EXICUTIVE SUMMERY

CHAPTER ONE:INTRODUCTION

1.1 BACKGROUND OF THE STUDYBalance of payment reflects the performance of a countrys economy. In other word it shows the motion picture of a countrys economy. It shows how strong an economy is. The balance of payments reports all financial flows of a country vis--vis the rest of the world. Balance of payment accounts is an accounting record of all monetary cross-border transaction. This transaction include payments or receives for the countrys import or export of merchandise good, services, financial capital and transfer. Balance of payment summarizes cross border transaction in an accounting recording manner for a specific period of time, usually one year. It is prepared in a single currency, usually domestic currency of the concern country. In BOP sources of fund, exports or receipts of loans and investments are recorded as positive or surplus item and uses fund, imports or invest in foreign country are recorded as negative or deficit item. When all of the BOP accounts are included must sum to zero with no overall surplus or deficit. In simple terms, if the balance of payments balances, then the combinedreceipts from selling goods and services abroad, and from the return on investments abroad, equals the combined expenditure on imports of goods and services, and investment income going abroad. The balance of payments is also an official account of international payments, published in a document called the Pink Book.This study emphasizes based on balance of payment in Bangladesh. Bangladesh is an emerging economy in the world. The improvement of its economy also depends on the performance of its BOP. The balance of payment in the evidence of Bangladesh records financial transactions between Bangladesh and the international economy. The accounts sections with the current account measuring trade in goods and services and net investment incomes and transfers whilst the capital account tracks capital flows in and out of the Bangladesh. This includes portfolio capital flows and direct capital flows arising from foreign investment.

1.2 SIGNIFICANCE OF THE STUDY

1.3 OBJECTIVE OF THE STUDYAs the study has conducted on the comparative analysis of BOP of Bangladesh for the last couple of years it has some objective mentioned as follows: To identify factors affecting balance of payment of Bangladesh. To evaluate different component of balance of payment.

1.4 STRUCTURE OF THE STUDYIn this paper, we have tried to show comparative analysis of BOP of Bangladesh. Firstly, a review of the different scholars has been shown with the title under Literature Review. In the second part the methodology of the study has been described by model specification in chapter three. Thirdly, the presentation of the findings has been shown in the chapter four. Finally in the chapter five the conclusion of the report with recommendation has been described.

CHAPTER TWO:LITTERATURE REVIEW

2.1 INTRODUCTIONLiterature review chapter has cover in two segmented review namely THEORITICAL REVIEW RELATED TO THE SELECTED AREA, which describes the theoretical explanation of BOP and its contents, and EXISTING STUDY TO THE SELECTED AREA, which describes different studies related to the BOP by different author or researcher and their findings.

2.2 THEORITICAL REVIEW RELATED TO THE SELECTED AREA

2.3 EXISTING STUDY TO THE SELECTED AREAMany study or research works have done on Balance of Payment by the many authors and researcher. In this segment I have shown some reviews of BOP research work. To add new techniques, aspects or phenomenon different authors or researcher have conducted research on this topic with different objective. Sometimes work have done to show the economic factors those have a significant influence over BOP, sometimes to show a comparative analysis of BOP domestic country with the rest of the world. The Bangladesh economy is experiencing disequilibrium in balance of payments due to shortsighted policy decisions, internal economic imbalances and global economic crisis. The BoP slipped into a deficit for the first time in a decade resulting in heightened risks to Bangladeshs external position (Bangladesh Economic Update Volume 3, No. 6, June 2012). Reserve flow experience of Bangladesh over the period from 1975 to 1995has been broadly in conformity with the monetary approach to the balance of payments. The monetary authorities in Bangladesh can attain their desired stock on international reserves, for any given demand for money, through their control of domestic credit SUJIT KANTI DAS. When demand for money grows faster than the money supply would have grown due to domestic sources alone, international reserve tend to accumulate and to bring actual growth in the money stock closer to desired growth and the converse Zecher (1978). Chacholidas(1990), studied the relationship between countrys balance of payment and money supply as a monetary phenomenon through MABP approach. Further Stated that disequilibrium in the money market is due to the deficit in the balance of payment. If money supply exceeds money demand, then there will be deficit in the balance of payment, if money demand exceeds money supply than surplus in the balance of payment. Howard and Mamingi(2002), emphasized that deficit in the balance of payment due to fluctuation in general price level, as the real value of nominal assets. Further, they argued that MABP specifies money supply identity, money demand identity and an equilibrium condition. They showed positive relationship of money demand with prices and income, while negative relationship of money demand and interest rate. Dhliwayo(1996), concluded that increase in the domestic credit will have an equal and opposite change in the international reserve the co-efficient of change in domestic credit has known as offset co-efficient, because it has inverse effect on international reserve. Further, added that basic equation of MABP, the deficit in balance of payment mainly comes due to the divergence of growth of domestic credit and money demand.

