Assignment

Balance of Payment:
An overview of last 20 years performance of Bangladesh

Date of Submission: 16th April, 2012.

 - An overview of last 20 years performance of Bangladesh
An Assignment of International Trade & Finance

Course Code: FIN -3207

Submitted To:
Saud Ahmed
Lecturer
Department of Finance
Jagannath University, Dhaka.

Submitted By:
Md. Mazharul Islam.
Group Representative of Finance Interface
ID No: 091541
B.B.A, 3rd Batch (3rd Year, 2nd Semester)
Session: 2008-2009
Department of Finance
Jagannath University, Dhaka.

Date of Submission: 16th April, 2011.

 Group Members of Finance Interface

Sl. No. Name Roll No. Total Marks

01. Md. Mazharul Islam. 091541
02. Khadizatuz Zohara. 091526
03. Rebeca Yasmin 091593
04. Md. Mukhlesur Rahman. 091587
05. Mehnaz Rubayat 091584
06. Sabekun Nahar Shirin 07882734
 Balance of Payment 1991-2011

Acknowledgement

At the starting of our report, we would like to thank the Almighty Allah for blessing
us with the strength, aptitude and patience for successfully completing our
assignment.

We would like to thank our course teacher of International Trade and Finance, Saud
Ahmed for giving us this assignment as a result of which we have got the opportunity
to know many more about Balance of Payment of Bangladesh, its different
components, its history of trends and so on which has widened our knowledge. We
have tried our best to implement his suggestions while doing this assignment.

We would also like to thank some of the personals of Bangladesh Bank who have
helped us through providing 10 years information regarding Balance of Payment of
Bangladesh. Our sincere gratitude goes to them for giving us time from their busy
schedule, providing us with information that was required to complete this
assignment.

Finally our sincere thanks goes to each and everyone who has helped and supported us
significantly in different stages during the completion period of this assignment.

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 Balance of Payment 1991-2011

Executive Summary

The Balance of Payments is the summary statement or statistical record of a countrys

international economic transactions with the rest of the world over a certain period of
time presented in the form of double-entry bookkeeping. It provides an overview of a
countrys international transactions.
For Balance of Payments Bangladesh Bank follows 5th edition of the classificatory
scheme of the IMF's Balance of Payments Manual (BPM5). It has been being
followed since 1997-98. Before that 4th edition of the classificatory scheme of the
IMF's Balance of Payments Manual (BPM4) was followed.

The Balance of Payments statements as included in the publications of Bangladesh

Bank have been compiled in respect of transactions with four countries: the United
Kingdom, the U.S.A., Canada and Japan and several country groups viz. European
Union, Other European Countries, Organization of Islamic Conference, Association of
South-East Asian Nations, Other Asian Countries and Rest of the World.

The main source documents for compilation of the balance of payments of Bangladesh
are the records of the Authorized Dealers, supplemented by information obtained from
the Bangladesh Bank and Economic Relations Division (ERD) of the Ministry of
Finance.

In Bangladesh Balance of Payments are recorded under two main heads: current
account and capital & financial account. As per the basic conventions in accounting,
balance of payments transactions are recorded in the form of double-entry book
keeping, with each credit-entry exactly balanced by an offsetting debit-entry and vice
versa. A credit-entry records the provision of real resources denoting exports of goods
and services and a decrease in holding of foreign financial assets or an increase in
foreign financial liabilities. Conversely, a debit-entry records the provision of real
resources denoting imports of goods and services and an increase in holding of foreign
financial assets or a decrease in foreign financial liabilities. Unrequited transfers and
counter-parts are shown as credits when the entries to which they provide the offsets

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 Balance of Payment 1991-2011

are debits and as debits when those entries are credits. The net positions are arrived at
by deducting debits from credits. Thus for assets, whether real or financial, a positive
(credit) figure represents a decrease in holdings while a negative (debit) figure
represents an increase. In contrast, for liabilities, a positive figure shows an increase
and a negative figure a decrease. The overall Balance of Payments are determined
through adding all the net balances of all accounts.
From 1991 to 1997 in calculating current account of Balance of Payments trade
balances, services balances and unrequited transfer balances are considered and after
1997 in calculating current account of Balance of Payments along with trade balances
and services balances, income balances and current transfers balances are also
considered. Previously only capital account are considered but now along with capital
account, financial account are also considered. From 1991 to 2011 there occurs many
changes, up and down in different accounts. Some of which have considered as good
for our country and some of which are not. In this report we have tried our best to
present the changes and the impacts of them.

