Research(Paper((BUS(530)(!!!Economic Conditions of Bangladesh during October 2013- December

2013 (!!! !! !!!!! Prepared!For!!Dr.(Zaid(Bakht(

Professor(of(School(of(Business(North(South(University(!!!! Prepared!By!

(!!Abdulla(Al(Amin( !ID:!1411794060!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!Section:!02!

(((

(((((((Submission(Date:(August(22nd,(2014(

! 2!Table of Contents

Topic ( Page(No.(

Introduction(( ! 3!Methodology( ! 3!Limitations( ! 3!Inflation(( ! 4!Exchange(Rate( ! 6!Remittances( ! 7!Foreign(Exchange(Reserve( ! 9!Overall(Progress(of(the(Economy( ! 11!References(( ! 12!

! ! !! ! !! ! !! ! !! ! !! ! !! ! !! ! !! ! !! ! !! ! !! ! !! ! !! ! !!

! 3! Introduction The!indicators,!which!relate!to!the!overall!economy,!are!called!Macro!Aggregates.!These!include!national!income,!inflation,!exchange!rate,!export,!import,!remittance,!and!money!supply,!FX!reserve!so!on.!These!indicators!relates!to!the!overall!economy.!The!branch!of!economics,!which!study!the!behavior!of!these!macro!aggregates,!is!called!Macroeconomics.!The!main!objective!of!the!study!is!to!select!four!macroNeconomic!factors!and!know!how!the!factors!of!macroeconomics!work!in!our!country!in!the!reference!period!(October!2013!to!December!2013)!and!compare!with!the!same!period!of!2012.!The!macro!aggregates!in!this!report!are!divided!into!4!major!categories,!which!are:!! 1. Inflation!(Point!to!Point)!2. Exchange!Rate!3. Remittance!4. Foreign!Exchange!Reserve!!!Methodology(Raw!data!has!been!collected!for!each!of!the!macro!aggregates!for!the!months!of!October,!November!and!December!of!2013!and!2012.!The!figures!were!then!compared!against!each!other!and!the!growth!pattern!was!identified!and!analyzed.!(!Limitations(While!conducting!the!report,!some!limitations!were!yet!present!there:!!Because!of!time!shortage!many!related!area!couldnt!be!focused!in!depth.!!Website!of!different!organizations!of!Bangladesh!contains!different!information.!

! 4!Inflation((As(measured(by(CPI,(base(2005T06)((Point(to(Point)((Sustained rise in the cost of living is referred to as inflation. (!!

!((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((Source:(Bangladesh(Bank(Monthly(Economic(Trends((!!In! the! case! of! inflation,!which! is!measured!by! the! consumer!price,! indexNusing!FY2005N06!as!the!base!year!has!seen!an!upward!trend!in!the!above!of!months!in!2013!due! to! continuous! rise! in! food! inflation.! !The!pointNtoNpoint! and!monthly!average!both!rate!were!in!increasing!mood!in!2013.!Back!in!September!2012,!the!food!inflation!was!dropped!by!1.8%,!but!again!it!was!increased!by!8.7%!in!April!2013.! Food! inflation! began! controlling! from! July,! reaching! 7.9%! in! September!2013,!but!started!rising!in!October!and!reaching!9.0%!in!December.!On!the!other!hand!nonNfood!inflation!was!controlled!because!of!the!tightened!monetary!policy!of!Bangladesh!Bank.!From!11.8%!in!March!2012,!nonNfood!inflation!was!declined!sharply!4.9%!in!December!2013.!In!December!2013,!the!food!inflation!and!nonNfood! items! accompanied! 70.59%! and! 29.41%! respectively.! Food! inflation!weights! 58.84%! of! the! CPI! basket! for! calculating! inflation! in! Bangladesh,! and!thus! it! has! a! greater! impact! on! the! general! or! headline! inflation.! The! reason!behind!the!pointNtoNpoint!nonNfood!inflation!declining!trend!was!because!of!the!

October( November( December(2013( 7.03%( 7.15%( 7.35%(2012( 5.86%( 6.55%( 7.14%(

0.00%!1.00%!2.00%!3.00%!4.00%!5.00%!6.00%!7.00%!8.00%! InYlation((Point(to(Point)(

! 5!slowdown!in!economic!activity!and!sluggish!growth!in!the!private!sector!credit.!According! to!ADB (Asian Development Bank), the! reasons!of!declining!nonfood!inflation!were!shrunken!in!the!consumption!of!nonfood!items!resulting!from!the!higher! cost! of! transport,! fuel,! clothing,! and! house! rent! caused! by! the! political!unrest.!!In!December!2013,!urban!inflation!was!continued!to!be!higher!than!the!rural.! Urban! food! inflation! increased! at! 9.9%,! and! nonfood! inflation! at! 5.1%.!Rural!food!inflation!was!8.6%!and!nonfood!inflation!4.7%.!!!

