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Economy of Bangladesh

From Academic Kids

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BD-fishermen.jpg
Fishing is an important source of income in Bangladesh

Bangladesh has made significant strides in its economic sector since its independence in 1971. Bangladesh has become a pioneer in the international garments industry as she is a major exporter of garments in the world. Bangladesh has also made major strides to meet the food needs of its increasing population, through increased domestic production. Currently, Bangladesh is the third largest rice producing country in the world. The land is devoted mainly to rice and jute cultivation, although wheat production has increased in recent years; the country is largely self-sufficient in rice production. Nonetheless, an estimated 10% to 15% of the population faces serious nutritional risk. Bangladesh's predominantly agricultural economy depends heavily on an erratic monsoonal cycle, with periodic flooding and drought. Although improving, infrastructure to support transportation, communications, and power supply is poorly developed. The country has large reserves of natural gas and limited reserves of coal and oil. While Bangladesh's industrial base is weak, unskilled labor is inexpensive and plentiful.

Since independence in 1971, Bangladesh has received more than $30 billion in grant aid and loan commitments from foreign donors, about $15 billion of which has been disbursed. Major donors include the World Bank, the Asian Development Bank, the UN Development Programme, the United States, Japan, Saudi Arabia, and West European countries. Bangladesh has historically run a large trade deficit, financed largely through aid receipts and remittances from workers overseas. Foreign reserves dropped markedly in 1995 and 1996 but have now stabilized in the $1.5-$1.8 billion range (or about 2.2-2.5 monthly import cover).

Contents

Moves Toward a Market Economy

Following the violent events of 1971 during the fight for independence, Bangladesh--with the help of large infusions of donor relief and development aid--slowly began to turn its attention to developing new industrial capacity and rehabilitating its economy. The statist economic model adopted by its early leadership, however--including the nationalization of much of the industrial sector--resulted in inefficiency and economic stagnation. Beginning in 1975, the government gradually gave greater scope to private sector participation in the economy, a pattern that has continued. A few state-owned enterprises have been privatized, but many, including major portions of the banking and jute sectors, remain under government control. Population growth, inefficiency in the public sector, and limited natural resources and capital have continued to restrict economic growth. In the mid-1980s, there were encouraging, if halting, signs of progress. Economic policies aimed at encouraging private enterprise and investment, denationalizing public industries, reinstating budgetary discipline, and liberalizing the import regime were accelerated. From 1990-1993. In 1985 1989-1993, the government successfully followed an enhanced structural adjustment facility (ESAF) with the International Monetary Fund.

Although the Khaleda Zia Government (1991-1996) initially took significant strides toward pro-market reform, including tax reform and allowing increased foreign direct investment in the gas and power sectors, preoccupation with its domestic political troubles stalled progress on this critical front in the last year of its tenure. The government of Prime Minister Sheikh Hasina, elected in June 1996, indicated that it would continue along the path toward privatization and open-market reform, but progress has been slow, especially in privatization. While the Awami League government has managed to maintain economic growth levels around 4%-5%, and single-digit inflation—except for a period of months after the 1998 floods—per capita income levels still remain distressingly low, at less than $1 per day.

Efforts to achieve Bangladesh's macroeconomic goals have been problematic. The privatization of public sector industries has proceeded at a slow pace, due in part to worker unrest in affected industries. The government also has proven unable to resist demands for wage hikes in government-owned industries. Economic growth has been further slowed by a largely dysfunctional banking system which has impeded access to capital-state-owned banks, which control about three-fourths of deposits and loans, and carry classified loan burdens of about 50%. Some efforts are being made to alleviate this problem through microcredit programs such as Grameen Bank.

Agriculture

Most Bangladeshis earn their living from agriculture. Although rice and jute are the primary crops, wheat is assuming greater importance. Tea is grown in the northeast. Because of Bangladesh's fertile soil and normally ample water supply, rice can be grown and harvested three times a year in many areas. Due to a number of factors, Bangladesh's labor-intensive agriculture has achieved steady increases in food grain production despite the often unfavorable weather conditions. These include better flood control and irrigation, a generally more efficient use of fertilizers, and the establishment of better distribution and rural credit networks. With 20.2 million metric tons produced in 1999, rice is Bangladesh's principal crop. By comparison, wheat output in 1999 was 1.9 million metric tons. Population pressure continues to place a severe burden on productive capacity, creating a food deficit, especially of wheat. Foreign assistance and commercial imports fill the gap. Underemployment remains a serious problem, and a growing concern for Bangladesh's agricultural sector will be its ability to absorb additional manpower. Finding alternative sources of employment will continue to be a daunting problem for future governments, particularly with the increasing numbers of landless peasants who already account for about half the rural labor force.

