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Country Profile 2005

Bangladesh This Country Profile is a reference work, analysing the country’s history, politics, infrastructure and economy. It is revised and updated annually. The Economist Intelligence Unit’s Country Reports analyse current trends and provide a two-year forecast.

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Bangladesh 1

© The Economist Intelligence Unit Limited 2005 www.eiu.com Country Profile 2005

Contents

Bangladesh

3 Basic data

4 Politics 4 Political background 5 Recent political developments 8 Constitution, institutions and administration 10 Political forces 12 International relations and defence

15 Resources and infrastructure 15 Population 16 Education 17 Health 17 Natural resources and the environment 18 Transport, communications and the Internet 22 Energy provision

24 The economy 24 Economic structure 26 Economic policy 30 Economic performance 31 Regional trends

32 Economic sectors 32 Agriculture 35 Mining and semi-processing 35 Manufacturing 37 Construction 37 Financial services 40 Other services

40 The external sector 40 Trade in goods 41 Invisibles and the current account 42 Capital flows and foreign debt 43 Foreign reserves and the exchange rate

44 Regional overview 44 Membership of organisations

45 Appendices 45 Sources of information 46 Reference tables 46 Population 46 Energy reserves and production of natural gas 47 Transport 47 Gross domestic product

2 Bangladesh


48 Gross domestic product by expenditure 48 Gross domestic product by sector 49 Central government finances 49 Money supply 50 Interest rates 50 Prices 50 Index of nominal wages 50 Agricultural crop production 51 Production and value of non-energy minerals 51 Production and value of selected manufactured items 52 Stockmarket indicators 52 Main exports 52 Main imports 53 Main trading partners 53 Balance of payments, IMF series 54 External debt, World Bank series 54 Remittances from Bangladeshis working abroad 55 Net official development assistance 55 Foreign reserves 55 Exchange rates

Bangladesh 3


Bangladesh

Basic data

147,570 sq km

135.2m (2003/04 fiscal year)

Population in ‘000 (2001 census)

Dhaka (capital) 9,913 Chittagong 3,203 Khulna 1,227 Rajshahi 647

Tropical monsoon

Hottest month, July, 23-35°C (average daily minimum and maximum); coldest month, January, 11-28°C; driest months, December and January, 5 mm average monthly rainfall; wettest month, July, 567 mm average monthly rainfall

Bengali; Urdu and Hindi are minority languages and English is also used

Muslim (89.7% in 2001 census); Hindu (9.2%); Buddhist (0.7%); Christian (0.3%); others (0.2%)

Imperial system. Local measures include: 1 tola=11.66 g; 1 seer=80 tolas=932 g; 1 maund=40 seers=37.29 kg

Numbers are commonly expressed in crores and lakhs; 1 crore=10m, written 1,00,00,000; 1 lakh=100,000, written 1,00,000

Taka (Tk)=100 paisa. Annual average exchange rate in 2004: Tk59.5:US$1; exchange rate on November 8th 2005: Tk65.75:US$1

July 1st-June 30th

6 hours ahead of GMT

January 1st (New Year’s Day), 21st (Eid-ul-Adha); February 10th (Elam Hejir New Year); March 17th (Birthday of Bagabethu Sheikh Mujibur Rahman), 26th (Independence Day); April 14th (Bangla Naba Barsha), 29th (Buddha Purnima); May 1st (Labour Day); September 2nd (Shab-e Barat), October 11th (Durga Puja); November 3rd (End of Ramadan), 7th (National Revolution Day); December 16th (Victory Day); plus religious holidays that depend on lunar sightings and optional holidays for different religious groups.

Land area

Climate

Weather in Dhaka

Languages

Measures

Fiscal year

Time

Population

Main towns

Religion

Currency

Public holidays in 2005

4 Bangladesh


Politics

Bangladesh has a parliamentary democracy based on universal suffrage. The executive branch of government consists of a cabinet led by the prime minister. The Awami League (AL), led by Sheikh Hasina Wajed, ruled for five years until July 2001, when an interim caretaker government was established. The general election held in October that year was won by a four-party alliance led by the Bangladesh Nationalist Party (BNP) under the prime minister, Khaleda Zia, which is still in government. The BNP dominates the alliance, with a large parliamentary majority in its own right. The Jamaat-e-Islami (Jamaat), an Islamist party, is its largest coalition partner; the Islami Oikyo Jote (IOJ) and the Manjur faction of the Jatiya Party (JP) complete the government. A caretaker government will be appointed in October 2006 to supervise the next election, which must then be held within 90 days. Bangladesh had a presidential form of government before the constitution was amended in 1991, but the presidency is now a largely ceremonial position appointed by parliament.

Political background

The eastern part of Bengal became part of Pakistan with the end of British rule in India in 1947. From the beginning, East Pakistan had an uneasy relationship with the more powerful and richer West Pakistan. Despite some concessions from the West Pakistan government, such as the approval of Bengali as a joint official language with Urdu, and the division of Pakistan into two parts (East and West) with equal parliamentary representation, a secessionist movement led by Sheikh Mujibur Rahman and the AL gained increasing support. In 1970 Sheikh Mujib led the AL to parliamentary victory in East Pakistan and demanded a loose federation of the two parts of Pakistan, in which a central authority would be responsible only for foreign affairs, the currency and defence. On March 26th 1971 separatist forces declared independence, and a full-scale civil war broke out. This was eventually won by the Bengali freedom fighters, after the Indian military intervened on their behalf, on December 16th 1971.

Sheikh Mujib led the AL to an electoral victory in 1973, but the economic and political situation began to deteriorate rapidly. Sheikh Mujib declared a state of emergency in late 1974 and in early 1975 he became president, assuming dictatorial powers through one-party rule. He and several of his family members were assassinated in August 1975. A series of further coups ensued, but by 1977 General Ziaur Rahman had consolidated his power and assumed the presidency.

General Zia’s period in power was characterised by improvements in public order and economic management. In June 1978 he won the presidential election, and in the following year his newly formed party, the BNP, won two-thirds of the seats in parliament. However, in May 1981 General Zia was assassinated by a group of army officers. In March 1982 the army chief, General

Independence from Pakistan

The early years

General Zia is ousted by the army

Bangladesh 5


Hossain Mohammad Ershad, took power in a bloodless coup, replacing Justice Abdus Sattar, who had briefly succeeded General Zia after his assassination.

General Ershad attempted to hold parliamentary and presidential elections to legitimise his position, but the principal opposition parties refused to participate, arguing that any election would be unfair under martial law. In March 1985 he banned political activities and staged a presidential election, in which he declared himself the winner, despite a dismal voter turnout. His autocratic rule provoked violent riots, and in 1987 the main opposition groups began a campaign to force him out. Three years of violence followed, during which General Ershad proclaimed a state of emergency and arrested opposition activists. In December 1990 General Ershad relinquished power to a neutral caretaker government, which organised a free and fair election in February 1991. General Ershad and many of his cronies faced charges of corruption and illegal possession of arms. He was sentenced to 13 years’ imprisonment in 1991, but was released in January 1997 in recognition of his Jatiya Party’s support for the newly elected AL government.

The 1991 election was won by the BNP, led by Khaleda Zia, General Zia’s widow. In parliament, there was initially a shaky truce between the AL and the BNP government. However, after alleged irregularities by the BNP during a February 1994 by-election all opposition parties boycotted parliament, demanding that the government resign and a general election be held. Although the BNP government dissolved parliament in late 1995, the opposition boycotted the general election in February 1996 because Mrs Zia had refused to step down before the election. The BNP claimed victory in a low-turnout election, but as violence escalated it was forced to transfer power to a caretaker government.

In the June 1996 election, supervised by a caretaker government, the AL, led by Sheikh Mujib’s daughter, Sheikh Hasina Wajed, won a majority of the seats in parliament and formed a government with support from the Jatiya Party led by General Ershad. The AL government repealed the Indemnity Ordinance, passed in 1975 to protect the assassins of Sheikh Mujib. A trial of some of the accused began in January 1997. In November 1998, 15 former soldiers were sentenced to death, although most of them had already fled the country in the meantime.

Recent political developments

The AL government made an arrangement with India to share the water of the Ganges river; it ended a 20-year insurgency by concluding a peace treaty with tribal rebels in the Chittagong Hill Tracts, repaired the devastation of the 1998 floods, and oversaw moderately high rates of economic growth. However, the AL government failed to resolve crippling power shortages and to prevent an alarming deterioration in law and order. Intense political antagonism between the AL and the BNP continued throughout the Hasina administration. Emulating previous AL tactics to undermine political stability, the BNP boycotted parliament and elections under AL rule. The government of

The AL steps down peacefully

The re-establishment of democracy

The AL government

General Ershad’s rule

6 Bangladesh


Sheikh Hasina completed its five-year term in July 2001 before agreeing to make way for a caretaker government. This orderly transfer of power was a milestone in the maturation of democracy in Bangladesh.

The four-party alliance led by the BNP won a landslide victory in the general election held on October 1st 2001. The alliance captured 219 seats, with the BNP alone taking 195 seats in the 300-member parliament. The AL won 58 seats, compared with 146 seats in the previous election held in June 1996. The BNP-led alliance won 46.9% of the votes cast, and the AL received 40.1%. Jamaat, an Islamist party and a partner in the BNP-led coalition, won 17 parliamentary seats. The JP won 14 seats, making it the second-largest opposition party.

During the first four years in office the four-party alliance oversaw steady economic growth of 5-6% a year, and some progress was made in areas such as poverty reduction and social development. However, the alliance failed to deliver on two key election promises—curbing corruption and improving law and order. Corruption remains a serious problem, and the law and order situation has, if anything, worsened under its tenure. The perpetrators of the assassination of the AL politician, Shah A M S Kibria, and of the August 2004 bomb attack on an AL rally, in which 21 people were killed, are still at large. Moreover, the highly co-ordinated attacks in August 2005, in which more than 350 bombs went off in 63 of Bangladesh’s 64 districts, seem to have vindicated fears of “Talibanisation” and of Bangladesh becoming a base for international terrorism. In February 2005 the government banned two Islamic organisations—the Jamiat-ul-Mujahideen (JMB) and Jagrata Muslim Janata Bangladesh (JMJB)—but had previously denied that there were any militants operating in the country. Thus, the BNP has faced criticism for not having cracked down on religious extremism earlier. The government’s position to adopt a firm stance against religious extremism has been complicated by its reliance on the support of two Muslim parties, the Jamaat and the IOJ, to remain in government.

Despite problems during the 2001 election campaign, monitors from domestic and international delegations said that polling on election day was generally free, fair and peaceful. They called on the AL to accept the result of the election, which was a substantial defeat for the party. However, Sheikh Hasina claimed that the election had been rigged and said that the non-partisan caretaker government, which had administered Bangladesh in the run-up to the general election, had conspired with the Election Commission to oust the AL. In June 2002 the research wing of the AL published a book on the "rigged election". The AL still refuses to accept the legitimacy of the government.

The mutual personal antipathy between the two leaders, Mrs Zia and Sheikh Hasina, has polarised the political scene to such an extent that it prevents the smooth operation of governance. For instance, the AL has chosen to oppose various government policies and the current BNP government itself by boycotting parliament and calling general strikes—the same tactics that the BNP used when it was in opposition. Without the semblance of opposition

The AL refuses to recognise the election as legitimate

Politics remain highly polarised

The BNP government

The BNP returns to power in a landslide victory

Bangladesh 7


engagement in the formal political process, the BNP-led government has struggled to fulfil one of its main campaign pledges, the restoration law and order, and to implement economic reforms. The expansion of power-generating capacity—an indispensable prerequisite for faster economic growth—has been minimal. Nevertheless, the government has made some progress. It has closed a politically sensitive textile mill, drawn up prudent budgets, and floated the taka at the end of May 2003. The country has enjoyed relative macroeconomic stability with stable inflation and economic growth of around 5% in recent years. The government has also sustained good relations with multilateral and bilateral donors. Although a bomb attack on an AL rally in August 2004, which killed several party leaders, led to a further deterioration of law and order, the BNP government is likely to see out its full term in office. The next election is due by early 2007.

Important recent events

October 1st 2001

The four-party alliance led by the Bangladesh Nationalist Party (BNP) wins a majority of more than two-thirds in parliament. The claim by the Awami League (AL) of election-rigging is rejected by impartial domestic and international observers.

January 9th 2003

The government promulgates the Joint Drive Indemnity Ordinance as Operation Clean Heart is wound down, protecting the armed forces from legal actions relating to abuses alleged to have been committed during the anti-crime crackdown. Parliament later passes the Joint Drive Indemnity Act.

June 25th 2003

The AL begins an indefinite boycott of parliament and does not attend the passage of the budget for fiscal year 2003/04 (July-June), preferring to agitate on the streets instead.

February-April 2004

The AL calls a series of hartals (general strikes) in an attempt to force the government from power by April 30th 2004. The deadline expires without any change in government.

July-August 2004

The country is hit by one of the worst floods in decades, which inundate two-thirds of the country. The floods leave 600 people dead, with 30m homeless and an estimated 20m people requiring food aid.

August 21st 2004

A grenade attack on an opposition AL rally in the capital, Dhaka, kills at least 19 people. The opposition leader, Sheikh Hasina, narrowly escapes, but several senior party members die in the attack. The perpetrators remain at large.

January 27th 2005

The prominent AL politician and former finance minister, Shah A M S Kibria, is killed in a grenade attack at a political rally. The AL calls a general strike in protest.

8 Bangladesh


August 17th 2005

Some 350 small bombs detonate within about an hour of each other in 63 out of Bangladesh’s 64 districts. The highly co-ordinated terrorist onslaught kills two and injures more than 100. The Jamaat-ul-Mujahidin Bangladesh (JMB), a banned Islamist extremist organisation, has been linked to the attacks.

October 2005

The government launches the biggest-ever free rice distribution programme amid food shortages, following severe flooding in 2004 and a poor harvest in 2005.

Constitution, institutions and administration

Bangladesh has a parliamentary system of government based on universal adult suffrage. Before the 12th amendment (1991) of the constitution, a presidential form of government was in place. Under the current system, the prime minister is vested with executive power and the president (elected by parliament) can act only on the advice of the prime minister. The president appoints the Council of Ministers (cabinet) on the advice of the prime minister. The Jatiya Sangshad (parliament) is a unicameral legislature with 300 directly elected seats. It has a term of five years. Laws are passed by a simple majority, but constitutional amendments require a two-thirds majority. According to the constitution, the state religion is Islam, but other religions may be practised. The 13th amendment (1996) of the constitution provides for the organisation of general elections by caretaker non-party technocratic governments. The 14th amendment of the constitution—passed in May 2004—reserves 45 seats for women.

Bangladesh is divided into 64 districts, each with its own district council. Beneath the districts are 460 subdistricts and 4,488 union councils, which are currently the lowest tier of government in Bangladesh. In late 2003 the government formed 40,392 village governments (gram sarkar) as a fourth layer of government. Gram sarkars are non-elected bodies at the grassroots level and were introduced by a former president, General Zia, in the late 1970s. When he was president, General Ershad introduced upazila (local councils) in the mid-1980s, as an elected local government body. The village governments are aimed at local development by local people. Although the constitution provides for elected bodies at all tiers of local government, only the third tier—union councils and municipalities (mostly subdistrict and district administrative centres)—is elected; all others are administratively controlled. Bangladesh has six administrative divisions—Dhaka, Chittagong, Khulna, Barisal, Rajshahi and Sylhet—and four major municipal corporations—Dhaka, Chittagong, Rajshahi and Khulna. The mayors of the municipal corporations are directly elected and wield considerable political power.

A candidate can contest a maximum of five constituencies in a parliamentary election, allowing political leaders to ensure their election to the legislature. A by-election is called if a candidate wins in more than one constituency. Although both major political parties are currently led by women, they tend

Parliament is elected by universal suffrage

The local government system

Candidates may run for multiple constituencies

Bangladesh 9


not to nominate women candidates for general seats. Only 35 female candidates ran in the 2001 general election, out of a total of 1,933 candidates.

The 13th amendment

The caretaker government

The 13th amendment to the constitution, passed on March 26th 1996, provides for a non-partisan caretaker government to hold free and fair parliamentary elections. The caretaker government is responsible for giving the Election Commission "all possible aid and assistance that may be required for holding the general election of members of parliament peacefully, fairly and impartially". The caretaker government takes office within 15 days of the dissolution of parliament and must hold a general election within 90 days of the dissolution. The caretaker government is led by a chief adviser, who runs the government with not more than ten other advisers, appointed by the president on the advice of the chief adviser. The chief adviser enjoys the status and privileges of a prime minister, but does not have the power to make any policy that goes beyond his remit of ensuring the smooth conduct of the election. He and his advisers are collectively responsible to the president—unlike the prime minister—and carry on the routine functions of government. The supreme command of the military forces is vested in the president for the duration of the caretaker government. Bangladesh has had two caretaker governments: the first supervised the June 1996 general election, and the second oversaw the eighth parliamentary election held in October 2001.

