bangladesh Taka Billion in September of 2014

from 281.24 Bangladesh Taka Billion in August of 2014. Imports in Bangladesh averaged

53.31 Bangladesh Taka Billion from 1976 until 2014, reaching an all time high of 284.13

Bangladesh Taka Billion in March of 2014 and a record low of 0.57 Bangladesh Taka Billion

in November of 1976.

Year Import (Billion US $ )

2008-09 22.51

2009-10 23.74

2010-11 33.66

2011-12 35.52

2012-13 33.97

2013-14 36.99

Source: Foreign Exchange Policy Department, Bangladesh Bank, CCI&E and EPB

Total import in Bangladeshi taka is shown in figure below.

Figure: Total Import of 2009-2013 and 2014P*

After a robust 41.75 percent increase in 2010-11, the growth of import payments decelerated

to 5.52 percent in 2011-12, and for the first time since 2001-02 import growth turned

negative in 2012-13. Because of lower demand for most of the importable items, import

44 .. IImmppoorrtt PPeerrffoorrmmaannccee ooff BBaannggllaaddeesshh

26

payments in FY13 fell by 4.32 percent to US$33,981 million from US$35,516 million in the

previous fiscal.

The negative import growth can be attributed to lesser imports of food grains, capital

machinery and luxury items as well as lower prices of petroleum imports. While food grains

import came down because of improved domestic production, the import of capital

machinery fell significantly in FY13 because of the uncertain business environment created

by political unrest and worsened law and order conditions.

Lower imports do, of course, lessen pressures on the balance of payments, but a fall in

development imports (capital machinery, intermediate inputs and raw materials for

industries) cannot be good for the country as it will inevitably hurt economic growth. The

reported declines in these essential imports in the 2012-13 fiscal do not, therefore, augur well

for the countrys industrial and economic growth in the short and the medium term.

Table: Import Payments, Import L/C Settlement and

Import L/Cs opened (in Million US$)

Fiscal

Year

Import Payments

(c&f)

Import L/C

Settlement

Import L/Cs

opened

2009-10 23738.40 (+5.47) 23053.10 (+7.50) 28783.40 (+32.02)

2010-11 33657.50 (+41.75) 31953.15 (+38.61) 38582.35 (+34.04)

2011-12 35516.30 (+5.52) 34814.55 (+8.95) 37035.82 (-4.01)

2012-13P 33980.60 (-4.32) 32356.76 (-7.06) 35984.62 (-2.84)

May

June

2870.40

2927.10 (+1.97)

2699.81

2876.18 (+6.53)

3188.36

2867.85 (-10.05)

Source: Bangladesh Bank, Statistics Department; Foreign Exchange Policy Department.

Note: Figures in parentheses denote percentage change over the previous fiscal year or month, as the case may

be .P = provisional

The settlement of import LCs, too, registered a negative growth of 7.06 percent during FY13

when the opening of fresh import LCs also declined by 2.84 percent. The falling trend in both

opening and settlement of import LCs might continue unless the root causes behind political

violence that almost always resulted in loss of life and property are removed.

However, a slight reversal of the falling trend was noticed in June 2013 when imports

increased by 1.97 percent to US$2,927 million from US$2,870 million in the immediate past

month, i.e., May, 2013. The settlement of import Letters of Credit (LCs), too, witnessed an

increase, rising by 6.53 percent in June, the closing month of FY13, from the immediate past

month of the fiscal. However, the opening of import LCs recorded a much greater decline of

10.05 percent in June, 2013 from the previous month. The decline in fresh LC opening may,

of course, indicate that import payments may not shoot up in the immediate future to put

27

pressure on balance of payments and the exchange rate, but at the same time it indicates that

the confidence of business and industry in the economy, which has been weakened by the

uncertainty generated by the volatile political situation in the country, is yet to be fully

restored.

Imports of goods and services (annual % growth) in Bangladesh

Import of goods and services (annual % growth) in Bangladesh was last measured at 7.47 in

2012, according to the World Bank. Annual growth rate of imports of goods and services

based on constant local currency. Aggregates are based on constant 2000 U.S. dollars.

