Course Name: Economy of Bangladesh

Course No: EMIS- 511

Semester: Spring 2021
Submitted to
Assistant Professor Nymatul Jannat Nipa
Dept. of Management Information Systems
Assignment
On
Chapter 2: Prospects of Economy of Bangladesh
Submitted By

Faiza Omar 6204437040

K M Zamilur Rahim 6194235028
Mazharul Haque Akand  6194134029
Sabiha Sultana 6183932050
A.S.M. Mohaimenul Islam 6184033029
Sabria Wali 6194235006
Samy Adib Nur 6194336023
Ishfaq Halim 6173629052
Samia Nawshin 6194235051
Trishita Das 6173629059
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1. What is Economic Development?
Economic development is purely and simply the creation of wealth in which
community benefits are created. Economic development means different things to
different people. On a broad scale, anything a community does to foster and create
a healthy economy can fall under the auspice of economic development.
Economic development, is a process of simple, low-income national economies are
transformed into modern industrial economies. Generally, it is employed to
describe a change in a country’s economy involving qualitative as well as
quantitative improvements. The theory of economic development is how primitive
and poor economies can evolve into sophisticated and relatively prosperous ones—
is of critical importance to underdeveloped countries.
Economic development first became a major concern after World War II. As the
era of European colonialism ended, many former colonies and other countries with
low living standards came to be termed underdeveloped countries, to contrast their
economies with those of the developed countries, which were understood to be
Canada, the United States, those of western Europe, most eastern European
countries, the then Soviet Union, Japan, South Africa, Australia, and New Zealand.
As living standards in most poor countries began to rise in subsequent decades,
they were renamed the developing countries.[1]
From a public perspective, local economic development involves the allocation of
limited resources – land, labor, capitol and entrepreneurship in a way that has a
positive effect on the level of business activity, employment, income distribution
patterns, and fiscal solvency. It is a process of deliberate intervention in the normal
economic growth by making it easier or more attractive. Today, communities in
California are giving attention to what they can do to promote fiscal stability and
greater economic development.
Economic development is a concerted effort on the part of the responsible
governing body in a city or county to influence the direction of private sector
investment toward opportunities that can lead to sustained economic growth.
Sustained economic growth can provide sufficient incomes for the local labor
force, profitable business opportunities for employers and tax revenues for
maintaining an infrastructure to support this continued growth. There is no
alternative to private sector investment as the engine for economic growth, but

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there are many initiatives that you can support to encourage investments where the
community feels they are needed the most.[2]
Bangladesh is a developing country in the South Asia. Its illiterate and unskilled
large population is a burden to the country. In spite of the hurdles, Bangladesh has
achieved rapid and spectacular improvements in many social development
indicators during the last two decades or so. Within South Asia, Bangladesh has
improved its position ahead of India and the region as a whole in a number of
human development indicators although its per capita income is still significantly
below the regional average.
Sustained economic growth has created an increased demand for energy, transport
and urbanization. Insufficient planning and investment have resulted in severe
infrastructure bottlenecks, congestion and pollution. To become an upper-middle
income economy, continued sound macroeconomic management, financial sector
stability, structural reforms, investment in human capital, higher female labor force
participation, and global integration will be important. Improving infrastructure as
well as the business climate would allow new productive sectors to develop and
generate quality employment.

2. What is Economic Growth?

Economic growth is an increase in the production of economic goods and services,
compared from one period of time to another. It can be measured in nominal or
real (adjusted for inflation) terms. Traditionally, aggregate economic growth is
measured in terms of gross national product (GNP) or gross domestic product
(GDP), although alternative metrics are sometimes used.
Economic growth is commonly measured in terms of the increase in aggregated
market value of additional goods and services produced, using estimates such as
GDP.
In simplest terms, economic growth refers to an increase in aggregate production in
an economy. Often, but not necessarily, aggregate gains in production correlate
with increased average marginal productivity. That leads to an increase in incomes,
inspiring consumers to open up their wallets and buy more, which means a higher
material quality of life or standard of living.

