Micro Economics

Assignment:
ECONOMIC POLICY of BANGLADESH

Course Instructor: Md. Shakil

Course Title: Introduction to Micro Economics
Course Code: ECO-101

Student Name: Md. Tanvir Ahmed

ID: 182183540
Program: BSc. in EEE.

Submission Date:
13 June 2019

In trodu ction:
The   market-bas ed  econ omy of Ban glad es h   is one of the fastes t growing
economies in the world. It's the   39th  larges t in the world in nominal terms ,
and  29th   larges t by purchas ing pow er parity; it is class ified among the  N ext
Eleven   emerging market middle income  economies and a  Frontier market .
A ccording to the IM F, Banglades h' s economy is the second fas test growing
major economy of 2016, with a rate of 7.1%.   Dhaka  and  Chittagong  are the
principal   financial centers  of the country, being home to the  Dhaka Stock
Exchange   and the  Chittagong Stock Exchange . The  financial sector of
B anglades h   is the second larges t in the subcontinent.
B anglades h is s trategically important for the economies of  Northeast
India ,  N epal   and  Bhutan , as Banglades hi s eaports provide maritime acces s for
these   landlocked  regions and countries .  China  als o views Bangladesh as a
potential gatew ay for its landlocked southw es t,
including  Tibet ,  Sichuan  and  Yunnan .

Mod ern Bangladesh

After its independence from Pakistan, Banglades h follow ed a socialis t
economy by nationalis ing all indus tries, proving to be a critical blunder
undertaken by the  Aw ami League  government. S ome of the same factors that
had made East Bengal a pros perous region became disadvantages during the
nineteenth and tw entieth centuries.  As life expectancy increas ed, the
limitations of land and the annual floods increas ingly became cons traints on
economic growth.  Traditional agricultural methods became obstacles to the
modernisation of agriculture.  Geography severely limited the development and
maintenance of a modern trans portation and communications system.
The partition of Britis h India and the emergence of  India  and  Pakistan  in 1947
s everely dis rupted the economic system. 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 w ith rural population increas e.  Pakistan's
five-year plans opted for a development s trategy based on industrialis ation,
but the major share of the development budget w ent to West Pakistan, that is ,
contemporary Pakistan. The lack of natural resources meant that Eas t Pakistan
w as heavily dependent on imports, creating a balance of payments problem.
Without a substantial industrialisation programme or adequate agrarian
expansion, the economy of Eas t P akis tan s teadily declined.  Blame w as placed
by various observers, but es pecially those in Eas t P akis tan, on the Wes t
P akis tani leaders who not only dominated the government but also most of the
fledgling industries in Eas t Pakistan.
After 1975, Bangladeshi leaders began to turn their attention to developing
new industrial capacity and rehabilitating its economy.  The static economic
model adopted by these early leaders , however—including the nationalisation
of much of the industrial s ector—resulted in inefficiency and economic
s tagnation.  Beginning in late 1975, the government gradually gave greater
s cope to private sector participation in the economy, a pattern that has
continued.  M any s tate-ow ned enterpris es have been privatis ed, like banking,
telecommunication, aviation, media, and jute.  Inefficiency in the public sector
has been ris ing however at a gradual pace; external res is tance to developing
the country' s riches t natural resources is mounting; and power sectors
including infras tructure have all contributed to slowing economic growth.
In the mid-1980s, there were encouraging signs of progress .  Economic
policies aimed at encouraging private enterprise and investment, privatis ing
public industries , reins tating budgetary discipline, and liberalising the import
regime were accelerated.   From 1991 to 1993, the government succes sfully
followed an enhanced structural adjus tment facility (ESAF ) with the
International Monetary F und (IMF ) but failed to follow through on reforms in
large part because of preoccupation with the government's domes tic political
troubles. In the late 1990s the government' s economic policies became more
entrenched, and some gains were los t, which was highlighted by a precipitous
drop in foreign direct investment in 2000 and 2001.  In June 2003 the IMF
approved 3-year, $490-million plan as part of the Poverty Reduction and
Grow th F acility (PRG F) for Banglades h that aimed to support the
government' s economic reform programme up to 2006.   Seventy million dollars
w as made available immediately.  In the s ame vein the World Bank approved
$536 million in interes t- free loans.  In 2010, Government of India extended a
line of credit worth $1 billion to counterbalance China's close relationship
w ith B anglades h.
In las t decade, poverty dropped by around one third w ith significant
improvement in human development index, literacy, life expectancy and per
capita food cons umption. With economy grow ing close to 6% per year, more
than 15 million people have moved out of poverty since 1992.