Imports of goods and services represent the value of all goods and other market services

received from the rest of the world. They include the value of merchandise, freight,

insurance, transport, travel, royalties, license fees, and other services, such as communication,

construction, financial, information, business, personal, and government services. They

exclude compensation of employees and investment income (formerly called factor services)

and transfer payments. This page has the latest values, historical data, forecasts, charts,

statistics, an economic calendar and news for Imports of goods and services (annual %

growth) in Bangladesh.

Figure: Import Growth of 2009-2013 and 2014p*

Source: tradingeconomics, Bangladesh Bank P = provisional*

Bangladesh imports from many countries in different amounts of product. Bangladesh import

most in percentage of total import in million dollars is from China. The percentage of import

of Bangladesh of top 20 countries is given below table.

28

Table: Import payments of Bangladesh with top twenty countries

Taka in crore In million US $

Year 2013-

2014

% of Total 2013-

2014

% of Total

Sl

No

Major Countries

1 China, P.R. 58608.5 20.7 7540.8 20.7

2 India 46908.0 16.6 6035.5 16.6

3 Singapore 17794.5 6.3 2289.5 6.3

4 Malaysia 15868.1 5.6 2041.7 5.6

5 Japan 9977.7 3.5 1283.8 3.5

6 Korea, Republic of 9318.2 3.3 1198.9 3.3

7 Indonesia 8582.0 3.0 1104.2 3.0

8 Brazil 7756.7 2.7 998.0 2.7

9 Taiwan 7144.6 2.5 919.3 2.5

10 Kuwait 7107.7 2.5 914.6 2.5

11 United Sates of America

(U.S.A

6498.7 2.3 836.2 2.3

12 Hong Kong 5900.4 2.1 759.2 2.1

13 Thailand 5762.1 2.0 741.4 2.0

14 Australia 4710.1 1.7 606.0 1.7

15 Canada 4550.6 1.6 585.4 1.6

16 Germany 4530.3 1.6 582.9 1.6

17 Uzbekistan 4530.2 1.6 582.9 1.6

18 Vietnam 4525.1 1.6 582.2 1.6

19 Pakistan 4118.5 1.5 529.9 1.5

20 Argentina 3843.4 1.4 494.5 1.4

21 Other Country 45190.7 15.9 5814.5 15.9

Total 283226.1 100.0 36441.4 100.0

29

Mode of financing The mode of financing of imports of Bangladesh is different. Importers can use any of them

on the basis of the purpose. Financial institutions help in this purpose.

Table: Import payments by mode of financing (Quarterly data)

(Amount in Million)

Import by

mode of

financing

April-June, 2014 January-March, 2014 Changes

Amount Percentage

of total

Amount Percentage

of total

Taka

(1)-(4)

USD

(2)-(5)

Taka USD Taka USD

1 2 3 4 5 6 7 8

Cash 609244 7846.5 75.2 598393 7697.7 74.2 10851

(+1.8)

148.8

(+1.9)

Buyers Credit 115586 1488.7 14.3 110976 1427.7 13.8 4610 61

Loans/Grants 1542 19.9 0.2 74 0.9 0.0 1468 19

Short term

loans (IDB)

20862 268.6 2.6 20919 269.0 2.6 -57 -0.4

Other

unclassified

imports

1557 20.0 0.2 2086 26.9 0.4 -529 -6.9

30

A. Sub-total 748791 9643.7 92.5 732448 9422.2 90.9 16343 221.5

B. Imports of

EPZ

61147 787.5 7.5 73540 946.1 9.1 -12393 -158.6

Total Import:

(A+B) (c&f)

809938 10431.2 100.0 805988 10368.3 100.0 3950

(+0.5)

62.9

(+0.6)

Note: Figures in parentheses indicate percentage of change.

The figures of Buyers Credit have been separated from cash amount with effect from July'2013.

Source: Statistics Department, Bangladesh Bank.

Import payments can be seen in the Commodity-Wise in the table below. If we notice that

that Last years the percentage of import of Cotton,(all types) cotton yarn/thread and cotton

fabrics is the highest in percentage.