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In economics, growth is commonly modeled as a function of physical capital,
human capital, labor force, and technology. Simply put, increasing the quantity or
quality of the working age population, the tools that they have to work with, and
the recipes that they have available to combine labor, capital, and raw
materials, will lead to increased economic output.
There are a few ways to generate economic growth. The first is an increase in the
amount of physical capital goods in the economy. Adding capital to the economy
tends to increase productivity of labor. Newer, better, and more tools mean that
workers can produce more output per time period. For a simple example, a
fisherman with a net will catch more fish per hour than a fisherman with a pointy
stick. However, two things are critical to this process. Someone in the economy
must first engage in some form of saving (sacrificing their current consumption) in
order to free up the resources to create the new capital, and the new capital must be
the right type, in the right place, at the right time for workers to actually use it
productively.
A second method of producing economic growth is technological improvement.
An example of this is the invention of gasoline fuel; prior to the discovery of the
energy-generating power of gasoline, the economic value of petroleum was
relatively low. The use of gasoline became a better and more productive method of
transporting goods in process and distributing final goods more efficiently.
Improved technology allows workers to produce more output with the same stock
of capital goods, by combining them in novel ways that are more productive. Like
capital growth, the rate of technical growth is highly dependent on the rate of
savings and investment, since savings and investment are necessary to engage in
research and development.
Another way to generate economic growth is to grow the labor force. All else
equal, more workers generate more economic goods and services. During the 19th
century, a portion of the robust U.S. economic growth was due to a high influx of
cheap, productive immigrant labor. Like capital driven growth however, there are
some key conditions to this process. Increasing the labor force also necessarily
increases the amount of output that must be consumed in order to provide for the
basic subsistence of the new workers, so the new workers need to be at least
productive enough to offset this and not be net consumers. Also, just like additions
to capital, it is important for the right type of workers to flow to the right jobs in
the right places in combination with the right types of complementary capital
goods in order to realize their productive potential.
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The last method is increases in human capital. This means laborers become more
skilled at their crafts, raising their productivity through skills training, trial and
error, or simply more practice. Savings, investment, and specialization are the most
consistent and easily controlled methods. Human capital in this context can also
refer to social and institutional capital; behavioral tendencies toward higher social
trust and reciprocity and political or economic innovations like improved
protections for property rights are in effect types of human capital that can increase
the productivity of the economy.[3]
Bangladesh has made remarkable progress in reducing poverty, supported by
sustained economic growth. Based on the international poverty line of $1.90 (using
2011 Purchasing Power Parity exchange rate) a day, it reduced poverty from 43.8
percent in 1991 to 14.8 percent by 2016.
Life expectancy, literacy rates and per capita food production have increased
significantly. Progress has been underpinned by steady growth in GDP.
Bangladesh reached the lower middle-income country status in 2015. In 2018,
Bangladesh fulfilled all three eligibility criteria for graduation from the UN’s Least
Developed Countries (LDC) list for the first time and is on track for graduation in
2024.[4]

3. What is GDP, GNP of Bangladesh?

GDP:
Gross Domestic Product, abbreviated as GDP, is the total value of goods and
services produced in a country. The gross domestic product (GDP) measures of
national income and output for a given country’s economy. The gross domestic
product (GDP) is equal to the total expenditures for all final goods and services
produced within the country in a stipulated period of time.
GDP is measured over specific time frames, such as a quarter or a year. GDP as an
economic indicator is used worldwide to show the economic health of a country.
For low-income or middle-income countries, high year-on-year GDP growth is
essential to meet the growing needs of the population. Hence, the GDP growth rate
of Bangladesh is an essential indicator of the country’s economic development and
progress. Besides measuring the health of the economy and helping the
government is framing policies, the GDP growth rate numbers are also useful for

5
investors in better decision-making related to investments. Different countries have
different methods to calculate GDP.
Calculation of GDP:
GDP = Consumption + Investment + Government Spending + Net Exports or more
succinctly as GDP = C + I + G + NX where consumption represents private-
consumption expenditures by households and nonprofit organizations, investment
(I) refers to business expenditures.

GNP:
Gross National Product (GNP) is the total value of all finished goods and services
produced by a country’s citizens in a given financial year, irrespective of their
location. GNP also measures the output generated by a country’s businesses
located domestically or abroad. It can be defined as a piece of economic statistic
that comprises Gross Domestic Product (GDP), and income earned by the residents
from investments made overseas.
Calculation of GNP:
The formula for GNP = GDP + Net factor income from abroad or,
GNP = C + I + G + X + Z
Where C is Consumption, I is investment, G is government, X is net exports, and Z
is net income earned by domestic residents from overseas investments minus net
income earned by foreign residents from domestic investments.
Example: A Canadian NFL player who sends his income home to Canada, or a
German investor who transfers the dividend income generated from her
shareholdings to Germany, will both be excluded from GNP. On the other hand, if
a U.S.-based news reporter is sent to South Korea and sends her Korean earnings
home, or a U.S.-based airline generates income from its overseas operations, they
both contribute positively to the country’s GNP.
GNP can be calculated by adding consumption, government spending, capital
spending by businesses, and net exports (exports minus imports) and net income by
domestic residents and businesses from overseas investments. This figure is then
subtracted from the net income earned by foreign residents and businesses from
domestic investment.

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Examples of GDP and GNP:
A quick look at the absolute GDP and GNP numbers of a particular country over
the past two years indicate they mostly move in sync. There is a nominal difference
between GDP and GNP figures of a particular country depending upon how the
economic activities of the nation are spread across domestically or globally.

