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MD. SHAHADAT HOSSAIN FCA Member Council -ICAB

Dhaka – 05 May 2018

An Analysis on Macroeconomic Performance of Bangladesh

MEMBERS’ CONFERENCE on

The objective of this analysis is to have an overview

on nature, motion, prospect and limitations of

macroeconomic scenario prevailing in the country

with various information of different sectors of

economy and their analytical results which are very

useful for the profession like accounts, finance etc.

The economic policy of a country represents

economic growth, full employment, price stability

and balance of payment stability.

INTRODUCTION

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Main sector wise contribution of National Income is Agriculture sector 15%, industry sector 32% and service sector 53%.

NATIONAL INCOME

Sl. No.

Main sector 2007-081 2016-17

01. Agriculture & Forest 80,201 204,830

02. Fisheries 19,790 59,646

03. Mining 6,152 34,421

04. Industry(Manufacturing) 93,901 337,261

05. Electricity, Gas and Water resources 6,070 25,663

06. Construction 43,854 146,558

07. Whole sale and retail marketing 78,220 237,756

08. Hotel and Restaurant 3,889 19,369

09. Transport and communication 56,907 186,977

NATIONAL INCOME

Sl. No.

Main sector 2007-08 2016-17

10. Financial service institution 8,955 72,334

11. Real estate, lease and other service 38,058 144,513

12. Public administration and defense 14,427 80,735

13. Education 13,531 56,641

14. Health and social service 11,819 39,151

15. Community, social and private service 50,200 213,773

Total 528,974 1,857,628

The contribution of agriculture sector in GDP has increased in the year 2016-17 at 2.6 times compared with the contribution in the year 2007-08. Similarly contribution of industry sector increased 3.6 times and contribution of service sector increased 3.8 times. Out of the quantity increased 1.8 times has increased due to inflation and balance increase is the real growth.

IMPORTANT COMPARATIVE STATISTICS OF AGRICULTURE

Element Year (2007-2008)

Year 2016-2017

% of increase/Decrease

Supply of Fertilizer (000 MT) 4090 4738 9.15%

Land under irrigation (Lac hector)

50.49 54.90 8.70%

Disbursement of Krishi loan (TK

in cror)

8581 17646 62.75%

Production of food grain (Lac MT)

311.21 388.17 20.52%

Average rate of production of paddy per acre

1107 kg 1234 10.52%

LAST FORTY THREE YEARS PRODUCTION OF FOOD GRAIN

Years Average

production

(Lac M. Ton)

Rate of

increase

1976-77 to

1983-84

138.68 16%

1984-85 to

1991-92

173.06 25%

1992-93 to

1999-2000

216.93 25%

2000-01 to

2007-08

272.78 26%

2008-09 to

2016-17

348.77 28%

LAST NINE YEARS CONTRIBUTION OF INDUSTRY

(MANUFACTURING) SECTOR

Year Percentage (%)12

2007-08 17.77

2008-09 17.90

2009-10 17.20

1010-11 17.75

1011-12 18.28

1012-13 19.00

2013-14 19.47

2014-15 20.16

2015-16 21.01

2016-17 21.73

INDUSTRY (MANUFACTURING) SECTOR

Due to reforming the working environment many of the garments

closed their activity but under this circumstance almost 723 new

industries under garments sector have been established during last

five years. Out of such 723 are newly set up industry, 141 have

started activity in the year 2013; in the year 2014 industry

established 212 nos, which is the largest number among the last 39

years. In the year 2015 garments factory established 137, in the

year 2016 number of newly established garments is 97.

LAST FORTY YEARS TREND OF GROWTH

Years Average

growth

rate

1976-77 to 1983-84 4.03%

1984-85 to 1991-92 3.65%

1992-93 to 1999-2000 6.74.%

2000-01 to 2007-08 7.93%

2008-09 to 2016-17 9.48%

FISCAL POLICY

Revenue and tax revenue of the country is increasing

gradually year after year since independence. Average

increasing rate of revenue for the financial years from

2008-09 to 2016-17 was 27% as against 19.11% for the

financial years from 2004-05 to 2008-09.

COMPOSITION OF DIRECT AND INDIRECT TAX

During the year 2001-02 contributions of direct tax and

indirect tax were 19.8% and 80.2% respectively. A

remarkable change has taken place in composition of direct

tax and indirect tax from the year 2008-09 when

contributions of direct tax and indirect tax were 25.5% and

74.5%. It is also important to mention that such composition

has reached at 35% direct tax and 65% indirect tax in the

year 2016-17.