Table: Import payments: Major Commodity-Wise Imports

(Taka in crore)

(Million US$)

Major Commodities 2013-2014 2012-2013 Changes

(1)-(4)

Changes

(2)-(5)

Amount % of

Total

(A)

Amount % of

Total

(A)

Taka USD Taka USD

1 2 3 4 5 6 7 8

A. Import under

(Cash+Buyer's

Credit) ( c& f)

283226.1 36441.4 100.0 232204.9 29059.6 100.0 +51021.2 +7381.8

1 Cotton,(all types)

cotton

yarn/thread and

cotton fabrics

42149.0 5423.2 14.9 37807.9 4735.1 16.3 4341.1 688.1

2 Mineral fuel,

mineral oils and

product of their

distillation,

bituminous

substances

30755.1 3957.5 10.9 20505.1 2567.4 8.8 10250.0 1390.1

3 Nuclear

reactors,Boilers,

Machinery and

mechanical

appliances, parts

thereof

23936.8 3079.9 8.5 19999.8 2500.9 8.6 3937.0 579.0

31

4 Iron and steel 14889.4 1915.7 5.3 13187.4 1652.8 5.7 1702.0 262.9

5 Electrical

machinery and

equipment and

parts thereof,

sound recorders

and reproducers,

television image

and sound

recorders and

reproducers and

parts and

accessories of

such articles

14522.3 1868.5 5.1 10470.0 1309.4 4.5 4052.3 559.1

6 Animal or

vegetable fats and

oils and their

cleavage

products,

prepared edible

fats, animal or

vegetable wax

13846.2 1781.5 4.9 11313.9 1418.0 4.9 2532.3 363.5

7 Cereals 12841.6 1652.2 4.5 6353.4 793.7 2.7 6488.2 858.5

8 Plastics and

articles thereof

11808.0 1519.3 4.2 9267.6 1160.9 4.0 2540.4 358.4

9 Ships, boats and

floating structures

8009.4 1030.5 2.8 8069.0 1009.3 3.5 -59.6 21.2

10 Fertilizer 7977.1 1026.2 2.8 9564.6 1188.3 4.1 -1587.5 -162.1

11 Sugar and sugar

confectionery

7206.2 927.1 2.5 5976.7 747.1 2.6 1229.5 180.0

12 Vehicles other

than railway or

tramway, rolling

stock and parts

and accessories

thereof

6894.7 887.2 2.4 4869.1 609.6 2.1 2025.6 277.6

13 Salt, Sulphur,

earth and stone,

plastering

materials, lime

and cement

6686.8 860.3 2.4 5659.3 708.1 2.4 1027.5 152.2

14 Man-made staple

fibres

6167.6 793.6 2.2 5885.2 736.4 2.5 282.4 57.2

32

15 Edible vegetables

and certain roots

and tubers

5404.6 695.3 1.9 4494.4 562.9 1.9 910.2 132.4

16 Oil seeds and

oleaginous fruits;

