The Economy of Bangladesh is constituted by that of a developing country.[1] Its per capita income in 2008 was est. US$1,500 (adjusted by purchasing power parity) significantly lower than India, Pakistan, both which are also lower than the world average of $10,497.[2] According to the gradation by the International Monetary Fund, Bangladesh ranked as the 48th largest economy in the world in 2008, with a gross domestic product of US$224.889 billion. The economy has grown at the rate of 6-7% p.a. over the past few years. More than half of the GDP belongs to the service sector, nearly half of Bangladeshis are employed in the agriculture sector, with RMG, fish, vegetables, leather and leather goods, ceramics, rice as other important produce.
Remittances from Bangladeshis working overseas, mainly in the Middle East and East Asia, as well as exports of garments and textiles are the main sources of foreign exchange earning. GDP's rapid growth due to sound financial control and regulations have also contributed to its growth. However, foreign direct investment is yet to rise significantly. Bangladesh has made major strides in its human growth index.[3]
The land is devoted mainly to rice and jute cultivation of rice, fruits and produce, although wheat production has increased in recent years; the country is largely self-sufficient in rice production.[3] [3] Bangladesh's growth of its agro industries is due to its rich deltaic fertile land that depend on its six seasons and multiple harvests.[3]
Improving at a very fast rate, infrastructure to support transportation, communications, power supply and water distribution are rapidly developing.[3] Bangladesh is limited in its reserves of oil, but recently there was huge development in coal mining. The service sector has expanded rapidly during last two decades, the country's industrial base remains positive.[3] The country's main endowments include its vast human resource base, rich agricultural land, relatively abundant water, and substantial reserves of natural gas, with the blessing of possessing the two worlds only natural sea ports in Mongla and Chittagong, in addition to being the only central port linking two large burgeoning economic hub groups SAARC and ASEAN.[3]
Economic history
East Bengal—the eastern segment of Bengal, a region that is today Bangladesh—was a prosperous region of South Asia until modern times.[4] It had the advantages of a mild, almost tropical climate, fertile soil, ample water, and an abundance of fish, wildlife, and fruit.[4] The standard of living compared favorably with other parts of South Asia.[4] As early as the thirteenth century, the region was developing as an agrarian economy.[4] It was not entirely without commercial centers, and Dhaka in particular grew into an important entrepôt during the Mughal Empire.[4] The British, however, on their arrival in the late eighteenth(18th) century, chose to develop Calcutta, now the capital city of West Bengal, as their commercial and administrative center in South Asia.[4] The development of East Bengal was thereafter limited to agriculture.[4] The administrative infrastructure of the late eighteenth and nineteenth centuries reinforced East Bengal's function as the primary agricultural producer—chiefly of rice, tea, teak, cotton, cane and jute—for processors and traders from around Asia and beyond.[4]. After its independence from Pakistan, Bangladesh followed a socialist economy by nationalizing all industries, proving to be a critical blunder undertaken by Bangladesh's leaders[citation needed]. Education policies of the British dating back from colonial era deprived education to millions of Bangla peoples setting them back by decades. Some of the same factors that had made East Bengal a prosperous region became disadvantages during the nineteenth and twentieth centuries.[4] As life expectancy increased, the limitations of land and the annual floods increasingly became constraints on economic growth.[4] Preponderance on traditional agricultural methods became obstacles to the modernization of agriculture.[4] Geography severely limited the development and maintenance of a modern transportation and communications system.[4]
The partition of British India and the emergence of India and Pakistan in 1947 severely disrupted the former colonial economic system that had preserved East Bengal (now Bangladesh) as a producer of jute, rice and other agro commodities for the rest of British India.[4] East Pakistan had to build a new industrial base and modernize agriculture in the midst of a population explosion.[4] The united government of Pakistan expanded the cultivated area and some irrigation facilities, but the rural population generally became poorer between 1947 and 1971 because improvements did not keep pace with rural population increase.[4] Pakistan's five-year plans opted for a development strategy based on industrialization, but the major share of the development budget went to West Pakistan, that is, contemporary Pakistan.[4] The lack of natural resources meant that East Pakistan was heavily dependent on imports, creating a balance of payments problem.[4] Without a substantial industrialization program or adequate agrarian expansion, the economy of East Pakistan steadily declined.[4] Blame was placed by various observers, but especially those in East Pakistan, on the West Pakistani leaders who not only dominated the government but also most of the fledgling industries in East Pakistan.[4]