2.4 CONCLUSION

CHAPTER THREE:METHODOLOGY OF THE SUDY

3.1 INTRODUCTIONThis chapter has described how data are collected & under which techniques for analysis of the study objective and model specification to interpret these data to meet the objective of the study in a very realistic manner.

3.2 DATAAnalyses of this study have done using both primary and secondary data. Primary data are collected through questionnaires under the Likert Scale method. Going through some real participant and expert of the relevant field such as different bank, researcher, teacher etc the questionnaires survey have conducted. An online survey has also done to make this study more efficient and effective. Secondary data have been collected from different websites, mainly from the website of Bangladesh Bank, Bangladesh Bureau of Statistics and so on.

3.4 CONCLUSIONThe scientific method used in the study will ensure a highly standard findings and widespread acceptance of these findings.

CHAPTER FOUR:FINDINGS AND ANALYSIS

4.1 INTRODUCTIONThis chapter is concentrated about the presentation, interpretation and discussion of data analysis and the empirical findings of the study Balance of Payment: A Case of Bangladesh.

4.2 PRESANTATION AND DISCUSSION OF FINDINGS

4.2.1 Factors have a significance influence over Balance of payment.Table 4.1 Factors affecting BOPECONOMIC FACTORSWhat is your significant thinking about the influence of following economic factors over Balance of Payment of Bangladesh?

Factor Influence Export of Goods And Services:

FactorsStrong Influence (%)Influence (%)50/50 (%)No Influence (%)Strongly Not Influence (%)WASRank

The Prevailing Exchange Rate of the Domestic Currency25 or 50%17 or 34%8 or 16%004.342nd

Inflation Rate35 or 70%15 or 30%0004.701st

World Prices of a Commodity18 or 36%28 or 56%4 or 8%004.283rd

Incomes of Foreigners17 or 34%20 or 40%13 or 26%004.084th

Trade Barriers19 or 38%24 or 48%6 or 12 %003.188th

Stock Exchange Operation9 or 18%3 or 6%19 or 38%19 or 18%02.649th

Political Stability18 or 36%7 or 14%20 or 40%5 or 10%03.767th

Strength of the economy11 or 22%12 or 24%16 or 32%11 or 22%11 or 22%3.905th

International Reserve17 or 34%14 or 28%15 or 30%4 or 8%03.886th

Imports of Goods and Services:

FactorsStrong Influence (%)Influence (%)50/50 (%)No Influence (%)Strongly Not Influence (%)WASRank

Value of the Domestic Currency9 or 18%20 or 40%17 or 34%4 or 8%03.605th

Inflation Rate:35 or 70%15 or 30%0004.71st

Level of Domestic Income8 or 16%11 or 22%18 or 36%11 or 22%02.767th

International Prices10 or 20%12 or 24%22 or 42%7 or 14%03.506th

Trade Barriers19 or 38%24 or 48%6 or 12 %004.182nd

Political Stability5 or 10%7 or 14%18 or 36%15 or 30%5 or 10%2.848th

Strength of the economy7 or 14%12 or 24%16 or 32%10 or 20%5 or 10%4.023rd

International Reserve17 or 34%15 or 30%15 or 30%3 or 6%03.924th

Income on Investments

FactorsStrong Influence (%)Influence (%)50/50 (%)No Influence (%)Strongly Not Influence (%)WASRank

past foreign investments and the current domestic rates of return18 or 36%24 or 48%8 or 16%004.22nd

past domestic investments and the current foreign rates of return10 or 20%15 or 30%13 or 26%8 or 16%4 or 8%3.383rd