GDP of Bangladesh:
The Gross Domestic Product (GDP) in Bangladesh was worth 302.57 billion US
dollars in 2019, according to official data from the World Bank and projections
from Trading Economics. The GDP value of Bangladesh represents 0.25 percent of
the world economy.
GNP of Bangladesh
Bangladesh Gross National Product (GNP) was reported at 345.613 USD in Dec
2020. This records an increase from the previous number of 316.092 USD for Dec
2019.
Bangladesh Gross National Product (GNP) data remains active status in CEIC and
is reported by CEIC Data. CEIC shifts year-end for annual Gross National Product
and converts it into USD. The Bangladesh Bureau of Statistics provides Gross
National Product in local currency. Bangladesh Bank average market exchange

7
rate is used for currency conversions. Gross National Product is reported in annual
frequency, ending in June of each year. Gross National Product prior to 2006 is
sourced from the World Bank.[5]

4. Differences between Economic Growth and Economic

Development:
Both Economic Growth and Economic Development are popular choices in the
market.

Economic Growth Economic Development

Economic Growth is the positive change Economic development is the
in the indicators of economy. quantitative and qualitative change in an
economy.
Economic Growth refers to the Economic development refers to the
increment in amount of goods and reduction and elimination of poverty,
services produced by an economy. unemployment and inequality with the
context of growing economy.
Economic growth means an increase in Economic development means an
real national income / national output. improvement in the quality of life and
living standards, e.g., measures of
literacy, life-expectancy and health care.
It refers to an increase over time in a Economic development includes process
country’s real output of goods and and policies by which a country
services (GNP) or real output per capita improves the social, economic and
income. political well-being of its people.
Economic growth focuses on production Economic development focuses on
of goods and services. distribution of resources.
Economic growth relates a gradual Economic development relates to
increase in one of the components of growth of human capital indexes and
GDP; consumption, government decrease in inequality.
spending, investment or net exports.
 It is concerned with how people are
affected.
Economic growth is single dimensional Economic development is multi-
in nature as it only focuses on income of dimensional in nature as it focuses on
the people. both income and improvement of living
standards of the people.

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Economic Growth is the precursor and Economic development comes after
prerequisite for economic development. economic growth. It is a positive impact
It is the subset of economic of economic growth.
development.
Indicators of economic growth are: Indicators of economic development
are:
 GDP
 GNI  Human Development Index
 Per capita income (HDI)
 Human Poverty Index (HPI)
 Gini Coefficient
 Gender Development Index
(GDI)
 Balance of trade
 Physical Quality of Life Index
(PQLI)

It is for short term/short period. It is It is a continuous and long-term process.

measured in certain time frame/period. Economic development does not have
specific time period to measure.
Economic growth only looks at the Economic development brings
quantitative aspect. It brings quantitative quantitative and qualitative change in
changes in the economy. the economy.
Economic growth is an automatic Economic development requires
process that may or may not require intervention from the government as all
intervention from the government the developmental policies are formed
by the government
It refers to increase in production. It refers to increase in productivity.
It is the means of development. It is the ends of development.
Economic growth is relatively narrow It is a broader concept than economic
concept as compared to economic development.
development.
Economic growth is concerned with It is concerned with structural changes
increase in economy’s output. in the economy.

Economic development= Economic

growth + standard of living
It is not concerned with happiness of It is concerned with happiness of public
public life. life.
Poverty and inequality may remain in Achieving economic development is
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 economic growth linked with end of poverty and
inequality.
Economic growth is more relevant More relevant to measure progress and
metric for assessing progress in quality of life in developing countries.
developed countries.
It is a material/physical concept. It is more abstract concept.

After examining the above information, we can say that Economic Growth is a
subset of Economic development. Economic Development is a bigger concept than
economic growth. Economic Development uses various indicators to measure the
progress in an economy as a whole, however, Economic growth uses only specific
indicators like the gross domestic product, individual income, etc. for the
calculation. Economic Growth is often contrasted with Economic Development,
which can be defined as the increase in the economic wealth of an economy or
nation, for the welfare of its residents. [6] [7]

5. Economic growth of Bangladesh (Indicator)

ECNEC:
National Economic Council (NEC) The National Economic Council (NEC)
ECNEC is the highest economic policy-making body of the nation. National
Economic Council (NEC) highest political authority for consideration of
development activities reflective of long-term national policies and objectives.
Generally, the ministries/divisions formulate their respective plans and programs
as per objectives formulated by the NEC, which consists of all members of the
Cabinet and is chaired by the head of the government- the Prime Minister.
However, the said resolution supersedes all previous orders in this respect. In 1982,
it consisted of the Minister for Finance and Planning as convenor. Included in the
committee were- (a) Minister for Industries and Commerce, (b) Minister for Works
and (c) Minister of the concerned ministry. Executive Committee of the National
Economic Council is an executive committee under the Cabinet Division of the
Government of the People's Republic of Bangladesh, which verifies, imports,
approves and advances national important development projects, regardless of the
economic status and economic activities of the country. Provides formulation,
review and approval. Meetings of the ECNEC are usually held in the NEC