Since Bangladesh followed a socialist economy by nationalising all industries after its independence, a slow growth of experienced entrepreneurs, managers, administrators, engineers, or technicians underwent.[5] There were critical shortages of essential food grains and other staples because of wartime disruptions.[5] External markets for jute had been lost because of the instability of supply and the increasing popularity of synthetic substitutes.[5] Foreign exchange resources were minuscule, and the banking and monetary system was unreliable.[5] Although Bangladesh had a large work force, the vast reserves of under trained and underpaid workers were largely illiterate, unskilled, and underemployed.[5] Commercially exploitable industrial resources, except for natural gas, were lacking.[5] Inflation, especially for essential consumer goods, ran between 300 and 400 percent.[5] The war of independence had crippled the transportation system.[5] Hundreds of road and railroad bridges had been destroyed or damaged, and rolling stock was inadequate and in poor repair.[5] The new country was still recovering from a severe cyclone that hit the area in 1970 and cause 250,000 deaths.[5] India, by no means a wealthy country and without a tradition of giving aid to other nations, came forward immediately with massive economic assistance in the first months after the fighting ended.[5] Between December 1971 and January 1972, India committed US$232 million in aid to Bangladesh, almost all of it for immediate disbursement.[5]
Bangladeshi leaders slowly began to turn their attention to developing new industrial capacity and rehabilitating its economy.[3] The static economic model adopted by these early leaders, however—including the nationalization of much of the industrial sector—resulted in inefficiency and economic stagnation.[3] Beginning in late 1975, the government gradually gave greater scope to private sector participation in the economy, a pattern that has continued.[3] Many state-owned enterprises have been privatized, with banking, telecommunication, aviation, media, jute including a range of other vital sectors have been privatised.[3] Inefficiency in the public sector have been improving however at a gradual pace, external resistance to developing the country's richest natural resources, and power sectors including infrastructure have all contributed to slowing economic growth.[3]
In the mid-1980s, there were encouraging signs of progress.[3] Economic policies aimed at encouraging private enterprise and investment, privatizing public industries, reinstating budgetary discipline, and liberalizing the import regime were accelerated.[3] From 1991 to 1993, the government successfully followed an enhanced structural adjustment facility (ESAF) with the International Monetary Fund (IMF) but failed to follow through on reforms in large part because of preoccupation with the government's domestic political troubles.[3] In the late 1990s the government's economic policies became more entrenched, and some of the early gains were lost, which was highlighted by a precipitous drop in foreign direct investment in 2000 and 2001.[3] In June 2003 the IMF approved 3-year, $490-million plan as part of the Poverty Reduction and Growth Facility (PRGF) for Bangladesh that aimed to support the government's economic reform program up to 2006.[3] Seventy million dollars was made available immediately.[3] In the same vein the World Bank approved $536 million in interest-free loans.[3]
Bangladesh historically has run a large trade deficit, financed largely through aid receipts and remittances from workers overseas.[3] Foreign reserves dropped markedly in 2001 but stabilized in the USD3 to USD4 billion range (or about 3 months' import cover).[3] In January 2007, reserves stood at $3.74 billion, and they increased to $5.8 billion by January 2008, in Nov 2009 it surpassed $10.0 billion according to the Bank of Bangladesh, the central bank.[3] In addition imports and aid-dependence of the country has systematically been reduced since the beginning of 1990s.
Macro-economic trend
This is a chart of trend of gross domestic product of Bangladesh at market prices estimated by the International Monetary Fund with figures in millions of Bangladeshi Taka. However, this reflects only the formal sector of the economy.
| Year | Gross Domestic Product | US Dollar Exchange | Inflation Index (2000=100) | Per Capita Income (as % of USA) | ||||
|---|---|---|---|---|---|---|---|---|
| 1980 | 250,300 | | 16.10 Taka | 20 | 1.79 | |||
| 1985 | 597,318 | 31.00Taka | 36 | 1.19 | ||||
| 1990 | 1,054,234 | 35.79 Taka | 58 | 1.16 | ||||
| 1995 | 1,594,210 | 40.27Taka | 78 | 1.12 | ||||
| 2000 | 2,453,160 | 52.14 Taka | 100 | 0.97 | ||||
| 2005 | 3,913,334 | 63.92 Taka | 126 | 0.95 | ||||
| 2008 | 5,003,438 | 68.65 Taka | 147 |
For purchasing power parity comparisons, the US Dollar is exchanged at 12.86 Takas only.
Economic outlook
Efforts to achieve Bangladesh's macroeconomic goals have been problematic mostly due to corruption within the government.[3] The privatization of public sector industries has proceeded at a slow pace—due in part to worker unrest in affected industries—although on June 30, 2002, the government took a bold step as it closed down the Adamjee Jute Mill, the country's largest and most costly state-owned enterprise.[3] The government also has proven unable to resist demands for wage hikes in government-owned industries. Access to capital is impeded.[3] State-owned banks, which control about three-fourths of deposits and loans, carry classified loan burdens of about 50%.[3]
The IMF and World Bank predict GDP growth over the next 5 years will be about 6.5%, well short of the 9-10% needed to lift Bangladesh to Mid Income Nations.[3] The initial impact of the end of quotas under the Multi-Fiber Arrangement has been positive for Bangladesh, with continuing investment in the ready-made garment sector, which has experienced annual export growth in excess of around 20%.[3] Downward price pressure means Bangladesh must continue to cut final delivered costs if it is to remain competitive in the world market.[3] Foreign investors in a broad range of sectors are increasingly frustrated with the politics of confrontation, the level of corruption, the slow pace of reform and privatization and deregulation of the public sector and the lack of basic infrastructure e.g. roads.[3] While investors view favorably recent steps by the interim government to address corruption, governance, and infrastructure issues, most believe it is too early to assess the long-term impact of these developments.[3]
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