Stamford University Bangladesh
Growth and Economic Development of Bangladesh
Course Title: Macro Economics
Course Code: ECO 217
Submitted to: Submitted By:
Sohana Rahman Lisa Md. Rrakibul Hasan (ID: 05717528)
Lecturer Md. Raisul Islam (ID: 05717531)
Dept. of Business Administration Rezwana Khan (ID: 05717557)
Stamford University Bangladesh Jannatul Naim Bristy(ID:05717543)
Azadi Sayma Noor (ID: 05717595)
Tonmoy Saha (ID: 05717551)
Date of Submission: April 06, 2016
Letter of Transmittal
April 06, 2016
Shohana Rahman Lisa
Dept. of Business Administration
Stamford University Bangladesh
Subject: To submit a report on “Growth and Economic Development of Bangladesh”
It gives us immense pleasure to submit the term paper on “Growth and Economic
Development of Bangladesh”, as a requirement of the course “Macroeconomics” ECO-217.
Apart from the academic knowledge, we have got the golden opportunity to acquaint ourselves
with the role of finance in growth and development. We believe that the experience we have
acquired from this study will be an invaluable asset throughout our lives.
It has to be mentioned further that without your expert advice and guidance and the contribution
of all group members it would not have been possible to complete this term paper. We will be
pleased to answer any sort of query you may have regarding this report.
(On behalf of the group)
Md. Rakibul Hasan
ID: 057 17528
For the completion of this study we can’t deserve all praise. There were a lot of articles those
helped us by providing valuable information, advice and guidance for the completion of this term
paper in the scheduled time.
Term Paper is an essential part of BBA program as one can gather practical knowledge within
the short period of time by observing and doing the works of chosen topic.
At first we like to pay our thanks to Almighty Allah, for helping us to do all the works with
It is a real pleasure to express our deepest appreciation, sincere gratitude and heartiest
gratefulness to our course instructor “Shohana Rahman Lisa” for his constant guidance, helpful
suggestion and valuable assistance. He helped us by giving her valuable advice throughout this
report. His encouragement and motivation helped us to overcome all the difficulties.
1.1 Methodology of the Study
The methodology of the report is inductive. The report is based on secondary information. The
secondary sources of data are different reference books, press release by news paper & some
1.2 Objectives of the Study
The study has a number of objectives. These are:
To match the theoritical knowledge of finance with the real field.
To understand the practical economic condition of Bangladesh.
To know the growth and Economic Development alleviation strategy programs .
To enhance our skills in realising the parctical mechanism of economic development for
macroecomomic allevition in the world.
1.3 Limitations of the Study
While preparing this comprehensive term paper we have faced a few problems which limit to
make the best output. If we were not supposed to deal with these challenges, we could make it a
Table of Contents: (Growth and Economic Development of Bangladesh)
Contents Page no.
Emerging Bangladesh 1-2
Economic Freedom Snapshot 2
Economic Environment 3
Economic Performance 3-4
Economic Prospects 4
Growth Development in Bangladesh 4-5
Constraints to Growth 5
Inadequate infrastructure, especially power and ports 5
Export competitiveness 6
The Financial Sector 7
Rural Development 7
Social Welfare 7
Labor and Employment 7-8
Women and Children Affairs 8
Youth development 8
Bangladesh, Housing and Public Workers 8-9
GDP Growth FY 2015-2016 Forecast by World Bank 9
Investment Growth Of Bangladesh 9-10
Growth of Export Earnings 10-11
Monetary growth and Financial Institution 12
Revenue earnings: A large shortfall is inevitable 13
ADP expenditure against allocations the lowest in recent years 13
Key Strategies of Macro economy Development 13
The Human Development Index – going beyond income 13-14
Human poverty in Bangladesh: focusing on the most deprived in
multiple dimensions of poverty
Building the capabilities of women 14-15
Fighting climate change 15
Recent Economic Development 15-18
Power and Energy Sector 15-16
Electricity Market 16-17
Gas Market 17
Foreign exchange reserve continued to rise 17-18
Bangladesh wants to invest $8 bln in infrastructure 18
On Going Developments 18-19
Millennium Development Goals and Bangladesh 18
Sustainable Development Goals and Bangladesh 19
Near and Medium-term Outlook 20
Challenges and Recommendations 20-21
Political stability will be critical for Bangladesh to realize its middle
Concluding Remarks 21-22
Economic development is one dimension of the more inclusive concept of development.
Development is both a process and a project. Bangladesh has made significant strides in its
economic sector performance since independence in 1971. Although the economy has improved
vastly in the 1990s, Bangladesh still suffers in the area of foreign trade in South Asian region.
The World Bank has forecast that Bangladesh’s gross domestic product will grow by 6.7 percent
in the current 2015-16 fiscal year. The fate of Bangladesh and the Bengali nation has been
inextricably intertwined with this party. It has always upheld and fought for the democratic
ideals and stood by the side of the toiling masses. Investment should rise 37.6% of gross
domestic product from the current 28.7% if 8% GDP growth is targeted said the lender in its
quarterly economic update on Bangladesh. Thankfully, inflation has come down in the recent
past with concomitant positive implications for the interest rate. Inability to take advantage of the
relative macroeconomic stability to stimulate private sector investment remains an enduring
concern. While achieving significant macroeconomic stability, Bangladesh continues to face
challenges such as infrastructure deficits and energy shortages. Lack of movement in
undertaking and implementing the needed reforms is emerging as a major impediment to steering
the economy to higher growth trajectory. The government will need to rigorously pursue a set of
institutional and policy reforms (including in the areas of financial sector, revenue mobilization,
public expenditure management, PPP, privatization etc.) by taking bold steps, to yield the aspired
results. In 2015, per-capita income stood at USD 1,314. As the Bangladesh economy moves into
the second half of FY2016, a number of challenges have emerged, addressing of which will be
crucial to realizing the potentials of the Bangladesh economy.