COMPOSITION OF DIRECT AND INDIRECT TAX

in the year 2001-02 the allocation of Annual Development

Plan (ADP) was Tk. 14,090 crore. During the year 2008-09

such allocation reached to Tk. 19,668 crore. Average yearly

rate of increase was 6.65% in the year 2015-16 the amount

of allocation for ADP was Tk. 79,346 crore i.e from the year

2008-09 to 2016-17 the average rate of increasing ADP

allocation was Tk. 43%. Another remarkable development in

the area of ADP is financing for ADP. Dependency on foreign

loan and foreign aid is decreasing gradually. In the year 2008-

09 the amount of internal resources used for ADP was Tk.

44% but in the year 2016-17 such portion of internal

resources has reached to 71%.

ADP IMPLEMENTATION

For example during the first seven months of financial

year (2012-2013) i.e up to January 2013 the ADP was

implemented only 38% of total target, during the first

nine months of the financial 2016-17 i.e up to March

2017 the ADP implemented only 45%. Likewise ADP was

implemented to some extent more than 45% up to

March 2018 i.e during the first nine months of the

financial year 2017-18.

ADP IMPLEMENTATION

Target was set to increase investment to 32.7 percent of GDP in FY 2016-17, keeping in mind the need for a growing economy. In FY 2016-17, investment as a share of GDP went up to 30.5 percent, a marginal increase from 29 percent in FY 2015-16. However, the private sectors investment has been almost stagnant since FY 2015-16.

NATIONAL INVESTMENT

Years National Investment (Amount in Crore BDT)

Average rate of increase

2000-01 56,820 -

2005-06 115,032 20%

2010-2011 250,846 23%

2016-2017 592,098 23%

Despite having negative position of all the areas such as balance of trade, service, finance etc, the balance of payment position of the country is surplus. During the year 2008-09 overall Balance of Payment arrived at $ 2058 million. During the year 2015-16 the overall balance of payment position was $ 5036 million. So, balance of payment position for the year 2015-16 has increased compared with that of the year 2008-09 by almost 21% yearly on average. Major contribution of such improved position of balance of payment is the increasing trend of foreign remittance which is being earned by the manpower export in various countries of the world and Foreign Direct Investment (FDI).

BALANCE OF PAYMENTS

In the year 2016 number of manpower export increased 36% against increasing rate 31% in the year 2015 and decreasing rate 4% in the year 2014. In the year 2017 such increasing trend was 31%.

FOREIGN REMITTANCE

Year Foreign remittance

(USD in million)

2005-06 4,802

2006-07 5,979

2007-08 7,915

2008-09 9,689

2009-10 10,987

2010-11 11,650

2011-12 12,843

2012-13 14,461

2013-14 14,116

2014-15 15,170

2015-16 14,717

2016-17 12,769

2017-18 (July-March) 10,762

FOREIGN DIRECT INVESTMENT

0

200

400

600

800

1000

1200

1400

1600

1800

2000

2008-09 2010-11 2012-13 2013-14 2015-16

Year USD in million

2008-09 961

2009-10 913

2010-11 779

2011-12 1195

2012-13 1731

2013-14 1474

2014-15 1830

2015-16 1285

2016-17 (Feb) 1170

The graphical presentation represents that the trend of FDI in Bangladesh is not stable, it has ups and downs, no doubt the country is lagging behind to attract more FDI in comparison with other neighboring countries.

BALANCE OF TRADE

FOREIGN CURRENCY RESERVE

Sufficient amount of foreign currency reserve is important to enhance the capacity of the central bank of the country to intervene in the foreign exchange market and control any adverse movement and stabilize the foreign exchange rates to provide a more favorable economic environment for the progress of the country.

Date Balance of foreign currency

reserve (Million USD)

30 June 2002 1,583

30 March 2009 7,471

19 April 2017 32,466

CREDIT POLICY

Up to the end of June 2017 default loan total amount of Tk. 45,527 crore was written off. Taking into consideration of such written off loan total volume of default loan arrived as on September 2017 Tk. 125,834 crore which was 15% of total outstanding loans and advances. It is worthwhile to mention that at the end of the year 2004 amount of total default loan was Tk. 18,727 crore. After thirteen years the amount of default loan increased almost seven times.

INFLATION

Year/Month Rate of

inflation

2007-08 9.9%

2008-09 6.7%

2009-10 7.3%

2010-11 8.8%

2011-12 10.6%

2012-13 7.5%

2013-14 7.4%

2014-15 6.4%

2015-16 5.9%

2016-17 5.4%

INFLATION

During first half of financial year 2011-12 average inflation rate arrived at 11.31% which appeared to have been abnormally high seems to be higher. Due to satisfactory production of agricultural product, reduction of gap between direct and indirect tax and cautionary monetary policy as taken by the Bangladesh Bank rate of inflation is to some extent downward trend, which is being reflected in the above chart. Though from the above chart it seems that after the FY 2011-12 inflation rates is in downward trend but still it appears to be high.