The Supreme Court is the highest court and its judges are appointed by the president. There is a nationwide system of criminal and civil courts, and there are metropolitan magistrates in the major cities. In addition, money-loan courts and bankruptcy courts deal with financial matters. The legal framework is archaic, and court procedures are often cumbersome. The judiciary is not fully independent of the executive. It has, however, been playing a more active role: in 1999 and 2000 the Supreme Court reprimanded the then prime minister, Sheikh Hasina, for making misleading statements about the judiciary and demanded that the executive branch consult with the chief justice in appointing High Court judges. The government is working on separating the judiciary from the executive branch under an order passed by the Supreme Court in December 1999. Successive governments have delayed carrying out the law. The Supreme Court in October 2005 turned down a government petition seeking another four-month extension—the 22nd since 1999—to separate the judiciary from the executive.

Citizens are equal before the law and free from arbitrary arrest and discrimination. However, detention without trial is allowed in a state of emergency under the Special Powers Act (SPA) 1974. In April 2002 the BNP-led government secured the passage of the Law and Order Disruption Crimes (Summary Trial) Act 2002. The Summary Trial Act provides for expeditious trials of those charged with offences ranging from traffic disruption to terrorism. Opposition activists claim that the government may use this law for political ends.

The judiciary

Emergency laws allow for detention without trial

10 Bangladesh


Political forces

The main political parties are the AL and the BNP. The AL, which spearheaded the war of independence under Sheikh Mujib, is now led by his daughter, Sheikh Hasina. The AL governed Bangladesh between June 1996 and July 2001, after 21 years in opposition. During this time it moved away from its previous commitments to nationalisation and economic self-sufficiency to support market-oriented economic policies. Despite the new party line, the AL contains politicians who strongly oppose leaving the economy to the private sector.

The BNP, founded by a former president, General Zia, in 1978, is led by his widow and the current prime minister, Mrs Zia. The BNP espouses Bangladeshi nationalism with anti-Indian and pro-Islamic nuances; however, these nuances have not been evident in its policymaking since coming to power in October 2001. Relations with India have remained stable. The BNP, with close links to business, is committed to fostering a market economy and liberal democracy, and encourages private-sector-led economic growth.

Differences between the AL and the BNP in terms of official economic policy had largely disappeared by the late 1990s. The AL plays up its leadership during the war of liberation in 1971, whereas the BNP appeals more broadly to nationalists, drawing support from both sides of the liberation war. Despite the lack of a clear ideological distinction between the parties, the bitter personal animosity between Mrs Zia and Sheikh Hasina sets the two parties apart.

Other active parties include the Jatiya Party (JP). The JP’s main faction is led by the deposed former president, General Ershad. It has experienced several damaging splits since 1997 because of its alternating support for the AL and the BNP. A splinter element of the JP is a partner in the BNP-led coalition government.

Social tensions seem to have worsened over the last decade. Economic deprivation and a sense of powerlessness, exacerbated by lawlessness in parts of the country, provide a conducive environment for ethnic, class and religious differences to be exploited by political activists. However, social tensions are contained by political elites in the capital, Dhaka, in whose interest it is to preserve the status quo. Although there are Islamist parties in government, they are minor parties in the coalition.

The Jamaat-e-Islami (Jamaat), which co-operated with Pakistani occupation forces during the liberation war in 1971, is now a partner in the BNP-led coalition government. It is a fundamentalist party that espouses an Islamic state. The BNP, which alone controls 195 out of the 300 seats in parliament, is well-placed to resist any extreme demands from its coalition partners. The Islami Oikyo Jote (IOJ), the fourth member of the BNP-led government, also seeks to implement Islamic doctrine, but draws more support from traditional religious groups. There are several leftist parties, for example, the Bangladesh Communist Party, which have entered a variety of shifting alliances over the years.

The Awami League

The Bangladesh Nationalist Party

The Jatiya Party

Social tensions seem to be worsening

The Islamist parties

Bangladesh 11


General election results (no. of parliamentary seats)

1996

1979 1986 1988 1991 Feba Jun 2001

Awami League (AL) 39 76 - 96 - 146 58

Bangladesh Nationalist Party (BNP) 207 - - 139 272 116 195b

Jatiya Party (JP)c - 153 251 35 - 31 14

Jamaat-e-Islami (Jamaat) - 10 - 18 - 3 17b

Others 54 61 49 12 - 4 16

a Boycotted by opposition parties; not all seats were filled as violence disrupted the election. b In 2001 the BNP-led alliance, comprising the BNP, a faction of the JP, Jamaat and the Islami Oikyo Jote, won 219 seats. c A grouping dominated by the JP faction led by General Ershadin 2001.

Sources: Election Commission; press reports.

With the passing of the People’s Representation Order 2001 (PRO 2001) in August 2001 the Election Commission (EC), a constitutional body responsible for holding elections, gained considerable autonomy to carry out its responsibilities. Under PRO 2001 the EC has wide powers to monitor elections.

Students play an active role in politics, both within the political parties and more generally. This stems from the important role they played in the liberation war. In 1990 the All-Party Students’ Union was instrumental in forging the alliance between the quarrelling opposition parties that ultimately toppled the government of General Ershad. However, the active role of students in national politics has come under fire in recent years, because violent elements, including non-students, are perceived to be dominating student politics.

The army has played a prominent role in Bangladeshi politics, starting with the war of liberation in 1971, but especially following the military coup in mid-1975. After the fall of General Ershad in 1990, however, the army withdrew from politics. In the run-up to the general election in June 1996 the chief-of-staff, Abu Saleh Mohammad, led a failed military revolt against the caretaker government. Since then the army has refrained from seeking a direct role in politics, and the government has steered the army towards playing a role in UN peacekeeping operations. However, the military continues to play an important role in the background. Many leading politicians in both major parties are former soldiers, and in the event of an extremely serious breakdown in law and order military intervention cannot be ruled out.

The civil service, which was instrumental in sustaining military or pseudo-military rule in 1975-90—a linkage that impeded the institutional development of the civil service—remains divided, politicised and corrupt. One reason for holding general elections under neutral caretaker governments is that many civil servants back one of the political parties in the hope of being awarded lucrative postings and other benefits.

In the run-up to the general election in October 2001 the caretaker government transferred more than 1,100 government officials from their posts, believing them to be partisan. Since winning the election the BNP-led government has devoted much effort to replacing officials across the country. Partly because

The Election Commission

Student politics

The role of the army

The civil service

Governments devote much effort to replacing bureaucrats

12 Bangladesh


politicians lack credibility, the bureaucracy in Bangladesh has greater influence over policymaking than in comparable countries. The civil service, organised into more than two dozen cadre services, also suffers from serious conflicts between specialists and generalists.

Main political figures

Khaleda Zia

The leader of the Bangladesh Nationalist Party (BNP) and prime minister since October 2001, Mrs Zia was previously prime minister in 1991-96. The wife of a former president, General Ziaur Rahman, who was assassinated by a group of rebel military officers, she assumed the leadership of the BNP in 1981.

Sheikh Hasina Wajed

The leader of the Awami League (AL) and prime minister in 1996-2001, Sheikh Hasina is a daughter of Bangladesh’s founder, Sheikh Mujibur Rahman. She became the leader of the AL in 1981. Under her leadership, the AL returned to power in 1996 after 21 years in opposition and completed its five-year term of office on July 15th 2001.

General Hossain Mohammad Ershad

The leader of the main faction of the Jatiya Party (JP) and a former president. He overthrew the government of Justice Abdus Sattar in a bloodless military coup in 1982 and ruled as an autocrat until 1990.

Matiur Rahman Nizami

Mr Nizami leads Jamaat-e-Islami, Bangladesh’s largest Islamist party and a member of the BNP-led coalition government. A cabinet reshuffle in May 2003 saw Mr Nizami moved from the Ministry of Agriculture to become industry minister. Jamaat remains controversial because of its pro-Pakistani role in 1971.

Iajuddin Ahmed

Mr Ahmed was sworn in as president in September 2002. The previous incumbent, A Q M Badrudozza Chowdhury, had been forced to resign in June 2002 after just six months in office, following a disagreement with the BNP government.

Mohammad Saifur Rahman

Mr Rahman, the finance and planning minister, is one of the BNP’s veteran ministers. He has presented 11 national budgets as a finance minister and has played an important role in shaping Bangladesh’s monetary, fiscal and trade policies.

International relations and defence

Bangladesh became a member of the UN in 1974 and has been elected to the UN Security Council twice, in 1978 and 2000. It is a member of the South Asian Association for Regional Co-operation (SAARC) and the Non-Aligned Movement (NAM). It is also a member of the Organisation of the Islamic Conference (OIC), the Commonwealth of Nations and the World Trade Organisation (WTO). In addition to its leading role in regional and international organisations of developing countries, Bangladesh is a major contributor to UN peacekeeping missions.

Membership of international bodies

Bangladesh 13


Relations with India have been strained since the BNP-led coalition took office in 2001. Various issues of contention between Bangladesh and India remain unresolved, including the sale of natural gas to India, Bangladeshi immigration into India, and the sharing of water from the Ganges river. Moreover, India is concerned that Bangladesh has become a haven for various insurgent groups fighting Indian rule in the north-east and that Bangladesh might turn away from its secular, tolerant traditions towards Islamic extremism. Domestic opposition within Bangladesh to rapprochement with India has remained high, but there is an increasing realisation of the potential benefits of improved relations, particularly as regards trade. Differences in the ethnic and religious composition of the two countries’ populations have been a source of tension. India has alleged large-scale illegal immigration from Bangladesh, but Bangladesh has countered that many of those identified by India as illegal immigrants are Bengali-speaking Indian Muslims. The dialogue between Bangladesh and India has continued under India's new Congress-led government. India’s prime minister, Manmohan Singh, has pledged to resolve all outstanding issues with Bangladesh through sustained co-operation and consultation.

Relations with Pakistan have improved since the establishment of diplomatic relations in 1974 on the basis of mutual recognition. The relationship is, however, strained by Pakistan’s refusal to take back around 500,000 Urdu-speaking people, known as Biharis (a large proportion of whom migrated to Pakistan from the Indian state of Bihar), who claim Pakistani citizenship. Relations with Myanmar have been under pressure since 1992, when around 250,000 Rohingyas—Muslims from the Arakan region of Myanmar—fled to Bangladesh in the vicinity of Chittagong, alleging persecution by the Burmese authorities. Most Rohingyas had returned by 1995, but about 20,000 still remain in camps around Cox’s Bazar, a beach resort 152 km south of Chittagong. Mrs Zia visited Myanmar in March 2003 and reached an agreement on the establishment of direct road links between the two countries’ capitals, Dhaka and Yangon. In 2003 a total of 3,200 Rohingya were repatriated to Myanmar. Médecins Sans Frontières, an international medical aid agency, reports that many of the repatriated refugees have since returned to Bangladesh.

Bangladesh and China signed an accord on mutual recognition in 1975. In July 2004 Bangladesh and China agreed to establish road links between the two countries through Myanmar to facilitate trade integration. The road links will connect the two countries through China’s south-western Yunnan province. On a visit to Bangladesh in April 2005 the Chinese prime minister, Wen Jiabao, called for a further strengthening of economic and political ties and referred to Bangladesh as “a time-tested friend” of China.

Japan has been Bangladesh’s largest bilateral donor in recent years, especially in providing assistance for infrastructural development. Trade relations have been less strong—Japan’s share of Bangladesh’s imports fell from 13% in 1990 to 6.7% in 2003. Meanwhile, Japanese trade with other South Asian countries has

Japan is the largest bilateral donor

Relations with China improve

Relations with India have been strained under the BNP

Relations with Pakistan and Myanmar are strained

14 Bangladesh


flourished. Japanese direct investment into Bangladesh is weak compared with other South Asian countries.

Relations with the US have improved over the past two decades, with nearly all of Bangladesh’s heads of state paying official visits to the US. The US is one of Bangladesh’s biggest bilateral donors. The participation of Bangladeshi troops in the 1991 Gulf war coalition and Bangladesh’s support for the US war on terror since the September 11th 2001 terrorist attacks on the US have strengthened the relationship. However, the government has admitted that Islamist extremist groups operate within Bangladesh, and the government may in future take a harder line against them, despite the presence of Islamist parties in the ruling coalition.

In mid-2000 Bangladesh and the US began holding joint military exercises, to improve “interoperability” between their forces, presumably as a form of contingency planning. In recent years there has been substantial US direct investment into Bangladesh, almost all destined for natural gas exploration and power generation. The US is the largest importer of Bangladesh’s flagship export, clothing. Bangladesh’s market position in the US has, however, come under stress since the US granted concessionary market access to some Sub-Saharan African countries in 2000. In September 2004 Bangladesh and the US signed an agreement on the avoidance of double taxation in order to facilitate bilateral investment and trade.

The armed forces totalled 125,500 in 2004. Expenditure on defence has hovered at around 2% of GDP in recent years. The inclusion of Bangladeshi troops in UN peacekeeping forces around the world has given the army an international role and a new source of income, both for itself and the government. In October 2005 some 9,000 Bangladeshi nationals were serving in 12 UN peacekeeping missions, along with other staff from the air force and the navy, making the country the biggest contributor to UN in terms of troop numbers.

In 2000 the army began recruiting women for all officer ranks except for combat roles. Previously, recruitment of female officers had been restricted to the army medical corps. Almost one-third of Bangladesh’s army medical officers are female.

Defence forces Army 110,000

Navy 9,000Air force 6,500Total 125,500Paramilitary 63,200

Source: The International Institute for Strategic Studies, The Military Balance, 2005/06.

Bangladesh supports the US campaign against terrorism

Defence expenditure is capped

The army recruits women

Bangladesh 15


Resources and infrastructure

Population

Bangladesh, with a land area of 147,570 sq km and a population officially recorded at 129.9m in the 2001 census, is among the world’s most densely populated countries (834 people per sq km in 2001). The rate of population growth is estimated to have slowed to 1.48%, from 2.17% in 1991. On this basis the UN Population Fund (UNPFA) estimates that Bangladesh’s population stood at 135m in 2004. The urban population has been growing at approximately twice the overall population growth rate and now accounts for 23.4% of the total. The principal urban centre and capital, Dhaka, is one of the largest cities in the world, with an estimated population of 12m. According to a 2005 UN Habitat report, Dhaka’s population will reach 22.8m within the next decade. Other major urban centres are Chittagong, Khulna and Rajshahi. According to the 2001 census 90% of the population were Muslim, 9% Hindu and the remainder mainly Buddhist or Christian.

Population by age, 2001 (m unless otherwise indicated)

Age Population % of total Male Female0-14 45.1 33.8 23.1 21.915-64 83.8 62.8 42.9 40.9

65+ 4.5 3.4 2.4 2.1

Source: Bangladesh Population Census, 2001.

The population is estimated to be expanding by about 1.5% each year, and containing population growth remains a high priority, given the scarcity of land and resources. Internationally funded programmes have supplemented government initiatives on population control and family planning. In 2002 Bangladesh had a crude birth rate of 20.1 per 1,000 and a crude death rate of 5.1 per 1,000. These rates compare favourably with those of other developing countries. As contraception use has become more prevalent, the fertility rate (the average number of children that a women bears in her lifetime) has fallen from 6.8 in 1965 to 2.6 in 2002.

Health indicators, 2002 Crude birth rate (per 1,000 population) 20.1

Crude death rate (per 1,000 population) 5.1Infant mortality rate (per 1,000 live births) 53.0

Maternal mortality rate (per 1,000 live births) 3.2Life expectancy (years) 69.2

Source: Bangladesh Bureau of Statistics, Monthly Statistical Bulletin, Bangladesh.

The government employs around one-third of workers in the formal sector, either directly in the civil service or through state-owned enterprises (SOEs). However, most of the labour force is employed in the informal sector, especially in agriculture, which provides work for about 60% of the labour force. According to the Labour Force Survey 2002003, 79.1% of the workforce is

A densely populated country

Containing population growth is a high priority

Agriculture provides the bulk of employment

16 Bangladesh


employed in the informal sector. Of these, only 9.8% are employed in the manufacturing sector, according to the survey.

The number of Bangladeshis working abroad and remittances from those employed abroad have been increasing since the mid-1980s. Whereas only 70,000 skilled and unskilled persons obtained employment abroad in 1985/86, more than 250,000 Bangladeshis now do so each year, bringing the total number working abroad in 2005 to around 3m. Annual remittances from those abroad amounted to US$3.8bn in 2004/05, according to statistics released by the Bangladesh Bank (BB, the central bank). The importance of remittance inflows to the economy is likely to be far greater than reflected in official data, as large sums of money are thought to enter the country through unofficial channels.