miscellaneous

grains;seeds and

fruit; industrial or

medicinal

plants;straw and

fodder

4422.0 568.9 1.6 2463.6 308.3 1.1 1958.4 260.6

17 Organic

chemicals

4412.8 567.8 1.6 3558.1 445.3 1.5 854.7 122.5

18 Knitted or

crocheted fabrics

4296.2 552.7 1.5 4274.4 535.2 1.8 21.8 17.5

19 Man-made

filaments; strip

and the like of

man made textile

materials

4222.5 543.3 1.5 3334.3 417.6 1.4 888.2 125.7

20 Tanning or

dyeing extracts

tannins and their

derivatives, dyes,

pigments, and

other colouring

matters, paints

and varnishes,

putty and other

mastics, inks

4185.4 538.5 1.5 3189.6 399.4 1.4 995.8 139.1

21 Residues and

waste from the

food industries

prepared animal

fodder

4103.7 528.0 1.4 3471.0 436.0 1.5 632.7 92.0

22 Paper and paper

board, articles of

paper, pulp of

paper or of paper

board

3351.4 431.2 1.2 3152.9 394.8 1.4 198.5 36.4

23 Misc. chemical

products

2835.6 364.8 1.0 2621.8 328.0 1.1 213.8 36.8

24 Edible fruit and

nuts, peel of

2532.9 325.8 0.9 1238.8 155.1 0.5 1294.1 170.7

33

citrus fruit or

melons

25 Dairy produce,

birds' eggs

natural honey,

edible products of

animal origin, not

elsewhere

specified or

included

2340.5 301.1 0.8 1772.6 222.0 0.8 567.9 79.1

26 Inorganic

chemicals,

organic or

inorganic

compounds of

precious metals

of rare-earth

metals, of

radioactive

elements or of

isotopes

2293.7 295.1 0.8 2150.4 269.2 0.9 143.3 25.9

27 Articles of

apparel and

clothing

accessories,

knitted or

crocheted

2258.8 290.6 0.8 1986.0 248.6 0.9 272.8 42.0

28 Rubber and

articles thereof

2123.9 273.3 0.7 1636.7 204.7 0.7 487.2 68.6

29 Optical,

photographic,

cinematographic,

measuring,

checking,

precision,

medical or

surgical

instruments and

apparatus, parts

and accessories

thereof

1992.3 256.3 0.7 1697.1 212.4 0.7 295.2 43.9

30 Coffee, tea, mate

and spices

1690.6 217.5 0.6 1030.3 129.3 0.4 660.3 88.2

31 Aluminium and

articles thereof

1645.4 211.7 0.6 1417.0 177.3 0.6 228.4 34.4

34

32 Special woven

fabrics, tufted

textile fabrics,

lace, tapestries,

trimmings,

embroidery

1287.4 165.6 0.5 1469.0 183.7 0.6 -181.6 -18.1

33 Articles of iron or

steel

1270.6 163.5 0.4 1748.8 219.1 0.8 -478.2 -55.6

34 Others 18865.6 2427.7 6.6 16569.1 2073.7 7.3 2296.5 354.0

B. Imports

under loans and

grants

199.4 25.7 - 433.0 53.7 - -233.6 -28

C. Imports

under IDB loan

(short term)

9141.5 1176.0 - 18519.2 2315.9 - -9377.7 -1139.9

D. Other

unclassified

imports

884.4 113.8 - 1195.7 149.8 - -311.3 -36

E. Imports of

EPZ

23120.8 2975.0 - 19975.1 2504.6 - +3145.7 +470.4

GRAND

TOTAL :

(A+B+C+D+E

)(c&f)

316572.2 40731.9 - 272327.9 34083.6 - +44244.3 +6648.3

Import price index and its break-ups before 2009 The importable commodities are quite diversified, and as a result the movements in the prices

of different importable commodities played influential roles on the trends in import price

index. Figure represents the movements in import price index and the price indices of major

importable commodities during 1990-2008.

35

Figure: Import Price Index and Price Indices of Major Importable Commodities

(Base: 2002-02=100)

From figure, it is observed that on an average, the prices of all major importable commodities

except cotton textiles almost tripled, some even quadrupled during 1990-2008. The price of

cotton textiles increased by 50% only, whereas the prices of cereals, edible oil, petroleum

products and iron & steel increased by 350%, 256%, 180% and 158% respectively.

During this period the import price index increased except in FY93, having been influenced

by different importable commodities. In FY93, the import price index declined due to the

decrease in the prices of petroleum products, cotton textiles and iron & steel despite the

increase in prices of cereals and edible oil. On the other hand, in FY94, the import price index

increased due to the large increase in prices of cereals and iron & steel, despite the decrease

in the prices of petroleum products, edible oil and cotton textiles. Similarly, in FY2000 and

FY06, the import price index increased due to the increase in prices of edible oil and cotton

textiles despite the decrease in the prices of cereals, petroleum products and iron & steel.

Therefore, unlike the export price index, the trend in import price index was influenced by

the prices of different importable commodities in different ways.

36

-10000

0

10000

20000

30000

40000

50000

60000

Total Export

Total import

Balance of Trade

Balance of Trade of Bangladesh

Foreign trade plays an important role in achieving rapid economic development of a country.

Bangladesh as a developing country, foreign trade can be considered of paramount

importance. However, trade balance of this country has never been in a favorable position.

Each year Bangladesh has to spend a huge amount of foreign currency for importing

consumer goods and materials, which is not a positive sign for our country. Bangladesh also

spends much more for importing industrial raw materials, but it is a positive signal for our

economy as it shows enhanced production of the economy. The countrys requirement of

petroleum products is entirely met by import.

Bangladesh had consecutive deficit balance of trade in the last 6 years and the gap is

increasing every year. Bangladesh imports mostly petroleum product and oil, machinery and

parts, soya bean and palm oil, raw cotton, iron and steel and wheat. The main import partners

of Bangladesh are China (17% of total), India, Indonesia, Singapore and Japan.