E conomic s ectors
Agriculture

M ap show ing the growing areas of major agricultural products .M ost

B anglades his earn their living from agriculture.  A lthough rice and jute are the
primary crops , maize and vegetables are ass uming greater importance.  Due to
the expans ion of irrigation netw orks , some wheat producers have sw itched to
cultivation of maize w hich is us ed mostly as poultry feed.  Tea is grown in the
northeast.  Becaus e of Bangladesh's fertile soil and normally ample water
supply, rice can be grow n and harves ted three times a year in many areas .  Due
to a number of factors, Bangladesh's labour- intens ive agriculture has achieved
s teady increas es in food grain production des pite the often unfavourable
w eather conditions.  Thes e include better flood control and irrigation, a
generally more efficient use of fertilisers , and the establishment of better
dis tribution and rural credit netw orks .  With 28.8 million metric tons produced
in 2005–2006 (J uly–June), rice is Banglades h' s principal crop.   By
comparison, wheat output in 2005–2006 was 9 million metric tons .  Population
pressure continues to place a severe burden on productive capacity, creating a
food deficit, es pecially of w heat.  F oreign ass is tance and commercial imports
fill the gap,  but seasonal hunger (" monga ") remains a
problem.   Underemployment remains a serious problem, and a growing concern
for B anglades h' s agricultural s ector w ill be its ability to absorb additional
manpower.  Finding alternative sources of employment w ill continue to be a
daunting problem for future governments, particularly with the increas ing
numbers of landles s peasants who already account for about half the rural
labour force.  Due to farmers ' vulnerability to various risks, Banglades h' s
poorest face numerous potential limitations on their ability to enhance
agriculture production and their livelihoods. These include an actual and
perceived risk to investing in new agricultural technologies and activities
(despite their potential to increas e income), a vulnerability to shocks and
s tress es and a limited ability to mitigate or cope w ith these and limited access
to market informatio
Man ufactu ring and in dus try
M any new jobs – mos tly for women – have been created by the country's
dynamic private ready-made garment industry, w hich grew at double-digit
rates through mos t of the 1990s. By the late 1990s, about 1.5 million people,
mos tly women, w ere employed in the garments sector as w ell as Leather
products specially F ootw ear (Shoe manufacturing unit). During 2001–2002,
export earnings from ready-made garments reached $3,125 million,
representing 52% of Bangladesh's total exports. Bangladesh has overtaken
India in apparel exports in 2009, its exports s tood at 2.66 billion US dollar,
ahead of India's 2.27 billion US dollar and in 2014 the export ros e to $3.12
billion every month. At the fiscal year 2018, Bangladesh has been able to
garner US$ 36.67 billion export earnings by exporting manufactured goods, of
which, 83.49 percent has come from the apparel manufacturing sector  .
Eas tern Bengal w as known for its fine muslin and s ilk fabric before the Britis h
period. The dyes, yarn, and cloth were the envy of much of the premodern
world. B engali muslin, s ilk, and brocade were worn by the aris tocracy of Asia
and Europe. The introduction of machine- made textiles from England in the
late eighteenth century spelled doom for the cos tly and time-consuming hand
loom proces s. Cotton growing died out in East Bengal, and the  textile
indus try  became dependent on imported yarn. Thos e who had earned their
living in the textile indus try w ere forced to rely more completely on farming.
Only the s malles t vestiges of a once-thriving cottage industry survived.
O ther industries which have shown very strong growth include the
pharmaceutical indus try,  shipbuilding indus try,  information
technology,  leather industry   steel industry  and light engineering industry.
A Bangladeshi textile fabric p lan t
B anglades h' s textile industry, w hich includes knitw ear and  ready-made
garments  (RM G) along with specialised textile products, is the nation' s
number one export earner, accounting for $21.5 billion in 2013 – 80% of
B anglades h' s total exports of $27 billion.  Banglades h is 2nd in world textile
exports , behind China, which exported $120.1 billion worth of textiles in
2009. The industry employs nearly 3.5 million workers. Current exports have
doubled since 2004. Wages in Bangladesh's textile industry were the low est in
the world as of 2010. The country was considered the mos t formidable rival to
C hina w here wages w ere rapidly rising and currency was appreciating.  As of
2012 w ages remained low for the 3 million people employed in the indus try,
but labour unrest was increas ing des pite vigorous government action to
enforce labour peace. Owners of textile firms and their political allies were a
powerful political influence in Banglades h. The urban garment indus try has
created more than one million formal s ector jobs for women, contributing to
the high female labour participation in Bangladesh.  While it can be argued
that women working in the garment industry are subjected to uns afe labour
conditions and low wages, D ina M. S iddiqi argues that even though conditions
in Bangladesh garment factories "are by no means ideal," they s till give
women in Banglades h the opportunity to earn their ow n w ages.  As evidence
she points to the fear created by the passage of the 1993 Harkins Bill (C hild
Labor Deterrence Bill), which caused factory ow ners to dis miss "an estimated
50,000 children, many of whom helped s upport their families , forcing them
into a completely unregulated informal sector, in low er-paying and much les s
s ecure occupations such as brick-breaking, domes tic s ervice and ricks haw
pulling."
Even though the working conditions in garment factories are not ideal, they
tend to financially be more reliable than other occupations and, "enhance
women’s economic capabilities to spend, s ave and inves t their incomes ."  B oth
married and unmarried women s end money back to their families as
remittances , but these earned wages have more than just economic benefits .
M any women in the garment indus try are marrying later, have lower fertility
rates , and attain higher levels of education, then w omen employed els ew here.
The government also seems to believe some change is necess ary. On 21
S eptember 2006 then ex-P rime M inis ter  Khaleda Zia  called on textile firms to
ens ure the safety of workers by complying with international labour law at a
speech inaugurating the Bangladesh Apparel & Textile Exposition
(BATEX PO ).
Sh ip build in g and ship breaking