The Middle East accounts for the bulk of job opportunities for Bangladeshis overseas. In recent years about 65% of total remittances originated from the Middle East, with more than one-third coming from Saudi Arabia. Other major transfer inflows came from countries with large Bangladeshi expatriate communities, such as the US and the UK. Substantial inflows of remittances are crucial to Bangladesh’s macroeconomic stability, as they have traditionally offset a large proportion of the country’s trade deficit and its services and income account deficit.

Education

The literacy rate among adults (those over 15 years of age) increased to 47.5% in 2001, from 31.5% in 1985. Notwithstanding major strides in primary and secondary education since the 1980s, low adult literacy continues to act as a break on faster economic development. Large disparities remain between the urban and rural populations and between males and females, but the gaps are narrowing. The government is the main provider of primary education, while private schools predominate in secondary education. Primary education was made universal, compulsory and free in 1993. Boys are entitled to five years of free schooling and girls to ten years (because families are less willing to pay to educate their daughters).

As a result of increased budgetary allocations, the employment of female teachers, stipends for female students and a food-for-education programme, the level of enrolment in primary schools increased sharply in the 1990s. The number of primary school children increased from 12m in 1990 to 17.7m in 2001, and the proportion of female students rose from 44.7% to 49.1% over the same period. However, fewer than half of all children complete five years of primary education. The poor quality of elementary education is attributable to badly trained or absentee teachers, large classes, and a shortage of books.

Secondary education is provided largely by the private sector. In 2004 there were 16,171 secondary schools with 7.9m students, about half of whom were female. At the higher level, many vocational and technical colleges and institutes are not well attended. Universities receive generous government subsidies but generally produce poor-quality graduates at high cost.

Many Bangladeshis seek work overseas

The literacy rate is improving

Few children complete five years of primary education

Provision of secondary education is largely private

Bangladesh 17


Health

Medical facilities are extremely scarce. In 2001 there were 32,022 hospital beds, 32,498 registered doctors, 18,135 registered nurses and 15,794 midwives in the public sector, which provides more than 90% of health services. Only 12% of births were attended by skilled health personnel in the second half of the 1990s.

Annual spending on healthcare and family planning remained at around 1% of real GDP in the early 2000s, although there have been some modest increases in public spending. Access to medical services is more limited in Bangladesh than in neighbouring countries. Government health services are poor, and only about 12% of serious cases are referred to public health facilities. Poor-quality and poorly regulated private clinics have proliferated in both urban and rural areas. Non-governmental organisations (NGOs), such as the Bangladesh Rural Advancement Committee (BRAC), have also been providing health services.

Bangladeshis suffer from some of the highest malnutrition levels in the world. Major problems include childhood protein-energy deficiency, maternal under-nutrition, as evidenced by low weight, short stature and anaemia in expectant and nursing mothers, and micronutrient deficiencies, particularly in vitamin A, iron and iodine, which affect all ages. However, the prevalence of child malnutrition has gone down substantially over the last decade. The proportion of children aged 6-71 months classified as underweight has declined nationally from 72%in 1985/86 to 51% in 2000.

Natural resources and the environment

The land is mostly flat, although there are some hilly areas in the north-eastern and south-eastern regions. Much of the land is intersected by the numerous waterways of the Ganges (known locally as the Padma) delta and the Brahmaputra river (known locally as the Jamuna). The annual flooding of the land provides rich alluvial soils. The monsoon climate results in annual average rainfall that is among the world’s heaviest, exceeding 2,540 mm and falling mainly between July and October. Every year there is massive flooding during the monsoon season, and soil erosion and changes to river channels pose constant problems. Natural disasters are a fact of life, as many Bangladeshis live in precarious dwellings close to rivers and the coast. The low-lying areas at the mouth of the Ganges delta are at risk of tidal surges and cyclones.

Most of Bangladesh’s soil is rich and fertile. In 2003 forests covered 1.97m ha, or 13% of the total land area, according to the government. However, much of the land officially classified as forest is given over to plantations. About 67% of the total land area is cultivable, and around 75% of the planted crop area is devoted to rice crops. A large and growing proportion of the cropped area is subject to multiple cropping. Weather conditions, improved seed varieties and irrigation facilities permit two or three rice crops each year in the 70% of cultivable land that is not subject to serious flooding. In the remaining low lands, only one or

Natural disasters are a fact of life

Health services are poor

Spending on healthcare is flat

Malnutrition is a common problem

18 Bangladesh


two crops each year are planted. Bangladesh has little additional land that can be brought under crop production.

The quality of drinking water

Arsenic poisoning in rural areas

Groundwater, the primary source of drinking water for much of the rural population in Bangladesh, is contaminated with arsenic, affecting more than 21m people in 61 of the 64 districts in Bangladesh. Recent reports suggest that the intensity of arsenic contamination in groundwater is extremely high—far above World Health Organisation (WHO) safety standards—in 45 south-western subdistricts (out of 460 subdistricts in Bangladesh). At least 200,000 people are suffering from arsenic-linked diseases. The exact source of the arsenic pollution is a controversial subject, but many experts and practitioners believe that it is geological: arsenic seeps into groundwater under naturally occurring aquifer conditions. Although evidence of arsenic contamination in groundwater had begun to surface in the 1980s, the issue—in terms of being a likely environmental disaster—only began to receive broad public attention from the mid-1990s.

Bangladesh is poor in non-energy minerals. Known resources include natural gas, limestone, glass sand and certain heavy minerals such as trace deposits of uranium and thorium. There are five major coal deposits in the country, but much of the coal lies too deep for commercial exploitation. The largest coal mines are Khalashpir (Rangpur), which has reserves estimated at 685m tonnes; Jamalgonj (Joypurhat), with reserves of 1.1bn tonnes; and Barapukuria (Dinajpur), with reserves of 389m tonnes. In 1995 deposits of high-quality bituminous coal were found at Dighipara (Dinajpur), which probably contains the largest coal reserves in the country. In 2005 the government entered into negotiations with multinational companies, including Tata of India and a UK-based concern, Asian Energy, to develop and exploit coal deposits in Dinajpur division.

Transport, communications and the Internet

Poor transport facilities and infrastructure are a major hindrance to economic development. A 2005 Investment Climate Assessment by the World Bank identified poor quality and poorly managed infrastructure as the major deficiencies in Bangladesh’s investment climate, together with security and law and order. Road connectivity between the country’s major urban centres is poor and unreliable. The road network in Dhaka, the capital, is also poor—there are only two flyovers in the whole city—making it one of the most congested cities in the world. The government is investing in the infrastructure with the support of multilaterals, but the challenges remain huge, given the intense population pressure in the decades ahead. There is concern that the government is devoting an excessive proportion of the budget to transport, specifically on projects that often have the potential for corruption or inefficiency. That said, some progress has been made in recent years, and

Non-energy mineral reserves are scarce

Transport infrastructure is a major problem

Bangladesh 19


Bangladesh’s transport road infrastructure has improved. The road network now connects every district and subdistrict administrative centre, even those in remote areas.

Bangladesh had 2,706 km of railways in 2003, operated by Bangladesh Railways, a state-owned enterprise with monopoly rights, compared with 2,884 km in the early 1980s and 2,874 km in the early 1970s. Over the years the length of railways has declined and the standard of service has deteriorated, whereas the volume of freight and the number of passengers transported by road has increased.

The passenger railway service has been in decline since the country’s independence in 1971, owing to poor service and the phenomenal growth of road networks. Bus services, largely private, have emerged as a challenge to the railways by connecting remote places and providing better services.

Bangladesh had a road network that extended about 20,799 km in 2001, compared with 14,104 km in 1991. There are 3,086 km of national highways (about 15% of total road length), 1,751 km of regional highways (8%), with feeder roads accounting for the remaining 15,962 km. In addition, local governments maintain more than 16,000 km of rural roads, but only 8,546 km of these are tarred. In many parts of Bangladesh animal-driven carts still provide the main means of land-based transport for shorter distances. Despite the problems of road transport, more than 65% of all freight and more than 70% of all passengers are transported by road. Both the rail and road network tend to suffer severe damage in years of major floods, as was the case in 1998 and in 2004.

Waterways have become less important as a means of transport because of the declining navigability of some rivers and the poor performance of the largely state-operated system. There are about 8,300 km of navigable inland waterways, although this drops to 3,800 km in the dry season. The waterway network is particularly important as a transport link to some of the most remote parts of the country. Badly needed improvements to waterways include more dredging programmes, better boat safety regulations and the privatisation of some of the ferry and cargo routes. In 2005 hundreds of people were killed in several ferry accidents, bringing the number of fatalities in such accidents to at least 3,000 since 1997, according to official statistics.

There are two major seaports, at Chittagong and Mongla, and smaller inland ports at Dhaka, Narayanganj, Chandpur, Barisal and Khulna. Chittagong is the largest of the seaports, handling around 89% of seaborne merchandise imports and 85% of merchandise exports in 2001/02. The operational efficiency of the port is poor. Waiting times for ships for berths increased from 0.74 days in 1996 to 2.25 days in 2000. Chittagong is well connected to inland road, rail, river and air routes. Container handling at Chittagong port increased rapidly from 150,000 twenty-foot equivalent units (TEUs) in 1992/93 to 490,386 TEUs in 2000/01. The quantity of cargo handled also increased from 1.4m tonnes to 4.6m tonnes during the same period (the tonnage of imports passing through

The railways

Bus services

The road network

Waterways

Unions oppose plans to build private container terminals

20 Bangladesh


all ports is more than eight times that of exports). The port authorities are building additional berth facilities for increased container services and a new container yard. The labour unions are, however, strongly opposed to private-sector plans to build two modern container terminals, one at Patenga in Chittagong and the other at Pangaon in Dhaka. At present, the competitiveness of Bangladeshi exports is severely constrained by the poor quality of service at the country’s main ports.

Bangladesh Shipping Corporation (BSC), a loss-making state-owned company, has handled around 7-9% of Bangladesh’s seaborne merchandise trade in recent years compared with an 18% share of imports and a 14% share of exports in the early 1990s. Private international shipping companies handle the rest of Bangladesh’s merchandise trade.

The national air carrier, Bangladesh Biman, has hitherto had a monopoly on international routes, but the government announced in June 2003 that domestic private airlines would be given the right to ply international routes too, following a review of air-service agreements with other countries. In January 2004 GMG Airlines, a domestic private carrier, was granted an operating licence for international flights, including the routes from Dhaka to the Sri Lankan capital, Colombo, via Chennai in southern India; from Dhaka to the capital of the Maldives, Male, via Colombo; and from Chittagong to Chiang Mai in northern Thailand. In September 2004 GMG Airlines started operating flights between Chittagong and Calcutta, in India. GMG, which began its domestic flight operations in 1998, now operates 32 daily flights to various destinations within Bangladesh. The national carrier Biman currently serves 29 overseas and eight domestic destinations, including direct flights from Dhaka to New York and Tokyo.

In 2004/05 Biman carried more than 1.5m passengers and around 30,000 tonnes of cargo. The carrier made a loss of Tk3bn (US$50) in 2004/05. Plans to commercialise Biman (initiated in 2000), to turn it into a profit-oriented business by forming a strategic partnership with a foreign company, remain stalled. The government blames uncertainties in the aviation industry since the terrorist attacks on the US in September 2001 for the lack of progress. The carrier faces many challenges. On international routes is coming up against increasing competition from private international airlines, and domestically the only private domestic carrier, GMG, has successfully extended its operations. Biman’s employees’ unions yield considerable power. For example, strike action led to major flight disruptions in September 2005. Rising fuel costs in recent years have added to the financial pressure. In October 2005 the state-owned Bangladesh Petroleum Cooperation (BPC) threatened to stop supplying fuel to the cash-strapped carrier, which owes BPC about US$80m.

Bangladesh has 16 operational airports, three of which are open to international flights. The main international airport is Zia International in Dhaka; the other two international airports are in Chittagong and Sylhet. There were 14 international airlines serving Dhaka’s Zia International Airport as of October 2005. These include five carriers from the Gulf, three from the South Asia

Biman is recovering from bad purchasing decisions

International air connectivity has improved

The state-owned shipping company is losing ground

Private airlines will fly international routes

Bangladesh 21


region (Pakistan, India and Bhutan), and another three from South-east Asia (Malaysia, Singapore and Thailand). British Airways continues to be the only European carrier to serve the Bangladeshi capital. Eastern China Airlines started operating direct flights between Dhaka and Kunming in China in May 2005. In mid-June the Indian flag carrier, Air India, resumed its flight operations to Dhaka, ending a 12-year suspension of direct flights between the two countries.

Bangladesh, where only 1.56 of every 100 people had access to telecommunications services in 2003, has the lowest teledensity in South Asia and one of the lowest in the world. The number of telephones increased from 220,000 in 1991 to around 1m in 2003. Fixed telephone lines are run by the state telecoms monopoly, Bangladesh Telegraph and Telephone Board (BTTB), and two private companies, Sheba Telecom and the Bangladesh Rural Telecom Authority (BRTA). Bangladesh has 0.55 fixed-line telephones per 100 inhabitants, whereas the number of mobile phones per 100 people stands at 1.01. The number of mobile phones—provided by four operators in foreign joint ventures—stood at about 2.3m in 2003.

A phased programme to install digital telephone exchanges at all subdistrict levels is under way. In recent years V-SAT (very small aperture terminal, a data-transmission system using satellites) and data network systems have been established, enabling Internet communication and other modes of data communication for both domestic and international use. The government has also begun projects to set up a high-technology industrial park and an information-technology village to encourage both domestic and international investment in the computer software sector.

The main telecoms operator is the state-owned BTTB. Private firms operate mobile-phone services, rural telephone exchanges, Internet and e-mail services, and paging and operator-assisted services. There are four private mobile-phone companies in Bangladesh: Bangladesh Telecom (Citycell); Grameen Phone (owned by Grameen Bank, a local bank); Telecom Malaysia International (owned by the Malaysian state-owned Telekom Malaysia); and Sheba Telecom (owned by Orascom, an Egyptian-based mobile-phone company). Grameen Phone is the market leader in mobile telephony, with a market share of more than 70%. There are also two private companies specialising in rural areas—the Bangladesh Rural Telecom Authority (BRTA, a former state-owned enterprise) and Rural Telecommunications (a subsidiary of Sheba Telecom). Bangladesh has 60 Internet service providers, with around 243,000 users at the end of 2003.

Postal services are extremely poor and archaic. In 2003/04 Bangladesh had only 9,860 post offices, of which 794 were in urban centres and 9,066 in rural areas. Only 164 postal stations, mostly in urban areas, provided guaranteed express post. Bangladesh had agreements for international express mail service (EMS) with 49 countries, and for international money order service with 13 countries. In August 2000 the postal department introduced e-mail services in some selected urban centres.

Postal services are archaic

The government is promoting the software sector

Private involvement in telecoms is growing

Low telephone density

22 Bangladesh


There is a thriving local press with over 100 daily newspapers, about a dozen of which are published in English. The press has considerable freedom, although reporting restrictions have been imposed during periods of political unrest. Until recently Bangladesh Radio and Bangladesh Television were state monopolies, controlled directly by the government. In mid-2000 parliament passed a law providing for the autonomy of the state-owned media, but critics say that the act falls short of granting real autonomy, as the government still appoints the board members, and the broadcasters depend on the government for financial support. In 2004 the government signalled that it may allow more private satellite television channels to go on air. Currently there are three private television channels in Bangladesh: ATN Bangla, Channel i and NTV. International television channels are permitted to operate in Bangladesh through satellite channels; there are no foreign-owned broadcasters.

Energy provision

Electricity generation per head is among the lowest in the world, at about 154 kwh per year. There is huge unmet commercial demand for energy, and the lack of reliable sources of electricity has deterred foreign investment and held back economic growth. Current dependable generating capacity is estimated to be 3,950 mw. The shortfall of generating capacity is estimated to be around 2,500 mw in the next five years, according to the Asian Development Bank. Around 85% of households have no electricity, and only about 60% of the electricity generated is actually paid for. Moreover, system losses are high, at 30% of electricity generated in 2004. Electricity is mostly generated from gas—about 94%—and the remainder comes from hydroelectricity.

The power crisis is likely to persist, despite the addition of new generating capacity since 1997. Peak-hour demand runs at around 3,600 mw. Bangladesh’s Power System Master Plan envisages a doubling of generating capacity by 2010 to meet the increase in electricity demand. Load-shedding (the deliberate switching off of electricity supply to a service area as part of a planned rotation), especially in the summer, is quite common. Factories are often forced to run fewer shifts or to opt for their own expensive generators, driving up the cost of production. In 1996 the government created two new agencies—the Power Grid Company of Bangladesh (PGCB) and the Dhaka Electricity Supply Company (DESCO)—separating power transmission from power generation.