Inflation Rate35 or 70%15 or 30%0004.71st

Transfer Payments

FactorsStrong Influence (%)Influence (%)50/50 (%)No Influence (%)Strongly Not Influence (%)WASRank

Remittance 25 or 50%17 or 34%8 or 16%004.341st

Aids and Grants22 or 44%14 or 28%14 or 28%004.162nd

Capital Account Transactions

FactorsStrong Influence (%)Influence (%)50/50 (%)No Influence (%)Strongly Not Influence (%)WASRank

Rate of return27 or 54%17 or 34%6 or 12%004.422nd

Inflation rate35 or 70%15 or 30%0004.701st

Exchange Rate15 or 30%20 or 40%12 or 24%3 or 6%3.943rd

Additional risk10 or 20%14 or 28%11 or 22%8 or 16%7 or 14%3.244th

Source: Field Survey, 2013Note: WAS stands for Weighted Average Score. Weighted average score is calculated using weights as follows: Extremely Not Important= 1, Not Important=2, 50/50=3, Important=4 and Extremely Important=5The above table of field survey shows that different component of BOP are influence by different economic factors. This shows all the factors have taken for the survey have a significant influence over the different component of BOP and the overall BOP. In this survey among the all other factor Inflation Rate has the highest significant influence over all department BOP with WAS of 4.70 and rank as 1st position.4.2.2 Trend Explanation of contents of BOP

Trade Balance:

Export:The position of exports, classified by major commodities, during the year under review as compared to that of the previous years 2000 to 2011 is shown in Table- below :Table 4.2 Export of BOP of BangladeshYearsExport% Change

2000-2001345996-

2001-2002340377-1.62

2002-200337587210.43

2003-200445534721.14

2004-200553961418.51

2005-200669900829.54

2006-200783205119.03

2007-200897110116.71

2008-2009107195010.38

2009-201011234514.80

2010-2011164159246.12

Data Source: Bangladesh Bank.Figure 4.1 - Export of BOP of Bangladesh

Source: Table 4.2Exports worth Tk. 1641592 million were shipped in 2010-11, representing a rise of 46.12 percent over the last 10 years. The above graph showing that export of Bangladesh has been rising very consistently as per the curve showing upward trend. Up to 2001 2003 export increased relatively vary low percentage 1-10% but later on by the 2004 its increased with a handsome growth percentage 21.14. At the end of the 2011 exports increased 46.12 percent worth TK. 1641592 million.

Import:The comparative position of import payments for 2000to 2011 classified by major commodities is shown in Table-IV below:Table 4.3 - Import of BOP of BangladeshYearsImport% Change

2000-2001-454849-

2001-2002-442062-2.81

2002-2003-51172715.76

2003-2004-58847715

2004-2005-72945223.96

2005-2006-89321222.45

2006-2007-107234320.05

2007-2008-133765324.74

2008-2009-13957954.35

2009-2010-14798306.02

2010-2011-216341146.19

Data Source: Bangladesh Bank.Figure 4.2 - Import of BOP of Bangladesh

Source: Table 4.3Above graph showing that like the export, import of Bangladesh also gradually increasing. Data showing that import is growing more than export which leading to a deficit.