Economic development is one dimension of the more inclusive concept of development.
Development is both a process and a project. As a process, it refers to changes occurring in
countries defined variously as undeveloped, underdeveloped, developing, emerging, and newly
industrializing. As a project, it refers to deliberately planned change or, as McMichael puts it, a
historically specific organized strategy of national economic growth (McMichael, 2004, 3
More recently, there has been a shift to a globalization project under which a globally driven
agenda of free trade has resulted in ‘development states’ such as Bangladesh playing a more
facilitative than directive role.
Economic development refers to the raising of the productive capacity of a country through the
introduction of policies designed to enhance the productivity of land, labor and capital, raise
standards of living and reduce or alleviate the poverty of the inhabitants of the country. At a
minimum, economic development has a growth and a distributive dimension.
Bangladesh is a developing country that is classified as a Next Eleven emerging market and one
of the Frontier Five. According to a recent opinion poll, Bangladesh has the second most pro-
capitalist population in the developing world. Bangladesh ranks fifth in the global production of
fish and seafood. Remittances from the Bangladeshi Diaspora provide vital foreign exchange.
Bangladesh has the potential to emerge as a regional economic and logistics hub.
Between 2004 and 2014, Bangladesh averaged a GDP growth rate of 6%. The economy is
increasingly led by export-oriented industrialization. The Bangladesh textile industry is the
second-largest in the world. Other key sectors include pharmaceuticals, shipbuilding, ceramics,
leather goods and electronics. Being situated in one of the most fertile regions on Earth,
agriculture plays a crucial role, with the principal cash crops including rice, jute, tea, wheat,
cotton and sugarcane. The Bangladesh telecoms industry has witnessed rapid growth over the
years and is dominated by foreign investors. The government has emphasized the development
of software services and hi-tech industries under the Digital Bangladesh scheme. Bangladesh has
substantial reserves of natural gas and coal; and many international oil companies are involved in
production and exploration activities in the Bay of Bengal. Regional neighbors are keen to use
Bangladeshi ports and railways for transshipment. Located at the crossroads of SAARC, the
ASEAN+3, BIMSTEC, and the Indian Ocean, Bangladesh has the potential to emerge as a
regional economic and logistics hub.
Bangladesh has shown remarkable macroeconomic resilience, and its economy has grown
steadily over the past five years. The country, however, has made impressive progress in poverty
reduction, health, education and gender equity. Nonetheless, overall entrepreneurial activity is
disadvantaged by an uncertain regulatory environment, poor infrastructure, and the absence of
effective long-term institutional support for private-sector development.
Economic Freedom Snapshot -
2016 Economic Freedom Score: 53.3 (down 0.6 point)
Economic Freedom Status: Mostly Unfree
Global Ranking: 137th
Regional Ranking: 29th in the Asia–Pacific Region
Notable Successes: Management of Public Finance
Concerns: Rule of Law and Open Markets
Overall Score Change Since 2012: +0.1
Economic development remains hampered by the fragile rule of law. Corruption and marginal
enforcement of property rights have driven people and enterprises out of the formal sector. The
government’s inability to provide basic public goods further limits opportunities for business
development and job growth.
Job-friendly growth gained momentum in 2014 until the recurrence of political turmoil in
January 2015. The economy continued to face several key challenges: political uncertainty;
growing infrastructure deficit, and a de-facto onerous regulatory regime. Still, FY15 growth is
expected to remain resilient. The political dynamics seem to be the main uncertainty for
Bangladesh’s otherwise favorable economy underpinned by strong macroeconomic stability,
prospects of recovery in the US and Euro Zone, and strong domestic demand. Increasing female
participation in the labor force and boosting private investment are current priorities to maximize
growth and help realize the country’s goals of becoming a middle income country.
Bangladesh’s average tariff rate is a relatively high 10.7 percent. Tariffs are a significant source
of government revenue. Most sectors of the economy are open to foreign investment, but state-
owned enterprises distort the economy. Despite ongoing reform of the financial sector,
government ownership and interference remain considerable, undermining much-needed
increases in efficiency
Selected economic indicators (%) 2015 2016
ADO 2015 Update ADO 2015 Update
GDP Growth 6.1 6.5 6.4 6.7
Inflation 6.5 6.4 6.2 6.2
Current Account Balance (share of
-0.5 -0.8 0.5 -0.5
Source: Asian Development Outlook 2015; Asian Development Outlook 2015 Update
Despite political agitation early in 2015 that adversely affected transport services, exports, and
private investment, growth in Bangladesh held up well because of brisk domestic demand,
boosted by higher worker remittances, private sector wages, and public investment.
Inflation moderated in FY2015 much as forecast in ADO 2015 from 7.4% a year earlier,
reflecting large public stocks of food grains, normal weather, a supportive monetary policy, and
lower global food and commodity prices that a steady exchange rate allowed to passed through.
Export growth was 3.3% in FY2015, down significantly from 12.1% in FY2014. Garments—
accounting for about 80% of total exports— grew slowly by 4.1%, reflecting supply chains
disrupted by political demonstrations in early 2015, soft demand from the European Union and
the US, and a marked decline in prices for cotton, a major input cost that can affect pricing.
Imports rose by 11.2%, accelerating from 8.9% growth in FY2014. Larger imports of food
grains, machinery, fertilizer, and industrial raw materials helped to propel the expansion. As
exports grew significantly more slowly than imports, the trade deficit widened markedly.