BN S Durgam   has been built in Banglades h

S hipbuilding  is a growing indus try in Bangladesh w ith great potential.  The
potential of shipbuilding in Bangladesh has made the country to be compared
w ith countries like China, J apan and  S outh K orea . Referring to the growing
amount of export deals secured by the shipbuilding companies as w ell as the
low cost labour available in the country, experts sugges t that Banglades h
could emerge as a major competitor in the global market of s mall to medium
ocean-going vess els.
B anglades h als o has the world's larges t  ship breaking  indus try which employs
over 200,000 Banglades his and accounts for half of all the steel in
B anglades h.  Chittagong Ship Breaking Y ard  is world's second-largest ship
breaking area.
Khulna Shipyard Limited (KSY ) with over five decades of reputation has been
leading the Banglades h Shipbuilding industry and had built a wide spectrum of
ships for domestic and international clients. KSY built ships for Bangladesh
N avy, Bangladesh A rmy and Banglades h Coas t Guard under the contract of
minis try of defence.
Fin an ce
Until 1980s , the financial s ector of Bangladesh was dominated by state- owned
banks .  With the grand-scale reform made in finance, private commercial banks
w ere established through privatis ation. The next finance sector reform
programme w as launched from 2000 to 2006 w ith focus on the development of
financial institutions and adoption of risk-based regulations and supervis ion
by B anglades h Bank. As of date, the banking sector consisted of 4 SCB s, 4
government- ow ned s pecialized banks dealing in development financing, 39
private commercial banks , and 9 foreign commercial banks .

T ou rism

 Tourism in Bangladesh
Information and Communication Technology
B anglades h' s information technology sector  is growing example of what can be
achieved after the current government' s relentless effort to create a skilled
workforce in ICT sector. The ICT workforce consisted of private s ector and
freelance skilled ICT workforce. The ICT sector also contributed to
B anglades h' s economic growth. The ICT advis er to the prime minister, Sajeeb
Wazed Joy is hopeful that Bangladesh will become a major player in the IC T
s ector in the future.  In the last 3 years, Banglades h has s een a tremendous
grow th in the ICT sector. Bangladesh is a market of 160 million people with
vas t consumer spending around mobile phones , telco and internet. Bangladesh
has 80 million [ 7 4 ]  internet users , an es timated 9% grow th in internet use by
June 2017 powered by mobile internet. Banglades h currently has an active 23
million   Facebook users . Bangladesh currently has 143.1 million mobile phone
cus tomers .  Banglades h has exported $800 millions  worth of software, games ,
outsourcing and s ervices to European countries, the United S tates, Canada,
R uss ia and India by 30 June 2017. The Junior M inis ter for ICT divis ion of the
M inis try of Pos t, Telecommunications and Information Technology s aid that
B anglades h aims to rais e its export earnings from the information and
communications technology (ICT) sector to $5 billion by 2021.