CAPITAL MARKET

In national income Capital Market has substantial contribution but till to date this market has not achieved full confidence of the investors.

Present volume of market capital of our country is only 34.8% of

GDP, in Pakistan it is 36.2% and in Sri Lanka 32.01%. Among last fifteen years three years market capital position is

presented below:

Year Dhaka Stock Exchange

Chittagong Stock Exchange

Total BDT in Crore

2001-2002 7,126 6,047 13,173

2008-2009 124,134 97,495 221,629

2016-2017 373,930 306,414 680,344

EMPLOYMENT

Particular 2005-06 2010 2013 2016

Total workforce (in millions)

49.5 56.7 59.6 63.5

Employment workforce (in millions)

47.4 54.1 57.0 60.8

Unemployment (in millions)

2.1 2.6 2.57 2.68

% of unemployment 4.24% 4.59% 4.31% 4.22%

HEALTH AND EDUCATION

As one of the parameters of economic development it may be mentioned that life expectancy has increased to 72 years in the year 2017 which is equivalent to world average. As regards to literacy rate it is mentionable that despite having some questions about quality of education present literacy rate has reached 73% from 56.5% of the year 2009. Major improvement in education sector as taken place is reduction of no passing number of school and college and rate of drop out. In the year 2007 dropout rate was 50.5 % in the year 2016 such rate has come down to 19.2%. Due to development in health and education the country has moved up three steps and ranked 139th out of 188 countries in global human development index-2016. As per Human Development Report (HDR)-2015, the countries position was 142nd.

POVERTY ALLEVIATION

During the year 2005 a substantial part i.e more than 40% of people of the country lived below the poverty level.

We will have to admit that in recent past various steps, projects and activities have been taken by the government to reduce the poverty. Continued increasing the budget allocation for social safety (in amount), reduction of fertilizer price, reopening 12,203 community clinics reducing gap of direct and indirect tax, controlling inflation etc are the remarkable steps to reduce the poverty level of the country.

POVERTY ALLEVIATION

As per economic census report as published by the

Bangladesh Statistical Bureau in the year 2013 there

remain 56 lakh economic entities in the rural area which

are 71% of the total economic entities of the country. In

those economic entities total 2 crore 45 lacks people are

working as against 1 crore 12 lakh and 70 thousand in

the year 2003. In the year 2003 the amount of people

engaged in the rural economy was 21.52% which has

increased to 40.36% in the year 2013.

POVERTY ALLEVIATION

According to the Global Gender Gap Report -2017’ as publication by the world economic forum economic opportunity and scope of participation in the economic activity of the women in Bangladesh has improved. Out of 14 index Bangladesh has scored 1 in 4 index. In addition to this it is also mentionable that according to the purchasing power capacity a woman employee/ worker earns Tk. 192,699 as against India Tk. 176,904 and Pakistan Tk. 121,338.

As a result of taking various important steps for poverty alleviation during the year 2017 the rate of the poor has come down to 22 percent from 31.5 percent in the year 2010 and rate of the hard core poor has come down to 11.9 percent from 17.6 percent.

ECONOMIC INEQUALITY

From above analysis it may be undoubtedly opined

that the economy of the country is developing. But

the major challenge is raising economic inequality

through the distribution of income, consumption,

wealth or assets. The income inequality is really a

considerable concern in Bangladesh.

ECONOMIC INEQUALITY

ECONOMIC INEQUALITY

The value of Gini coefficient varies between 0 meaning

perfect equality (where everyone in the society has

exactly the same amount of income or asset) and 1

(implying perfect inequality (where a single individual

possesses all the income or assets and everyone else

nothing).

ECONOMIC INEQUALITY

Income share (Percent) for the year 1973-74 in five

quintile were as follows:

Quintile Percent

First (bottom) 7.00

Second 11.30

Third 15.10

Fourth 22.20

Fifth (top) 44.40

Total 100.00

The value of Gini concentration index 1973-74 was 0.36.

ECONOMIC INEQUALITY

During last four decades’ income inequality was widen due to various reason. Out of various reasons remarkable are high level of corruption, abnormal rate of default loan, abnormal rate of inflation, abnormal gap between direct and indirect tax, In certain causes lack of proper use of public fund, low rate of wages and not getting fair price of agricultural products.

ECONOMIC INEQUALITY

Due to corruption income inequality takes place in different ways and means. Firstly, value addition incase of construction contracts is distorted. If the contract awarded following corrupt practice in one hand high income level people get huge money which is not supposed to get, on the other hand low income level people, especially labour, get less wages. Secondly, due to corrupt practice amount of collection of tax reduces, which creates hindrance to be spent by the government for the poor people. Thirdly, corrupt practice reduces the longevity of the product due to use of less quality material, which reduces the income of the poor people (for example, if the embankment are not constructed by quality materials, it is divested by flood and occurs damage of crops of poor people).