Despite a strong recovery in remittances, the current account recorded a small deficit slightly
higher than the ADO 2015 forecast.
The GDP growth forecast for FY2016 is revised somewhat higher still with the expectation that
exports will grow with continued economic recovery in the US and the euro area, strong
expansion in remittances will boost consumption demand, private and public investment will
pick up as the business climate improves under a stabilizing political situation, and spending will
increase under the annual development program.
The ADO 2015 Update retains the ADO 2015 projection for average inflation in FY2016, which
matches the central bank’s monetary policy statement. Although higher public sector wages and
upward adjustments to administered prices for natural gas and electricity from 1 September 2015
will exert inflationary pressure, the easing of supply constraints, a cautious monetary policy, and
a better crop outlook should keep inflation in check.
Bangladesh exports up 9 percent in July-February of 2015-16.Export growth in FY2016 is
projected to improve to 6.0% as economic growth in the euro area and the US strengthens.
Imports are projected to increase by 13.0%, mainly for capital goods, industrial raw materials,
and food grains. Despite the expansion in remittances, the larger trade deficit will likely mean a
current account deficit narrower than in FY2015 but failing to achieve the small surplus
projected in ADO 2015.
Growth Development in Bangladesh:
The Gross Domestic Product (GDP) in Bangladesh expanded 6.51 percent in 2015 from the
previous year. GDP Growth Rate in Bangladesh averaged 5.66 percent from 1994 until 2015,
reaching an all time high of 6.63 percent in 2006 and a record low of 4.08 percent in 1994. GDP
Growth Rate in Bangladesh is reported by the Bangladesh Bank.
Bangladesh is considered as a developing economy. Yet, almost one-third of Bangladesh’s 150m
people live in extreme poverty. In the last decade, the country has recorded GDP growth rates
above 5 percent due to development of microcredit and garment industry. Although three fifths
of Bangladeshis are employed in the agriculture sector, three quarters of exports revenues come
from producing ready-made garments. The biggest obstacles to sustainable development in
Bangladesh are overpopulation, poor infrastructure, corruption, political instability and a slow
implementation of economic reforms. This page provides - Bangladesh GDP Growth Rate -
actual values, historical data, forecast, chart, statistics, economic calendar and news. Bangladesh
GDP Growth Rate - actual data, historical chart and calendar of releases - was last updated on
April of 2016.
Constraints to Growth:
Bangladesh’s growth challenges are two-fold:
How to ensure sustainability of the 5-6% growth over the long-term
How to raise growth to the 7-8% range, which is desirable and needed to meet the
government’s poverty reduction goals
The key constraints to improved growth performance include:
Inadequate infrastructure, especially power and ports:
There hasn’t been any increase in generation capacity of power supply for a few years, mainly
due to governance-related problems. Bangladesh’s main port, Chittagong port, is among the most
inefficient and cost ineffective in the region.
Many important aspects of governance are very weak. Transparency International has ranked
Bangladesh last in its corruption ratings for five years in a row. This extracts a significant price
in terms of lost growth potential.
Urbanization has been rapid and largely imbalanced. A quarter of the population now lives in
urban areas, while in 1960 the number was just 5%. Fifty percent of GDP is spent on urban
activities. Urbanization has been skewed toward Dhaka, making it among the fastest growing
metropolises in the world. This is adding to growing concerns about congestion, lagging urban
planning and management, and skyrocketing real estate prices.
Bangladesh is one of the most closed economies in the world. Opening up trade has to be one of
the pillars of future growth. Growth dividends from trade openness will depend upon
concomitant investment climate reforms to boost competitiveness of domestic firms.
Source: WWW.Tradingeconomics.com | Bangladesh Bank
However, the country should take into account how a reduction in tariffs will affect revenue
considering that tariffs constitute about 50% of the already weak tax collection effort.
The financial sector:
Financial depth (measured as M2/GDP) is quite low and the range of financial services quite
rudimentary. Many of the important contractual savings institutions are absent, while capital
markets are extremely shallow. There is a problem of the "missing middle," those people who
aren’t covered neither by the micro finance institutions nor the formal banking sector. The public
banking sector remains riddled with non performing loans, despite recent improvements.
Despite the impressive improvements, many problems plague the education system. Its quality is
weak with a huge rural/urban gap and not relevant to market needs. Tertiary education and
vocation studies have been largely neglected. The IT revolution, which has benefited India and,
to a lesser extent Pakistan, has largely bypassed Bangladesh. The education minister said that the
foreign organization and countries are not willing to donate money in education sector. Day by
days the budget for the education sector is going narrow and unnecessary.
More than 50% of the country’s GDP comes from the rural sector. Development of this sector is
thus crucial for national development.
Since poverty alleviation is a major goal of the Government, thrust is being given on socio
economic development of the underprivileged groups. The main emphasis here is on adoption of
integrated and comprehensive approach taking the family as the basic unit for social services
programs with emphasis on family and group development rather that individual development.
The government has been implementing the following programs in the Social Welfare sector:
(a) Urban and rural community development program.
(b) Development services for the physically and the mentally disabled.
(c) Development services for children.
(d) Welfare services for the juvenile and the distressed women.
(e) Welfare services for the aged and the infirm.
(f) Rehabilitation program for the addicts.
Labor and Employment:
The present government has undertaken various measures to expand the opportunities for
domestic and overseas employment. Remittances from Bangladeshis working abroad have
marked a steep rise during the nineties due to a massive outflow of workers from Bangladesh. As
an export item, manpower exports currently occupy the second position with an annual inflow of
over 1 billion U.S. Dollars. The Middle Eastern countries along with Malaysia, South Korea and
Japan are the principal destination for Bangladeshi workers.