10
conference room in Sher-e-Bangla Nagar under the Planning Department, Planning
Department
The cabinet secretary, members of the Planning Commission, Governor of
Bangladesh Bank, secretaries of Finance, External Resources, Planning and
Implementation, Evaluation and Monitoring Divisions including secretaries of the
relevant divisions were required to attend its meetings. Since the country was
under martial law at that time, the Principal Staff Officer and General Staff Officer
to the Chief Martial Law Administrator as well as Chief of the General Staff were
also required to attend the meetings of the ECNEC. In addition, the planning
division of the Planning Commission serves as the secretariat for all major
economic policy questions and for initiating the appraisal of development projects
and programs by ECNEC. [8] [9] [10]

Inflation:
Inflation is and has been a highly debated phenomenon in economics. Even the use
of the word "inflation" has different meanings in different contexts. Many
economists, businessmen, and politicians maintain that moderate inflation levels
are needed to drive consumption, assuming that higher levels of spending are
crucial for economic growth.
Inflation is an economic term describing the sustained increase in prices of goods
and services within a period. Inflation reduces the purchasing power of each unit of
currency, which leads to increases in the prices of goods and services over time.
It's an economics term that means you have to spend more to fill your gas tank, buy
a gallon of milk, or get a haircut. In other words, it increases your cost of living.
Inflation is often used to describe the impact of rising oil or food prices on the
economy. For example, if the price of oil goes from $75 a barrel to $100 a barrel,
input prices for businesses will increase and transportation costs for everyone will
also increase. This may cause many other prices to rise in response.
However, most economists consider the actual definition of inflation to be slightly
different. Inflation is a function of the supply and demand for money, meaning that
producing relatively more dollars causes each dollar to become less valuable,
forcing the general price level to rise. Inflation Rate
The inflation rate is the percentage increase or decrease in prices during a specified
period, usually a month or a year. The percentage tells you how quickly prices rose
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during the period. For example, if the inflation rate for a gallon of gas is 2% per
year, then gas prices will be 2% higher next year.
Causes of Inflation There are many different ways the inflation rate can rise, and
they can be lumped into two different categories:
 Cost-push inflation and
 Demand-pull inflation.
While cost-push inflation is the result of shrinking supplies unable to reach the
average level of demand, demand-pull inflation is when the demand skyrockets,
and the price goes up so that companies can attempt to make enough supplies to
meet that demand.
When the economy is not running at capacity, meaning there is unused labor or
resources, inflation theoretically helps increase production. More dollars translate
to more spending, which equates to more aggregated demand. Inflation also makes
it easier on debtors, who repay their loans with money that is less valuable than the
money they borrowed. Economists once believed an inverse relationship existed
between inflation and unemployment, and that rising unemployment could be
fought with increased inflation.[11] [12] [13] [14]

Fiscal Sector:
Fiscal policy is the guiding force that helps the government decide how much
money it should spend to support the economic activity, and how much revenue it
must earn from the system, to keep the wheels of the economy running smoothly.
The financial sector mobilizes savings and allocates credit across space and
time. ... An efficient financial sector reduces the cost and risk of producing and
trading goods and services and thus makes an important contribution to raising the
standard of living.
Basic Elements of Fiscal Accounts
➢ Revenues

➢ Expenditures

➢ Financing

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Revenues: all non-repayable receipts (i.e., receipts which do not give rise to a
receipt which do not give rise to an obligation of repayment), except grants
➢ Tax revenues: compulsory and unrequited receipts collected by the government
for public purposes.
➢ Non tax revenues: e.g., operating surpluses of public enterprises;
administrative fees; property income.

Expenditures
➢ Current: wages and salaries; goods and services; interest’s payments; subsidies
and current transfers interests’ payments; subsidies and current transfers
➢ Capital: acquisition of fixed assets (government: acquisition of fixed assets
(government investment); capital transfers (transfers for the purpose of acquiring a
capital asset)
➢ Net Lending (loans minus repayments): lending to achieve public policy
purposes (e.g., subsidized loans to students, emergency loans) [15]

Financing
Financing is the process of providing funds for business activities, making
purchases, or investing. Financial institutions, such as banks, are in the business of
providing capital to businesses, consumers, and investors to help them achieve
their goals.
MONETARY POLICY
Monetary policy, the demand side of economic policy, refers to the actions
undertaken by a nation's central bank to control money supply and achieve
macroeconomic goals that promote sustainable economic growth.
KEY TAKEAWAYS
➢ Monetary policy refers to the actions undertaken by a nation's central bank to
control money supply and achieve sustainable economic growth.

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➢ Monetary policy can be broadly classified as either expansionary or
contractionary.
➢ Tools include open market operations, direct lending to banks, bank reserve
requirements, unconventional emergency lending programs, and managing market
expectations—subject to the central bank's credibility.

