International Development: Bangladesh

Published: 26th February 2010
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Executive summary

Presently, Bangladesh is witnessing a sustained growth rate in the region with increasing foreign investments in the country and a shift from agricultural based economy to industry based economy. The macro economic polices being undertaken and the political stability has been a driving force in this recent phenomenon. Though the current growth rate is only rated at 5.6% it is expected to be better with time. This report will thus try to underscore the current Bangladesh economic growth through taking a close look at the economic growth indicators and finally highlight the reason of this development growth of Bangladesh.

Geography

Bangladesh is found in the South Asia part and it bounders India in almost all its borders apart from a small part of the border that is borders with Burma. The boundary of Bangladesh was established way back in 1947. Bangladesh declared its independence form Pakistan in 1971 following a liberation war. Despite its liberation account, development of Bangladesh has been filled with a lot of political chaos having been seen fourteen various presidents and about four military takeovers. Bangladesh is a highly densely populated country with high level of poverty. According to the World Bank records, it notes that in the recent past the Bangladesh has made noteworthy advancement in human growth and development in sectors of gender parity, literacy, in education, and decrease of population growth rate. (Baxter, 1997)

General information about Bangladesh (as at 2007)
Source: Bangladesh Bureau of Statistics www.bbsgov.org

Capital: Dhaka
Official languages: Bengali (Bangla)
Government: Parliamentary republic
President: Lajuddin Ahmed
Area: 147,570 km2
Population: 150,448,340 (2007)
GDP: US$ 360.9
Per capita: US$2,270

Government

Bangladesh government system is a parliamentary democratic system where Islam is the national religion. There is a general election which is held after every five years which involves all the citizens who are above 18 years, to elect members of the parliament. The parliament consists of 345 members representing different constituencies. The country has a Prime Minister who is the leader of the government, he constitutes the cabinet in which he heads and manages the daily affairs of the state. The president elects the prime mister who has to be a member of parliament and commands a big following and confidence of the majority of the parliamentary members. The president is elected by the members of parliament and he is largely ceremonial. (Baxter, 1997)

The uppermost judicial organ is the Supreme Court, the president appoints the judges. It has been observed that the judicial system and law enforcement establishments are not strong. However, division of powers between the judicial and executive was at last separated in 2007, November to try and reform the judiciary and make it stronger and also impartial. Bangladesh. (Development Policy Review, 2007)

Economic

In spite of constant local and international attempts to develop Bangladesh economic and also demographic developments, the country has remained as developing country. Its national per capita earnings in the 2006 was US$2300 contrasted to the global average which is supposed o be $10,200. (Bangladesh Bureau of Statistics, 2007)

Jute product was at one time the economic backbone of the Bangladesh Its market share on the global market export market reaching its peak in the 1970s earning about 70% of the country total net exports. Nonetheless, polypropylene goods started to replace the jute products global making the jute market to begin declining. Bangladesh agriculture sector produces a vast amount of rice and tea which it exports. Though, the country's population is mostly farmers comprising about two thirds, the garment industry accounts for more of the country's foreign earnings than the agriculture sector. The garment industry started attracting a lot of foreign investments in the 1980s owing to the inexpensive labour and low production costs in the country.

Economic indicators

GDP; purchasing power parity (PPP) $203 billion

GDP; real growth rate; 5.3%

GDP; per capita; $1,570

GDP; composition by segment;

• Agriculture; 30%

• Industry; 18%

• Services; 52%

Population under poverty level; 32.6%

Household earnings or expenditure by percentage amount;

• Lowest 10%; 3.9%

• Highest 10%; 28.6%

Inflation rate (consumer product prices); 5.8%

Labour force; 64.1 million

Labour force; by sector;

• Agriculture 63%
• Services 26%
• Industry 11%

Unemployment rate; 32.2%

Budget:

Revenues; $4.9 billion

Expenditures; $6.8 billion

Industries;

Cotton textiles, garments, jute, tea processing, cement, paper newsprint, chemical fertilizer, sugar and light engineering