The Labor Policy of the present Government embodies creation of an environment conducive to
improved Labor-Management relations in order to provide higher wages through higher
productivity, Tipcarts. Productivity, provision of incentives, Labor welfare. Employment
generation, earnings according to work, and a healthy growth of trade Unionism have been
emphasized for ensuring basic needs of all and a balanced economic growth.
Women and Children Affairs:
The government is trying hard to integrate the womenfolk of the country into the mainstream of
the development process, which is one of the main strategies for overall 50cm-economic
development. Poverty, malnutrition, hunger, illiteracy, etc. are largely concentrated around
womenfolk, and as such women can act as uniquely suitable agents for elimination of these
socio-economic maladies. Attainment of reasonable growth rate, alleviation of poverty through
generation of production employment opportunities and development efforts. The government
reconstituted the National Women’s Development. The present participating of women in the
Bangladesh economy are dominating strongly and contribute to the Bangladesh economy
The youths are potentially the most productive force in Bangladesh. They constitute 36% of the
total civilian labor force. Recognizing the fact that a disciplined and, organized, trained and
educated youth community can make significant contribution to the development process, the
government has taken up various programs for their socio- economic uplift.
Bangladesh, Housing and Public Works:
The Ministry of Housing and Public works is entrusted with the task of carrying out public sector
construction activities and looking after urbanization, city development housing settlement
aspects throughout the country.
Housing is an important growth sector having backward and forward linkages. Because of ever
increasing demand, the sector the tremendous potentials. A large number of property developers
are already active in the private sector.
The state-owned House Building Finance Corporation (HBFC) has been made fully operational
for ensuring adequate credit flow to this sector on easy terms. A National Housing policy has
been adopted which calls for providing shelter to the poor, the homeless and the needy.
GDP Growth FY 2015-2016 Forecast by World Bank:
The World Bank has forecast that Bangladesh’s gross domestic product will grow by 6.7 percent
in the current 2015-16 fiscal year. It credits increases in infrastructure spending and the hike in
wages in the public sector for the acceleration in growth. The bank also says that growth will be
pushed further by laws strengthening worker rights that are expected to boost exports as the
country seeks to maintain US trade preferences. Political tension has eased and exports have
rebounded in the country, the global lender observes in its biannual report on economic
prospects. It published a report entitled ‘January 2016 Global Economic Prospects’ early on
Thursday. It readjusted Bangladesh’s estimated growth for the 2014-15 fiscal year from 6.3
percent to 6.5 percent in its June 2015 report. The review had also been published in its
‘Bangladesh Development Update’ report in October last year. The government has targeted 7
percent growth in the current fiscal year. Zahid Hussain, the Lead Economist at the World
Bank’s Dhaka office had earlier said that investment in the private sector will have to increase in
order to fulfill the target.
According to the World Bank’s latest report, growth in the South Asia region rose from 6.8
percent in 2014 to 7 percent in 2015, the fastest among developing regions.
Investment Growth of Bangladesh:
Bangladesh requires increasing private investment to attain higher and sustainable economic
growth, said Asian Development Bank yesterday. Investment should rise 37.6% of gross
domestic product from the current 28.7% if 8% GDP growth is targeted said the lender in its
quarterly economic update on Bangladesh. In the budget this fiscal, the government has set 7.3%
growth target. ADB said to achieve the target, the country will need to increase total investment
to 34.3% of GDP, around 6 percentage points higher than the current level (28.7%).For faster
poverty reduction, it suggested Bangladesh needs to lift its annual GDP growth rate to about 8%
in the medium term. But it needs more investment. From FY2011 to FY2014, the Bangladesh
economy grew at an average annual 6.3% rate compared with 7.1% average growth targeted for
the first four years of the Sixth Five-Year Plan from FY2011 to FY2015. GDP growth in
FY2014 is provisionally estimated by Bangladesh Bureau of Statistics (BBS) at 6.1%, slightly up
from 6.0% in FY2013. “Higher growth in exports contributed to the higher GDP growth,” the
bank said adding that public investment also rose offsetting the decline in private investment. It
said growth in private consumption was lower than in FY2013. A decline in remittances, low
private credit growth and weaker consumer confidence ahead of January 2014 elections
contributed to lower growth in private consumption, it said. The ADB said although public
investment as a percentage of GDP rose in recent years, the quality of investment also needs to
ADB study findings suggested Bangladesh’s GDP growth during the past two decades was
mainly driven by capital stock growth, while the output gap between actual output and estimated
potential output remained small. “This implies further acceleration in GDP growth will require
expansion of the economy’s productive capacity by raising capital stock, improving labor skills,
and lifting total factor productivity growth through deepening policy and institutional
reforms.” At 9.6% of GDP in FY2014, Bangladesh’s tax–GDP ratio is low compared with other
countries in South Asia, and also lower than that of developing countries, it said. ADB put
emphasis on public-private partnerships (PPP), saying large financing for infrastructural
investment, significant private sector participation including through PPP will be
needed.. Earnings from remittance inflows declined by 8.5% in the first half of FY2014, but rose
by 5.6% in the second half. Given the trends during the second half of FY2014, remittance
inflows are likely to grow in FY2015, the bank said. ADB also termed the country’s
macroeconomic management prudent.
It said a cautious monetary policy together with a supportive fiscal policy contributed to slowing
down inflation, with a more rapid deceleration in nonfood inflation.
