Bangladesh: Bangladesh Economy Profile
Despite high increase rates, Bangladesh remains one of the poorest country in Asia
Bangladesh economic development is dependent on rain-fed agricultural production (agriculture accounts for 17% of GDP but employs about half of the people) and the country is highly subject to natural disasters, principally severe flooding. The other major economic driver is the clothing and textile sector (almost 90% of exports) with large clothing industry principally oriented toward the US and the EU.
Economic increase averaged +6% during the completed decade but with a people about 160 million, Bangladesh remains one of the poorest nations in Asia. However, the 2014 UNDP Human Development Statement upgraded Bangladesh to Medium Human Development category with increased gain of the bottom 40 % of the people.
In FY14 (July 2013 to June 2014), GDP increased by +6.1% despite political tensions during January elections. Going forward, the economy is expected to pick up supported by rising public infrastructure investment and gradual development in world request. Risks to the Central scenario include (i) recurrent political uncertainties which dampen domestic increase, (ii) further deterioration in national owned bank finances and (iii) strong vulnerability to external conditions (particularly request from Eurozone;, remittances from the Gulf nations).
The political situation and business environement remain problematic
Bangladesh political situation is fragile, illustrated by the violence during recent legislative elections held in January 2014. The major opposition party, the Bangladesh Nationalist Party (BNP), boycotted the January 2014 election next the current government (Awami League) did not accept to follow the tradition to hand over power to a non-partisan interim government during the election period. Large protests before and during the elections led businesses to close and hampered economic activity. Over 20 persons were killed. Despite lower protests, the political situation is still precarious as a lot of political leaders from the opposition are being judged combined with allegations of disappearance. Active military and Islamic fundamentalist militants add to this volatile mix.
Bangladesh ranks 173 out of 189 economies in the Doing Business 2015 survey. It is almost the lowest in the world for getting electricity and enforcing contracts (ranked 188th for both sub-components).
Inflation is set to decelerate in 2015
Monetary policy remains very cautious to limit inflationary pressures and preserve macro-stability (keep sufficient reserves buffer and limit currency volatility) Restrained monetary policy (anchored on a moderate reserve money increase target) since late 2011 has curbed inflationary pressures. From +10.7% y/y in 2011, average inflation reached +7.5% y/y in 2013. It should further slow down to 7.0% y/y in 2014. The policy rate remains unchanged, at 5%.
Mismanagement fragilizes the banking system
The banking system is completely fragile with four large national-owned commercial banks owing 25% of banking system assets. Non-performing loans are high (approximately 12% of total loans) driven up by poor credit decisions, bank frauds, slower economic activity, and tightening of loan classification standards, mostly in the national-owned banks.
Despite low revenue collection, public finances are at reasonable levels
The fiscal deficit is relatively contained, at -2.7% of GDP in FY14. Based on FY15 governmental budget, it should however deepen to -3.3% of GDP in FY15. Revenue only accounts for approximately 11% of GDP and tax collection slowed down last year because of weak imports. The VAT law, introducing a 15% VAT rate, should help strengthen revenue collection. To contain fiscal deficit, expenditures are relatively constrained at approximately 14% of GDP (twice lower than India), not sufficient to entirely target the lack of infrastructure and poverty. The subsidy bill (food, fuel and fertilizers) has moderated but still represents additional than 3% of GDP.
Public deficit represents 34% of GDP and is on a decreasing trend. About half of the public deficit is externally financed.
Remittances and foreign aid cushion the large trade deficit
The clothing industry represents about 80% of Bangladesh’s exports, marketed largely in the EU and the US. To date, Bangladesh appears to be a net winner from the termination at the end of 2004 of the Multi-Fibre Arrangement (MFA). However, the industry may experience a backlash from factory safety issues and minimum wages increase. Following the April 2013 garment factory collapse that claimed the lives of over 1,000 people, the US has suspended the Generalized System of Preferences (GSP) agreement with Bangladesh. Since again, several initiatives to improve working conditions and factory standards have been implemented. The industry will face higher operating costs and delocalization to cheaper nations can lower prospects for Bangladesh.
Bangladesh records large trade deficits, but thanks to rapidly increasing workers' remittances inflows (USD14.1 bn in FY14) the current account records surpluses (+0.1% of GDP in FY14). However, flows of workers' remittances are subject to business conditions in the Middle East, particularly the GCC, where Bangladeshi workers are employed in the construction and services sectors. Given poor world economic performances, EH expects the current account balance to narrow to -0.7% of GDP in FY15.
Relatively sound external position
External deficit represents 20% of GDP in FY14 and should remain at a similar level in FY15.
Under the managed floating system, Bangladesh Bank has intervened extensively to slow the appreciation of the Taka since the end of 2012. As a result of sterilization procedures, foreign reserves rapidly increased, standing at USD21 bn in September 2014. Reserves cover presently approximately 6 months of imports.
Country Rating D3
Adequate level of public debt
Large workers' remittances inflows shifted the current account into surplus
Low wage costs
Low external debt stock
Competitive in low-end manufacturing
Fragile political environment, illustrated by the violence during January 2014 elections
Large trade deficit
Weak business environment : infrastructure shortcomings, redtape
Vulnerable to natural disaster
Vulnerable export base (heavily dependent on garment industry)
Most of the mills and factories are concentrated in the cities of Dhaka and Chittagong. A lot of basic consumer goods are made in homes and small shops.
- Bangladesh News
- AFGHANISTAN: Global growth will be disappointing in 2016: IMF's Lagarde
- BANGLADESH: Bangladesh fires up large-scale solar to boost power generation
- BANGLADESH: President Vladimir Putin shakes hands with Prime Minister Sheikh Hasina
- BANGLADESH: Bangladeshi activists campaigning for capital punishment, Dhaka, Bangladesh,
- AFGHANISTAN: Revised IMF forecasts signal gloom on global economic outlook
- AFGHANISTAN: Oxfam Study Finds Richest 1% Is Likely to Control Half of Global Wealth by 2016
- Trending Articles
- KENYA: Kenya’s MICE tourism segment on the rise
- CHINA: Zombie firms and China’s economic woes
- NORTH KOREA: Profiling in the Korean labour market
- CANADA: Canadian dollar firms as investors trim bearish bets
- SUDAN: First Cohort of 226 Inmates and Prison Staff Graduate from the Vocational Training Centre in Juba Central Prison
- INDONESIA: Lessons for Myanmar in Indonesian politics
- TOURISM: Kenya’s MICE tourism segment on the rise
- ECONOMY: Zombie firms and China’s economic woes
- SOCIAL / CSR: Profiling in the Korean labour market
- STOCK MARKET / FINANCE: Canadian dollar firms as investors trim bearish bets
- EDUCATION: First Cohort of 226 Inmates and Prison Staff Graduate from the Vocational Training Centre in Juba Central Prison
- LOCAL GOVERNMENT: Lessons for Myanmar in Indonesian politics