The country has been experiencing a negative balance of trade, importing more goods than

export. Trade deficit declined to USD 7010 million in FY 2012-13 from USD 9310 million in

FY 2011-12, after increasing over the years to reach at peak in FY 2011-12. The reason

behind the decline in trade deficit has been a greater fall in import. If the trend remains as

usual, trade deficit might decline to USD 7486.5 million in 2014-15 and to USD 8235.71

million in 2015-16.

Figure: Balance of Trade of Bangladesh from 2009-10 to 2015-16

55 .. BBaallaannccee ooff TTrraaddee ooff BBaannggllaaddeesshh

37

Country Wise Trade Deficit of Bangladesh

Bangladesh faces trade deficit with most of its trading partners. It faces its highest trading gap

with china. The following table shows the trade deficit of our country with several important

trading partners.

Table: Trade deficit of Bangladesh

The table shows that the largest trade deficit of Bangladesh is with China (Tk.46125 million),

followed by India (Tk.22843 million). At the same time, Bangladesh has a huge trade surplus

with Germany (Tk 21266 million) and the USA (Tk 22912 million). These numbers illustrate

the following fundamental principle of global trade. A country should export to markets that

fetch the highest price for its products and import from countries with the lowest price for

their imported products. With 200 plus countries in the global market, it would be a rare

coincidence that a country that fetches the maximum price for our exports is also the country

that is the cheapest source for our imports. So, the concept of "balanced trade" with any

specific country is not an economically meaningful concept.

Applying this logic to Bangladesh, it is hardly surprising that Bangladesh sends most of its

exports (RMG) to the OECD countries where it gets the best price. Similarly, it is hardly

surprising that China, followed by India and are the most important sources of our imports.

These countries provide the cheapest sources for our industrial raw materials, food items and

fuel. Given this, it is very natural that Bangladesh has huge trade surpluses with Western

Europe and the USA while, at the same time, it has large deficits with China, India and the

Middle East. Just as we celebrate our trade surpluses with Western Europe and USA, we

should not decry our trade deficits with India, China or the Middle East.

Western Europe and the USA will then impose huge tariffs to prevent RMG exports from

Bangladesh and close the gap, while Bangladesh will impose prohibitive tariffs on imports

from China, India and . The net result for Bangladesh (and for other countries) will be a huge

loss of trade and corresponding welfare loss. Bangladesh will lose out on exports, both

Trading partner Export(million

Tk)

import Balance

China 2167 48292 -46125

USA 29156 6244 22912

Germany 24452 3186 21266

India 1910 24753 -22843

Malyasia 563 12851 -12288

japan 4513 7314 -2801

38

-0.08

-0.06

-0.04

-0.02

0

2009-10 2010-11 2011-12 2012-13 2013-14 2014-15* 2015-16*

Trade deficit as percentage of GDP

through high tariffs from Western Europe and the USA, as well as from much more costlier

imports of industrial raw materials. Other countries will similarly lose.

The variable we need to monitor is the current account balance and not the trade gap. If we

have a large and growing current account deficit not matched by foreign aid and private

capital flow, then we should take monetary, fiscal and exchange rate measures to correct this

gap. If we have a large current surplus, then we have a huge positive balance on the services

account, owing to inflow of income from factor and non-factor services, and it is most likely

that we will have a large trade gap (unless we are rapidly accumulating foreign reserves).

However, all effort must stay focused on expanding exports at the global level, including

India and China. Our tiny exports to China, India, and Japan suggest that there may be scope

for market expansion. However, this should be secured through export creation and not

diversion. The barriers to exports are mostly within: incentive policies, trade logistics, and

infrastructure constraints. These must be addressed. To the extent that further and better

cooperation with India and other neighbors allows Bangladesh to ease the trade logistic and

infrastructure constraints (e.g. through better connectivity and trade in power), this should be

encouraged.

With rapid trade liberalization, even in India, the global trade regime today, in non-

agricultural commodities, is much more liberal than in the recent past. As a result, behind-

the-border problems are a much bigger constraint on non-agricultural exports than trade

restrictions in partner countries. Nevertheless, if trade partners, as well as India, are engaged

in discriminatory trade practices, including non-tariff barriers, they need to be taken up at the

highest level and resolved. These must be based on well-researched and documented facts

rather than anecdotes and populist misperceptions.