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 Balance of Payment 1991-2011

Letter of Transmittal
16th April, 2012

Saud Ahmed
Lecturer
Department of Finance
Jagannath University, Dhaka.

Subject: Submission of Assignment on Balance of Payment of Bangladesh.

Dear Sir,

We have completed this assignment as part of our course International Trade and
Finance (FIN 3207). The assignment has been compiled as per your requirements. It
gives us immense pleasure to tell you that working on this assignment has given us a
wide range of exposure.

The assignment is based on the knowledge, experiences and the skills that we have
acquired studying the course, International Trade and Finance.

We are thus submitting this assignment with the hope that it lives up to your
satisfaction. However we would be glad if you enlighten us with your thoughts and
views regarding the assignment. In addition, if you wish to enquire about any of the
aspects of the assignment, we would be glad to answer your queries.

Thank for your cooperation.

Sincerely

.
Md. Mazharul Islam
ID: 091541
Department of Finance
Jagannath University, Dhaka.

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 Balance of Payment 1991-2011

Table of Contents
Name Page No
Acknowledgement i
Executive Summary ii
Introduction 2
Objectives 2
Part - I
Methodology 3
Limitation 3
Overview of Balance of Payment 4
Balance of Payment 4
Components of balance of payment 4
A Comparative Difference Between BPM 4 and BPM 5 5
Current Account 5
Goods Account 5
Services Account 6
Income 9
Current Transfers 10
Recent Current Account of Bangladesh 11
Imports of goods and services 11
Part - II Major Import Items of Bangladesh 12
Recent Imports of Bangladesh 12
Exports of goods and services 12
Major Export Items of Bangladesh 12
Recent Exports of Bangladesh 13
Bangladesh Balance of Trade 13
Capital and Financial Account 14
Capital Account 14
Financial account 14
Recent Capital Account of Bangladesh 15
Incentives and Facilities for Investors 16
Other Incentives 16
Conclusion 18
Appendix 19
Tables
Table 1: A Comparative Difference Between BPM4 5
and BPM 5
Table 2: Balance of Payment Tables 20
Graph
Part-III Graph 1: Balance of Trade 8
Graph 2: Balance of Services Account 10
Graph 3: Unilateral/Current Transfer Account 11
Graph 4: Current Account 13
Graph 5: Capital Account 15
Graph 6: Balance of Payments 17
Graph 7: Foreign Exchange Reserve Account 19
Graph 8: Exchange Rate 19
Bibliography 21

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 Balance of Payment 1991-2011

Introduction
This is an assignment which we have prepared to fulfill the requirement of the course
International Trade and Finance(FIN-3207). This following assignment has been
assigned to us by our course teacher of International Trade and Finance, Saud Ahmed.
This assignment reflects about our depth understanding about the Balance of Payment.

Balance of payment of any country is a systematic record of all economic transactions

between the residents of that country and of the residents of the rest of the world in an
accounting period. The balance of payment transactions include all the receipts of and
payments by a country during a given year.

The Bangladesh Bank follows a classificatory scheme for BOP presentation as per the
5th edition of the IMF's Balance of Payments Manual (BPM5). The Balance of
Payments is a statistical statement for a given period showing Transactions in goods,
services and income between an economy and the rest of the world; Changes in the
economy's monetary gold, special drawing rights (SDRs) and other financial claims
on and liabilities to the rest of the world; Transfers and counterpart entries that are
needed to balance, in an accounting sense, any entry for the foregoing transactions and
changes which are not mutually offsetting.