Growth of Export Earnings:
The growth was 10.41 percent in January. In the first eight months (July-February) of the 2015-
16 fiscal years, the export earnings rose by around 9 percent, over 2.35 percent more than the
target. Finance Minister AMA Muhith and garment traders' organization BGMEA chief Siddiqur
Rahman hoped the export growth will exceed 10 percent in the 2015-16 financial year.
According to the Export Promotion Bureau, Bangladesh exported goods worth over $22.12
billion in the July-February period. The garments sector contributed over $18.12 billion to the
earnings, accounting for 82 percent of total exports.
Product Actual Growth
RMG 13.8 9.8 4.1
Knit 15.0 9.7 3.1
Woven 12.17 10.0 5.0
Non-RMG 3.3 10.7 0.2
Raw Jute -45.0 0.5 -11.7
Leather 26.5 23.6 -21.4
Home Textiles 0.1 7.3 1.5
Frozen Food 17.3 14.6 -11.0
Total Export 11.7 10.0 3.4
Source: Calculated from the Export Promotion Bureau (EPB) data.
The national budget had set an export target of over $21.61 billion for this period. The exports
totaled over $20.31 billion in the same period last year. In February this year, the exports were
over $2.85 billion, 5 percent more than the target. The amount was over $2.51 billion in
February, 2015.Finance Minister Muhith told bdnews24.com the growth in export had given the
economy a firm base."This is happening because of the joint efforts of exporters and the
government. The government is giving incentives for the growth of export, while exporters are
exporting goods to new markets," he said."No other country will be able to export high quality
garments at cheap rates like us. So, our exports will keep growing," he added.
BGMEA President Rahman said, "There is no violence. No problem in export, import. The crisis
of gas and power has almost gone. The economies of our markets in the US and Europe have
also turned around."
He said it would be possible to achieve the $50 billion garment export target by 2021 if the
current stability sustains.
Inflationary trend experienced a consistent decline in the first seven months of FY2015. This was
followed by a rising trend when inflation reached its peak during February-April period when
supply chains were disturbed due to violence, strikes and blockades. However, it was tamed to
some extent during the last two months of FY2015. The annual average inflation in June 2015
was 6.4 per cent, which remained lower than the target of 6.5 per cent. Lower global commodity
Prices, stable exchange rate of the Taka and restrained growth of broad money supply in the
backdrop of slow growth of domestic demand contributed to falling inflation. Indeed, the global
prices of almost all commodities, including food and fuel, declined considerably throughout
FY2015. In June, 2015, the International Monetary Fund’s (IMF) global commodity price index
was 35 per cent lower than it was in June 2014. In the domestic market, while food inflation
followed a declining trend, non-food inflation increased by a small margin. Annual average food
inflation decreased from 8.6 per cent in June 2014 to 6.7 per cent in June 2015. In contrast, non-
food inflation increased to 6.0 per cent in June 2015 from 5.5 per cent in June 2014.
Year Inflation Inflation target (MPS)
FY10 7.3 6.5
FY11 8.8 7.0
FY12 10.6 7.5
FY13 7.7 7.5
FY14 7.4 7.0
FY15 6.4 6.5
FY16 6.2 (NOV 15) 6.2
Source: BBS Consumer Price Index (CPI) and MPS (various issues).
Monetary Growth and Financial Institutions:
The growth rates of the monetary aggregates in the elapsed fiscal year remained rather subdued
as against their respective targets, except for net foreign assets. Growth rate of broad money fell
well short of the target limit of 16.5 per cent and could reach only 12.4 per cent at the end of
June 2015. Similarly, growth of credit to the public sector was the lowest since FY2010 which
attained a negative growth of (-) 6.2 per cent at the end of June 2015 due to limited bank
borrowing requirements by the Government to underwrite fiscal deficit. Under low domestic
demand scenario, growth of credit to the private sector reached its peak at 13.2 per cent in June
2015 while the target was set at as high as 15.5 per cent. This trend in the growth of monetary
aggregates, however, was accompanied by strong flow of net foreign assets which posted a
growth rate of 18.2 per cent against the target of 3.6 per cent for the mentioned period. Indeed,
robust accumulation of foreign exchange reserve, to keep the exchange rate of Bangladesh Taka
(BDT) stable against United States Dollar (USD), contributed towards this strong growth.
Indicator June 2014 (Actual) June 2015 (Target) Jun 2015 (Actual)
Net Foreign Assets 41.2 3.6 18.2
Net Domestic Assets 10.3 20.2 10.7
Domestic Credit 11.6 17.4 10.0
Credit to the
6.7 12.9 -6.2
Credit to the
12.3 15.5 13.2
Broad Money 16.1 .16.5 12.4
Source: Bangladesh Bank data
Revenue earnings: A large shortfall is inevitable
It is not difficult to predict that, in FY2016, revenue mobilization will fall short of the target for
the fourth consecutive year; the question is by what margin and what will this entail for public
finance management. During the first quarter of FY2016, total revenue mobilization was 10.0 per
cent higher than the corresponding period of the previous fiscal year. In order to meet the
revenue target, revenue mobilization will need to grow at a rate of 53.1 per cent in the remaining
three quarters; this is highly unlikely. Non-tax revenue collection of NBR, which was expected
to account for 12.6 per cent of the total revenue inFY2016, was also not very promising. Growth
of revenue earnings from non-tax revenue sources was only 7.5 percent higher than last year’s
lackluster performance. Non-NBR tax collection registered a better growth rate of 27.0 per cent;
however, its impact on overall revenue mobilization will be insignificant as it contributes to only
about 2.8 per cent of total revenue.