Trade Deficit as percent of GDP Trade deficit as a percentage of GDP has been increasing, and reached at 7.10 percentage of

GDP in FY 2011-12, the highest between FY 2009-2010 and FY 2013-14. If the current trend

continues without major changes, trade deficit as percentage of GDP might decline to further

to 4.12% percent of GDP in 2014-15, 4.1 percent of GDP in FY 2015-16.

Figure: Trade deficit as percentage of GDP

39

0

20

40

60

80

100

Forex(US$)

Trade deficit(incrore US$)

Foreign Exchange Movement with Respect to Trade Deficit

Foreign Exchange Movement with Respect to Trade Deficit: There is a close positive relationship between foreign exchange movement and trade deficit.

By analyzing the data, it has been found that trade deficit and foreign exchange appreciation

move together. The following figure shows that when our trade deficit increases, foreign

exchange depreciates. In 2011-12, foreign exchange appreciated at its peak and trade deficit

also reached at its highest level from2009-2010. Prospective movements of the two variables

have been also shown in the following figure.

Figure: Foreign exchange movement with respect to trade deficit

40

Salient Features of the Current Trade Policy and Rationale for a New

Policy

In recent times trade-related policies in Bangladesh have evolved under the broader

framework of the policy of economic liberalization. Over the last two decades, the countrys

trade regimes have passed through a period of gradual liberalization. A large number of trade

barriers in place in Bangladesh were either dismantled or significantly reduced. A number of

policies were deployed towards this including tariff liberalization, flexible exchange rate,

opening up of most sectors for private and foreign direct investment (FDI) and privatization

of public sector enterprises. This had led to both higher exports and trade-openness which

reached 57 per cent of GDP in 2011. However, impact of trade liberalization on Bangladeshs

economic development has been mixed (Rahman et al., 2011; Rahman et al., 2009; Razzaque

et al., 2003; Raihan, 2007; Muqtada, 2003; World Bank, 2007; Mahmud, 2006; Islam, 2009).

A number of studies have indicated that trade liberalization did not have any significant

impact on poverty reduction although the impact on employment generation had been

positive (Raihan, 2007). Trade policies pursued over the past years have induced export-led

industrialization in Bangladesh contributing to the emergence of a number of export-oriented

industries. However, many enterprises were also wiped out in the process- these enterprises

either failed to take advantage of the removal of anti-export bias or were unable to compete

with the imports. A broad-based industrialization still remains an unfinished task in

Bangladesh. In this backdrop, a rethinking of trade-related policies in Bangladesh is called

for both from the perspective of need for change and also from that of taking advantages of

the new opportunities emerging in the domestic and global scenarios.

According to orthodox international trade theories, a countrys trade pattern should be

determined by its comparative advantages. Private producers and entrepreneurs enter the

market and pursue business interest in accordance with the countrys comparative

advantages. Competition among private producers ensures efficient allocation and use of

resources, which should lead to maximization of the countrys welfare. However, it has been

argued that because of externalities, information asymmetries and policy anomalies, it is

difficult to ensure competition, efficient allocation of resources and maximization of social

welfare etc. It is found that in reality firms have to operate in imperfectly competitive market

structures both at home and abroad. The realities of domestic and international scenarios tend

to have impacts which do not follow text book theories. New evidence, new experience and

emerging opportunities and challenges have led to a revisiting of the traditional trade policies,

and have drawn attention to the need for a rethinking about trade policies of the future of

developing countries. It is in the context of this backdrop that new theories are propagating a

more proactive role of the government (Spencer and Brender, 2008; Krugman, 1998).

Strategic trade theories have put forward forceful arguments favoring a more focused role of

66 .. TT rr aa dd ee PP oo ll ii cc yy oo ff BB aa nn gg ll aa dd ee ss hh

41

trade policies towards industrialization and economic development in developing countries.

The current exercise is an attempt in this direction in the particular context of Bangladesh.

It is often argued that trade related policies in Bangladesh lack focus, and trade-related

instruments and institutions in Bangladesh fail to function with due efficiency. This hinders

attainment of targeted development objectives and goals in Bangladesh. Lack of policy

coherence is one of the major weaknesses of trade-related policies which results in poor

implementation and outcomes.