Objectives
The main objectives of this assignment are:
To gather knowledge broadly about Balance of Payment.
To know the trends of Balance of Payment of Bangladesh.
To know about the real accounting method and format used to calculate the
Balance of Payment in Bangladesh which however cannot be understood
properly by reading books and studying in classrooms.
To gain an in-depth knowledge about how different accounts are recorded,
calculated and what are their impact in the overall Balance of Payment.
To gain knowledge practically through analysis of the year to year up and
down of the Balance of Payment.

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 Balance of Payment 1991-2011

Methodology

This assignment has been completed by taking information from primary and
secondary sources. We have completed our assignment by taking information from
different journals from Bangladesh Bank regarding Balance of Payment of
Bangladesh. We have also taken information from different websites.

Limitation
While preparing this assignment, we faced some limitations in terms of having poor
knowledge regarding different elements and steps of Balance of Payment. Although
we had this limitation, however we have tried our level best to fulfill the objectives of
this assignment properly.

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 Balance of Payment 1991-2011

Overview of Balance of Payment

Balance of Payment
Balance of payment is a record of all transactions made between on particular country
and all other countries during a specified period of time. BOP compares the dollar
difference of the amount of exports and imports including all financial exports and
imports. BOP may be used as an indicator of economic and political stability. A
negative balance of payment means that more money is flowing out in the country
than coming in and vice-versa.

Components of balance of payment:

Balance of payment is generally grouped under the following heads,
Current Account
Capital Account
Unilateral or Current Transfer Account
Official Settlement Account

In the Bangladesh Balance of Payments statements are grouped under two major
categories as given below,

Current Account and

Capital and Financial Account.

The Bangladesh Bank has been following a new classificatory scheme for BOP
presentation as per the 5th edition of the IMF's Balance of Payments Manual (BPM5)
since 1997-98. Before that they followed the classificatory scheme for BOP
presentation as per the 4th edition of the IMF's Balance of Payments Manual (BPM4).
A brief Discussion about a comparative difference between two manual and
discussion about two heads of balance of payments and is given in the next pages
respectively,

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 Balance of Payment 1991-2011

A Comparative Difference Between BPM 4 and BPM 5

Balance of Payment Manual 4 of IMF Balance of Payment Manual 5 of IMF
Items Items
Current Account Balance Current Account Balance
1. Trade Balance 1. Trade Balance
1.1 Export (f.o.b.) 1.1 Export (f.o.b.)
1.2 Import (f.o.b.) 1.2 Import (f.o.b.)

2. Services 2. Services
2.1 Receipts 2.1 Receipts
2.2 Payments 2.2 Payments

3. Income
3.1 Receipts
3.2 Payments

3. Unrequited Transfers (net) 4. Current Transfers

Capital Account (net) Capital and Financial Account

1. Long-term Capital (net) 5. Capital Transfers
2. Short-term Capital (net) 6. Direct Investment
7. Portfolio Investment
8. Other Investments
9. Reserve Assets

Net Errors & Omissions Net Errors & Omissions

1) Current Account

Current Account is the sum of the (A) Goods and Services, (B) Income and (C)
Current Transfers.

A)Goods and Services

a) Goods
Recording of goods implies provision or acquisition of real resources of an economy
to and from the rest of the world. The credit entries of the flows measure the domestic
real resources provided to, while the debit entries stand for acquisition of real
resources from the rest of the world. Exports of goods are credited and imports of
goods are debited in the goods account and the net goods accounts are calculated by
subtracting the amount of imports from the amount of exports. In equation,

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 Balance of Payment 1991-2011

Net goods account= Value of goods exported - Value of goods imported

Goods covers general merchandise, goods for processing, repairs on goods, goods
procured in ports by carriers and non monetary gold.