Industrial manufacturing growth rate; 6.1%

Electricity production; 12.06 billion kWh (1999)

Electricity - production by source:

• Fossil fuel: 93.7%
• Hydro; 6.3%

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

Exports; $5.9 billion

Exports products; garments, jute, leather, seafood and frozen fish

Exports partners; USA 31.2%; Germany 9.95%; UK 8.06%; France 5.82%; Italy 4.42%

Imports; $8.1 billion

Imports commodities; machines and equipments; chemicals; steel; textiles, raw cotton; food; crude oil; petroleum products and cement

Imports partners; India 12.2%; Singapore 7.8%; Japan 6.7%; China 6.4%; US 5.3%

External Debt; $17 billion

Economic aid recipient; $1.575 billion (

Exchange rates; taka for each US dollar; 54.000 (Bangladesh Bureau of Statistics, 2007)

Human poverty level in Bangladesh

The Human Development Index determines the average growth of the country in terms of human development progress. Human Poverty Index (HPI-1) is used to measure the human development in the developing countries. The index looks at various aspects such as education level, living standards and even access to clean water. The table below gives a summary of Bangladesh human poverty levels; the country is ranked as 90th amongst 110 developing countries (UNDP, 2005)

Macro economics policies

Economic growth of Bangladesh has tried to sped up to its economic growth in the current 21st century, attaining 5.2 in 2005. (UNDP, 2005) This was due to Bangladesh's leaders move to employ and accept United Nations expertise in reinventing and rejuvenating its economic framework and policies. Bangladesh leaders liberalized its markets in 1990s enhancing free foreign trade this move saw the volume of Bangladesh foreign trade increase. In addition all legal blockades on private trade and also the on manufacturing sector were removed, and the government halted all subsidies on previous state owned companies, while at the same time permitting foreign importation to the market in so as to remove the monopolies enjoyed by state firms. (UNDP, 2005)

This move created competition among the industries and those firms which had competitive advantage survived and became more successful while those which could not compete collapsed. The public also had it winners and losses, among those who gained were the university educated entrepreneurs who got jobs to manage the increased inflow of foreign investments capital, become overseas agents among other opportunities. On the other hand the poor and the elderly suffered as they had depended on state incomes.

Bangladesh's economic reinvention resulted in high inflation of double-digit mark, however, the economy experts put into action macroeconomic machinery in the economic strategy which curbed and stabilized the inflation within a period of only three months. The government had to admit that even though the economic transformation resulted in a new economic class which mostly consisted of the rural poor, the economic structural adjustment was a significant aspect that it was willing to implement to as suggest by the global powerful economies. Thus, the government was forced to undertake the following macroeconomic measures to being down the inflation;

1. Letting prices of commodities to fluctuate;

2. The government raised interest rates to be very high

3. Increased/ introduced taxes

4. Highly reduced government subsidies given to many industries, and

5. Massively reduced welfare spending (UNDP, 2005)

The aim of the above measures was to compress the in built inflation pressure out of the country's economy in order for the manufactures to start making reasonable decisions concerning manufacturing, pricing and also investment, as an alternative of overusing resources. The manufactures were supposed to create a market instead of being central planners determining prices, the market was supposed to determine the price by itself. In the resulting product mix and output levels, the economic restructuring resulted to an inducement structure in the Bangladesh economy in which risk and efficiency were rewarded while punishing carelessness and wastage. The government thus set a mark for all other economic reforms which was controlling hyperinflation. (UNDP, 2005)

Economic policies that led to better economic growth

The growth of Bangladesh economic has been motivated by changes in economic policies which were undertaken by the government that has continuously resulted in greater market force. Economic transformation was first witnessed in the agriculture sector, before it was extended to other industry and other sectors. The government abolished the controls placed on the market in 1990s, while implementing competitive laws which were meant in unifying the market. The economic policies were meant to allow foreign direct investment in Bangladesh. The economic environment policies that were formulated resulted to high savings rates as the government encouraged more savings and less borrowing through increasing the interest rates. This has resulted to economic growth that is being witnessed in Bangladesh presently. At the same time the capital stock also experienced rapid increase due to the large amount of money that was being invested in the capital market. High public investment and low borrowing has also assisted in creation of an urban society since many Bangladesh people continue to move from rural areas to the urban areas. (Economy watch, 2007)