In vestment
The stock  market capitalisation  of the  Dhaka S tock Exchange  in Banglades h
crossed $10 billion in November 2007 and the $30 billion mark in 2009, and
US $50 billion in Augus t 2010.  Bangladesh had the best performing s tock
market in Asia during the recent global reces sion between 2007 and 2010, due
to relatively low correlations with developed country s tock markets .
M ajor investment in real es tate by domestic and foreign-res ident Bangladeshis
has led to a mass ive building boom in Dhaka and Chittagong.
R ecent (2011) trends for inves ting in Bangladesh as Saudi A rabia trying to
s ecure public and private inves tment in oil and gas, power and trans portation
projects, United Arab Emirates (UAE) is keen to invest in growing
shipbuilding industry in Banglades h encouraged by comparative cost
advantage, Tata, an India-bas ed leading indus trial multinational to inves t Taka
1500 crore to s et up an automobile industry in Bangladesh, World Bank to
inves t in rural roads improving quality of live, the Rw andan entrepreneurs are
keen to inves t in Banglades h' s pharmaceuticals sector considering its
potentiality in international market, Sams ung sought to leas e 500 indus trial
plots from the export zones authority to set up an electronics hub in
B anglades h with an inves tment of US$1.25 billion, National Board of Revenue
(N BR ) is s et to withdraw tax rebate facilities on investment in the capital
market by individual taxpayers from the fiscal 2011–12.  In 2011, Japan B ank
for International Cooperation  ranked Banglades h as the 15th bes t inves tment
des tination for foreign inves tors .
2010–11 market cras h
The bullish capital market turned bearis h during 2010, w ith the exchange
los ing 1,800 points betw een December 2010 and January 2011.   Millions of
inves tors have been rendered bankrupt as a res ult of the market crash. The
crash is believed to be caused artificially to benefit a handful of players at the
expense of the big players .
Comp osition of economic sectors

A   Square Pharmaceuticals   plant in   Gazipur .

The B anglades h G arments Manufacturers and Exporters Association (BGM EA )
has predicted textile exports will ris e from US$7.90 billion earned in 2005–06
to US$15 billion by 2011. In part this optimism s tems from how w ell the
s ector has fared s ince the end of textile and clothing quotas, under the
Multifibre Agreement, in early 2005.
A ccording to a   United Nations D evelopment Programme  report "Sewing
Thoughts: H ow to Realize Human Development G ains in the P ost-Quota
World" Bangladesh has been able to offset a decline in European sales by
cultivating new markets in the United States .
"[In 2005] we had tremendous growth. The quota-free textile regime has
proved to be a big boos t for our factories ," s aid BGM EA president S.M. F azlul
Hoque told reporters , after the sector's 24 per cent grow th rate was revealed.
B anglades h' s quest to boost the quantity of textile trade was also helped by US
and EU caps on Chinese textiles. The US cap res tricts grow th in imports of
C hinese textiles to 12.5 per cent next year and between 15 and 16 per cent in
2008. The EU deal similarly manages import growth until 2008.
B anglades h may continue to benefit from thes e res trictions over the next two
years , how ever a climate of falling global textile prices forces w age rates the
centre of the nation's efforts to increase market share.
They offer a range of incentives to potential inves tors including 10-year tax
holidays, duty-free import of capital goods , raw materials and building
materials, exemptions on income tax on s alaries paid to foreign nationals for
three years and dividend tax exemptions for the period of the tax holiday.
A ll goods produced in the zones are able to be exported duty-free, in addition
to which Banglades h benefits from the G eneralis ed Sys tem of Preferences in
US , European and Japanese markets and is als o endow ed w ith M ost F avoured
N ation s tatus from the United States .
F urthermore, Banglades h imposes no ceiling on investment in the EP Zs and
allow s full repatriation of profits .
The B anglades h government continues to court foreign inves tment, something
it has done fairly success fully in private pow er generation and gas exploration
and production, as well as in other sectors such as cellular telephony, textiles,
and pharmaceuticals . In 1989, the s ame year it signed a bilateral inves tment
treaty with the U nited S tates, it established a Board of Inves tment to simplify
approval and start-up procedures for foreign inves tors , although in practice
the board has done little to increas e investment. The government created
the   Bangladesh Export Proces sing Zone Authority  to manage the various
export proces sing zones . The agency currently manages EP Zs in
Adamjee,   Chittagong ,  Comilla ,  Dhaka , Is hw ardi, Karnaphuli,  Mongla ,
and  Uttara . An EP Z has als o been propos ed for  S ylhet .  The government has
given the private sector permis sion to build and operate competing EPZs-
initial cons truction on a Korean EP Z started in 1999. In June 1999, the  AFL-
C IO  petitioned the U.S . Government to deny Bangladesh acces s to U.S .
markets under the  Generalized Sys tem of Preferences  (GSP ), citing the
country's failure to meet promis es made in 1992 to allow freedom of
association in EPZs.