General Merchandise: The credit entries cover mainly merchandise exports

on f.o.b. basis and are derived from customs records provided by Export
Promotion Bureau (EPB). The debit entries, derived from exchange records,
mainly represent merchandise imports and are reported on c.i.f. basis. To arrive
at a uniform valuation with export, transportation and insurance services at an
estimated rate of 10 percent are deducted from c.i.f. import data.

Goods for processing: Transactions in goods are recorded under this item
when goods imported for processing are re-exported to the country from which
those goods were originally imported and vice-versa.

Repairs on goods: It includes the value of repairs with the provision of

materials for major refits of ships, aircraft and other carriers. As per
recommendations of IMF Mission 2009, repairs on goods have been included
in transportation.

Goods procured in ports by carriers: The item refers to those goods, such as
fuels, provisions, stores and supplies for carriers usually purchased for
commercial use in ships, aircraft and other carriers.

Non monetary gold: This represents gold that is held as a store of value which
is not recognized as part of reserves in the financial account.

b) Services
Recording of services implies provision or acquisition of services of an economy to
and from the rest of the world. The credit entries measure the services provided to,
and the debit entries measure the acquisition of services from the rest of the world.
Exports of services are credited and imports of services are debited in the services
account and the net services accounts are calculated by subtracting the amount of
imports from the amount of exports. In equation,
Net services account= Value of services exported - Value of services imported
Different types of service accounts are discussed here.

Transportation: Transportation covers all transportation ( Sea, Air, Rail, Road

and Others ) services that are performed by residents for those of non-residents
and vice-versa and involved with carriage of passengers, movement of goods
(freight), charter of carriers with crew and other related supporting and
auxiliary services. Activities like freight insurance, goods procured in ports by
carriers are excluded from transportation but repairs of transportation
equipment are included in this item.

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 Balance of Payment 1991-2011

Travel: Travel represents receipts and payments under tourism and other travel
for such purposes as business and personal. Business travelers are usually
commercial travelers, government employees on official travel and employees
of international organizations on official missions. Personal travel covers
travelers going abroad for religious, educational, health purposes, visits to
relatives and friends, participation in sports etc.

Communication Services: Communication services cover receipts and

payments on account of telephone, telegraph, facsimile and telex including
broadcasting and electronic mail services, postal and courier services.

Construction services: Construction services covers receipts for work abroad

on construction projects and installation by personnel of resident enterprises
and payments on account of salary and allowances paid to the personnel of
non-resident enterprises engaged in construction project in Bangladesh.

Insurance services: Credit entries cover net premium on direct insurance and
reinsurance assumed by resident insurance companies. Debit entries cover
premium on merchandise insurance on imports, which are not available
separately but are included in freight. An estimated 10 percent of import
freights is treated as insurance.

Financial Services: Receipts by banks operating in Bangladesh from their

offices and correspondents abroad and payments by banks to their branches and
correspondents abroad on account of commission, cable charges including fees
associated with letter of credit, bankers acceptances, lines of credit, financial
leasing and other fees etc. are included under financial services.

Computer and Information Services: It covers receipts and payments on

account of computer and news related services including data processing,
hardware consultancy, software implementation, export of computer software,
maintenance and repairs of computers and news agency services.

Royalties and License Fees: The item covers receipts and payments associated
with the authorized use of intangible no produced non-financial assets and
proprietary rights, such as patents, copy rights, trademarks, industrial processes
etc. and the use through licensing agreement of produced originals or photo
types such as manuscripts and films.

Other Business Services: Receipts and payments on account of merchanting

and other trade related services, operational leasing and miscellaneous
business, professional and technical services are covered under this head.

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 Balance of Payment 1991-2011

Entertainment, Cultural and Recreational Services: It covers receipts and

payments on account of audio visual and related services and other cultural and
recreational services.

Govt. Services n.i.e.: Under this residual item the primary credit entries are
service expenditures of foreign diplomatic missions and international
organizations in Bangladesh and the primary debit entries are the expenditures
relating to Bangladesh diplomatic personnel, diplomatic and trade mission, and
military expenditures abroad.