The government issued the Private Sector Power Generation Policy of Bangladesh in 1996 to attract more foreign investment to meet the rising power demand. Among the first so-called Independent Power Projects (IPPs) were a 360-mw gas-fired plant at Haripur, which began operation in October 2001, and a 450-mw gas-fired plant at Meghnaghat, which began operation in November 2002. In May 2005 a US-based company, Global Vulcan Energy International, announced plans to build several power plants with a total generating capacity of 1,800 mw. In 2005 India’s Tata Group proposed a 1,000-mw coal-fired power plant.

The local press is thriving and has considerable freedom

Electricity provision is extremely poor and unreliable

The power crisis is likely to persist

Private-sector power plants are coming online

Bangladesh 23


Power capacity and production (mw)

1999/2000 2000/01 2001/02 2002/03 2003/04Installed capacity 3,711 4,005 4,230 4,710 4,710Dependable capacity 2,665 3,033 3,300 3,600 3,700

Highest production 2,665 3,033 3,218 3,458 3,622

Source: Bangladesh Economic Survey, 2004.

Bangladesh has abundant reserves of natural gas. The stock of gas reserves, according to data from the Ministry of Finance, is estimated at 28.4trn cu ft of gas, of which 20.5trn cu ft is considered recoverable. Gas reserves are thought to be sufficient to meet domestic demand for the next 30 to 50 years. However, the precise extent of gas reserves is a matter of considerable dispute. Estimates by the Oil and Gas Journal put the country’s proven natural gas reserves at 10.6trn cu ft, while the state-owned Petrobangla puts them at 15.3trn cu ft. The US Geological Survey has estimated that Bangladesh has an additional 32.1trn cu ft of “undiscovered reserves.” Demand continues to rise, even though a large proportion of the population does not have access to gas. Petrobangla, the state-owned oil and gas corporation, forecasts that demand for gas will increase to 529.9bn cu ft/year by 2006/07. Delays in the construction of the Ashuganj-Manhardi gas pipeline, originally planned to come into operation in June 2004, forced the government to ration gas supplies in October 2005. Completion of the pipeline has been rescheduled for June 2006. About 50% of the gas produced is used for power generation, followed by fertiliser production, house-hold cooking and other industrial and commercial uses. The Bibiyana gas field, with a capacity of 200m cu ft per day, will begin operation in 2006. The Moulvibazar gas field, with a capacity of 70m cu ft/day, is due to become operational in 2010.

To encourage gas exploration, the government opened the gas sector to foreign investment in the mid-1990s and divided the country into 23 blocks. After two rounds of bidding the government signed eight production-sharing contracts (PSCs) with international oil companies covering gas exploration in 12 blocks. A US company, Rexwood Oakland, has discovered gas at the Sangu gas field in the Bay of Bengal and has supplied gas to the national grid since 1998. Another US company, Occidental, has discovered gas in two gas fields: Bibiana and Moulovi Bazar in Sylhet. In 2004 an Irish exploration and production company, Tullow Oil, discovered gas in Block 9, situated close to Dhaka. In August 2005 the government extended the PSC of a UK-based company, Cairn Energy, for Block 16 in the Bay of Bengal until May 2008.

The bidding process has, however, drawn criticism at home and abroad, and several PSCs, believed to have been hurriedly concluded by the Awami League (AL) government that stepped down in July 2001, have been shelved for further scrutiny. Critics charge that the bidding process has not been transparent, that Petrobangla is corrupt, and that Bangladesh should not export gas until it has secured a sufficiently high level of reserves to support domestic use in the future.

Foreign investment in exploration is encouraged

The bidding process is criticised

Natural gas reserves are plentiful

24 Bangladesh


Gas exports

Pressure for exports to India mounts

The government has come under increasing pressure in recent years to allow gas exports to India. Foreign investors involved in gas exploration in Bangladesh are finding the domestic market too small to recoup their investments. In addition to pressure from the international oil companies, the World Bank and the Asian Development Bank (ADB) have argued that revenue from gas exports would improve Bangladesh’s fragile foreign-exchange position and increase foreign direct investment. The World Bank and the ADB maintain that current recoverable gas reserves would be sufficient to meet Bangladesh’s domestic gas demand for 35-40 years at the current rate of consumption. If gas consumption grows by 8-10% each year, proven gas reserves would be adequate for 15-20 years for the country, according to the banks. The banks also rule out options such as using gas resources for domestic power generation or fertiliser production as a means of generating foreign exchange, and assess pipeline exports to India as the best option. India is expected to have a market of around 250m-300m cu ft/day within five to six years. Until the last general election, held in October 2001, both the Awami League (AL) and the Bangladesh Nationalist Party (BNP) were committed to gas exports only after it had been established that Bangladesh had at least 50 years of reserves for domestic use. Since its decisive election victory the BNP, a pro-business party, seems to have leaned away from a strong commitment to this condition and set up two committees to examine technical and economic aspects of the issue. The results of the committees’ deliberations have failed to provide clear grounds for a decision either way, and it is apparent that the decision is ultimately a political one. Supporters of gas exports will have to overcome the influence of the nationalists, who want to retain this natural resource for domestic use and who are especially opposed to allowing India to make use of it.

The economy

Economic structure Main economic indicators, fiscal year 2004/05 (Jul-Jun)a Real GDP growth (at constant 1995/96 market prices; %) 5.4

Consumer price inflation (av; %)b 3.2Current-account balance (US$ m)c -226.1Exchange rate (av; US$) 61.5

Population (m)d 135.2Foreign debt (year-end; US$ bn) 20.4

Foreign-exchange reserves (US$ bn)e 2.9

a Actual. b Calendar year 2004. c Estimate. d 2003/04 fiscal year estimate. e August 2005.

Source: Economist Intelligence Unit.

Bangladesh’s economy depends heavily on the agricultural sector, which accounts directly for 20% of GDP and provides employment for more than half of the labour force. Moreover, many other industries depend on the purchasing power of the millions of people employed in agriculture. However, the country

Agriculture plays a central role

Bangladesh 25


is one of the most densely populated in the world, and there is little room to expand the area used for crop cultivation. Rice production, which accounts for 70% of the sector’s value added, has risen by about 150% since the mid-1970s, driven largely by productivity increases, although the area under cultivation has risen by a mere 5%. Bangladesh has virtually achieved food self-sufficiency and has diversified the crop base (wheat is now the largest crop after rice). However, unpredictable climate conditions—flooding and droughts—regularly undermine production plans and targets, disrupting the economy and necessitating food imports.

Bangladesh imports most of its required intermediate inputs for the manufacturing process. This is particularly true for the garment sector. Moreover, the agricultural sector relies heavily on imported fertiliser. This strong reliance on imports limits the value added in the domestic production process, exposes firms to fluctuations in exchange rates and the price of raw materials, and has adverse consequences for the balance of payments. Although natural gas production is increasing, Bangladesh still runs a heavy fuel import bill. The government is attempting to diversify the economy and the export base by promoting industries such as information technology and agricultural processing, but these programmes have had limited success.

Comparative economic indicators, 2004 Bangladesh a India a Pakistan b Sri Lanka b Vietnam b

GDP (US$ bn) 56.0 c 672.0 d 96.0 c 20.0 45.0

GDP per head (US$) 402 c 622 d 626 c 975 548

GDP per head at PPP (US$) 1,728 c 3,139 d 2,211 c 3,385 2,737

Consumer price inflation (av; %) 3.2 3.8 7.4 7.6 7.8

Current-account balance (US$ bn) -0.2 1.1 -0.9 -0.6 -1.1

% of GDP -0.4 0.2 -0.8 -3.0 -2.5

Exports of goods fob (US$ bn) 8.2 80.2 13.4 5.7 25.8

Imports of goods fob (US$ bn) -11.1 -97.5 -17.9 -7.1 -28.3

External debt (US$ bn) 20.4 118.9 41.8 a 10.9 17.7

Debt-service ratio, paid (%) 7.8 9.6 20.7 9.3 3.1

a Estimates. b Actual. c Fiscal year (July-June). d Fiscal year (April-March).

Source: Economist Intelligence Unit, CountryData.

The manufacturing sector accounts for around 16% of GDP. Industrial activities are mostly centred in Bangladesh’s two largest cities, Dhaka and Chittagong. The government has set up export-processing zones (EPZs) in both cities and some other parts of the country to attract foreign investors, and offers generous tax concessions to firms that locate to these cities. Large enterprises—those that employ more than ten workers—account for around 70% of the real value of total industrial output.

On the expenditure side, private consumption accounts for around 76% of GDP, a large proportion of which is spent on basic goods such as food. Investment accounts for only 24% of GDP. Bangladesh’s net imports of goods and services are equivalent to a deficit of around 5% of GDP each year, which is financed by remittances from Bangladeshis working abroad and external financial assistance, mainly from international institutions and other countries.

The economy is dependent on imports

Industry is centred in the two main cities

Private consumption drives GDP

26 Bangladesh


Economic policy

One basic problem for policymakers in Bangladesh is how to raise the rate of economic growth in a country where a substantial proportion of the population lives below the subsistence level. Although the incidence of poverty is high, it is declining. According to the Household Income and Expenditure Survey 2000, released in June 2002, 44.3% of the population lived below the poverty line in 2000, compared with 58.8% in 1991. The poverty line is defined as being able to afford to buy food providing a daily intake of 2,122 calories. While the percentage of the total population living in poverty has declined in the last decade, the absolute number of people living in poverty has changed little because of continued population growth. In absolute numbers, Bangladesh has the third-highest number of poor people in the world (after India and China), according to the World Bank.

Moreover, national statistics mask the changing distribution of poverty, which used to be much more prevalent in rural areas, but which has been rising quickly in urban areas. According to government statistics, the percentage of the population living in poverty in urban areas rose from 46.7% in 1991 to 52.5% in 2000, whereas in rural areas the rate fell from 47.6% to 42.3% over the same period. Also, income inequality between the sexes prevails, despite an impressive improvement in social indicators (such as a fall in the maternal mortality rate), especially since the early 1990s.

The degree of Bangladesh’s dependence on foreign aid has declined in recent years, with foreign aid falling as a proportion of GDP to less than 2% in 2001, from 7.6% in 1990. This decline is attributable to more stringent donor conditions and an overall decline in global aid flows. Total aid disbursement was US$1.4bn (2.5% of GDP) in 2003. The bulk of aid has traditionally been set aside to finance the provision of food to the poor. As Bangladesh has increased food production in recent years, its need for food aid has declined.

The government formulates economic policy according to five-year plans, although most plans have failed to achieve their (usually unrealistic) objectives. Real GDP growth in the 1970s and 1980s averaged around 3.4%, well below target. This was because of various problems—the world oil price shock, severe floods and cyclones, political disorder and inept economic management. In the 1990s, however, real GDP maintained annual growth rates of around 4.9%. Bangladesh has achieved near self-sufficiency in food, reduced the rate of population growth, lowered the incidence of poverty and raised export income. The ready-made garments sector is Bangladesh’s main export engine, benefiting from very low labour costs in a highly labour-intensive industry.

Policies of economic liberalisation gained momentum in the late 1980s and have since been pursued by both the Bangladesh Nationalist Party (BNP) and Awami League (AL) governments. In 1991-96 the BNP government implemented policies to reduce the role of government, encourage the private sector and attract foreign investment. The BNP government also attempted to improve the fiscal balance by cutting current expenditure and increasing tax revenue, by

Poverty reduction

Poverty is more prevalent in urban areas

Declining dependence on foreign aid

Higher growth is achieved in the 1990s

Both political parties have liberalised the economy

Bangladesh 27


expanding the tax base and improving collection and administration. Despite strong opposition, the BNP government introduced value-added tax (VAT) in 1992.

The AL government in 1996-2001 pursued economic policies similar to those of the former BNP government. It broadened the VAT net, tightened tax administration and further streamlined tariff rates. It reduced the highest rate of import duty and eliminated some anomalies in the import duty rates for finished goods and raw materials. However, the fiscal deficit remained at around 5-6% of GDP, reflecting expenditure overruns and revenue shortfalls, partly because of overly ambitious targets and partly because of widespread mismanagement and corruption in the administration of tax revenue.

The BNP government that was installed in 2001 has made some progress in liberalising the economy. A politically sensitive textile mill was closed down, and the government managed in May 2003 to float the exchange rate. The budget deficit was reduced to 4-5.5% in 2001/02-2004/05, but given the mismanagement of both revenue and expenditure, it remains to be seen whether this progress can be sustained.

Summary of government finances, 2004/05 Tk bn % change, year on yearTotal revenue 413.0 11.2 Tax 336.4 9.1 Non-tax 76.6 2.0

Total expenditure 572.8 15.5 Developmental expenditure 321.9 8.7 Non-developmental expenditure 220.0 5.9

Budget balance -159.8 14.4

Source: Ministry of Finance, Bangladesh Economic Survey, 2005.

The proportion of development projects financed from domestic resources has been erratic, with domestic financing falling from 49% of the Annual Development Programme (ADP, the government’s capital expenditure programme) in 1996/97 to 31% in 1998/99, before rebounding to an all-time high of 52% in 2002/03. The sharp rise in the domestic share of the ADP is explained by a decline in foreign aid flows.

The main features of the fiscal year 2005/06 (July-June) budget

• There is to be an increased emphasis on poverty-reduction programmes, through increased social safety-net payments and employment generation.

• Expenditure on the education sector will account for 15% of total budgetary outlays, making it the largest spending category.

• Subsidies to the agricultural sector are to double to the equivalent of US$200m. • The amnesty period for businesses and individuals to legitimise undeclared

income (by paying a 7.5% tax on it) has been extended until June 30th 2006. • The annual ceiling on tax-exempt income is to rise from Tk100,000 (US$156) to

Tk120,000. The limit on the total income that attracts the highest tax rate of 25% is to rise from Tk900,000 to Tk1m (US$1,560).

• Customs duties are unchanged at 7.5% on basic raw materials, 15% on intermediate goods and 25% on finished goods.

Development expenditure relies on external financing

28 Bangladesh


• Customs duty on crude petroleum will be reduced from 25% to 7.5%, and duty on refined petroleum products will fall from 25% to 15%. The supplementary duty of 15% on refined petroleum products will be withdrawn.

• The value-added tax (VAT) rate for essentials including salt, powdered milk, diesel and kerosene will rise to 19%.

• The tax rate for non-listed companies is to increase from 37.5% to 40%, to encourage firms to go public.

• A number of measures will be adopted to protect domestic industries, including the imposition of tariffs on items that were previously tariff-free, the increase of existing tariffs, and the imposition of supplementary duties.

Bank Bangladesh (BB, the central bank) continues to set interest rate bands for different types of loans and has been slow to develop a more market-oriented policy that would rely on regular Treasury-bill auctions and the careful monitoring of the bank rate. In the late 1990s several bumper harvests kept inflation in check—food prices are weighted at 64% of the consumer price index—and overall investment sentiment remained subdued. Broad money supply (M3) rose by 15.4% in 2004/05, from 13.9% in 2003/04.

The banking system remains fragile. It is beset with bad debt, corruption and overstaffing. About 22% of the total loans of the country’s banking system were classified as non-performing loans (NPLs) in 2003. This figure dropped to 18% in 2004, as commercial banks wrote off bad loans in accordance with instructions from the central bank between June 2003 and June 2004 in an attempt to improve their balance sheets. In addition, the Money Loan Court (MLC), reinvigorated in 2003 by means of a legislative amendment, seems to be working. However, legal hurdles in recovering defaulted loans remain formidable. Some defaulting borrowers have challenged MLC verdicts in the High Court.

The fragile state of the banking sector stems from the poor collection of bad loans (sometimes owing to political interference if the defaulter is, for example, a powerful state-owned company), corrupt bank officials and a legal system that allows defaulters to delay payment indefinitely. The government has modified the legal system to facilitate bad debt collection, notably by securing the passage of the Bankruptcy Law in 1997 that enabled the creation of specialist loan courts and bankruptcy courts in Dhaka and Chittagong. In March 2003 parliament passed three laws providing for banking sector reforms. The Bangladesh Bank Amendment Act 2003 grants greater autonomy to the BB, and the Bangladesh Bank Nationalisation Amendment Act 2003 and the Bank Company Amendment Act 2003 tighten rules on bank management, eliminate directorial interference and grant more regulatory power to the BB.