High investment in the economy has increased the assets which are available to every employee in the market sector thus acting as a boost for the labour productivity annual growth. This has also helped in improving the economy has the production on the urban workers is more than that of agriculture workers. (Economy watch, 2007)

Strong and stable macroeconomic

The strong private sector growth has put an emphasis on maintaining of a stable macro-economy environment, most important being the stabilization of prices. Monetary policies of Bangladesh currently are sound and have allowed the expansion of the economic growth in Bangladesh. The government have been able to reduce its expenditure especially by cutting the amounts spend on the public welfare, while at the same time being able to increase the amount of revenue being collected. The inflation rate has been able to be brought down from 8% in the 1996 to a small devaluation in the year 2002. However, inflation rates have continued to fluctuate, which means that the country's monetary policy has not been always successful controlling inflation. (Economy watch, 2007)

On the international scene the competitiveness of Bangladesh still continues to and the volume of its exports is increasing. On the local scene, the macroeconomic prospects remain good. Credit and profits are high, thus the volume of investment in China is expected to continue while the consumption rate is anticipated to remain solid. Even though inflation is inhibiting consumption growth, the GDP is expected to reach 6.3% in 2008 to remain steady in 2009. Current data show that the economic activities remain buoyant and trade continues to grow. (Loren B, et al, 2007)

Regional problems

Bangladesh witnessed slow growth of economy in 1990s which led to other people to show fear over the competitive abilities of the Bangladesh industries. Bangladesh industries were faced with hard times with the changes of government through military coup that occurred in the 1990s. Bankruptcies of big financial institutions worsened the recession that was there. This coupled by the Asian economy crisis saw profits of all industries going down. Currently the Asian economy has recovered which have helped the economy of Bangladesh to grow. (Rahman, 2004)

Reason of present growth

The current government has attempted to enact privatization and foreign- investment laws which are aimed at stimulating the economy. Though, some of this laws effectiveness in ambiguous, economy has been observed to respond to them. Bangladesh economic growth can be attributed to the neo-liberations of markets and globalization which has attracted more foreign investors in the country which has lead to high growth rate. The opening up of the markets also has improved the competition in the market and lead to high production. These measures has equally resulted in increasing the number of industries in the country and has seen the foreign exchange products increasing and export shifting from agricultural products to industry products particular garments products.

Conclusion

Bangladesh is a developing country which in the recent past has been experiencing better development growth with can be attributed to improved political stability that the country is currently witnessing. The macro economy policies which has been formulated by the government and has seen foreign investors trooping in the country and building up more industries, the net effect has been increased exports and a shift from agricultural products based economy to industry based economy. Neo-liberation and globalization has also increased the much required development as it has opened up new markets and improved the technology and infrastructure in the country.

reference:

Bangladesh Bureau of Statistics www.bbsgov.org
Bangladesh. Development Policy Review (2007)
Bangladesh Bank (2005) Annual Report 2004-2005
Baxter, C (1997): Bangladesh, From a Nation to a State. West view Press
Begum, N (2001): Enforcement of Safety Regulations in Garment sector in Bangladesh, Proc. Growth of Garment Industry in Bangladesh: Economic and Social dimension,
Economy watch (2007): Bangladesh economy: Retrieved from; www.economywatch.com Accessed on 16/10/07
Macarena's, A (1986): Bangladesh: A Legacy of Blood. Hodder & Stoughton, London.
Rahman S (2004): "Global Shift: Bangladesh Garment Industry in Perspective; Asian Affairs 26
UNDP (2005): Human Development Report.
Schreiner, M (2003): A Cost-Effectiveness Analysis of the Grameen Bank



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