Balance of Trade
2000000
1500000 1641592

1000000
340377
500000 72627
Million in US $

0
-101685
-500000 -118919 -521819
-442062
-1000000
-1500000
-2000000
-2163411
-2500000

Trade Balance(2) Export Import

Graph 1: Balance of Trade

From above graph we can see the red line is for export, green line is for import and
the blue line is for trade balance. Here it is seen that in 1991-1992, the trade balance
is close to the horizontal line where the trade deficit is 46,292 million US Dollar only
whereas 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.

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 Balance of Payment 1991-2011

B) Income
The Income component of the Balance of Payments is restricted to income earned
from the provision of two factors of production viz, labor and capital. Accordingly
income earned from the labor is called compensation of employees while income
earned from the capital is called investment income. Income paid to Bangladeshis
from overseas sources are credited in the income account and income paid by
Bangladeshis to overseas sources are debited in the income account. In equation,
Net Income Account= Income Credits - Income Debits

Compensation of employees: Wages, salaries and other benefits received by

short term workers (less than one year) from non-resident employers and that
of local staff of embassies, consulates and international organizations are
treated as credit entries while the reverse are debit entries under this head.

Investment income

Direct investment
The credit entry covers profit receipts on equity participation and interest
receipts on debt by Bangladeshi direct investors from abroad and debit entry
records the profit and interest paid to the foreign direct investors by the
reporting economy. Data on direct investment income are derived from
banking records. Data on reinvested earnings are collected through enterprise
survey.

Portfolio investment
The credit entry covers dividend accrued on equity securities (shares) and
interest received from holding of foreign bonds, notes, and money market
instruments and associated financial derivatives, and the debit entry includes
the payments on account of the same instruments to the foreign investors. Data
on portfolio investment income are collected from the exchange records
provided by authorized dealers.

Other Investment
The credit entry under this head includes mainly interest and discount received
by Bangladesh Bank from investment account and treasury bills and receipts of
interest/discount on all other resident claims on non-resident other than direct
and portfolio investment. The debit entry represents mainly interest payments
of Medium & Long-term Loan (MLT) and other short-term loans, payments of
IMF charges and payments of interest/discount on all other liabilities to
nonresident other than direct and portfolio investment.

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 Balance of Payment 1991-2011

Service Account
300000
182929
200000
100000 21537 40955
Million in US $

0
-49319
-100000 -35550
-90274 -172077
-200000
-300000
-400000 -355006

Services Receipt Payment Linear (Services )

Graph 2: Balance of Services Account

From above graph we can see the red line is for receipt, green line is for payment, the
blue line is for services and black line is linear line. Here it is seen that in 1991-1992,
the service account is close to the horizontal line where the service account deficit is
14,013 million US Dollar only whereas in 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 172,077 million
US Dollar. The overall balance of service account is showing a negative balance.

C) Current Transfers
Official grants in food and commodity for immediate consumption and technical
assistance are included in the current transfers. It also includes workers' remittances,
other gifts and donations etc. Transfer of funds into Bangladesh are credited and the
transfer of funds out of Bangladesh are debited. In equation,
Net Current Transfer = Credits - Debits

General government: The credit entries for current transfers of the general
government (i.e. government official sectors) include grants in the form of food
and commodity and technical assistance received from donor countries and
international organizations. Debit entries represent payments on the same
accounts.

Other sectors: Credit entries of other current transfer mainly cover workers'
remittances and donations provided by foreign private organizations. Payments
on the same accounts constitute debit entries.

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 Balance of Payment 1991-2011

Unilateral Transfers/Unrequited Transfers

900000
800000
700000
Million in US $

600000
500000
400000
300000
200000
100000
0

Unrequited Transfers (net) Workers remittance

Expon. (Unrequited Transfers (net) )

Graph 3: Unilateral/Current Transfer Account

From 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.