Trade Balance:The comparative positions of export receipts and imports payments classified by mode of financing for 2000 to 2011 are shown below:Table 4.4 Trade Balance of BOP of BangladeshYearsTrade Balance% Change

2000-2001-108853-

2001-2002-101685-6.59

2002-2003-13585533.60

2003-2004-133130-2.00

2004-2005-18983842.59

2005-2006-1942042.29

2006-2007-24029223.73

2007-2008-36655252.54

2008-2009-323845-11.65

2009-2010-35637910.04

2010-2011-52181946.42

Data Source: Bangladesh Bank.Figure 4.3 - Trade Balance of BOP of Bangladesh

Source: Table 4.4From above graph we can see in 2001-02 the line of trade balance become going down from horizontal line and it is close to the line of import. In 2010-11 the trade balance is showing a deficit amount and the deficit amount is 521,819 million US Dollar. The overall balance of trade is showing a deficit balance.In 2010-11, the increase in trade deficit of Tk. 1,65,440 million over 2009-10 occurred due to a large increase in import payments (Tk. 6,83,581 million) as compared to that of export receipts (Tk. 5,18,141 million).

Services:The comparative summary position of the services account for 2000to 2011 is shownbelow:Table 4.5 Service Account of BOP of BangladeshYearsServices% ChangeReceives% ChangePayments% Change

2000-2001-49319-40955--90274-

2001-2002-28661-41.884964421.21-78305-13.25

2002-2003-4012740.00513673.47-9149416.84

2003-2004-4496312.055959116.01-10455414.27

2004-2005-4980410.767506725.97-12487119.43

2005-2006-6649933.528978019.59-15627925.15

2006-2007-8729731.2710235214.00-18964921.35

2007-2008-10256417.4812910326.13-23166722.15

2008-2009-11418311.32122451-5.15-2366342.14

2009-2010-102574-10.1615453-87.38-2571088.65

2010-2011-17207767.751829291083.77-35500638.07

Data Source: Bangladesh Bank.Figure 4.4 - Service Account of BOP of Bangladesh

Source: Table 4.5From above graph we can seein 2001-02 the line of service account become going down from horizontal line and it is close to the line of payment. In 2010-11 the service account is showing a deficit amount and the deficit amount is TK 172,077 million. The overall balance of service account is showing a negative balance.Current Transfer:The comparative position of current transfers for 2000 to 2011 is summarized in Table-4.7 below:Table 4.6 Current Transfer of BOP of Bangladesh.YearsUnrequited Transfer% ChangeWorkers Remittance% Change

2000-2001117145-102661-

2001-200216267338.8614377140.04

2002-200319887122.2517728823.31

2003-200421990610.5719847011.94

2004-200526550720.7323843920.13

2005-200635863835.0732195635.02

2006-200745274026.2341269828.18

2007-200858314828.8054296931.56

2008-200967967616.5565560720.74

2009-201078866116.0374667513.89

2010-20118506037.858201889.84

Data Source: Bangladesh BankFigure 4.5 - Current Transfer of BOP of Bangladesh.

Source: Table 4.6From above graph we can see the red line is for workers remittance, the blue line is for current transfers and black line is exponential trade line. Here it is seen that the balance of unilateral transfers are increasing year to year. The exponential trade line is showing that the present growth of current transfers is seemingly higher than average growth. It is obviously good sign for our economy. Current transfers showed a net inflow of Tk. 8, 50,603 million during the current year as compared to a net inflow of Tk. 7, 88,661 million during the previous year.

Current Account:Balance on current account = Balance on goods and services + Net income +Net transfer. A comparative summery is conducted for 2000 to 2011 is shown in Table 4.8 below:Table 4.7 Current Account of BOP of Bangladesh.YearsCurrent Account% Change

2000-2001-59573-

2001-20029220-115.47

2002-20031983-78.49

2003-200418643840.14

2004-2005-23554-226.34

2005-200647901-303.36

2006-20076413833.89

2007-200854958-14.31

2008-2009145053163.93

2009-201022956158.26

2010-201162254-72.88

Data Source: Bangladesh BankFigure 4.6 - Current Account of BOP of Bangladesh.

Source: Table 4.7From the above graph it is seen that in 2000-01 the balance of current account was lowest but in 2009-10 it has reached to its highest position and theamount is TK 229,561 million. At present the current account balance of Bangladesh is showing a positive sign.