Financial sector
The financial sector plays an important role in the functioning of the economy
through intermediation. Simply put, the financial sector sits between savers and
borrowers: it takes funds from savers (for example, through deposits) and lends
them to those who wish to borrow, be they households, businesses or governments.
The financial system of Bangladesh is comprised of three broad fragmented
sectors:
1. Formal Sector,
2. Semi-Formal Sector,
3. Informal Sector.
The sectors have been categorized in accordance with their degree of regulation.
The formal sector includes all regulated institutions like Banks, Non-Bank
Financial Institutions (FIs), Insurance Companies, Capital Market Intermediaries
like Brokerage Houses, Merchant Banks etc.; Micro Finance Institutions (MFIs).
The semi formal sector includes those institutions which are regulated otherwise
but do not fall under the jurisdiction of Central Bank, Insurance Authority,
Securities and Exchange Commission or any other enacted financial regulator. This
sector is mainly represented by Specialized Financial Institutions like House
Building Finance Corporation (HBFC), Palli Karma Sahayak Foundation (PKSF),
Samabay Bank, Grameen Bank etc., Non-Governmental Organizations (NGOs and
discrete government programs. The informal sector includes private
intermediaries which are completely unregulated. [16]

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Money & Credit:
Bangladesh Domestic Credit increased 9.4 % YoY in Jan 2021, compared with an
increase of 9.9 % YoY in the previous month. Bangladesh Domestic Credit
Growth YoY data is updated monthly. It averaged 13.8 %, available from Jul 1988
to Jan 2021. The data reached an all-time high of 36.8 % in Apr 1996 and a record
low of 1.9 % in Apr 1993. CEIC calculates Domestic Credit Growth from monthly
Domestic Credit. Bangladesh Bank provides Domestic Credit in local currency.

In the latest reports, Bangladesh Domestic Credit reached 160.7 USD bn in Jan
2021. Money Supply M2 in Bangladesh increased 13.5 % YoY in Jan 2021.
Bangladesh Foreign Exchange Reserves was measured at 40.7 USD bn in Jan
2021. The Foreign Exchange Reserves equaled 7.8 Months of Import in Dec 2020.
The country’s Non-Performing Loans Ratio stood at 8.9% in Sep 2020, compared
with the ratio of 9.2% in the previous quarter. [17]

Interest Rate:
Growth plunged to an over 10-year low in FY 2020 (July 2019–June 2020), amid
unprecedented contractions in merchandise exports, industrial production and
remittances due to Covid-19 in Q4. Turning to FY 2021, economic conditions
seem to have been gradually improving after the easing of restrictions in May,
supported by expansionary fiscal and monetary policies. Merchandise exports
rebounded in Q1 2021 (July–September) as the easing of lockdown measures
globally boosted demand for clothing. Moreover, remittances—a key source for
consumer spending—soared 48.5% in the same period. In turn, the spike in
remittances and lower trade deficit led to a marked improvement in the current
account balance in Q1 2021. That said, although authorities ruled out strict
lockdown restrictions at home, the recent surge in Covid-19 infections globally
could reduce foreign demand, boding ill for the economic recovery. [18]
Data:

2015 2016   2017   2018   2019  

Policy Interest Rate (%) 5.00   5.00   5.00   5.00   5.00  

15
Chart:

Savings and Investment

In an economy, savings and investment provide the most important economic link
between the past, the present, and the future. These aggregates also play a critical
role in the growth process. An adequate rate of national savings is essential to
achieving higher investment and consequently higher economic growth. Economic
history shows that countries that succeeded in accumulating high levels of
domestic investment largely financed by domestic savings, achieved faster rates of
economic growth and development. From the analytical perspective, there seems to
exist a contrasting view on the role of savings and investment in economic growth.

Savings:
Saving means different things to different people. To some it means putting money
in the bank. To others it means buying stocks or contributing to a pension plan. But
to economists, saving means only one thing—consuming less in the present in
order to consume more in the future.

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An easy way to understand the economist’s view of saving—and its importance for
economic growth—is to consider an economy in which there is a single
commodity, say, corn. The amount of corn on hand at any point in time can either
be consumed (literally gobbled up) or saved. Any corn that is saved is immediately
planted (invested), yielding more corn in the future. Hence, saving adds to the
stock of corn in the ground, or in economic jargon, the stock of capital. The greater
the stock of capital, the greater the amount of future corn, which can, in turn, either
be consumed or saved.
Saving involves income that is not consumed. Typically, surplus income is saved
in a bank account. But it could be saved as cash (cash under the bed etc.)
The Savings Ratio is the % of income that is saved. In recent years the UK and US
have had low savings ratios as people have been encouraged to borrow and spend
more. The credit crunch and impending recession are encouraging more to save.
Levels of savings are influenced by:
 Interest rates – higher interest rates make it more attractive to save
 Confidence – low confidence can encourage households to save more

Investment:
Although in general parlance investment may connote many types of economic
activity, economists normally use the term to describe the purchase of durable
goods by households, businesses, and governments. Private (nongovernmental)
investment is commonly divided into three broad categories: residential
investment, which accounts for about a quarter of all private investment (25.7
percent in 1990); nonresidential, or business, fixed investment, which accounts for
most of the remainder; and inventory investment, which is small but volatile.
Indeed, inventory investment is often negative (it was in 1990, and in three years
during the eighties). Business fixed investment, in turn, is composed of equipment
and nonresidential structures. Equipment now makes up over three-quarters of
business investment.
Investment in economics is defined as an addition to the capital stock. (Gross fixed
capital formation) For example, investment can involve spending on factories or
new capital. Investment can also involve spending on human capital such as
investment in training and education.