In 1972, under a government committed to socialist principles, the economy went through the wholesale nationalisation of industrial, commercial and trade enterprises. Attempts at reducing government involvement in industry and increasing the role of the private sector began in the mid-1970s. However, the public sector still includes over 40% of Bangladesh’s manufacturing and utility assets. In March 2000 parliament passed the Bangladesh Privatisation

The SOE sector still dominates manufacturing

The central bank uses direct monetary policy instruments

The banking system is fragile

Bangladesh 29


Commission Act, with the effect of upgrading the Privatisation Board into the Privatisation Commission with greater power and flexibility. Privatisation efforts are hindered by a lack of political commitment, bureaucratic resistance and labour union opposition. In a bold political move demonstrating a commitment to rationalising the state sector, the BNP-led government closed down Adamjee Jute Mills (AJM), an erstwhile symbol of national pride, in late June 2002. This closure is significant—the AJM was the world’s largest jute mill, employing over 25,000 workers, and was a hotbed of political trade unionism. The government’s current strategy is to close down the loss-making elements of state-owned enterprises (SOEs) and privatise the remaining elements after the general election due in 2006.

The Dhaka export-processing zone (EPZ), which specialises in high-technology firms, was opened in 1993. Five other EPZs are located in Chittagong and in Chalna near Mongla port in Khulna, Comilla, Ishwardi, and Saidpur in Uttara in northern Bangladesh. By June 2004 the EPZs had accumulated total investment of US$749m. The total export income of the EPZs in 2002/03 stood at US$1.2bn, or 18% of Bangladesh’s total exports. The 203 firms located in the EPZs employed 139,986 workers; 42 firms assembled garments, 21 produced textiles, and 13 made leather items and shoes. South Korea was the largest source of foreign investment, followed by Japan, the US, the UK, China, Malaysia and India.

The liberalisation of industrial and investment policies in the 1990s has sharply reduced bureaucratic control over private investment and opened up many investment areas previously reserved for the public sector. The government has liberalised exchange controls on current-account transactions, given the Board of Investment (BOI) the task of facilitating rather than regulating investments, and reduced import controls and abolished import permits. Value-added tax (VAT) has replaced import sales taxes, and most domestic excise duties and tariff rates have been simplified and reduced.

Bangladesh’s merchandise exports are driven mainly by one industry: the ready-made garments (RMG) sector, which accounts for more than four-fifths of total goods exports. The expiry of the global system of quotas for textiles and clothing at the beginning of 2005 was widely expected to push the sector into crisis. The sector, which had been virtually non-existent a few decades ago, was in fact largely created by the Multi-Fibre Arrangement (MFA) of 1974, which granted Bangladesh a guaranteed quota for RMG export sales, mainly to the US and Europe. The quotas shielded Bangladesh from Chinese and Indian competition, and allowed the country to develop a thriving garment sector. By the time the quotas were eliminated, the export of garments had developed into a business with annual value added of US$5bn, accounting for 9.5% of GDP and about 30% of the manufacturing sector’s contribution to GDP.

RMG export data for the first six months of 2005 suggest that exports of knitwear have continued to boom, while the woven garment sector has suffered. Knitwear exports to the EU have continued to expand rapidly, in part because they satisfy the EU’s rules of origin requirements of “manufacture from

Export-processing zones are dominated by garment makers

The government offers private investment incentives

Textile export quotas are abolished

The knitwear sector weathers the storm

30 Bangladesh


yarn”. The knitwear subsector sources about 75% of its yarn and fabrics locally, thereby giving it access to the zero-tariff facilities under the EU’s “Everything but Arms” provision. By sharp contrast, the woven garment sub-sector imports about 85% of its fabrics. High transport costs, import duties, long lead times and high costs associated with storage all weigh on the export competitiveness of the woven garment subsector. Despite the change in trade rules, Bangladesh is likely to remain extremely competitive in the highly labour-intensive garment trade. Labour costs are lower than in China or India. With an increasing focus on its area of comparative advantage—the production of lower-value garments—Bangladesh should be able to maintain a solid export performance.

Economic performance

Real GDP growth accelerated to an annual average of 4.9% in the 1990s, following the rapid liberalisation of the early 1990s. The annual average growth rate of agriculture reached 3.3% in the 1990s, compared with 2% in the 1980s. Manufacturing sector growth rose from an annual average of 3% in the 1980s to 7% in the 1990s. Exports followed a similar trend, growing by an annual average of 16% in the early 1990s, compared with 7% in the 1980s. In 2001/02, however, export growth slowed, reflecting the global downturn and the disruptions to international trade that followed the September 11th 2001 terrorist attacks on the US. The fiscal year that ended in June 2003 saw a rebound in GDP growth to 5.3%, and the economy proved tenacious thereafter, expanding by 6.3% in 2003/04 and 5.4% in 2004/05.

The manufacturing sector grew by an annual average of 7% in the period 2001/02 to 2004/05. Growth was driven by the expansion of exports amid increasing external demand and the provision of industrial credit to the sector. The garment sector is the main contributor of the recent export expansion and growth in manufacturing. However, at around 16% of GDP, Bangladesh’s manufacturing sector remains highly underdeveloped.

The trade deficit widened sharply in 2004/05, as import growth outstripped strong growth in exports. Goods exports were up by 14% year on year in US dollar terms, whereas imports recorded a rise of 20.6%. The increase in imports was largely driven by strong demand for industrial inputs, a significantly higher oil import bill, and a weakening taka. This resulted in a trade deficit of US$3.3bn, compared with a deficit of US$2.3bn in 2003/04. Transfers rose by 14.6% year on year—partly offsetting the rise in the trade deficit—amid solid growth in remittances from Bangladeshis working overseas. The income deficit on the capital account deteriorated by 71% year on year to US$641m, while the services balance—also traditionally in deficit—was virtually unchanged and recorded a deficit US$870m. The current-account balance recorded a deficit of US$518m, following two years of surpluses.

Average income per head in Bangladesh reached Tk24,401 (US$402) in 2003/04. The government, in its annual and five-year planning documents, recognises that a growth rate of around 7% is necessary to achieve any meaningful

GDP growth accelerates following liberalisation

Manufacturing growth is picking up

The trade deficit widened sharply in 2004/05

Low savings and investment rates

Bangladesh 31


reduction in poverty. A major obstacle to achieving this target has been a failure to achieve a significant increase in the rate of savings and investment as a percentage of GDP. The domestic savings rate as a percentage of GDP increased to 19.5% in 2003/04, from 14.6% in 1990/91, and the investment rate rose to 24% from 19.7% during the same period. Private-sector investment was equivalent to 17.8% of GDP in 2003/04, and public-sector investment was 6.1% of GDP. In recent years approximately 75% of total investment has been related to construction, of which the private sector has accounted for two-thirds. Given that there are only limited opportunities to finance increased investment from domestic sources, the priority is to attract foreign direct investment (FDI) by encouraging export-oriented industries, reducing bureaucratic obstacles and selling off loss-making SOEs. Bangladesh has one of the lowest ratios of FDI per head in the world.

Bangladesh has consistently been classified as an underperformer in terms of FDI by the UN Conference of Trade and Development (UNCTAD). The organisation’s Inward FDI Performance Index 2002-04 ranks Bangladesh 122nd out of 140 countries. Its FDI Potential Index 2001-03 ranks Bangladesh 115th. In 2003 Bangladesh’s total FDI stock stood at US$3bn. However, FDI inflows have risen notably in recent years, averaging US$150m a year in 1998-2003. The government recognises the importance of FDI as a source of external finance. However, Bangladesh’s poor investment climate, including investors’ concerns about political instability and high levels of corruption, still act as a major break on higher inflows.

Macroeconomic stability has kept consumer price inflation moderate since the 1990s. Annual inflation remained below 9% in the 1990s, and the annual average rate of inflation was 4.9% between 1993 and 2003. Since 2004 rising inflation has been largely driven by higher food prices in the wake of the July 2004 floods and rising import-led inflation as a result of a weakening taka and rising fuel prices. After averaging 3.2% in 2004, consumer prices rose sharply to over 6% year on year in the first half of 2005.

Moderate consumer price inflation until 2004 allowed real wages to improve, following a period in the mid-1990s when nominal wage growth tended to lag behind consumer price inflation. In 2003/04 higher inflation offset to some extent nominal wage increases in manufacturing (7.5%), agriculture (5.7%), construction (1.7%), and fisheries (8.2%). The higher real wage increase for manufacturing relative to agriculture reinforces the trend of poverty incidence falling at a faster rate in urban areas than in rural areas, according to the Asian Development Bank.

Regional trends

There is considerable inequality in income levels across Bangladesh. Income per head is highest in the centres of economic activity—Dhaka, Chittagong and Khulna. Dhaka is the seat of the government, has the largest international airport and lies at the hub of the transport network. Chittagong is the main port

Infrastructure influences wide regional disparities

FDI has underperformed

Floods and fuel prices are boosting inflation

Real wages begin to improve

32 Bangladesh


and commercial centre, and the location of the first EPZ. Inhabitants of Chittagong enjoy an income per head well above the national average, largely because of the economic benefits of the port. Moreover, the airport at Chittagong was upgraded to handle international traffic in 2001, which may bring benefits in the form of tourism receipts.

By contrast, people living in northern districts such as Rangpur and Pabna, situated along the Ganges-Jamuna rivers, have incomes per head that are lower than the national average. The industrial sector in the northern and western areas of Bangladesh is highly underdeveloped. The opening of the 4.8-km Jamuna bridge in June 1998 has improved access to the northern and western areas of Bangladesh, which may support economic growth in the region. The bridge provides a rail and road link and carries a gas pipeline. All three main river systems in the delta, the Meghna, Jamuna and Ganges (known locally as the Padma), now have bridges, following the opening of the country’s second-longest bridge connecting Kushtia and Pabna districts across the Padma river at Paksey in May 2004.

Economic sectors

Agriculture

Agriculture (including fishing) accounted for some 20% of GDP in fiscal year 2004/05, (July-June) compared with more than 30% in the early 1990s. The sharp decline is explained by the incorporation into the GDP calculation since 1995/96 of many informal sector activities that were previously unaccounted for. Crop production contributed 11.2% of GDP in 2004/05. Forestry, the smallest subsector, has maintained steady growth of around 6% a year over the past five years, compared with an annual average growth rate of 4.6% for the largest subsector, crops and horticulture.

Serious flooding is a constant threat to agricultural production, destroying crops, livestock and human life and placing unforeseeable strains on foreign-exchange requirements and exports, particularly when jute or tea crops are damaged. Furthermore, damage to capital assets such as infrastructure, raw materials, and machinery and equipment tends to constrain agricultural performance even beyond the year in which the flooding occurs. Cyclones and tornadoes occur frequently, and their impact on agriculture is hard to predict. Despite a noticeable improvement in recent years crop yields, particularly with regard to food crops, remain well below attainable levels. The application of chemical fertilisers is infrequent and unbalanced, and although chemical fertiliser use is increasing, the fertility of the land has fallen in recent decades. Manure from animals is still by far the largest source of fertiliser. The distribution and marketing of fertiliser was privatised in the late 1980s, but government controls were resumed after a crisis in 1995, when the government had to distribute fertiliser.

People in the northern districts have low incomes

Agriculture remains important

Serious flooding is a constant threat

Bangladesh 33


The total land area of Bangladesh is about 14.8m ha, of which two-thirds is under cultivation. A population explosion, urbanisation and river erosion have reduced the proportion of cultivated land over the years. Around 5% of farm households own and operate about one-quarter of all agricultural land in Bangladesh. Ownership of agricultural land is highly fragmented because of population increases and a cumbersome inheritance system. The fragmentation of farms and the insecurity of tenure discourage investment that would boost the long-term productivity of the land. The use of more intensive methods of cultivation and modern technology to raise agricultural output has begun to marginalise the peasantry, so that small farmers who use traditional farming methods are finding it difficult to stay in business. The liberalisation of seed policy has allowed the introduction of new high-yielding varieties of rice and wheat, and has contributed to increased production.

The area under irrigation has expanded from 17% of cropped land in the late 1980s to over 60% in 2002. Modern methods of irrigation, such as pumps and shallow and deep tube wells, are gradually replacing traditional ones. Increased irrigation has helped to raise yields, especially for the boro (dry season) rice and vegetable crops. However, the long-term future of tube-well irrigation, which supplies over 90% of the irrigated area and has been the linchpin of agricultural growth, is now uncertain. Many believe that the arsenic-poisoning crisis is related to the use of underground water for irrigation (see Resources and infrastructure: natural resources and the environment).

The introduction of high-yielding varieties of rice, coupled with increased irrigation and fertiliser application, has resulted in rising rice production in the past two decades. Cereals production increased from 17.8m tonnes in 1990/91 to 27.6m tonnes in 2003/04, but fell back to 26.6m tonnes in 2004/05. The main contribution to output comes from high-yielding boro rice varieties, production of which rose from 6.3m tonnes in 1991 to 14m tonnes in 2004/05. However, rice production remains susceptible to drought and floods, as demonstrated in 1998, for example, when floods wiped out much of the aus (late dry/early monsoon season) and aman (monsoon) harvests and the government was forced to import 1m tonnes of food. Output of wheat, the second-largest food grain, has grown rapidly from an annual average of 100,000 tonnes in the early 1970s to 1.3m tonnes in 2003/04. This has been achieved by planting high-yielding varieties and bringing new areas of land under cultivation.

Cereals production and imports (m tonnes)

1999/2000 2000/01 2001/02 2002/03 2003/04Cereals production 24.9 26.7 25.9 26.7 27.9Cereals imports 2.1 1.5 1.8 3.2 2.8

Source: Government of Bangladesh, Bangladesh Economic Survey, 2004.

Tea is a cash crop and an export commodity, and exceptionally strong demand pushed up tea exports in the late 1990s. The production of tea amounted to 54,500 tonnes in 2004/05, which is still below potential, despite a major rehabilitation programme carried out in the 1980s. In 2004/05 tea exports

Land and farm ownership is highly fragmented

The irrigated land area is expanding rapidly

High-yielding varieties of rice and wheat are introduced

The production of tea remains below potential

34 Bangladesh


fetched only US$15.8m, compared with an average of US$44m in 1997/98-1998/99. Poor climatic conditions, management problems in the tea estates, falling demand for Bangladesh’s tea abroad and low tea prices are some of the problems afflicting the industry. Domestic demand, however, has been increasing.

Other important crops include sugarcane, tobacco and cotton. Sugarcane output is subject to wide swings from year to year; production in 2003/04 was 6.5m tonnes. Low mill prices have diverted some cane from crushing at the mills for use in the production of gur, a local sweetener. Smuggling of cheaper sugar from India is a constant problem for the industry. Annual tobacco output stood at 39,000 tonnes in 2003/04. It has a ready domestic market. Cotton is a fairly new crop, and output has ranged between 13,000 tonnes and 30,000 tonnes in recent years, but production rose sharply to 78,000 in 2003/04. The increase reflects recent efforts to raise domestic production in order to reduce Bangladesh’s high import bill for the commodity, which is used to supply the textile and garment industry.

In 2004/05 the livestock sector accounted for 2.3% of GDP and 12.2% of agricultural output. Although it is only a minor source of food, livestock plays a critical role in agriculture. Livestock are often the only source of non-human farm energy, providing most of the draught power for ploughing, crushing and rural transportation. Farm animals produce manure, the largest source of fertiliser. They also provide hides and skins, which are sources of export income. The livestock sector has the potential to contribute to increased employment and poverty alleviation in rural areas. Around 25% of the population is directly involved in this sector.

Forests—including plantations—cover approximately 1.97m ha, or around 13% of the total land area in Bangladesh. Plantations account for 45% of the forested area. In 2004/05 forestry contributed 1.6% of GDP and 8.4% of agricultural output, and the sector grew at a rate of 6% in nominal terms. The government began a 20-year plan in 1993 to expand forestry and preserve the ecological balance. In addition, massive tree plantation programmes are under way under the forestry policy initiated in 1994. The commercial felling of timber is limited, amounting to around 6.1m cu ft in 1994/95. The timber is used as sawn timber and for the production of pulp for the paper and printing industry. Besides providing industrial and commercial raw materials, forestry remains a major source of firewood for the rural population.

With around 4.4m ha of rivers, canals, ponds and water reservoirs, and territorial waters that extend for 12 nautical miles into the Bay of Bengal, Bangladesh offers good prospects for fisheries development. In 2004/05 this sector contributed 4.2% to GDP and accounted for 4.9% of export income. Exports of frozen shrimps and fish are especially important: in 2004/05 they brought revenue of US$421m in 2004/05, more than twice as much as a decade earlier.