ADP expenditure against allocations the lowest in recent years:
Expenditure for ADP did not mark any significant breakthrough as yet in FY2016. Indeed, the
performance has deteriorated and registered the lowest growth in recent fiscal years. According
to first five months data, actual spending under ADP was 16.8per cent of originally planned
allocation of Tk. 97,000 core. This is the lowest level of expenditure in the last seven years
(since FY2008). Both taka (18.5 per cent) and project aid component (13.6 per cent) of the
expenditure was the lowest in the recent past (since FY2008 and FY2012 respectively).
Key Strategies of Macro economy Development:
Total revenue to be raised from 10.7% of GDP to 16.1% by FY20
Maintain the current fiscal deficit of 5% of GDP
Government spending to be increased to 21.1% of GDP by FY20
FDI to be substantially to $9.6% billion by FY20
The Human Development Index – going beyond income:
Each year since 1990 the Human Development Report has published the human development
index (HDI) which looks beyond GDP to a broader definition of well-being. The HDI provides a
composite measure of three dimensions of human development: living a long and healthy life
(measured by life expectancy), being educated (measured by adult literacy and enrolment at the
primary, secondary and tertiary level) and having a decent standard of living (measured by
purchasing power parity, PPP, income).
The HDI for Bangladesh is 0.547, which gives the country a rank of 140th out of 177 countries
Human poverty in Bangladesh: focusing on the most deprived in multiple
dimensions of poverty:
The HDI measures the average progress of a country in human development. The Human
Poverty Index for developing countries (HPI-1), focuses on the proportion of people below a
threshold level in the same dimensions of human development as the human development index
– living a long and healthy life, having access to education, and a decent standard of living. By
looking beyond income deprivation, the HPI-1 represents a multi-dimensional alternative to the
$1 a day (PPP US$) poverty measure.
The HPI-1 value of 20.5 for Bangladesh ranks 47rd among 108 developing countries.
Building the capabilities of women:
The HDI measures average achievements in a country, but it does not incorporate the degree of
gender imbalance in these achievements. The gender-related development index (GDI),
introduced in Human Development Report 1995, measures achievements in the same dimensions
using the same indicators as the HDI but captures inequalities in achievement between women
and men. It is simply the HDI adjusted downward for gender inequality. The greater the gender
disparity in basic human development, the lower is a country’s GDI relative to its HDI.
Bangladesh’s GDI value, 0.539 should be compared to its HDI value of 0.547. Its GDI value is
98.5% of its HDI value. Out of the 156 countries with both HDI and GDI values, 107 countries
have a better ratio than Bangladesh’s.
Fighting climate change:
As a result of past emissions of carbon dioxide (CO2) and other greenhouse gases (GHGs), the
world is now on course for future climate change. If these trends continue, the carbon budget will
be set for expiry during the 2030’s, setting in motion processes that can lead to temperature
increases of 5ºC or above by the end of this century—roughly similar to temperature changes
since the last ice age 10,000 years ago.
Recent Economic Developments:
Power and Energy Sector:
Four types of utilities markets exist in theory: private monopoly, public enterprise natural
monopoly, regulated enterprise after privatization, and fully competitive market (Bradburd 1992,
Joskow 2007, NRG Expert 2012, Burger et al.2014, Rubino et al.2015). His electricity market of
Bangladesh may be defined as a vertically integrated public enterprise natural monopoly. The
market structure and pricing policies concerning the energy sector in Bangladesh are very
complex and politically sensitive. Even though public enterprises significantly contribute to the
national economy, economic performance of the state owned enterprises (SoEs) in power sector
is not satisfactory (Bangladesh Power Development Board(BPDB) and Bangladesh Petroleum
Corporation (BPC) are the top two losers among the (SoEs) (MoF, 2014). The Government of
Bangladesh (GoB) has taken initiatives to involve private sector enterprises in the energy sector
and has planned to mobilize private and joint venture investment during the Seventh Five Year
Plan (7FYP) period. The key element of the power and energy sector in this plan is to diversify
the energy-mix for electricity generation, which could have significant implications for fiscal
structure (increase in total subsidy cost and contingencies liability). Consequently, tariff rates of
energy-mix may need to be changed. This section attempts to examine the current state of
electricity market in Bangladesh, evaluate the trends in tariff rates of electricity and energy-mix,
analyses the efficiency and productivity of public-owned electricity generation plants, and
identify key determinants of inefficiency concerning selected power plants.
To sustain economic growth and development in Bangladesh, energy supply must increase at a
fast pace. To achieve rapid growth in electricity generation, the GoB has emphasized five areas
in the 7FYP. These are: (i) change the energy-mix;(ii) mobilize private and joint venture
investment; (iii) explore electricity trading options with Bhutan, India, Nepal and Myanmar; (iv)
develop transmission and distribution (T&D) system in line with generation and reduce T&D
losses; and (v) use alternative sources of financing. Till now, electricity generation in
Bangladesh has been overwhelmingly dependent on domestically supplied natural.
Both in the short and long-run, electricity consumption has a positive impact on economic
growth in Bangladesh (Khatun and Ahamed 2015, Masuduzzaman 2013, Buysse et. al.2012,
Alam and Sarker 2010, Asaduzzaman and Billah 2006). Per capita electricity consumption as
well as access to electricity have increased during the Sixth Five Year Plan period. However,
these two indicators are still the lowest among the neighboring countries; per capita income of
Bangladesh still remains lowest among the neighboring countries barring Nepal. Per capita
income has a positive impact on electricity consumption in Bangladesh (Mozumder and Marathe
2007). The challenge for the government will be tonsure supply of electricity at adequate and
sustained level, as it is expected that demand for electricity would increase with the level of
increase in income. Average annual growth of domestic users was about 12 per cent during
FY2010 to FY2014, followed by small commercial (10 per cent), small industrial and large
industrial consumers. Thus, all indications are that demand for electricity will rise significantly
Sector FY12 FY13 FY14 FY15 Jul
Public 15200 17994 19645 21103 6016 5925 -1.5
5984 7108 18.8
IPPs 8707 8341 7878 8470 2039 3532 73.2
9489 10146 10508 10785 3121 2627 -15.8
Imported 2265 3380 824 949 15.2
Total 33396 36482 40296 43278 12001 13033 8.6
Notes: Electricity generation during July-November 2015: total 21,305 GWh and imported 1,357
GWh; during July-November 2014: total 18,735 GWh and imported: 1,544 GWh.