ECONOMIC INEQUALITY

Other reason of increasing inequality is abnormal amount of default loan. As earlier mentioned the amount of default loan is increasing day by day and on September 2017 total default loan including write off amount arrived at Tk. 125,834 crore. Benefit of this default loan are enjoyed by the high income level people.

High rate of inflation is another reason of economic inequality. Due to high rate of inflation people of lower level suffer heavily. During inflation normally value of consumable goods increases at higher rate than the increasing rate of wages. For example if we look at the increasing trend of income and expenditure of the period 2005 to 2010, it may be observed that income has increased by 59% but at the same time expenditure has increased by 82% because of increasing the prices of consumable goods.

Comparative low remuneration is another reason of increasing inequality.

Lack of proper utilization of budget allocation is also reason of widening economic inequality.

ECONOMIC INEQUALITY

Income share (Percent) for the year 2010 in five quintile were as follows

Quintile Percent

First (bottom) 5.22

Second 9.10

Third 13.33

Fourth 20.56

Fifth (top) 51.79

Total 100.00

The value of Gini concentration index increased from 0.36 in 1973-74 to 0.46 in 2010 at the national level.

ECONOMIC INEQUALITY

According to the report relating to corruption published by Transparency International, Bangladesh had scored 1st for consecutive couple of years ending 2005 which indicates high level of corruption prevailing in the country. However, due to taking some steps like digitalization, giving independency and power to the Anti Corruption Commission for combating corruption some improvements have taken place and as per corruption related report of 2017 of transparency international the score of Bangladesh was 17th.

Area Year 2007-08 Year 2016-17

Budget allocation for social safety net 11,467 Crore 54,206 Crore

Gap of direct and indirect tax 24:76 35:65

Inflation 9.9% 5.4%

ECONOMIC INEQUALITY

Income share (Percent) for the year 2015 in five quintile were as follows:

Quintile Percent

First (bottom) 8.90

Second 12.50

Third 16.00

Fourth 21.20

Fifth (top) 41.40

Total 100.00

The value of Gini concentration index decreased from 0.46 in 2010 to 0.32 (estimated) in the year 2015.

ONGOING REMARKABLE PROJECTS

The Padma Multipurpose Bridge an estimate of multiplier effects from the investment on the bridge shows that the bridge would increase the GDP growth by 1.2 percent and regional GDP in the southwest zone by 3.5 percent.

Metro rail, one of the much needed projects (MRT line –6)

Rooppor Nuclear Power Plant is another ongoing project which will be able to generate 2400 MW electricity. The power will enhance the productivity of agriculture and Ready Made Garments which will be the source of generating foreign currency.

Matarbari 1200 MW Power plant in coastal Cox’bazar project has begun the construction work. The estimate cost of building the plant on 1,414 acres is around Tk. 360 billion.

Payra seaport, the third seaport of Bangladesh located in Patuakhali The uniqueness of the seaport is that the foreign ship will be able to come here directly as it is located centrally. It will certainly create scope to earn handsome amount from that.

PROFESSIONAL ACCOUNTANTS FOR ECONOMIC DEVELOPMENT

The contribution of professional accountants for industry sector (high priority sector) as well as various other subsectors such as business, trade, bank, insurance etc is remarkable. Through implementation of efficient record –keeping strategies, it provides useful information to act proactively so as to make good decisions. A good accountant looks for means to reduce overheads which ensure maximum profits of the business. As board directors, professional accountants in business represent the interest of the owners of the entity. As internal auditors, professional accountants provide independent assurance to management that the organizations risk management, governance and internal control process are being operated effectively. Professional Accountants are the main consultants of SMEs. The institute of professional Accountant regulatory advises the government on various matters of taxation with its recommendations, and this ensures robust taxation frame work.

RECOMMENDATIONS

For increasing the share of direct tax new tax payers need to be identified. It is pertinent to mention the ownership of bank balance of taka one crore and above has increased 11 times in the year 2014 compared with that of for the year 2003 but direct tax has increased nine times. This information reveals the scope to increase the number of Tax payers.

Special attention need to be given for earnings from external sources like, export, Foreign Direct Investment, Foreign Remittance through improving the work environment of doing business.

Despite having improvement still there are lot of limitations in health sector. According to World Health Organization’s report 52 lacs peoples are going under poverty level to meet up the health service expenses. Two crore 60 lacs peoples are suffering from shortage of nutrition. So, sufficient amount of budget may be allocated for health sector for providing maximum health service to the rural poor and hard core poor people