Often times, difficulties in implementation of relevant policies originate from their non-

binding nature (e.g. Export Policy, Industrial Policy etc.), lack of coordination and interlink

age between relevant policies to address interwoven aspects of export and import,

weaknesses in the use of trade policy tools for the development of domestic market-oriented

and import-substituting industries, and lack of initiative towards strengthening institutional

capacities in the areas of trade diplomacy and trade promoting bodies. Though the service

sector is a major contributor in the countrys GDP (48.1 per cent in FY11) barring the

remittance earning sector, Bangladeshs international trade in services is rather small. Given

the growing importance of service trade, there is a need for policy directions to enhance

competitiveness of service trade related activities. Thus, integration of different trade-related

policies is a need of the day.

Bangladesh is striving to achieve the status of a middle-income country over the next decade.

Her long- term economic strategies and targets are articulated in two major policy documents

the Sixth Five Year Plan (SFYP) and the Ten Year Perspective Plan (TYPP). Overall,

annual GDP growth at the end of 2015 is targeted to be 8 per cent which will require raising

the trade-GDP ratio from the existing level of 57 per cent of GDP to 66.4 per cent in 2015.

Bangladeshs competitive strength will need to be significantly enhanced, including all

relevant trade-related areas, if this ambition is to be attained. Given the challenges at both

global and domestic levels, attaining these targets will not be easy.

The challenge is further exacerbated when one recalls the present low level of trade

orientation of various sectors of the economy (Table 1). Trade orientation is moderately high

at import stage mainly with regard to sourcing of raw materials, intermediate products and

capital machineries for different economic activities.

Bangladeshs industrial sector has higher trade orientation when compared to the service

sector. It is seen that, the agriculture sector has the lowest level of trade orientation. In

general, there do exists various avenues to enhance Bangladeshs ability to access emerging

global market opportunities which would also lead to higher trade orientation of her

economy. Greater trade orientation should be in line with comparative advantage enjoyed by

different sectors of the economy.

42

Depending on diversity of policies and policy frameworks, countries tend to deploy diverse

and different modalities to attain short, medium and long term trade-related goals. This also

involves various degrees of pacing, sequencing and phasing for attaining the targeted

objectives. Additionally development priorities also vary across countries and respective

trade policies reflect those. In view of this, the search for an appropriate trade policy format,

adequately reflecting Bangladeshs priorities and developmental needs, manifests itself as an

urgent task. In a world of imperfect competition, Bangladesh should search for a policy

framework that would able to ensure maximum possible welfare for the country.

BRIEF REVIEW OF CURRENT TRADE-RELATED POLICIES

Trade-related Policies of Bangladesh during the 2000s: Rules/regulations, Instruments

and Institutions

Bangladeshs external trade is regulated by a number of policies, orders and acts which are

structured under a broader liberalization framework. The main objective of Bangladeshs

export policy is to strengthen export-led industrialization through enhancing export,

increasing productive capacity of export-oriented industries and facilitating overall export

sector through capacity building of local industries (Export Policy 2009-12). The import

policy on the other hand, is aimed to make the import regime compatible to the WTO,

simplify the procedure to import capital machineries and raw materials, provide facilities for

technological innovation and allow import of essential commodities on emergency basis

(Bangladesh Economic Review, 2010). The Import Policy Order 2009-2012 and the Export

Policy 2009-2012 delineate export and import targets, priority sectors which need special

support, strategies to promote import-substituting, domestic market oriented and labor

intensive industries. While export and import policies are formulated and implemented by the

Ministry of Commerce; import tariff, para-tariff and other duties, which are important

instruments related to trade policy, are determined by the Ministry of Finance. The monetary

policy focuses on inflation management and equitable growth through adjustment of different

monetary variables such as money supply, level of interest rate and exchange rate etc.

43

Industrial Policy 2010 and SME Policy Strategies 2005 provide policy directions with regard

to industrialization particularly in case of micro, small, medium and public sector enterprises.

The Sixth Five Year Plan (2011-15) and Ten Year Perspective Plan (2011-21) have sketched

the long term targets related to export and import during 2011-2021. Overall a number of

short, medium and long term policies, rules, regulations, acts and orders are in operation in

Bangladesh to regulate international trade.