17
Levels of investment are affected by:
 Interest rates – higher interest rates make investment more expensive (cost
of borrowing goes up)
 Confidence – if firms are confident, they are more willing to invest.
 Economic growth – An increase in the rate of economic growth will
encourage firms to invest to meet future demand.
In neo-classical economics, it is assumed that the level of saving will equal the
level of investment. This is because investment is determined by available savings
in the economy.
If there is an increase in savings, then banks can lend more to firms to finance
investment projects. In a simple economic model, we can say the level of saving
will equal the level of investment. [19]

Capital Market:
Capital market is a market where buyers and sellers engage in trade of financial
securities like bonds, stocks, etc. The buying/selling is undertaken by participants
such as individuals and institutions. Capital markets help channelize surplus funds
from savers to institutions which then invest them into productive use. Generally,
this market trades mostly in long-term securities. Capital market consists of
primary markets and secondary markets. Primary markets deal with trade of new
issues of stocks and other securities, whereas secondary market deals with the
exchange of existing or previously-issued securities. Another important division in
the capital market is made on the basis of the nature of security traded, i.e., stock
market and bond market. [20]
Primary markets are open to specific investors who buy securities directly from the
issuing company. These securities are considered primary offerings or initial public
offerings (IPOs). When a company goes public, it sells its stocks and bonds to
large-scale and institutional investors such as hedge funds and mutual funds.
The secondary market, on the other hand, includes venues overseen by a regulatory
body like the Securities and Exchange Commission (SEC) where existing or
already-issued securities are traded between investors. Issuing companies do not
have a part in the secondary market. The New York Stock Exchange (NYSE) and
Nasdaq are examples of the secondary market.

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Capital market in Bangladesh consists of two full-fledged automated stock
exchanges- the Dhaka Stock Exchange (DSE) and the Chittagong Stock Exchange
(CSE). Bangladesh Securities and Exchange Commission (BSEC), as the watchdog
regulates the stock exchanges of the country. The quarterly analysis on capital
market developments gives some insights to understand overall activities of capital
market in Bangladesh. During October-December 2017, both stock exchanges
exhibited slightly upward trend in terms of index but downward trend in terms of
turnover compared to the previous quarter. Broad index of DSE and all share price
index of CSE went up to 6244.52 and 19268.04 points respectively at the end of
December, 2017.
Though capital market plays significant role in economic development by
channeling long term funds from savers to investors, capital market in Bangladesh
is still lagging behind as compared to those of South Asian and South-east Asian
countries. Banks play dominant roles in financing economic activities in
Bangladesh. However, banks are not in a position to finance a long-term
productive investment activity continuously following higher level of non-
performing loan and risk of maturity mismatch of funds. Given this, Bangladesh
needs to undertake measures to expand capital market for financing productive
investments and infrastructural projects. [21]

External Sector
The external sector of a country’s economy refers to all international economic
transactions between residents of the country (private and public sector) and the
rest of the world. Such transactions are recorded systematically and in detail within
a framework that groups them into accounts, with each account focusing on a
different aspect of the external sector.

External factors such as export, import, remittances and foreign aid have always
played important roles to Bangladesh’s economy, though the relative importance of
various external factors has changed over time. [22]

 Export
Exports are goods and services that are produced domestically, but then sold to
customers residing in other countries. Exports lead to an inflow of funds to the
19
seller’s country since export transactions involve selling domestic goods and
services to foreign buyers.
Bangladesh has transformed itself from aid dependency to a trade-dependent
country. We achieved the lower-middle income country status by World bank in
2015. Bangladesh is set to become a developing country by 2024. A country of 170
million people and 300 billion USD economy. 41 largest economy of the world
projected to become 30th largest by 2030. Highest GDP growth rate among 45
Asia Pacific countries, 8.13% in 2018-19 FY.
In 2019, Bangladesh exported a total of $47.2B, making it the number 52 exporter
in the world. During the last five reported years the exports of Bangladesh have
changed by $12.8B from $34.4B in 2014 to $47.2B in 2019.

 Import
Imports are the goods and services that are purchased from the rest of the world by
a country’s residents, rather than buying domestically produced items. Imports lead
to an outflow of funds from the country since import transactions involve
payments to sellers residing in another country.
Imports are defined as goods produced outside the boundaries of one country,
which are then purchased by that country. A country buys goods from abroad
because it cannot produce them itself or because there are comparative advantages
in purchasing them from abroad. Imports generally subtract growth from the
national gross output, although they add to well-being. A greater proportion of
imports relative to a country’s Gross Domestic Product (GDP) indicates a
country’s degree of dependence on purchases from abroad. The higher the degree,
the more imports displace domestic output. Demand for imports depends on
economic conditions in the buying country, as well as the exchange rate and
relative prices.
In 2019 Bangladesh imported $55.6B, making it the number 47 trade destination in
the world. During the last five reported years the imports of Bangladesh changed
by $15.9B from $39.8B in 2014 to $55.6B in 2019.