Capital Account / Capital & Financial Account:Balance of Capital and Financial Account = Balance of capital account + Balance of Financial account. Comparative analysis of CFA has shown in Table 4.9 below:Table 4.8 - Capital Account / Capital & Financial Account of BOP Of BangladeshYearsCFA% Change

2000-200174829-

2001-200223248-68.93

2002-2003-1360-105.84

2003-2004-10956705.58

2004-200553472-588.06

2005-2006-8966-116.76

2006-2007-19067112.65

2007-2008-52030172.87

2008-2009-147566183.61

2009-2010-17630119.47

2010-2011-6243-96.45

Data Source: Bangladesh BankFigure 4.7 - Capital Account / Capital & Financial Account of BOP Of Bangladesh

Source: Table 4.8In the graph we can see that in 2000-2001 the balance of capital account was above the horizontal line and from 2005-06 the capital account balance is in below the horizontal line and it is still continuing its negative growth. At present Bangladesh is trying to overcome this situation. The biggest obstacles to sustainable development in Bangladesh are overpopulation, poor infrastructure, corruption, political instability and a slow implementation of economic reforms.

Foreign Exchange Reserve: The comparative position for 2000 to 2011 is shown in Table 4.10below:Table 4.9- Foreign Exchange Reserve of Bangladesh.YearsFXR (USD)% Change

2000-20011307-

2001-2002158321.11

2002-2003247056.03

2003-200427059.51

2004-200529308.31

2005-2006348418.90

2006-2007507745.72

2007-2008614921.11

2008-2009747121.49

2009-20101075043.88

2010-2011109121.50

Data Source: Bangladesh BankFigure 4.8 - Foreign Exchange Reserve of Bangladesh.

Source: Table 4.9From the above graph it is observed that in 2001-02 its position was continuously in the below of horizontal line and from 2002-03 it has again increased and it is still continuing its positive growth. At the end of FY 2010-11 the foreign exchange position held by Bangladesh Bank decreased by 1.5 percent from the last FY.

Foreign Exchange Rate:The comparative position for 2000 to 2011 is shown in Table 4.10 below:Table 4.10 - Foreign Foreign Exchange Rate of Bangladesh.YearsFX Rate% Change

2000-200153.9592

2001-200257.43476.44

2002-200357.90.81

2003-200458.93531.78

2004-200561.39394.17

2005-200667.07979.26

2006-200769.03182.91

2007-200868.6019-0.62

2008-200968.80120.29

2009-201069.18480.55

2010-201171.17192.87

Data Source: Bangladesh BankTable 4.10 - Foreign Foreign Exchange Rate of Bangladesh.

Source: Table 4.10From the graph of exchange rate it can be noticed that exchange rate is continuously increasing from year to year. In 2000-01 foreign exchange rate was BDT 57.43 and in 2010-11 it has reached to BDT 71.17 against per US Dollar.4.2.3 Balance of payment trends explanation

Table 4.11 Overall Balance of payment of Bangladesh.YearsExport% Change

2000-2001-15256-

2001-2002-32468112.82

2002-2003-623-98.08

2003-2004-76871133.86

2004-2005-29918289.20

2005-2006-3893530.14

2006-2007-4507115.76

2007-2008-2928-93.50

2008-20092513-185.83

2009-2010-53260-2219.38

2010-2011-560115.17

Data Source: Bangladesh BankFigure 4.10 - Overall Balance of payment of Bangladesh.

Source: Table 4.11In this graph the overall balance of payments is showing a negative balance. If we draw a straight line the future balance of payments will be negative.The balance of payments of Bangladesh for 2010-11 recorded a surplus of Tk. 62,254 million on the current account as against a surplus of Tk. 2, 29,561 million in the previous year. The surplus in the period under review is attributable mainly to a phenomenal increase in export receipts (46.1 percent), a significant positive growth in current transfers (7.9 percent) although there was a phenomenal import growth (46.2 percent) than previous year. So we have to ensure a positive capital account balance and current account balance through increasing FDI, export of new product and decreasing the import of less important goods.