!!On!the!other!hand,!pointNtoNpoint!CPI!inflation!during!2012!(OctoberNDecember!2012)!was!lower!than!the!same!months!of!2013.!It!was!reasonable,!as!we!have!witnessed! a! huge! political! turmoil! along! with!War! Crime! Verdict! and! the! last!year!was!the!last!year!of!the!previous!government!before!the!next!election.!We!have!found!in!2013!the!non!food!inflation!was!lowest!in!December!but!in!2012!it!was!increased!to!a!doubleNdigit!level!of!10.46%!in!October!2012!from!9.95%!in!September!2012!later!it!was!declined!to!8.43%!in!December!2012.!!!!

! 6!!!Exchange(Rate(!Exchange!rate!between!two!currencies!is!the!rate!at!which!one!currency!will!be!exchanged!for!another.!!!

!(((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((Source:(Bangladesh(Bank(Monthly(Economic(Trends!!!The! foreign! exchange! market! was! kind! of! stable! over! these! three! months! of!2013,!which!is!appreciated!from!the!months!of!last!year.!!The!weighted!average!nominal!(takadollar)!exchange!rate!appreciated!from!Tk!80.5!=!$1.00!at!the!end!of! December! 2012! to! Tk77.5! =! $1.00! at! the! end! of! December! 2013.! It! was!appreciated! because! of! declining! in! remittance! inflows,! lower! import! demand!and!strong!export!growth. Meanwhile!central!bank!kept!up!its!activity!of!buying!dollars! to!prevent! the!currency! from!appreciating.! !BB!bought!USD!1.29!billion!during!these!three!months.!This!was!necessary!to!ensure!Bangladesh!maintains!its!competitiveness!with!neighboring!countries!like!India,!which!saw!its!currency!getting! weaker.! ! As! a! result,! Bangladesh! will! benefit! from! low! oil! prices! as! it!relies!on!imported!oil.!!!

75! 76! 77! 78! 79! 80! 81! 82!October!

November!December!

October( November( December(2012( 81.3( 81.5( 80.5(2013( 77.76( 77.75( 77.75(

Exchange(Rate(

! 7!In!the!case!of!nominal!effective!exchange!rate,!it!was!appreciated!by!almost!8%!in! November! (2013)! due! to!weaker! demand! for! dollar,! as! import! growth!was!slower! than! the! export.! ! In! 2012,! taka! was! depreciated! because! of! increasing!growth! of! remittances;! export! earnings! and! fuel! price! hike! in! global! market.!!Though!it!was!stable!in!later!part!of!this!year.!Overall,!Bangladesh!appreciated!its!currency! by! 2.7%! against! US! dollar! from!December! 2102! to! end! of! December!2013.!!!!!Remittance(!!

!((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((Source:(Bangladesh(Bank(Monthly(Economic(Trends!!!Remittances! constitute! important! sources! of! foreign! exchange! earnings! for!Bangladesh.!It!is!one!of!the!major!factors!of!Bangladeshi!economic!growth.!While!remittances! cannot! be! considered! as! a! substitute! for! FDI! and! other! official!development! assistance,! it!may! ease! shortNrun! foreign! exchange! constraints! at!times!other!financial!flows!decline!due!to!external!factors.!Most!of!the!workers!of!Bangladesh!who!migrated!abroad!are!working!in!the!Middle!East:!Saudi!Arabia,!UAE,! Qatar,! Oman,! Bahrain! and! many! other! countries.! There! is! hardly! any!country!where!Bangladeshi!workers!are!not!present.!The!growth!in!remittances,!

October!! November! December!2013! 1230.68! 1061.45! 1210.21!2012! 1201.15! 1102.15! 1287.31!0!200!

400!600!800!1000!

1200!1400!Remittance(

! 8!the! second! biggest! foreign! currency! earning! sector! after! exports,! give! a!much!needed!pillow!to!government!to!face!a!rising!pressure!on!the!countrys!balance!of!payments.!!!Remittance!of!Bangladesh!economy!has!witnessed!a!negative!growth!of!8.87%!during!October!2013!to!December!2013!which!was!USD!3.50!billion,!compared!to! USD! 3.84! billion! in! October! 2012! to! December! 2012.! ! This! was! due! to! the!16.67%! decline! in! remittances! from! Middle! East! region.! Also,! the! restriction!against! illegal! workers! in! Saudi! Arabia! and! the! continued! taka! appreciation!contributed!to!lower!remittance!inflows.!!Figure:(Growth(in(Remittance((Bangladesh)(

(((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((Source:(ADB.(Bangladesh*Quarterly*Economic*Update*(!(On! the! other! hand,! out! of! country! jobs! for! Bangladeshi! workers! have! fallen!sharply!by!almost!14%!in!the!months!of!2013!compare!to!last!year!months.!!This!was! definitely! one! of! the! major! reasons! behind! the! negative! inflows! of!remittances.! ! According! to! ADB,! A! total! of! 200,913! Bangladeshis! found! jobs!outside! the! country! during! the! period,! compared! with! 232,961! in! the!corresponding! period! of! 2012,! because! of! a! sharp! fall! in! recruitment! in! the!United! Arab! Emirates! (81.8%),! Saudi! Arabia! (76.0%),! Oman! (15.1%),! and!Singapore!(1.0).!However,!jobs!for!Bangladeshi!workers!rose!in!Qatar!by!77.4%.!!(((

! 9!(Figure:!Out(of(the(country(employment(Growth:((!