In tern ational trade

Treemap of Banglades h Exports (2016)

In 2015, the top exports of Banglades h are Non-Knit Men's Suits ($5.6B), K nit
T-shirts ($5.28B), Knit Sweaters ($4.12B), Non-Knit Women's Suits ($3.66B )
and Non-Knit Men's Shirts ($2.52B).  In 2015, the top imports of Banglades h
are Heavy Pure Woven Cotton ($1.33B), Refined Petroleum ($1.25B), Light
P ure Woven Cotton ($1.12B), Raw Cotton ($1.01B) and Wheat ($900M).
In 2015, the top export destinations of Bangladesh are the United S tates
($6.19B ), G ermany ($5.17B), the U nited K ingdom ($3.53B), France ($2.37B)
and Spain ($2.29B).   In 2015, the top import origins are China ($13.9B), India
($5.51B ), S ingapore ($2.22B), Hong Kong ($1.47B) and Japan ($1.36B).

B an glad esh i women and the economy

M ale and female labour participation rates

As of 2014, female participation in the labour force is 58% as per World Bank
data,  and male participation at 82%.
A 2007 World Bank report s tated that the areas in w hich women' s work force
participation have increased the mos t are in the fields of agriculture,
education and health and social work.   Over three-quarters of women in the
labour force work in the agricultural sector. On the other hand, the
International Labour O rganization reports that women' s workforce
participation has only increas ed in the profess ional and adminis trative areas
between 2000 and 2005, demons trating women' s increased participation in
s ectors that require higher education. Employment and labour force
participation data from the World Bank, the UN, and the ILO vary and often
under report on women's work due to unpaid labour and informal sector jobs.
Though these fields are mos tly paid, women experience very different work
conditions than men, including w age differences and work benefits. Women's
w ages are significantly lower than men's wages for the same job with women
being paid as much as 60–75 percent less than w hat men make.
One example of action that is being taken to improve female conditions in the
work force is N on-Governmental Organisations. These NGOs encourage
women to rely on their ow n self-s avings , rather than external funds provide
women with increas ed decis ion- making and participation within the family and
society. How ever, some NGOs that addres s microeconomic is sues among
individual families fail to deal w ith broader macroeconomic iss ues that
prevent women' s complete autonomy and advancement.

His torical statis tics

B azaars   are popular trading places for everyday hous ehold necess ities.
B anglades h has made s ignificant s trides in its economic sector performance
s ince independence in 1971. Although the economy has improved vas tly in the
1990s, Bangladesh still suffers in the area of foreign trade in South Asian
region. Des pite major impediments to grow th like the inefficiency of  s tate-
ow ned enterprises , a rapidly growing labour force that cannot be abs orbed by
agriculture, inadequate pow er supplies,  and s low implementation of economic
reforms , Banglades h has made some headw ay improving the climate
for  foreign investors and liberalis ing the  capital markets ; for example, it has
negotiated with foreign firms for oil and gas exploration, better countryw ide
dis tribution of cooking gas , and the construction of natural
gas  pipelines  and  pow er s tations . P rogress on other economic reforms has been
halting becaus e of oppos ition from the bureaucracy, public s ector unions, and
other vested interest groups.
The es pecially severe floods of 1998 increas ed the flow of  international aid .
S o far the global financial crisis has not had a major impact on the
economy.  Foreign aid has s een a gradual decline over the last few decades but
economists s ee this as a good sign for s elf-reliance.   There has been a dramatic
grow th in exports and remittance inflow which has helped the economy to
expand at a steady rate.
B anglades h has been on the list of UN Least Developed Countries (LD C) s ince
1975. B anglades h met the requirements to be recognis ed as a developing
country in March, 2018.  Bangladesh's Gross N ational Income (G NI) $1,724
per capita, the Human Assets Index (HA I) 72 and the Economic Vulnerability
(EV I) Index 25.2.

With that, it concludes the economy of Banglades h.