Gas reserve in Bangladesh is limited. Total extractable gas reserve is approximately 27.12
trillion cubic feet (tcf), of which Bangladesh has already consumed 12.3 tcf by 2014. Reserves
are expected to be depleted by FY2023 if the demand for gas rises at 7 per cent per annum
(7FYP). To cope with this future supply shock of gas, the government has already planned to
change the energy-mix. However, there are also challenges for the GoB to meet the residual
demand from households, industry and commercial sector, as it is expected that the country will
graduate from LDC group and a larger middle income group will emerge. In FY15, domestic,
industrial, captive power, public power and CNG uses have posted some increase compared to
FY14 (Table 6.4). This is the time to think of saving the gas that Bangladesh has by reducing
transmission and distribution losses, increasing efficiency of power plants, supplying to the end-
users in a cost-effective manner and expanding pre-paid metered system (Gas Allocation Policy,
Foreign exchange reserve continued to rise:
The increasing momentum of foreign exchange reserve has continued in FY2016. As of 30
December 2015, the reserve stood at USD 27.4 billion which was USD 25.0 billion at the end of
FY2015 (30 June 2015). According to the composition of the official reserve data for end
November 2015, about 85 per cent of the reserve was in the form of convertible foreign
currencies – which included both ‘securities’ and ‘depository to foreign national central banks’.
CPD (2016): State of the Bangladesh Economy in FY2016 (First Reading)Strategically,
Bangladesh Bank tends to resort to relatively safer options and in recent years, the central bank
has relocated reserves from foreign central banks to security deposits. Significant change is also
observed in case of keeping reserves in Special Drawing Rights (SDRs) (4.6 percent of total as
of November 2015 which was negligible earlier). Export development fund is among the other
options for keeping reserves (6.7 per cent of reserve was kept in this account as of 30
Bangladesh wants to invest $8 bln in infrastructure:
SA Samad, the executive chairman of the state run Board of Investment (BOI) highlighted the
figure while meeting with business leaders from bilateral foreign chambers of commerce in
Bangladesh. Bangladesh wants to become a 'middle income' country and to double export
earnings to $50 billion by 2021.The World Bank last June upgraded Bangladesh to a 'lower
middle income' country from a previous classification of 'least developed'. "If government
provides favorable support like credit from banks or issuing sovereign bonds then the private
sector can come forward to invest," said Masud Rahman, president of Canada Bangladesh
Chamber of Commerce and Industry (CanCham), speaking to Reuters after the meeting with
Samad."Both government and private sectors are now quite capable of financing such
investment." he added. "We told to the chief executive of BOI that entrepreneurs cannot reap
benefit of country's attractive investment regime because of mainly lack of infrastructure that
include roads and highways, ports, energy and gas," Masud said. It was the first time that
Bangladesh had organized a meeting between government and all bilateral foreign chambers.
Garments are a key foreign-exchange earner for the South Asian nation, whose low wages and
duty-free access to Western markets have helped make it the world's second largest apparel
exporter after China.
Ongoing development update:
Millennium Development Goals and Bangladesh:
Fifteen years ago, the United Nations marked the new millennium with a series of pledges aimed
at improving the lives of the world's poorest people. The Millennium Development Goals were
ambitious, with eight different targets, covering issues including poverty reduction and
improvements in healthcare and education. The goals were to be met by 2015, and while
progress has been mixed, Bangladesh is one country that has made big gains.
Sustainable Development Goals and Bangladesh:
Bangladesh government has set targets to bring down poverty to 13.5 per cent in the population
by 2021 and also achieve universal literacy by the end of this decade. These are ambitious targets
and will require not only political will and resources but also public private partnership and
corporate social responsibility
A job-friendly growth momentum was visible in the first half of FY15. Capacity utilization
improved and investments showed signs of recovery. The Labor Force Survey 2013 shows total
domestic employment increased from 54.1 million in 2010 to 58.1 million in 2013. The domestic
economy has added about 1.3 million jobs per year on average. Bangladesh was also able to
contain inflation due to favorable international commodity price movements and sound
macroeconomic management. The 12-monthly-moving average inflation decreased from 7.6
percent in February 2014 to 6.8 percent in February 2015.
Bangladesh’s economic resilience has been tested by political instability, weak global markets,
and structural constraints. The confrontational political environment has hit the economy hard.
Direct production losses are estimated at around 1 percent of GDP due to disruptions in
economic activities caused by political disturbance.
The surplus in the overall balance of payments has been sustained despite a $1.3 billion
deficit in the current account in the first seven months of FY15 (July 2014-March 2015).
Therefore, official foreign exchange reserves have accumulated to prevent nominal exchange
rate appreciation. Reserves are at a comfortable level at over 6 months of imports of goods and
services. But, the competitiveness of exports is eroding due to the growing strength of the
US$ compared to Euro. The Taka has appreciated by 17.6 percent against the Euro in FY15.
The Bangladesh Bank has maintained monetary policy continuity, but success in reducing the
vulnerability of the banking system remains elusive.