Other crops include sugarcane, tobacco and cotton

Forestry: tree plantation programmes are under way

The livestock sector has the potential to grow

Fisheries: frozen prawns are an important export

Bangladesh 35


Mining and semi-processing

The mining and quarrying sector contributes slightly over 1% to GDP. Mining and mineral exploration are carried out under the auspices of the publicly owned Petrobangla (the Bangladesh Mineral Exploration and Development Corporation), and under production-sharing contracts (PSCs) with international oil and gas exploration companies. The only minerals commercially exploited are limestone and china clay, although mining of coal from Barapukuria in Dinajpur has also begun. The sector is set to grow rapidly once Bangladesh’s coal fields have been developed. India’s Tata Group in 2005 was negotiating with the government to fully develop the Barapukuria coal deposit as part of their proposed US$2.5bn investment in Bangladesh. The UK-based Asia Energy Cooperation has plans to develop a large coal deposit in Phulbari, northern Bangladesh, which has been estimated to hold 572m tonnes of coal. The company plans to extract high-quality coal at an initial rate of 1.5m tonnes per year in 2008, gradually increasing to 15m tonnes.

Manufacturing

Historically, the manufacturing sector has been mainly involved with processing domestically produced agricultural raw materials. In the late 1980s industrial activities expanded into new, non-traditional areas, such as ready-made garments (RMG) and fertiliser manufacturing. The manufacturing sector recorded a growth rate of 8.4% (at constant prices) in 2004/05, up from 7.1% in 2003/04. Manufacturing growth averaged 6.9% in the past five fiscal years.

In the mid-1990s large enterprises grew faster than small enterprises, which typically use little capital to produce simple goods wholly for the domestic market. However, in 1997/98-2001/02 the annual average growth rate of small-scale enterprises, at 5.5%, was on a par with that for large-scale enterprises. The manufacturing sector accounts for some 16% of real GDP. The dominance of the state sector inhibits growth in the private sector, especially as state-owned enterprises (SOEs) receive large amounts of public resources and favourable bank terms, crowding out the resources available for the private sector. This is one of the major reasons for slower growth; other problems include industrial unrest, unwieldy labour unions and a corrupt bureaucracy.

The SOEs still dominate the manufacturing sector and are among the worst performers in terms of investment, growth and efficiency. The coalition government is being urged by donors to continue with the privatisation of SOEs and the four nationalised commercial banks (NCBs), but SOE privatisation faces stiff resistance from political opponents at home as well as from trade unions, and the government appears to have placed the reform programme on the back burner. Aid flows from multilateral donors are conditional on progress with recovering loans held by NCBs that have been defaulted on by large borrowers, and on the control of inflation. Annual losses at the 40 state-owned non-financial corporations—banks are usually treated separately—reached Tk8.2bn (US$138m) in 2003/04, reversing a profit of Tk775m in the previous

The mining sector is set to grow

Non-traditional sectors grow fast

Small enterprises are keeping up

SOE losses remain significant

36 Bangladesh


fiscal year. Preliminary data indicate that the net loss in fiscal 2004/05 stood at around Tk30bn, of which Bangladesh Petroleum Corporation alone accounted for 93%.

Recent government policy to revitalise manufacturing has focused on promoting private-sector investment, mainly through incentives for export production and a gradual lowering of import tariffs and controls. The government is aiming to increase the contribution of the manufacturing sector to GDP and the proportion of the labour force employed in the sector over the next decade. It also aims to eliminate differences between the treatment of domestic and foreign investment, and to diversify the industrial base.

Bangladesh is the second-largest producer of manufactured jute goods in the world after India, and the largest exporter. Export revenue from jute products has, however, declined in recent years. In 2004/05 export earnings from jute products totalled US$307m, compared with a peak of US$339.6m in 1994/95. In the long term, the jute product sector faces competition from synthetic substitutes and needs to address the problem of inefficient production, despite the fact that jute products have won international recognition from the environmental movement. Jute goods produced in Bangladesh include carpet backing, twine and sacking, and efforts are focused on improving the quality of raw jute to allow it to be used in the production of paper.

Between 1982 and 1986, 35 of the country’s 66 jute mills were privatised. In late June 2002 the government closed the largest jute mill, the Adamjee, in preparation for dividing its assets for sale. But the government remains the largest shareholder of many of the privatised mills and wholly owns the Bangladesh Jute Mills Corporation (BJMC). As a result the jute sector remains a drain on the national exchequer. In January 2002 the government banned the production and marketing of polythene bags in order to improve domestic demand for jute products.

There has been a rapid proliferation in export-oriented RMG manufacturing enterprises (typically small) over the last two decades. Most of the inputs used in the manufacturing process have to be imported. Clothing has become Bangladesh’s most important export item, accounting for around two-thirds of export earnings. Bangladesh has been particularly successful in supplying garments to the US and the EU. In 2003/04 the value of garment exports reached US$3.5bn.

The abundance of natural gas in Bangladesh has led to the establishment of a chemical industry using natural gas mainly in the production of urea fertiliser, for which there is strong domestic demand. Bangladesh’s production of urea reached 2.2m tonnes in 2003/04. Six fertiliser factories operate under the state-owned Bangladesh Chemical Industries Corporation (BCIC). There is also the Karnaphuli Fertiliser Company (KAFCO) at Chittagong, a joint venture between the government and foreign investors from Japan and Italy. Now that natural gas has become more available, the government is encouraging domestic and

Bangladesh is the largest exporter of jute products

Ready-made garment makers proliferate

Recent policy has focused on promoting private investment

SOE jute mills are a drain on the national exchequer

The chemicals industry mainly produces fertiliser

Bangladesh 37


foreign investment in an effort to establish more fertiliser factories, mainly for export purposes.

Small manufacturing enterprises include those producing matches, cigarettes, bicycles, tyres and tubes, batteries, pumps, motors and engines, radios and television sets, and other electrical items. Recently there has been some expansion into electronics, with a number of foreign investors setting up light electronics assembly plants in the export-processing zones (EPZs), encouraged by the lower wage levels in Bangladesh compared with those in many other Asian countries.

Construction

The construction sector has been experiencing strong growth since the early 1990s, especially in urban areas, where high-rise apartment complexes are being built to meet the demand of a growing middle class. The construction sector’s share of GDP was 9% (at constant prices) in 2004/05, compared with 7.8% in 1999/2000. The growth rate of the construction sector has been steady above the 8% mark in recent years. Although the new buildings have further strained the power, gas, water and sanitary services in the major cities, the construction industry has also generated growth in related industries, such as transport, storage, communications, housing and trade services. The industry has received a boost from government policies encouraging build-operate-own (BOO) and build-operate-transfer (BOT) power and gas, bridges and road projects.

From around 200,000 tonnes in 1992/93, cement production increased to 2.5m tonnes in 2002/03. The booming domestic construction industry has encouraged international investors to invest in the local cement sector, with the result that Bangladeshi cement imports have fallen sharply in recent years. In the period 2001/02-2003/04 cement imports averaged US$3.6m per year. This compares with average annual cement imports of US$133m in the second half of the 1990s.

Financial services

The financial services sector is small and undeveloped. Despite reforms, it remains equivalent to less than 2% of GDP. The monetary authorities have undertaken reforms such as deregulating interest rates, strengthening loan classification standards and reducing the control of the Bangladesh Bank (BB, the central bank) over financial transactions and loan recovery measures. Non-performing loans (NPLs) represented 18% of total bank loans outstanding at end-December 2004, compared with 30% end-December 2000. Much of the recent reduction occurred as commercial banks wrote off Tk65.8bn in accordance with instructions from the BB between June 2003 and June 2004 in an attempt to improve their balance sheets. Nevertheless, the financial system still suffers from high levels of NPLs, and the official figures are likely to understate the problem. An extremely low loan recovery rate, a failure of local banks to meet

The construction sector is growing rapidly

There is small-scale production of other products

Bangladeshi cement imports fall precipitously

Banks shoulder a large burden of non-performing loans

38 Bangladesh


capital adequacy requirements, rampant insider trading, fraudulent transactions and other systemic inefficiencies lie behind the high level of NPLs. Much of the defaulted loans are owed by loss-making SOEs and some large private-sector defaulters, both of which wield considerable political influence.

Bangladesh Bank is the central bank and currency-issuing authority, but it has proved to be ineffective in its use of monetary policy and its control of the banking and financial sectors. It is overstaffed, inefficiently managed and highly unionised. However, the passage of three laws on banking sector reform in March 2003 represented an attempt by the government to improve the BB’s regulatory supervision of the banking sector (see The economy: economic policy) and to increase the BB’s autonomy from the Ministry of Finance.

State-owned banks—known as nationalised commercial banks, or NCBs—dominate the financial sector. Given that the government is the owner, regulator and major customer of the NCBs, there has been ample opportunity for mismanagement and political interference. Major reform programmes, such as the financial sector reform programme (FSRP) and the commercial banking restructuring project (CBRP) have sought to address this. Despite these programmes the banking sector remains hampered by poor credit discipline, an archaic loan recovery system, corruption, inefficiency, overstaffing and unionisation. The finance ministry approves all NCB budgets; salaries of NCB officials are tied to government pay scales, and there is no system for encouraging good performance or penalising poor performance.

The four NCBs are the Agrani Bank, Janata Bank, Rupali Bank and Sonali Bank. Two former NCBs were privatised in the 1980s: Pubali Bank and Uttara Bank. The remaining four NCBs accounted for around 43% of total deposits (including government deposits) at end-December 2004. The NCBs, whose lending is often directed by the government, have large portfolios of NPLs. The banks have made some progress recently, with NPLs falling to 25% of total loans at end-2004, from 39% at end-2000. The four NCBs were recapitalised several times in the 1990s, but they still suffer from capital inadequacy. The government has in principle agreed to privatise in full or in part three of the four NCBs—Rupali, Agrani and Janata—in line with its commitment to implement the reform strategy set out in the IMF’s Interim Poverty Reduction Strategy Paper (I-PRSP), but progress has been slow.

The growth of private banks since the 1980s has injected much-needed competition into the banking sector. In addition to the four NCBs, Bangladesh now has 30 private commercial banks, ten foreign banks and five development financial institutions (DFIs). The private banks offer more competitive interest rates, thus challenging the position of the established state banks. Private banks operate exclusively in urban areas, primarily in Dhaka and Chittagong. They fare better in terms of operational efficiency, as indicated by lower staff ratios and more competitive compensation levels. But they also suffer from capital inadequacy and insider trading. Some private banks manipulate their dividend declarations and share prices through unfair and underhand dealings. The BB recently issued a directive requiring commercial banks to display details of their

The NCBs have large NPL portfolios

New laws aim to improve central bank effectiveness

The nationalised commercial banks dominate banking

The private banks

Bangladesh 39


financial status (deposits, advances, default loans) in front of each of their branches, and instructed private banks to reduce the number of their directors to a maximum of 13 and bring in qualified people to sit on the board. The activities of foreign banks tend to be restricted to offshore and foreign trade business. Foreign banks are, however, gradually emerging as competitors in the local deposit and credit markets.

The five DFIs are specialised sector banks. Three are for industry: Bangladesh Shilpa Bank (BSB), Bangladesh Shilpa Rin Sangstha (BSRS) and the Bank of Small Industries and Commerce Bangladesh (BASIC). The other two are for agriculture—Bangladesh Krishi Bank (BKB) and Rajshahi Krishi Unnayan Bank (RAKUB). All of these banks are publicly owned, have negative net worth and high default rates on their loans. Other specialised banks in Bangladesh include the non-scheduled banks, such as Grameen Bank. The founder of Grameen Bank, Mohammad Yunus, pioneered the concept of micro-credit as a way of solving poverty. The Grameen Bank, which has more than 2m borrowers, more than 90% of them female, is now imitated by micro-credit schemes in dozens of countries.

There are around 30 private insurance companies, including one that is foreign-owned. Only about half a dozen companies offer life insurance. The bulk of insurance activity is, however, in the hands of two state-owned companies, Jiban Bima Corporation (life insurance) and Sadharan Bima Corporation (general insurance). The largest private insurance company is Green Delta.

There are two bourses in Bangladesh: the Dhaka Stock Exchange (DSE) and the Chittagong Stock Exchange (CSE), which opened in October 1995. The capital market is monitored by the Securities and Exchange Commission (SEC), established in 1993. The BB is responsible for regulating leasing and venture-capital companies. The demand for shares, however, remains weak because of the preference for and the availability of low-risk, high-yield government bonds and savings schemes. The stockmarkets are poorly developed, and liquidity is low. The market capitalisation of the stock exchanges relative to GDP, at 4.2% in 2004, is low.

Bangladesh’s stockmarket has improved after years of lacklustre performance. In early September 2004 the share prices of 21 companies surpassed the previously recorded high of December 1996, when the stockmarket bubble burst. The general index of the DSE ended at 1,663.1 on October 20th 2005, down from record-levels of 1,919 in March 2005. Similarly, the DSE-20 index, the country’s blue-chip index introduced in January 2001, closed at 1,264.8 on October 20th, down from all-time highs in early 2005.

In July 2004 the SEC amended the central depository system (CDS) regulations to facilitate share settlement and the conversion of physical shares into paperless scrips. It also replaced the provision of declaring book closure by a newly introduced "record day"—a day once every year when a publicly traded company will record the names of its shareholders eligible for dividend. Following the amendment, any investor willing to convert physical securities

The specialised banks

Life insurance

The stockmarkets are poorly developed

The stockmarket reaches new record in March 2005

The SEC regulations are amended

40 Bangladesh


into an equivalent number of securities in electronic form must have a beneficiary owner account in the same name.

Other services

The tourism sector is small, but between 1991 and 2004 the number of visitors to Bangladesh increased from 110,000 to 271,270. Receipts from foreign tourists increased from Tk594m in 1991 (US$16.2m at 1991 exchange rate) to Tk3.97bn in 2004 (US$66.8m at 2004 exchange rate). The sector has received a boost in recent years with the end of the tribal insurgency in the Chittagong Hill Tracts (CHT) area, which has lakes, mountains and other sights that have traditionally attracted both foreign and local visitors. Chittagong Airport has been upgraded to allow international services, as has the airport at Sylhet. The most important origin of foreign visitors is, predictably, India, with some 80,500 visitors in 2004, followed by the UK, US, Canada, Japan, Australia and Thailand. Bus services that have connected Dhaka with Kolkata (Calcutta), the capital of India’s West Bengal, since June 1999 and with Agartala, the capital of the Indian state of Tripura, since July 2001 have made it easier for Indian visitors to travel to Bangladesh.

The external sector

Trade in goods

Bangladesh suffers from a chronically weak foreign trade account because of its dependence on imports for most essential goods and the generally poor prices for its traditional staple exports of jute, jute products and tea. Its largest export, ready-made garments (RMG), requires a large proportion of imported inputs and has been facing a freer world market following a change in World Trade Organisation (WTO) trading rules for textiles and apparel at the beginning of 2005.

Liberalisation of the import regime, coupled with the growing demand for industrial inputs—notably capital goods—in the 1990s, has increased the pressure on the merchandise trade account. The average rate of growth in the early 1990s, when the government removed quantitative restrictions on imports and reduced import tariff rates, was high. In the late 1990s the annual average rate of import growth fell to less than 5% because of weak industrial activity, subdued investment and increased illegal trade with India. Since then the pattern has been volatile, largely determined by the demand for imported inputs for export production, which is in turn affected by global economic growth. In 2004/05 imports grew strongly, by 20.6%, driven by sharply higher international oil prices and a weakening taka, which resulted in a widening of the trade deficit to US$2.1bn, from US$1.3bn in 2003/04.

Export earnings from the RMG sector amounted to Tk333bn (US$5.6bn, or 66% of total exports) in 2004. RMG exports are, however, highly import-dependent. It is estimated that the net benefit to the Bangladeshi economy from export

The foreign trade account is chronically weak

Garment exports face freer trade

Bangladesh 41


revenue is only around 25-30% of the gross value. The garment industry employs around 2m workers, of whom about 90% are female. There were concerns that the phasing-out of the WTO quota agreement governing trade in textiles at the start of 2005 would be damaging for Bangladesh’s RMG sector. However, the latest available trade data at end-October 2005 do not support the gloomy predictions made ahead of the abolition of quotas. Exports of ready-made garments jumped by 27.2% year on year in 2004/05, a slightly faster pace of growth than in 2003/04, when shipments increased by 25.6%.

Bangladesh has developed a sizeable export trade in frozen and processed fish products, of which prawns are by far the most important item. Fish and prawns were the second most important export in 2004/05, accounting for 5% of total exports, and further export growth should be possible, barring any problems in meeting the hygiene standards of export. The jute industry’s share of total export earnings fell to 3.3% in 2004/05. Earnings from jute, tea and hides are highly susceptible to price fluctuations in world markets. Recent government initiatives have encouraged increased production in the leather industry, where export earnings have grown steadily to account for 3.2% of total export earnings in 2004/05.