Recent Current Account of Bangladesh

Bangladesh reported a current account surplus equivalent to 264 Million USD in the
fourth quarter of 2011. This page includes a chart with historical data for Bangladesh's
Current Account. Current Account is the sum of the balance of trade (exports minus
imports of goods and services), net factor income (such as interest and dividends) and
net transfer payments (such as foreign aid). The balance of trade is typically the most
important part of the current account.

Imports of goods and services

Import goods or services are provided to domestic consumers by foreign producers.

An import in the receiving country is an export to the sending country. Import of
goods normally requires involvement of the Customs authorities in both the country of
import and the country of export and are often subject to import quotas, tariffs and
trade agreements. when the "imports" are the set of goods and services imported,
"Imports" also means the economic value of all goods and services that are imported.

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 Balance of Payment 1991-2011

Major Import Items of Bangladesh

The economy of Bangladesh depends on imports both for consumer items and
industrial raw materials. The major import items of Bangladesh are: Wheat, oil, seeds,
crude petroleum, raw cotton, edible oil, petroleum products, fertilizer, staple fibers,
yarn, iron and steel, capital goods. Major trading partners of Bangladesh for both
exports and imports are: USA, EU countries, India, China, Japan, South Korea,
Australia, Malaysia, Hong Kong, Taiwan, Indonesia, Thailand, Saudi Arabia, UAE.
Bangladesh is the member of many International economic and trade blocks like, OIC,
ICC, ISO, SAARC, G-77 and BIMST-EC.

Recent Imports of Bangladesh

Bangladesh Imports were worth 3346 Million USD in January of 2012. Bangladesh
imports mostly petroleum product and oil, machinery and parts, soybean and palm oil,
raw cotton, iron and steel and wheat. Bangladesh main imports partners are China
(17% of total), India, Indonesia, Singapore and Japan.

Bangladesh reported a trade deficit equivalent to 1196 Million USD in January of

2012. Bangladesh exports mainly readymade garments including knit wear and
hosiery (75% of exports revenue). Others include: Shrimps, jute goods (including
Carpet), leather goods and tea. Bangladesh main exports partners are United States
(23% of total), Germany, United Kingdom, France, Japan and India. Bangladesh
imports mostly petroleum product and oil, machinery and parts, soya bean and palm
oil, raw cotton, iron and steel and wheat. Bangladesh main imports partners are China
(17% of total), India, Indonesia, Singapore and Japan.

Exports of goods and services

Exports of goods and services represent the value of all goods and other market
services provided to the rest of the world. They include the value of merchandise,
freight, insurance, transport, travel, royalties, license fees, and other services, such as
communication, construction, financial, information, business, personal, and
government services. They exclude compensation of employees and investment
income (formerly called factor services) and transfer payments.

Major Export Items of Bangladesh

The traditional export items of Bangladesh are: raw jute, jute manufactures (Hessian
sacking, carpet backing, carpets), jute products, tea, leather and leather products.
Non- traditional export items are: garments, frozen shrimps, other fish products,
newsprint, paper, naphtha, furnace oil, urea and ceramic products.

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 Balance of Payment 1991-2011

Recent Exports of Bangladesh

According to a World Bank report released in 2011The Exports of goods and services
(US dollar) in Bangladesh was last reported at 18471882566.67 in 2010. Exports of
goods and services represent the value of all goods and other market services provided
to the rest of the world. They include the value of merchandise, freight, insurance,
transport, travel, royalties, license fees, and other services, such as communication,
construction, financial, information, business, personal, and government services.
They exclude compensation of employees and investment income and transfer
payments. Bangladesh is considered as a developing economy which has recorded
GDP growth above 5% during the last few years.

Bangladesh Balance of Trade

Bangladesh reported a trade deficit equivalent to 1196 Million USD in January of
2012. Bangladesh exports mainly readymade garments including knit wear and
hosiery (75% of exports revenue). Others include: Shrimps, jute goods (including
Carpet), leather goods and tea. Bangladesh main exports partners are United States
(23% of total), Germany, United Kingdom, France, Japan and India. Bangladesh
imports mostly petroleum product and oil, machinery and parts, soybean and palm oil,
raw cotton, iron and steel and wheat. Bangladesh main imports partners are China
(17% of total), India, Indonesia, Singapore and Japan.