Fiscal policy remains consistent with macroeconomic stability. The fiscal deficit in FY15 is
stable at 3.5 percent of GDP. Tax revenue growth has been weaker.
The temporary low international oil prices are favorable for energy pricing reforms. Fuel
prices can be deregulated as oil prices decline. Prices aligned with actual costs would reduce
inefficiencies in oil refining and imports while creating stronger incentives for investments in
Structural reforms have moved forward in economic zones, public-private partnership (PPP)
laws, but have regressed in loan restructuring, and incorporating a new value-added tax (VAT)
Near and Medium-term Outlook:
The projected recovery in global growth bodes well for Bangladesh. particularly in the US
and Euro Zone, along with the continued softness in international commodity prices. Political
stability and faster structural reforms are needed to capitalize on these opportunities. Political
turmoil in second half of FY15 is likely to slow down the economy. The growth is projected to
be 5.6 percent in FY15. But, without the political turmoil, the growth could have been 6.6
percent. With stability, a strong domestic demand base, gradual improvements in the investment
climate and single digit inflation are expected to raise GDP growth to 6.3 percent in FY16 and
6.7 percent in FY17.
The macroeconomic outlook is stable. The current account deficit is projected to rise from
0.5% of GDP in FY15 to 0.7% in FY17 after dropping to 0.3% in FY16 due to a decline in the
oil import bill. Fiscal gains from the oil price decline will be offset by a prospective wage hike
and likely increased policy support to compensate businesses in FY16. Inflation is likely to be
contained as the Bangladesh Bank is committed to maintain a restrained monetary policy stance.
Challenges and Recommendations:
Growth remains below what is needed for Bangladesh to be in the comfort zone of middle-
income by 2021. For that to happen, the average annual GDP growth rate needs to rise to 7.5-8
percent by creating more and better jobs. Faster growth will also require the following:
Increasing investment by at least 5 percentage points of GDP from the current 28.7
Raising the female labor force participation rate by easing labor market entry barriers for
Increasing returns on education by enhancing the quality and relevance of education;
Increasing efficient growth by accelerating the shift from agriculture to higher
productivity manufacturing and services, through learning from the experiences of
countries and firms with higher productivity; and
Increasing outward orientation by deepening and diversifying labor-intensive exports.
The shrinking demographic dividend will impact GDP growth rate. Bangladesh is well into
the third phase of its demographic transition and has shifted from a high mortality-high fertility
regime to a low mortality-decreasing fertility one. The annual growth rate of the working age
(15-64 years) population decreased from 2.9% in 2000 to around 1.9% currently. Higher female
labor force participation can boost growth by mitigating the impact of a shrinking workforce
Moving forward, the biggest challenge and precondition for accelerated, inclusive, and
sustainable growth is ensuring political stability. Other challenges are:
Preserving fiscal space, ensuring exchange rate flexibility, and improving financial sector
Boosting private investments through faster progress on establishing special economic
Paying adequate attention to the private sector regulatory environment;
Improving land market functioning to ensure the availability of land for manufacturing
enterprises outside SEZs;
Addressing transport problems to improve connectivity; and
Removing barriers to female participation in organized economic activities in diverse
Political stability will be critical for Bangladesh to realize its middle income
Despite political turmoil, structural constraints, and global volatility, the Bangladeshi
economy is maintaining macroeconomic stability and moving forward.
The global recovery, strong domestic demand growth, and sustained macro stability bode
well for Bangladesh’s GDP growth and poverty reduction.
For Bangladesh to comfortably reach middle income status, the country needs lasting
political stability, investments to regain momentum, and increasing female labor
Performance of the Bangladesh economy in FY2016 will be critical in terms of setting the stage
for implementation of the 7FYP. As the Bangladesh economy moves into the second half of
FY2016, a number of challenges have emerged, addressing of which will be crucial to realizing
the potentials of the Bangladesh economy. Inability to take advantage of the relative
macroeconomic stability to stimulate private sector investment remains an enduring concern. The
present study has suggested a policy package in the short run in this context. The analysis
presented in this report shows that, the fiscal framework of FY2016 has come under severe strain
in the early months. Both resource mobilization and resource utilization are likely to be
significantly off the mark compared to FY2016 targets. The paper, in this context has argued for
a moderately expansionary and restructured public expenditure stance favoring the social sectors.
Diverse approaches that continue to inform the discourse on implementation of the proposed
VAT and SD Act will also need to be reconciled on an urgent basis. Important ADP projects
which are close to completion, should receive heightened attention from the policymakers. And
utilization of foreign aid needs to be prioritized. These steps are critical to energizing and
stimulating private sector investment by taking advantage of the crowd-in impacts of public
In line with the falling inflation, the central bank will need to consider revisiting the policy rates
to ease cost of funds for the commercial banks. This may contribute to lowering lending rate,
which will reduce cost of capital for the private investors. Low global commodity prices,
particularly of fuel, and the attendant fiscal space, provide an opportunity for making use of the
saved resources. Benefits of these will need to be shared among key stakeholders (e.g.
government, consumers and entrepreneurs). External sector was able to demonstrate notable
resilience, though declining flow of remittance and volatility in export earnings emerged as a
concern. In view of the movement of the REER, exchange rate of BDT may be depreciated by a
small margin to maintain export competitiveness of Bangladesh vis-à-vis its competitors.
The government will need to rigorously pursue a set of institutional and policy reforms
(including in the areas of financial sector, revenue mobilization, public expenditure management,
PPP, privatization etc.) by taking bold steps, to yield the aspired results. In the coming days,
success in the economic arena will also hinge on the state of political predictability and
effectiveness in addressing the overall public safety and security concerns in the country.