20
These are the highest priority sectors for both Export & Import
 High-Value Added RMG
 Software and IT enabled services,
 ICT products
 Footwear and Leather products
 Agro and agro-processed products
 Light engineering and electronics
 Pharmaceutical’s products
 Jute Products
 Plastic products
 Furniture
 Home textiles & Terry Towel
 Home Furnishing, and
 Luggage, toy etc. [23]

 Remittance
A remittance is a payment of money that is transferred to another party. Broadly
speaking, any payment of an invoice or a bill can be called a remittance. However,
the term is most often used nowadays to describe a sum of money sent by someone
working abroad to his or her family back home.
Most remittances are made by foreign workers to family members in their home
countries. The most common way of making a remittance is by using an electronic
payment system through a bank or a money transfer service such as Western
Union. People who use these options are generally charged a fee. Transfers can
take as little as ten minutes to reach the recipient.
Remittances play an increasingly large role in the economies of small and
developing countries. They also play an important role in disaster relief, often
exceeding official development assistance (ODA). They help raise the standard of
living for people in low-income nations and help combat global poverty.

21
Bangladesh became one of the three large remittance-recipient countries that
registered a rise in inward remittance last year, according to a new report of the
Economist Intelligence Unit.
According to The Daily Star, Last year, Bangladesh received about $19.8 billion in
remittance compared to $18.4 billion it received the year before. Remittance has
been on the rise riding on the stagnation of the global 'hundi' cartel, an illegal
cross-border financial transaction. The hundi cartel has been rendered ineffective
across the globe due to the restrictions on movement imposed by countries to limit
the spread of the coronavirus.
But the decrease in imports has also helped to push the reserve in recent periods.

Imports declined by 8.84 per cent to $20.24 billion at a time when exports grew by
0.86 per cent to $15.52 billion.

The three indicators -- remittance, imports and exports -- have elevated the
reserves to record highs following the outbreak. [24]

Balance of Payment
The balance of payments is a statistical table that records transactions between
residents and non-residents, irrespective of the transaction currency, during a
specified time period. 

The balance of payments of a country is the difference between all money flowing

into the country in a particular period of time (e.g., a quarter or a year) and the
outflow of money to the rest of the world. These financial transactions are made by
individuals, firms and government bodies to compare receipts and payments
arising out of trade of goods and services.

The balance of payments consists of two components: the current account and

the capital account. The current account reflects a country's net income, while the
capital account reflects the net change in ownership of national assets.

The economic developments recorded in a country’s balance of payments (BOP)

reflect the interplay of forces in the domestic economy and the global economy. If
home prices rise faster than world prices, and the exchange rate is held constant,
22
home goods will tend to lose competitiveness on world markets, and the volume of
exports will decline; foreign goods will become increasingly attractive on the
domestic market, and imports will increase. If there is rapid growth of spending in
foreign markets, exports will tend to grow strongly, all the more so if demand
growth in the domestic economy is sluggish at the same time. [25]

Foreign Exchange Reserve

Foreign exchange reserves are assets held on reserve by a central bank in foreign

currencies. These reserves are used to back liabilities and influence monetary
policy. It includes any foreign money held by a central bank, such as the U.S.
Federal Reserve Bank.

Foreign exchange reserves can include banknotes, deposits, bonds, treasury

bills and other government securities. These assets serve many purposes but are
most significantly held to ensure that a central government agency has backup
funds if their national currency rapidly devalues or becomes all together insolvent.

It is a common practice in countries around the world for their central bank to hold
a significant number of reserves in their foreign exchange. Most of these reserves
are held in the U.S. dollar since it is the most traded currency in the world. It is not
uncommon for the foreign exchange reserves to be made up of the British pound
(GBP), the euro (EUR), the Chinese yuan (CNY) or the Japanese yen (JPY) as
well.

Economists theorize that it is better to hold the foreign exchange reserves in a

currency that is not directly connected to the country’s own currency in order to
provide a barrier should there be a market shock. However, this practice has
become more difficult as currencies have become more intertwined as global
trading has become easier.

In Bangladesh, Foreign Exchange Reserves are the foreign assets held or

controlled by the country central bank. The reserves are made of gold or a specific
currency. They can also be special drawing rights and marketable securities
denominated in foreign currencies like treasury bills, government bonds, corporate
bonds and equities and foreign currency loans. Foreign Exchange Reserves in
Bangladesh increased to 43823.60 USD Million in February from 42669.80 USD
Million in January of 2021.
23
According to The Daily Star, in March, 2021, the country's foreign exchange
reserves hit a new record of $44.02 billion thanks to the upward trend of remittance
and lower import payments, Bangladesh Bank data showed.