Balance on current account = Balance on goods and services + Net income +Net transfer

Current Account Balance

250000
229561
200000
150000
Million in US $

100000
50000
62254
0
8107
-50000
-59573
-100000

Current Account Balance

Graph 4: Current Account

From the above graph it is seen that in 1991-92 the current account line is very close
to the horizontal line and in 2000-01 the balance of current account was lowest but in
2009-10 it has reached to its highest position and the amount is 229,561 million US
Dollar. At present the current account balance of Bangladesh is showing a positive
sign.

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 Balance of Payment 1991-2011

2) Capital and Financial Account:

Capital Account is the sum of the (A) Capital Account and (B) Financial Account

A) Capital Account
Money coming to Bangladesh are credited and the money coming out of Bangladesh
are debited in the capital account. In equation,
Balance of capital account = Capital transfer credited Capital transfer
debited

Capital transfer: Capital transfer consists of transfer of ownership of fixed

assets or forgiveness of financial liabilities between residents and non-residents
without quid pro quo. It includes mainly official project grants (excluding
technical assistance) data for which are collected from the ERD.

B) Financial Account
Financial account records all transactions associated with changes of ownership in
foreign financial assets and liabilities.
Balance of Financial Account = Direct investment + Portfolio investment + Other
Investment + Reserve Assets

Direct investment: This item covers remittances received from foreign direct
investors in their enterprises in the reporting economy and remittances made
abroad by Bangladeshi direct investors for equity participation. The data on
foreign direct investment (FDI) transactions are collected through enterprise
surveys.

Portfolio investment: Portfolio investment covers remittances received from

(credit) and paid to (debit) on account of equity securities (share) and debt
securities in the form of bonds and notes, money market instrument and
financial derivatives. Information on portfolio investment are collected through
banks. Steps have also been taken to collect additional information through
enterprise surveys.

Other Investment: Other investment includes all financial transactions that are
not covered in the categories for direct investment, portfolio investment or
reserve assets. Under other investment, the instrument classified under assets
and liabilities, comprises trade credits, loans (including use of Fund credit and
other loans from the Fund), currency and deposits and other assets and
liabilities.

Reserve Assets: Data on international reserves comprise monetary gold, SDR,

reserve position in the Fund and foreign exchange which are collected from the

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 Balance of Payment 1991-2011

internal records of the Bangladesh Bank and IMF. Transactions of gold, SDR
and foreign exchange of Bangladesh Bank, transactions in the reserve position
in the IMF are reflected in the reserve assets.

Balance of Capital and Financial Account = Balance of capital account + Balance of Financial account

Capital Account / Capital & Financial

Account
100000
74829
50000 17669
-6243
0
-50000
-100000
-150000
-200000 -176301

Capital Account / Capital & Financial Account

Graph 5: Capital Account

In the graph we can see that in 1991-92 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.

Recent Capital Account of Bangladesh

The Net capital account (Bop; US dollar) in Bangladesh was last reported at
470949802.86 in 2010, according to a World Bank report released in 2011. The Net
capital account (Bop; US dollar) in Bangladesh was 474938510.33 in 2009, according
to a World Bank report, published in 2010. The Net capital account (Bop; US dollar)
in Bangladesh was reported at 490457363.36 in 2008, according to the World Bank.
Net capital account includes government debt forgiveness, investment grants in cash
or in kind by a government entity, and taxes on capital transfers. Also included are
migrants' capital transfers and debt forgiveness and investment grants by
nongovernmental entities. Data are in current U.S. dollars. This page includes a
historical data chart, news and forecast for Net capital account (Bop; US dollar) in
Bangladesh. Bangladesh is considered as a developing economy which has recorded

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GDP growth above 5% during the last few years. Microcredit has been a major driver
of economic development in Bangladesh and although three fifths of Bangladeshis are
employed in the agriculture sector, three quarters of exports revenues come from
garment industry.