Rules and Regulations under Different Policies

Bangladeshs external trade is governed by two separate policies, i.e. Import Policy Order

2012-15 and Export Policy 2012-15. These three-year long policies have been in operation

since 2002. Before that policies were for five years and two years in the 1990s and even for a

one year period in the 1980s. It is important to note that while import policy is a legally

binding document; export policy is not legally binding. Nonetheless, different kinds of

activities taking place at the stages of export and import are governed by separate acts, orders

and rules. Most important of these activities are: customs valuation and inspection, pre-

shipment inspection, customs clearance and administration, tariffs (applied and bound tariff),

duty-free import items, specific duties, MFN tariff, tariff concessions, tariff preferences, rules

of origin, other border charges and levies, advance income tax, value-added tax (VAT) and

advance trade VAT (ATV), supplementary duty (SD), regulatory duty, import restrictions;

state trading, standards and other technical regulations, sanitary and phyto-sanitary standards,

labeling and packaging, anti-dumping, countervailing, and safeguard measures. There are

some specific activities related to export which are regulated by specific rules and acts, such

as quality control and export clearance; charges and levies; export restrictions; voluntary

restraints, surveillance and similar measures; export subsidies and other financial assistance;

duty concessions; tax concessions; export finance; export insurance and guarantees and

export promotion and marketing assistance. Trade in services is guided by various rules and

regulations on specific kinds of service related activities. In general different trade related

activities have been carried out under the common understanding between different ministries

and departments as per rules and procedures. In order to ensure better understanding and

improve the efficiency, institutional coordination at inter-ministerial and intra-ministerial

level is highly important. An effective trade policy should ensure that relevant government

departments and agencies work in a coordinated manner.

Instruments: Tariffs, Para-tariffs, Exchange Rates and Taxes

As part of trade liberalization, Bangladeshs tariff reforms have taken place in three phases in

consideration of the pace and sequence of reduction of the various tariff and para-tariff

barriers (Rahman et al., 2010).1 Those reform measures included provision for duty-free

access on imported inputs, reduction in tariff levels and number of tariff rates, streamlining

and simplification of import procedures, provision for financial assistance to traditional

exports, tax rebates on export earnings and concessionary duties on imported capital,

44

accelerated depreciation allowance, and refund of excise duties imposed on domestic raw

materials and inputs, proportional income tax rebates on export earnings.

While tariff rates at the import stage have declined, application of para-tariff has significantly

increased in recent years. According to Figure 2, revenue generated through VAT at the

import stage has now surpassed the revenue generated through import tariff. Similarly, the

share of supplementary duty has registered a rise in recent years which is both due to rise in

volume of import and rise in the charged rates. Both VAT and supplementary duty comprises

about 60 per cent of total revenue generated at the import stage during July-March, 2011.

45

Bangladeshs external trade sector was confronted with a number of challenges in the

international market. In case of export, non-tariff barriers appear to be a major obstacle. Such

NTBs prevail in the form of technical barriers to trade (TBT), standards (standard disparities;

packaging, labeling and marking; intergovernmental acceptances of testing methods and

standards), sanitary and phyto-sanitary (SPS) measures, countervailing duties, domestic

assistance programs and documentation requirements. In case of import, major obstacles are:

voluntary export restrains of essential commodities imported by Bangladesh, problems in

customs and administrative entry procedures (valuation, anti-dumping practices and tariff

classification); intellectual property laws etc. The Tariff Commission has reported strong

evidence of dumping of different types concerning imported products. In addition, importers

also face problems when some of Bangladeshs partner countries make changes in their

domestic or external policies. In view of this, the Ministry of Commerce should consult with

other relevant ministries regarding problems faced by Bangladeshi exporters including fiscal,

legal, and administrative and other matters and should take necessary measures accordingly.

Trade in services is increasingly becoming important for Bangladesh. However, the policies,

rules and regulations are not well structured to address local and global service trade related

issues. As is known, service trade negotiation in GATS is made on the basis of request-offer

basis.2 To open up service sectors to trade, Bangladesh has received requests from nine

countries including Singapore, the EC, Japan, Norway, Korea, Hong Kong (China), Malaysia,

Sri Lanka and the USA (Raihan, 2007). 3 Bangladesh needs to take position with regard to

what she will offer keeping in vie