Quantitative restrictions were removed from a large number of imported goods, and in 2001 tariff rates were simplified, although scores of surcharges remained on many products. In mid-2002 and mid-2004 the government rationalised the tariff structure further, but tariff rates will need additional rationalisation because both nominal and effective rates of protection remain higher than in competitor countries such as Indonesia, South Korea, Malaysia and Thailand. Under pressure from multilateral donors, the government finally floated the taka at the end of May 2003.

Invisibles and the current account

Bangladesh runs a large deficit on the invisibles (services and income) account, primarily comprising the costs of freight and insurance on imports, expenses relating to technical and financial services for development projects, as well as interest on foreign debt.

Current account, 2003 (US$ m)

Merchandise exports fob 7,050.1Merchandise imports fob -9,492.0

Trade balance -2,441.9Services balance -699.8

Net income -304.8Net transfers 3,578.0Current-account balance 131.6

Source: IMF, International Financial Statistics.

Non-traditional exports face volatile prices

Trade regime is liberalised

Bangladesh runs a large invisibles deficit

42 Bangladesh


The deficits on the merchandise trade and invisibles accounts have been largely offset by current transfers. The bulk of current transfers is made up of remittances from Bangladeshis working abroad (private transfers), with the remainder comprising foreign grants and food aid (official transfers). Workers’ remittances have grown steadily in recent years, to US$3.8bn in 2004/05, as more Bangladeshi nationals sought employment opportunities overseas and the government encouraged greater use of official channels for remittances that had previously passed unregistered through hundi (unofficial) channels.

In 2002 the current account recorded a surplus of US$739m, equivalent to 1.6% of GDP, as net current transfers increased sharply. Following a surplus of US$131.6m in 2003, the current-account deteriorated sharply in fiscal 2004/05 (July-June), reflecting a rising oil import bill, strong demand for industrial inputs and a weakening taka, according to balance of payments data released by Bangladesh Bank (BB, the central bank).

Capital flows and foreign debt

Almost all inward capital flows consist of foreign loans for development projects, much of which is channelled through the Consortium of Development Partners. Between 1979 and 2004 a total of US$24.5bn in foreign aid was disbursed by international donors, of which nearly half was in the form of grants, the rest in the form of loans. Much of the project aid committed over the last few years has not been disbursed because of bureaucratic delays and the government’s inability to raise sufficient domestic resources to match donor assistance.

In recent years donors have refrained from entering into firm commitments, making the inflow of aid dependent on the pace of economic reforms and improvements in governance. For example, the end-May 2003 floating of the taka was implemented once the multilateral donors made financial assistance dependent on reform of the currency. Aid inflows now tend to take the form of loans, contributing to total debt-service liabilities. More than 90% of the external debt stock is long-term official bilateral and multilateral debt on concessional terms with long maturities, low rates of interest and ten-year grace periods. This makes the debt burden considerably easier to bear.

According to government figures, foreign direct investment (FDI) into Bangladesh increased by 6.5% to US$410m in 2004/05. However, FDI inflows remain negligible as a percentage of GDP and are unlikely to become a dynamic driver of growth in the medium term. Foreign interest in Bangladesh’s gas reserves has attracted the majority of FDI inflows but is being constrained by the government’s reluctance to allow gas exports to India.

The Bangladesh Nationalist Party (BNP) government seems more favourably inclined towards allowing gas exports than its predecessor, the Awami League (AL), but no decision has yet been taken, and the issue remains highly controversial. The heavy concentration of FDI in the sector has raised concerns about the government’s ability to meet foreign-currency repayment obligations.

Foreign aid and loans dominate inward capital flows

Donors make assistance conditional on reforms

Gas reserves are the main driver of FDI inflows

Remittances largely offset the trade and invisibles shortfalls

Bangladesh 43


Pressure on the government to agree to gas exports is mounting, with investors arguing that the domestic market is too small to ensure a return on their investments. Both the World Bank and the Asian Development Bank have advised the government to export gas to improve the country’s foreign-exchange reserves and encourage more foreign investment. Other than the gas extraction sector, the rapidly growing telecommunications sector and export-processing zones (EPZs) have benefited from FDI in recent years.

Foreign reserves and the exchange rate

Chronic current-account deficits from 1995 were reflected in a large reduction in foreign reserves, which fell to below US$1bn in early January 2002, providing less than two months of import cover. Since then hard-currency remittances from Bangladeshi workers abroad, principally in the Middle East, have helped to offset lower aid disbursements. Also, the government has used administrative measures to restrict imports of designated luxury goods. As a result, by October 2004 foreign reserves had increased to a nine-year high of US$3.3bn. Since then sustained high oil prices and a weakening taka have put pressure on the foreign-exchange position. Foreign reserves stood at US$2.9bn at the end of August 2005.

In 1995 the BNP government began a policy of devaluing the taka against the US dollar, the main currency in the basket of currencies against which the taka was measured. The taka was thereafter devalued in stages, with the sharpest adjustment occurring in August 2000, when the taka was devalued by 6% in response to an earlier depreciation of the Indian rupee, raising the official purchasing rate to Tk53.85:US$1. In 2001 the taka was devalued twice, bringing the year-end exchange rate to Tk57:US$1. Pressure continued owing to falling export prices and dwindling foreign-exchange reserves against a backdrop of a global slowdown, and the currency was devalued to a mid-rate of Tk57.9:US$1 in April 2002. The rate was then held steady until May 2003, although Bangladesh came under pressure from the World Bank and the IMF to float the currency. A planned float in November 2002 was cancelled because of a run on the taka, and the government said that it would not contemplate freeing the exchange rate until foreign reserves had been built up to US$2bn. Pressure from multilateral institutions to press ahead with currency reform continued, and strong inflows of remittances allowed foreign reserves to increase. Consequently, the central bank announced a free flotation of the currency from May 31st 2003.

The taka remained relatively stable until the end-2004, when it stood at Tk60.7:US$1. However, since the start of 2005 the currency has weakened substantially against the US dollar. The currency depreciated to Tk66:US$1 in early October. The depreciation can be explained mostly by the sharp rise in inflation. This led to a further widening of an already high inflation differential between Bangladesh and the US, which weighed on the taka. The trade and current-account deficits have widened, putting additional pressure on the currency.

Foreign reserves improve

The taka was floated in 2003

The taka has weakened notably since the start of 2005

44 Bangladesh


Regional overview

Membership of organisations

The South Asian Association for Regional Co-operation (SAARC), which comprises India, Pakistan, Sri Lanka, Bangladesh, Nepal, the Maldives and Bhutan, was established in 1985 at a meeting in the Bangladeshi capital, Dhaka. SAARC's aims include promoting welfare, accelerating economic growth, eradicating poverty and improving relations between member states.

Summit meetings are intended to be held annually and are complemented by technical committees, meetings of foreign ministers and a standing committee comprising the foreign secretaries (who are civil servants) of each country. SAARC's activities are co-ordinated by an under-resourced secretariat, established in 1987, based in Kathmandu, Nepal, and led by the secretary-general, Nihal Rodrigo.

In the early years SAARC members agreed to establish a food security reserve (which was never implemented) and a meteorological centre, to combat terrorism and to create various cultural exchanges between member states. Along with micro-level issues, SAARC has also proposed the creation of a South Asian Free-Trade Area (SAFTA). SAFTA is seen as a potential replacement for the 1995 South Asian Preferential Trading Arrangement which had, by 1996, identified more than 2,000 products as eligible for preferential treatment. The initial target date for SAFTA to be put in place was 2001. After the 1997 SAARC conference, an eminent persons group was constituted to plot the way forward. The group argued that closer economic ties were the key to the future, and proposed that a free-trade area be in place by 2008 (2010 for the least developed member states), a customs union in place by 2015 and an economic union by 2020. Political factors weigh against even this prolonged timetable.

Tensions between India and Pakistan have continually hampered SAARC's progress on wider issues. However, it has been relatively effective in providing a forum for meetings of non-governmental organisations and professional groups. There is pressure on SAARC from the smaller countries of the association to deal with bilateral issues—much of this pressure stems from the problematic relationship between India and Pakistan. The animosity between the two countries is preventing multilateral progress and resulting in an increasing emphasis on bilateral trading relationships that bypass SAARC. India has signed separate free-trade agreements with Sri Lanka (2000) and Nepal (1996). Bhutan and India also have a free-trade agreement, and Bangladesh and India have both expressed interest in a deal. Much of SAARC's work is likely to be superseded by World Trade Organisation (WTO) regulations.

SAARC's ability to reposition itself as the preferred conduit for bilateral relationships within South Asia is likely to determine the success, or otherwise, of the organisation. SAARC's success in arranging more civil society links within South Asia contrasts with its failure to boost government-level ties.

The South Asian Association for Regional Co-operation

Bangladesh 45


Appendices

Sources of information

Bangladesh Bank, Annual Report

Bangladesh Bank, Economic Trends (monthly)

Bangladesh Bureau of Statistics, Child Nutrition Survey of Bangladesh, 2000

Bangladesh Bureau of Statistics, Labour Force Survey, 2002/03

Bangladesh Bureau of Statistics, Monthly Statistical Bulletin

Bangladesh Bureau of Statistics, Population Census, 2001

Bangladesh Bureau of Statistics, Statistical Pocketbook of Bangladesh, 2003 (annual)

Bangladesh Bureau of Statistics, Statistical Yearbook, 2002

Ministry of Finance, Annual Budget

Ministry of Finance, Bangladesh Economic Survey (annual)

Bank for International Settlements, International Banking and Financial Market Developments (quarterly)

IMF, International Financial Statistics (monthly)

International Institute for Strategic Studies, Military Balance (annual), London

OECD, Financial Statistics Monthly

OECD, Geographical Distribution of Financial Flows to Developing Countries (annual)

UN Food and Agriculture Organisation, Quarterly Bulletin of Statistics, Rome

World Bank, World Debt Tables (annual), Washington

World Bank, World Development Report (annual), Washington

World Bank, World Tables (annual), Washington

Shekhar Shah et al, Bangladesh: From Counting the Poor to Making the Poor Count, World Bank Country Study, 1999

Moudud Ahmed, Democracy and the Challenge of Development: A Study of Political and Military Interventions in Bangladesh, Dhaka University Press, 1995

Stanley A Kochanek, Patron-client Politics and Business in Bangladesh, Dhaka University Press, 1995

Government of Bangladesh: www.bangladeshgov.org

Prime minister’s office: www.bangladeshgov.org/pmo/index.htm

Ministry of Agriculture: www.bangladeshgov.org/moa/moa.html

National statistical sources

International statistical sources

Select bibliography and websites

46 Bangladesh


Ministry of Finance, Finance Division: www.gobfinance.org

Securities and Exchange Commission: www.secbd.org

Ministry of Commerce, Export Promotion Bureau: www.epbbd.com

National Data Bank: www.bbsgov.org

Bangladesh Bank: www.bangladesh-bank.org

Election Commission: www.ecs.gov.bd

Bangladesh International Election Observer Network: www.bangladeshelections.org

The Daily Star newspaper: www.dailystarnews.com

The Independent newspaper: www.independent-bangladesh.com

The Holiday newspaper: www.weeklyholiday.net/

Mission of Bangladesh to the UN: www.un.int/bangladesh/

Reference tables

These reference tables provide the most up-to-date statistics available at the time of publication.

Population 1999/200 2000/01 2001/02 2002/03 2003/04Total population (m) 128.1 129.9 131.6 133.4 135.2 % change, year on year 1.3 1.4 1.3 1.4 1.4

Sources: Ministry of Finance, Bangladesh Economic Survey 2004.

Energy reserves and production of natural gas (bn cu ft)

Gasfields Total reserves

(proven & provable)Cumulative reserves

(recoverable)Cumulative production

(up to Jun 2004) Balance of reserves

(Jun 2004)In production Bakharabad 1,449 1049 631 418Habigonj 5,139 3,852 1,142 2,710Jalalabad 1,195 837 191 646Kailastilla 2,720 1,904 328 1,576Meghna 171 119 33 86Narsingdi 307 215 50 165Rasshidpur 2,002 1,401 325 1,077Sylhet 684 479 174 305Sangu (offshore) 1,031 848 274 574Salda Nadi 166 116 35 81Titas 7,325 5,128 2,249 2,879Bianibazar 243 170 27 143Fenchuganj 404 283 1 282

Bangladesh 47


Gas fields Total reserves

(proven & provable)Cumulative reserves

(recoverable)Cumulative production

(up to Jun 2004) Balance of reserves

(Jun 2004)Not yet in production Begumgonj 47 33 0 33Kutubdia (offshore) 65 46 0 46Semutang 227 150 0 150Shahabazpur 665 465 0 465Bibiyana 3,145 2,401 0 2,401Mouli Bazar 449 360 0 360Suspended Chatak 677 474 27 448Kamta 72 50 21 109Feni 185 130 40 11Total 28,418 20,510 5,546 14,964

Source: Ministry of Finance, Bangladesh Economic Survey 2004.

Transport 1999/2000 2000/01 2001/02 2002/03 2003/04Railway traffic Freight carried (m tonnes) 2.96 4.42 3.64 3.54 3.37Passenger-km (m) 3,887 4,249 3,964 3,996 4,259

Sea transport (Chittagong & Mongla ports)

Vessels handled 1,858 1,842 1,727 1,545 1,658Cargo (imports & exports) handled

(m tonnes) 18.15 1967 14.08 15.76 n/a

Air traffic Passengers carried (m) 3.12 3.28 3.53 3.70 3.91Freight/mail carried (tonnes) 91,818 111,791 102,480 106,723 114,896

Sources: Ministry of Finance, Bangladesh Economic Survey 2004.

Gross domestic product (market prices)

1999/2000 2000/01 2001/02 2002/2003 2003/04GDP (Tk bn) At current prices 2,371 2,536 2,732 3,006 3,326At constant (1995/96) prices 2,049 2,157 2,253 2,371 2,502 % change, year on year 5.9 5.3 4.4 5.3 5.4GDP per head (Tk) At current prices 18,511 19,525 20,754 22,530 24,598GDP per head (in US$) 368 362 361 389 421

Sources: Ministry of Finance, Bangladesh Economic Survey 2004; Bangladesh Bank, Economic Trends.

48 Bangladesh


Gross domestic product by expenditure (Tk bn at constant prices; index 1995/96=100; % of total GDP in brackets)

1999/2000 2000/01 2001/02 2002/03 2003/04Private consumption 1,838.5 1,964.9 2,099.3 2,297.6 2,537.5 (77.5) (77.5) (76.8) (76.4) (76.3)Government consumption 108.4 114.5 136.6 160.7 180.5 (4.6) (4.5) (5.0) (5.4) (5.4)Gross fixed investment 545.9 585.4 632.4 703.5 784.3 (22.4) (22.1) (23.1) (23.4) (23.6)Exports of goods & servicesa 331.4 390.0 390.0 398.2 456.0 (14.0) (15.4) (14.3) (13.2) (13.7)

Imports of goods & servicesa 455.8 545.1 520.4 565.2 668.0 (19.2) (21.5) (18.2) (18.3) (20.0)GDPb 2,370.9 2,535.5 2,732.0 3,005.8 3,325.7 Net factor income from abroad (87.0) (88.4) (125.4) (140.4) (151.2)Gross national income at current market prices 2,457.9 2,623.9 2,857.4 3,145.3 3,476.9 (103.5) (103.7) (106.7) (104.7) (104.5)

a Estimates. b Including statistical discrepancies..

Sources: Bangladesh Bureau of Statistics, Monthly Statistical Bulletin, Ministry of Finance, Bangladesh Economic Survey 2004; Bangladesh Bank, Economic Trends.