Bangladesh Foreign Exchange Reserves was measured at 41.9 USD bn in Feb

2021, compared with 40.7 USD bn in the previous month. Bangladesh Foreign
Exchange Reserves: USD mn data is updated monthly, available from Dec 1972 to
Feb 2021. The data reached an all-time high of 41.9 USD bn in Feb 2021 and a
record low of 42.5 USD mn in Aug 1974. The International Monetary Fund
provides monthly Foreign Exchange Reserves in USD.

In the latest reports, Bangladesh's Foreign Exchange Reserves equaled 7.8 Months
of Import in Dec 2020. Its Money Supply M2 increased 13.5 % YoY in Jan 2021.
Bangladesh Domestic Credit reached 160.7 USD bn in Jan 2021, representing an
increase of 9.4 % YoY. The country's Non-Performing Loans Ratio stood at 8.9 %
in Sep 2020, compared with the ratio of 9.2 % in the previous quarter. [26]

Exchange Rate

An exchange rate is the value of one nation's currency versus the currency of

another nation or economic zone.

Types of Exchange Rates

Free Floating

A free-floating exchange rate rises and falls due to changes in the foreign exchange

market. 

Restricted Currencies

Some countries have restricted currencies, limiting their exchange to within the
countries' borders. Also, a restricted currency can have its value set by the
government.

Currency Peg

24
Sometimes a country will peg its currency to that of another nation. For instance,
the Hong Kong dollar is pegged to the U.S. dollar in a range of 7.75 to 7.85. 2 This
means the value of the Hong Kong dollar to the U.S. dollar will remain within this
range. 

Onshore Vs. Offshore

Exchange rates can also be different for the same country. In some cases, there is
an onshore rate and an offshore rate. Generally, a more favorable exchange rate
can often be found within a country’s border versus outside its borders. China is
one major example of a country that has this rate structure. Additionally, China's
yuan is a currency that is controlled by the government. Every day, the Chinese
government sets a midpoint value for the currency, allowing the yuan to trade in a
band of 2% from the midpoint.3

Spot vs. Forward

Exchange rates can have what is called a spot rate, or cash value, which is the
current market value. Alternatively, an exchange rate may have a forward value,
which is based on expectations for the currency to rise or fall versus its spot
price. Forward rate values may fluctuate due to changes in expectations for future
interest rates in one country versus another. For example, let's say that traders have
the view that the eurozone will ease monetary policy versus the U.S. In this case,
traders could buy the dollar versus the euro, resulting in the value of the euro
falling. 

Quotation

Typically, an exchange rate is quoted using an acronym for the national currency it
represents. For example, the acronym USD represents the U.S. dollar, while EUR
represents the euro. To quote the currency pair for the dollar and the euro, it would
be EUR/USD. In this case, the quotation is euro to dollar, and translates to 1 euro
trading for the equivalent of $1.13 if the exchange rate is 1.13. In the case of the
Japanese yen, it's USD/JPY, or dollar to yen. An exchange rate of 100 would mean
that 1 dollar equals 100 yen. [27]

Exchange rates of Taka for inter-bank and customer transactions are set by the
dealer banks, based on demand-supply interaction. Bangladesh Bank (BB) is not in
the market on a day-to-day basis, and undertakes USD purchase or sale

25
transactions with dealer banks at prevailing inter-bank exchange rates only as
needed to maintain orderly market conditions.

Inter-bank exchange rates are also used by BB for purchase and sale transactions
with the Government and different International Organizations. The USD/BDT
buying and selling rates below are highest and lowest inter-bank exchange rates at
Dhaka. The cross rates of BDT with other foreign currencies are based on NY and
Dhaka closing exchange rate. [28]

Reference:

[1] [Link]

[2] [Link]

[3] [Link]

[4] [Link]

[5] The balance, Financial Express, Ceic Data, Investopedia, World Bank

[6][Link]
development-17-differences/

[7] [Link]
and-economic-development

[8] [Link]

26
[9] [Link]

[10] [Link]
project-to-develop-bangabandhu-industrial-city-1612349090

[11] [Link]
[Link]

[12] [Link]

[13] [Link]

[14] [Link]
/economics/inflation

[15] [Link]
refresher-readings/monetary-fiscal-policy

[16] Thorsten and Asli Demirguc-Kunt, 2006, ‘Small and Medium-Size

Enterprises: Access to Finance as a Growth Constraint’, Journal of Banking
& Finance, Vol. 30, Issue 11, pp. 2931-43. Berger, Allen N and Gregory F Udell,
2002, Small Business Credit Availability Relationship Lending: The Importance of
Bank Organizational Structure, The Economic Journal, Vol. 112, Issue 477, pp.
F32-F53

[17] [Link]

[18] [Link]

[19] [Link]
saving-and-investment/

[20] [Link]

[21] [Link]

[22] [Link]

27
[23] [Link]
[Link]

[24] [Link]
[Link]

[25] [Link]

[26] [Link]

[27] [Link]

[28] [Link]

28
The End

29