(((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((Source:(ADB.(Bangladesh(Quarterly(Economic(Update((!!!!Foreign(Exchange(Reserve(((!

!((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((Source:(Bangladesh(Bank(Monthly(Economic(Trends(((

October! November! December!2013! 17345.4! 17105.9! 18094.6!2012! 12339.5! 11753.9! 12750.6!0!2000!

4000!6000!8000!10000!

12000!14000!16000!18000!20000! International(reserve(USD(in(Billion)(

! 10!An! important! lesson! of! the! 20082009! financial! crisis! was! that! the! emerging!market!economies!with!high!levels!of!international!reserves!were!better!able!to!withstand!the!ripple!effects!of!the!global!meltdown.!Reserves!are!now!generally!maintained!by!countries!for!meeting!their!international!payment!obligations!!both!short!and!long!terms,!including!commercial!debts,!financing!of!imports,!for!intervention!in!the!foreign!currency!markets!during!periods!of!volatility,!besides!helping!to!boost!the!confidence!of!the!market!in!the!ability!of!a!country!to!meet!its! external! obligations! and! to! absorb! any! unforeseen! external! shocks,!contingencies!or!unexpected!capital!movements.!!In!the!case!of!Bangladesh,!we!have!seen!from!the!above!chart!that;!reserve!has!gone! up! sharply! to! $18.1! billion! (nearly! 5! months! of! imports)! at! the! end! of!December!2013! from!$12.8!billion!a!year!earlier.! !This! is!because!central!bank!continued! to! buy! dollar! from! commercial! bank! to! prevent! the! taka! from!appreciating.!On!the!other!hand!the!in!2013,!there!was!a!lower!demand!for!dollar!from! the! importers.! As! a! result! it! contributed! to! Bangladesh! bank! s! high!reserves.!!!

!!!

! 11!Overall(Progress(of(the(Economy(!!Inflation!remains! to!be!within!control!at!around!7.35%!YoY!at!December!2013!(but! higher! than! the! target).! Though! it!was! the! nonNfood! items! that!made! the!inflation! stable! or! slowed! down.! We! have! found! that! nonNfood! inflation! was!lowest! because! of! sluggish! economic! growth! in! private! sector! as! business! and!consumer! confidence! has! not! recovered! yet.! Imports! have! gone! down! due! to!political! uncertainty.! Remittances! have! weakened! because! of! crackdown! of!illegal! workers! in! Saudi! Arabia.! The! limited! skills! of! the! countrys! work! force!constrain!economic!growth.!A!key!contributor! to!poverty! in!Bangladesh! is! that!people! lack! the! educational! background! and! skills! needed! to! secure! jobs.! As! a!result!people!are! losing!their! jobs! in!overseas!and!most! importantly!we!cannot!send! more! worker! to! outside! to! earn! more! remittances.! Exchange! rate! was!appreciated! around! 2.7%! YoY! at! December! 2013.! Though! it! was! stable! over!these! three! months! compare! to! previous! year! months.! Appreciation! of! taka!might!be!contributed!to!lower!remittance!inflows.!!Though!inflows!of!remittance!were!declined,!the!lower!trade!deficit!increased!the!current!account!surplus.!!In!the!case!of!FX!reserve,!we!have!seen!some!tremendous!improvement!over!these!three!months,!which!was!almost!equivalent!to!5!months!of!imports.!!!The! key! focus! for! the! government! should! be! revival! of! business! confidence!because! high! FX! reserves! and! low! inflation! would! not! mean! much! if! private!investment! does! not! pick! up.! So! government! should! take! necessary! steps! to!bring!back!the!confidence!of!private!sector,!need!to!create!the!environment!that!will! attract! investors! to! invest! more! which! will! eventually! help! to! continue!improving! the! upward! economic! growth! trend! of! our! country.! On! top! of! that,!they!need! to! focus! on! the!underline! reason!of! negative! growth!of! remittances,!why! the! workers! send! back! from! Middle! East,! what! are! the! necessary! skills!necessary!or!we!need!to!improve!to!compete!others.!!!!!

! 12!!References((!Bangladesh!Bank.!2012,!Major!Economic!Indicators:!Monthly!Update.!Dhaka,!Bangladesh:!Bangladesh!Bank.!Available!at:!http://www.bangladesh!bank.org/econdata/openpdf.php?i=6!!!Bangladesh!Bank.!2013,!quarterly!Economic!Trends,!available!at:!http://www.bangladeshNbank.org/pub/quaterly/bbquarterly/octNdec2013/overview.pdf!!The!Daily!Star,!2013, Manpower!export,!remittance!slump,!The!Daily!Star![online]!28!December.!Available!at:!http://www.thedailystar.net/manpowerNexportNremittanceNslumpN4408!!The!Quarterly!Economic!Update!(QEU)!by!ADB,!available!at:!http://www.adb.org/sites/default/files/banNqeuN2013N12.pdf!