Gross domestic product by sector (Tk bn; current prices; % change year on year in brackets)

1999/2000 2000/01 2001/02 2002/03 2003/04Agriculture 446.9 456.3 460.0 488.0 528.0 (6.9) (5.5) (3.0) (3.3) (2.4) Crops & vegetables 334.2 340.6 340.0 360.0 388.8 (8.1) (6.1) (2.8) (2.8) (1.7) Forestry 44.2 46.7 50.0 53.0 56.2 (4.9) (4.8) (4.9) (4.4) (4.5) Livestock 68.6 68.9 70.2 74.7 79.1 (2.7) (2.8) (2.9) (4.5) (4.5)Fisheries 136.7 134.1 139.0 142.6 147.8 (8.9) (4.5) (1.1) 2.3 (3.6)Mining & quarrying 23.1 26.4 30.0 33.1 364.3 (9.5) (9.7) (7.2) (7.2) (6.8)Manufacturing 348.3 382.3 418.2 458.1 515.2 (4.8) (6.3) (5.0) (6.7) (7.1) Large-scale 249.4 273.4 295.9 323.8 363.6 (4.3) (6.0) (4.0) (6.6) (7.3) Small-scale 98.9 108.9 122.1 134.3 151.6 (5.8) (7.0) (7.5) (7.2) (7.7)Construction 176.2 193.3 211.6 230.2 253.9 (8.5) (8.6) (7.9) (8.1) (8.3)

Power, water & sanitation 30.7 33.5 36.4 39.9 44.3 (6.8) (7.4) (7.7) (8.0) (8.1)Transport & communications 197.4 221.3 255.2 311.1 344.4 (6.1) (7.9) (6.0) (6.8) (6.6)Wholesale & retail trade 292.0 324.8 353.1 391.0 441.0 (7.3) (6.0) (5.6) (7.0) (6.5)Hotel & restaurants 14.6 15.9 17.4 19.4 22.0 (6.9) (7.0) (6.5) (7.0) (7.3)

Bangladesh 49


Gross domestic product by sector (Tk bn; current prices; % change year on year in brackets)

1999/2000 2000/01 2001/02 2002/03 2003/04Real estate, etc 211.4 223.6 239.9 256.8 279.0 (3.8) (3.4) (3.4) (3.5) (3.8)Banking & insurance 39.1 41.9 42.1 47.2 52.0 (5.5) (5.5) (5.2) (6.7) (6.8)Education 53.9 58.2 60.8 70.6 78.7 (7.7) (7.1) (7.5) (7.6) (7.7)Public administration & defence 62.3 66.9 71.2 77.8 86.3 (5.6) (5.8) (7.0) (5.2) (6.1)

Health & social work 43.8 57.2 60.8 66.0 71.9 (4.8) (4.9) (5.0) (5.6) (5.8)Community, social & personal services 203.6 216.6 236.9 266.8 300.2 (3.1) (3.1) (3.2) (3.3) (4.0)GDP at current pricesa 2,370.9 2,535.4 2,732.0 3,005.8 3,329.7 (7.9) (6.9) (7.8) (10.0) (10.6)

a Includes import duty.

Source: Bangladesh Bureau of Statistics, Monthly Statistical Bulletin.

Central government finances (Tk bn unless otherwise indicated)

1999/2000 2000/01 2001/02 2002/03 2003/04Total revenue 200.7 243.4 278.9 278.9 354.0 Tax 160.8 197.8 213.3 249.5 283.0 Non-tax 39.9 45.6 65.6 61.7 71.0

Total expenditure 344.6 374.0 407.6 439.0 493.7 Current expenditure 181.9 205.4 227.0 253.1 283.9 Development expenditure (Annual Development 152.2 159.0 150.5 169.0 190.0 Programme) Budget balance -143.9 -130.6 -128.7 -127.8 -139.7 Expenditure (% of GDP) 14.5 14.8 14.9 14.6 14.8

Source: Ministry of Finance, Bangladesh Economic Review 2004.

Money supply (Tk bn unless otherwise indicated)

1999/2000 2000/01 2001/02 2002/03 2003/04Currency outside banks 101.76 114.78 125.31 139.02 158.11

Demand deposits 97.05 108.69 116.20 128.41 146.35M1 198.81 223.47 241.61 267.43 304.46 % change, year on year 15.30 12.40 8.10 10.70 14.00

M2a 747.62 871.74 986.16 1,139.94 1,296.67 % change, year on year 18.60 16.60 13.10 15.60 13.80

a M1 plus time deposits.

Source: Bangladesh Bank, Economic Trends.

50 Bangladesh


Interest rates (%; period weighted averages unless otherwise indicated)

2000/01 2001/02 2002/03 2003/04 2004/05Short-term interest rate (av)a 12.62 13.02 12.24 11.1 10.5Short-term interest rate (end-period)b 8.85 9.12 7.51 6.4 5.5

a Commercial bank prime lending rate . b Deposit interest rate from Bangladesh Bank.

Sources: IMF, International Financial Statistics; Bangladesh Bank.

Prices (% change, year on year)

2000 2001 2002 2003 2004

Consumer prices (av) 2.2 2.0 3.3 5.7 3.2

Sources: IMF, International Financial Statistics.

Index of nominal wages (1969/70=100; period averages; % change year on year in brackets)

1999/2000 2000/01 2001/02 2002/03 2003/04Manufacturing 2,701 2,832 3,035 3,501 3,765 (7.1) (4.9) (7.2) (15.3) (7.5)

Construction 2,286 2,356 2,444 2,624 2,669 (5.7) (3.1) (3.7) (7.4) (1.7)Agriculture 2,037 2,141 2,262 2,443 2,582 (4.5) (5.1) (5.6) (8.0) (5.7)All occupations 2,390 2,489 2,637 2,926 3,111 (5.8) (4.1) (5.9) (10.9) (6.3)

Source: Bangladesh Bureau of Statistics, Monthly Bulletin of Statistics.

Agricultural crop production (m tonnes unless otherwise indicated)

1999/2000 2000/01 2001/02 2002/03 2003/04Cereals 24.91 26.91 26.06 26.87 27.64 Rice 23.07 25.09 24.30 25.19 26.19 Aus 1.73 1.92 1.81 1.85 1.83 Aman 10.30 11.25 10.73 11.11 11.52 Boro 11.03 11.92 12.77 12.22 12.83 Wheat 1.84 1.67 1.61 1.51 1.25Fibres Jute 0.71 0.82 0.86 0.80 0.80Vegetables Potatoes 2.90 3.20 3.00 3.39 3.90Sweet potatoes 0.40 0.40 0.35 0.33 n/aOther crops Rape and mustard 0.25 0.24 0.23 0.22 0.21Spices & condiments 0.40 0.40 0.46 0.42 n/aSugarcane 6.71 6.74 6.50 6.84 6.48Tea (‘000 tonnes) 46 52 52 37 n/aTobacco (‘000 tonnes) 35 37 38 38 39

Sources: Bangladesh Bureau of Statistics; Bangladesh Bank.

Bangladesh 51


Production and value of non-energy minerals 1999/2000 2000/01 2001/02 2002/03 2003/04Limestone Tonnes 14,304 18,156 52,079 30,449 20,038Tk m 7.6 30.7 33.8 20.2 12.0China clay Tonnes 8,845 10,334 10,376 9,630 13,113Tk m 6.8 7.3 6.8 7.0 11.4


Production and value of selected manufactured items 1999/2000 2000/01 2001/02 2002/03 2003/04Jute products ‘000 tonnes 339 335 352 320 285Tk bn 8.2 8.0 11.1 10.1 8.4Cotton cloth m metres 12.4 14.7 16.1 18.0 26.2Tk bn 4.1 4.9 5.4 6 n/aCotton yarn m kg 58.5 60.8 65.6 69.8 84.5Tk bn 90.2 93.6 100.3 107.0 129.6Ready-made garments m dozens 66.6 71.5 77.1 82.8 90.3Tk bn 154.4 181.3 179.4 191.5 208.6Leather for export m sq metres 18.3 19.7 17.5 15.0 7.1Tk bn 9.7 13.4 11.2 10.2 12.4Cement ‘000 tonnes 1,868 2,341 2,514 2,564 2,594Tk bn 7.1 9.8 10.1 9.8 10.0

Chemical fertilisers ‘000 tonnes 1,799 1,904 2,073 2,263 2,198Tk bn 8.5 9.1 10.0 11.1 10.7

Sugar ‘000 tonnes 123 98 204 177 119Tk bn 3.4 2.7 5.6 4.5 3.2

Tea ‘000 tonnes 51 53 55 55 56Tk bn 2.8 3.1 2.5 3.2 3.5

Shrimps & frogs’ legs ‘000 tonnes 28.5 29.6 30.9 25.6 33Tk bn 16.1 17.6 14.5 17.2 21.2Bicycles ‘000 12.9 13.1 13.1 13.3 n/aTk m 21.4 21.5 22.1 23.7 n/aMotorcycles ‘000 11.2 14.3 18.1 13.4 16.8Tk m 804 1,013 1,231 785 984Motor vehicles ‘000 0.9 1 1 0.9 0.9Tk m 887 772 826 666 633

52 Bangladesh


Production and value of selected manufactured items 1999/2000 2000/01 2001/02 2002/03 2003/04Televisions (black & white) ‘000 78 89 94 81 87Tk m 337 383 382 309 333

Televisions (colour) ‘000 39.2 41.8 48.2 49.5 53.5Tk m 578.6 728.5 731.8 738.0 795.7

Dry-cell batteries m 57.2 68.2 68.4 48.3 67.1Tk m 628.2 627.7 627.7 60.3 70.9


Stockmarket indicators 2000 2001 2002 2003 2004No. of listed companies 241 249 260 267 267No. of initial public offerings (IPO) 7 11 8 14 1

Total issued capital & debentures (Tk bn) 31.2 33.4 35.2 46.1 48.9

Market capitalisation (Tk bn) 62.9 65.2 71.3 97.6 142.4Turnover (Tk bn) 40.4 39.9 35.1 19.1 4.5

Overall weighted average of share index 642.7 817.8 822.3 967.9 1,318.9

Source: Bangladesh Bank.

Main exports (Tk bn; fob)

2000/01 2001/02 2002/03 2003/04 2004/05Ready-made clothing 202.6 192.7 208.5 261.9 333.3

Fish & prawns 20.4 16.9 18.6 22.8 25.8Jute goods 12.7 14.0 12.7 12.7 16.8

Leather 13.6 13.1 12.3 14.4 16.1Raw jute 4.0 3.8 4.0 4.5 5.6Tea 1.2 0.9 0.8 1.0 0.9

Total incl others 324.2 309.3 332.4 405.8 508.4


Main imports (Tk bn; cif)

2000/01 2001/02 2002/03 2003/04 2004/05Yarn & fabric 111.4 100.2 102.3 129.6 161.6

Petroleum & petroleum products 45.3 41.5 53.9 60.2 98.9Capital machinery 26.0 31.8 31.7 43.0 68.8

Iron & steel 25.0 23.7 26.3 28.3 41.9Cereals 18.8 10.7 23.6 25.3 35.4

Chemicals 18.3 19.2 20.4 23.9 31.4Total incl others 505.2 490.5 559.2 642.6 809.0


Bangladesh 53


Main trading partners (US$ m)

1999/2000 2000/01 2001/02 2002/03 2003/04Exports to: US 2,277 2,500 2,219 2,155 1,967Germany 659 790 681 821 1,299UK 500 594 648 778 898France 367 366 414 419 553Belgium 226 254 211 289 327Italy 248 296 262 259 316Netherlands 283 328 283 278 290Canada 111 126 110 170 284Imports from: India 833 1,184 1,019 1,358 1,602China 568 709 878 938 1,198Singapore 701 824 871 1,000 911Japan 685 846 655 605 568Hon Kong 455 478 441 433 433Taiwan 386 412 312 328 377South Korea 319 411 346 333 420US 325 248 261 223 226

Source: Ministry of Finance, Bangladesh Economic Survey 2004.

Balance of payments, IMF series (US$ m)

1999 2000 2001 2002 2003Goods: exports fob 5,458 6,399 6,085 6,102 7,050Goods: imports fob -7,536 -8,053 -8,133 -7,780 -9,492Trade balance -2,077 -1,654 -2,049 -1,678 -2,442Services: credit 778 815 752 849 1,012Services: debit -1,397 -1,620 -1,522 -1,406 -1,712Balance on goods & services -2,696 -2,459 -2,818 -2,235 -3,142Income: credit 94 78 77 57 57Income: debit -259 -345 -362 -322 -361Current transfers: credit 2,501 2,427 2,573 3,245 3,586Current transfers: debit -5 -7 -5 -6 -8Current-account balance -364 -306 -535 739 132Direct investment inward 179 280 79 52 268Direct investment abroad 0 0 0 -3 -3Inward portfolio investment (incl bonds) -2 2 -4 -1 0Outward portfolio investment 0 0 0 -1 2Other investment assets -1,144 -1,125 -434 -560 -694Other investment liabilities 518 698 621 257 716Financial balance -449 -145 262 -256 289Capital account: credit 364 249 235 264 387Capital account: debit 0 0 0 0 0Capital-account balance 364 249 235 364 387Net errors & omissions 260 171 -106 -349 81Overall balance -189 -31 -144 497 889Financing (- indicates inflow) Movement of reserves 286 121 208 -412 -886Use of IMF credit & loans -97 -90 -64 -86 -2


54 Bangladesh


External debt, World Bank series (US$ m unless otherwise indicated; debt stock at year-end)

1999 2000 2001 2002 2003Public medium- & long-term 15,998 15,171 14,746 16,418 18,088Private medium- & long-term 0 0 0 0 0Total medium-& long-term debt 15,998 15,171 14,746 16,418 18,088 Official creditors 15,788 14,925 14,269 15,850 17,533 Bilateral 4,616 3,929 3,550 3,734 3,927 Multilateral 11,172 10,996 10,719 12,117 13,606 Private creditors 210 246 476 568 555Short-term debt 254 334 361 572 617Interest arrears 0 0 21 27 0Use of IMF credit 318 216 149 71 74Total external debt 16,570 15,721 15,255 17,061 18,778Principal repayments 524 599 492 551 495Interest payments 194 201 184 176 176 Short-term debt 14 22 16 12 13Total debt service 718 799 676 727 672Ratios (%) Total external debt/GNP (%) 34.9 32.1 31.4 34.3 34.3

Debt-service ratio, paida 8.8 8.6 7.5 7.4 6.0Short-term debt/total external debt (%) 1.5 2.1 2.4 3.4 3.3Concessional long-term debt/total long-term debt (%) 95.1 94.8 93.4 92.8 93.2Multilateral long-term debt/total long-term debt (%) 67.4 69.9 70.3 71.0 72.5

Note. Long-term debt is defined as having original maturity of more than one year.

a Debt service as a percentage of earnings from exports of goods and services.

Source: World Bank, Global Development Finance.

Remittances from Bangladeshis working abroad (US$ m)

2000/01 2001/02 2002/03 2003/04 2004/05Saudi Arabia 919.6 1147.9 1254.3 1386.0 1523.4US 225.6 356.2 458.0 467.8 553.9

Kuwait 247.4 285.7 338.6 361.2 400.8UAE 144.3 233.5 327.4 373.5 437.7

Oman 83.7 103.3 114.1 118.5 129.5Malaysia 30.6 46.8 41.4 37.1 25.7Total incl others 1,882.1 2,501.1 3,062.0 3,372.0 3,848.3


Bangladesh 55


Net official development assistancea (US$ m)

1999 2000 2001 2002 2003Bilateral 607.3 616.5 578.4 520.8 694.9 Japan 123.7 201.6 125.6 122.7 115.3 UK 114.9 103.4 124.5 101.8 260.5 US 113.6 62.5 87.1 72.1 56.6 Germany 46.6 36.7 30.1 30.0 32.4 Netherlands 36.1 32.6 43.2 44.3 57.4

Multilateral 588.2 519.5 437.5 379.8 689.3 International Development Association 339.6 275.2 217.9 195.1 394.7 Asian Development Bank 214.1 198.0 126.6 93.2 96.1 UN Development Programme 13.9 18.8 12.2 14.4 15.9 UN Children’s Fund 13.9 12.5 12.8 11.3 10.9 UN High Commission for Refugees 0.8 1.9 2.2 2.4 2.2Total (including others) 1,203.1 1,171.3 1,029.9 912.8 1,393.4

a Disbursements by OECD and OPEC members and multilateral agencies. Official development assistance is defined as grants and loans, with at least a 25% grant element, administered with the aim of promoting economic or social development.

Source: OECD, Geographical Distribution of Financial Flows to Aid Recipients.

Foreign reserves (US$ m unless otherwise indicated; end-period)

2000 2001 2002 2003 2004Total reserves excl gold 1,486.0 1,275.0 1,683.2 2,577.9 3,172.4 SDRs 0.4 1.2 2.2 3.2 1.2 Reserve position with the IMF 0.2 0.2 0.3 0.3 0.3

Golda 29.6 30.6 39.2 46.3 49.9Total reserves incl gold 1,515.6 1,305.6 1,722.4 2,624.2 3,222.3

a National valuation.


Exchange rates (Tk per unit of currency unless otherwise indicated; annual averages)

2000 2001 2002 2003 2004

US$ 52.1 55.8 57.9 58.2 59.5

£ 78.9 80.3 86.8 94.9 109.0

Rs 1.16 1.18 1.19 1.25 1.31

PRs 0.97 0.90 0.97 1.01 1.02

€ 48.2 50.0 54.7 65.8 74.0

¥ 0.484 0.459 0.462 0.502 0.550


Editors: Fung Siu (editor); Gerard Walsh (consulting editor) Editorial closing date: November 8th 2005 All queries: Tel: (44.20) 7830 1007 E-mail: [email protected]