Industry and Investment

Fortunately for Bangladesh, many new jobs--1.5 million, mostly for women--have been created by the country's dynamic private ready-made garment industry, which grew at double-digit rates through most of the 1990s. Despite the country's politically motivated general strikes, poor infrastructure, and weak financial system, Bangladeshi entrepreneurs have shown themselves adept at competing in the global garments marketplace. Bangladesh's exports to the U.S. surpassed $1.9 billion in 1999. Bangladesh also exports significant amounts of garments and knitwear to the EU market. The country has done less well, however, in expanding its export base—garments account for more than three-fourths of all exports, dwarfing the country's historic cash crop, jute, along with leather, shrimp, pharmaceuticals and ceramics. Bangladesh has been a world leader in its efforts to end the use of child labor in garment factories. On July 4, 1995, the Bangladesh Garment Manufacturers Export Association, International Labour Organization, and UNICEF signed a memorandum of understanding on the elimination of child labor in the garment sector. Implementation of this pioneering agreement began in fall 1995, and by the end of 1999, child labor in the garment trade virtually had been eliminated.

The labor-intensive process of shipbreaking for scrap has developed to the point where it now meets most of Bangladesh's domestic steel needs. Other industries include sugar, tea, leather goods, newsprint, pharmaceutical, and fertilizer production.

The Bangladesh government continues to court foreign investment, something it has done fairly successfully in private power generation and gas exploration and production, as well as in other sectors such as cellular telephony, textiles, and pharmaceuticals. In 1989, the same year it signed a bilateral investment treaty with the United States, it established a Board of Investment to simplify approval and start-up procedures for foreign investors, although in practice the board has done little to increase investment. Bangladesh also has established successful export processing zones in Chittagong and Dhaka, and has given the private sector permission to build and operate competing EPZs-initial construction on a Korean EPZ started in 1999. In June 1999, the AFL-CIO petitioned the U.S. Government to deny Bangladesh access to U.S. markets under the Generalized System of Preferences (GSP), citing the country's failure to meet promises made in 1992 to allow freedom of association in EPZs.

Economy - overview

Bangladesh has made significant strides in economic sector since her independence in 1971. Although the economy has improved vastly in the 1990s, Bangladesh still suffers an image crisis due to her civil war period of early 1970s. Despite major impediments to growth like the inefficiency of state-owned enterprises, a rapidly growing labor force that cannot be absorbed by agriculture, inadequate power supplies, and slow implementation of economic reforms, Prime Minister Sheikh HASINA Wajed's Awami League government has made some headway improving the climate for foreign investors and liberalizing the capital markets; for example, it has negotiated with foreign firms for oil and gas exploration, better countrywide distribution of cooking gas, and the construction of natural gas pipelines and power plants. Progress on other economic reforms has been halting because of opposition from the bureaucracy, public sector unions, and other vested interest groups. The especially severe floods of 1998 increased the country's reliance on large-scale international aid. So far the East Asian financial crisis has not had major impact on the economy.

GDP: purchasing power parity - $187 billion (1999 est.)

GDP - real growth rate: 5.2% (1999 est.)

GDP - per capita: purchasing power parity - $1,470 (1999 est.)

GDP - composition by sector:
agriculture: 30%
industry: 17%
services: 53% (1999 est.)

Population below poverty line: 35.6% (FY95/96 est.)

Household income or consumption by percentage share:
lowest 10%: 4.1%
highest 10%: 23.7% (1992)

Inflation rate (consumer prices): 9% (FY98/99 est.)

Labor force: 56 million (1995-96)
note: extensive export of labor to Saudi Arabia, Kuwait, UAE, Oman, Qatar, Malaysia, and Singapore

Labor force - by occupation: agriculture 63%, services 26%, industry 11% (FY95/96)

Unemployment rate: 35.2% (1996)

Budget:
revenues: $4.3 billion
expenditures: $6.5 billion, including capital expenditures of $NA (1997)

Industries: cotton textiles, jute, garments, tea processing, paper newsprint, cement, chemical fertilizer, light engineering, sugar

Industrial production growth rate: 2.5% (1997 est.)

Electricity - production: 12,500 GWh (1999 est.)

Electricity - production by source:
fossil fuel: 98%
hydro: 2%
nuclear: 0%
other: 0% (1999)

Electricity - consumption: 11,039 GWh (1998)

Electricity - exports: 0 kWh (1999)

Electricity - imports: 0 kWh (1999)

Agriculture - products: rice, jute, tea, wheat, sugarcane, potatoes; beef, milk, poultry, tobacco, pulses, oilseeds, spices, fruit

Exports: $5.1 billion (1998)

Exports - commodities: garments, jute and jute goods, leather, frozen fish and seafood

Exports - partners: US 33%, Germany 10%, UK 9%, France 6%, Italy 5% (1997)

Imports: $8.01 billion (1998)

Imports - commodities: machinery and equipment, chemicals, iron and steel, textiles, raw cotton, food, crude oil and petroleum products, cement

Imports - partners: India 12%, China 9%, Japan 7%, Hong Kong 6%, South Korea 6% (1997)

Debt - external: $16.5 billion (1998)

Economic aid - recipient: $1.475 billion (FY96/97)

Currency: 1 taka (Tk) = 100 poisha

Exchange rates: taka (Tk) per US$1 - 51.000 (January 2000), 49.085 (1999), 46.906 (1998), 43.892 (1997), 41.794 (1996), 40.278 (1995)

Fiscal year: 1 July - 30 June

Reference

Much of the material in this article comes from the CIA World Factbook 2000 and the 2003 U.S. Department of State website.

See also : Bangladesh

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