4.3 CONCLUSIONThe field survey is conducted to identification of different economic factors that have a very significant influence over BOP of Bangladesh. The survey discloses that every factor have taken for the survey have a very significant influence over BOP of Bangladesh, specially the Inflation Rate which have got highest score and rank as influential factor over BOP. And 11 years trend analyses have done to understand the overall condition of the BOP of Bangladesh. Showing that Bangladesh have a negative overall BOP.

CHAPTER FIVE:CONCLUSION

5.1 KEY FINDINGSIn this study, the flied survey has conducted that have identified the economic factor affect the BOP of Bangladesh. The survey shows all the factor have an average WAS around 4 which results that these factors have an influence over BOP. In the trend analysis of the study has find that current account has a significant growth as the export& currentgrowth than previous years. Capital & Financial Account has a negative growth as it going negatively downward for the decrease of direct net investment. Therefore the overall balance the overall balance of payments is showing a negative balance. Although it has a negative balance the balance of payments of Bangladesh for 2010-11 recorded a surplus of Tk. 62,254 million on the current account as against a surplus of Tk. 2, 29,561 million in the previous year. The surplus in the period under review is attributable mainly to a phenomenal increase in export receipts (46.1 percent), a significant positive growth in current transfers (7.9 percent) although there was a phenomenal import growth (46.2 percent) than previous year.

5.2 LIMITATION OF THE STUDYThis study is based on a comparative study in case of Bangladesh. No models have been used in this study. Only one survey has conducted and sample size is not that much large.

5.3 RECOMMENDATIONS

REFERANCESRana and Khurana 2011, COMPARATIVE ANALYSIS OF BALANCE OFPAYMENTS: INDIAN PERSPECTIVENikolas A. Mller-Plantenberg 2009, Balance of payments accounting and exchange rate dynamicsBangladesh Economic Update, Volume 3, No. 6, June 2012, Balance of Payment of Bangladesh.Gulzar Ali, Volume V, Number 2, Pakistans Balance of Payments as a Monetary Phenomenon: (Econometric Evidence)Jesus Felipe, J. S. L. McCombie, and KaukabNaqvi, May 2009, Is Pakistans Growth Rate Balance-of-Payments Constrained? Policies and Implications for Development and GrowthMuhammad Amir Hossain, PN 0805, Impact of Foreign Direct Investment on Bangladeshs Balance of Payments: Some Policy ImplicationsSUJIT KANTI DAS, The Monetary Theory of Balance of Payments: An Empirical Study on BangladeshA2. QuestionnaireECONOMIC FACTORSWhat is your significant thinking about following influential economic factors over Balance of Payment of Bangladesh?

Export of Goods And Services:

Serial No.FactorsStrong Influence (%)Influence (%)50/50 (%)No Influence (%)Strongly Not Influence (%)

1The Prevailing Exchange Rate of the Domestic Currency

2Inflation Rate:

3World Prices of a Commodity

4Incomes of Foreigners

5Trade Barriers

6Stock Exchange Operation

7Political Stability

8Strength of the economy

9International Reserve

Imports of Goods and Services

FactorsStrong Influence (%)Influence (%)50/50 (%)No Influence (%)Strongly Not Influence (%)

1Value of the Domestic Currency

2Inflation Rate:

3Level of Domestic Income

4International Prices

5Trade Barriers

6Political Stability

7Strength of the economy

8International Reserve

Income on Investments

FactorsStrong Influence (%)Influence (%)50/50 (%)No Influence (%)Strongly Not Influence (%)

1past foreign investments and the current domestic rates of return

2past domestic investments and the current foreign rates of return

3Inflation Rate

Transfer Payment

FactorsStrong Influence (%)Influence (%)50/50 (%)No Influence (%)Strongly Not Influence (%)

1Remittance

2Aids and Grants

Capital Account Transactions

FactorsStrong Influence (%)Influence (%)50/50 (%)No Influence (%)Strongly Not Influence (%)

1Rate of return

2Inflation rate

3Exchange Rate

4Diversification benefits

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