Incentives and Facilities for the Investors

To attract foreign direct investment, the Government of Bangladesh has offered

most liberal package of investment facilities and incentives, which are:

Tax holiday, Accelerated depreciation, Concessionary duty on imported

capital machinery, Rationalization of is import duty Incentives to Non-Resident
Bangladeshis
(NRBs), etc.

Other incentives:
Tax exemption on royalties, technical know-how fees received by any
foreign collaborator, firm, company and expert.

Tax exemption on the interest on Foreign loans under certain conditions.

Avoidance of double taxation in case of foreign investors on the basis of

bilateral agreements.

Exemption of income tax up to 3 years for the foreign technicians employed in

industries specified in the relevant schedule of income tax ordinance.

Tax exemption on income of the private sector power generation company for
15 years from the date of commercial production.
Facilities for full repatriation of invested capital, profit & dividend

6 months multiple entry visa for the prospective new investors.

Re-investment of repatriable dividend treated as new investment.

Citizenship by investing a minimum of US$5,00,000 or by transferring

US$10,00,000 to any recognized financial institution (non-repatriable).

Permanent resident ship by investing a minimum of US$ 75,000 (non-

repatriable)
Tax exemption on capital gains from the transfer of shares of public limited
companies listed with a stock exchange.

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 Balance of Payment 1991-2011

Special facilities and venture capital support will be provided to

export-oriented industries under Thrust sectors.

There will be no discrimination in case of duties and taxes for the same type of
industries set up by foreign and local investors and in the public and
private sectors. Special incentives and facilities will be provided for making
investment in 100 per cent export- oriented industries.

Balance of Payments = Balance of (Current account + Capital and Financial account)

Balance of Payment
250000
200000
150000
Million in US $

100000
50000
0
-50000
-100000
-150000
-200000

2009-2010
1991-1992
1992-1993
1993-1994
1994-1995
1995-1996
1996-1997
1997-1998
1998-1999
1999-2000
2000-2001
2001-2002
2002-2003
2003-2004
2004-2005
2005-2006
2006-2007
2007-2008
2008-2009

Current Account Balance 2010-2011

Capital Account / Capital & Financial Account
Overall balance
Linear (Overall balance)

Graph 6: Balance of Payments

In the above graph, blue line is for current account balance, red line is for capital and
financial account, black line is linear line and the green line is for overall balance of
payment. According to the all other graph we discussed previously, we can
understand the overall balance of payments easily. In 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. 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.

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 Balance of Payment 1991-2011

Conclusion

Last but not the least, Errors and Omissions are also considered in Balance of
Payments. In Bangladesh errors and omissions are the difference between the current
account and capital & financial account. If we will success to minimize the errors and
omissions account then the overall balance will be increased. New items such as
handicraft and cottage goods should be implemented to export. It will be a good
source of foreign revenue. Bangladesh have also an opportunity to implement the
beach of Coxs Bazaar to catch the eye of foreigners, it will also a good source of
revenue. At Present Bangladesh have to provide necessary incentives to the FDI that
will increase the capital account and thus overall balance. Also Bangladesh have to
search new country to export labor. As we know the remittance is the highest source
of Current transfer of Bangladesh which plays an important role in increasing the
overall balance.

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 Balance of Payment 1991-2011

Appendix

Foreign Exchange Reserve

12000 10912

10000
Million in US $

8000
6000
4000
1608 1307
2000
0

Foreign Exchange Reserve

Graph 7: Foreign Exchange Reserve Account

From the above graph it is observed that in 1991-92 the balance of foreign exchange
reserve account was below and in 1993-94 to 1994-95 it increased from its low
position but from 1994-95 to 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.

Exchange rate (Period Average)

80 71.1719
57.4347
60
Axis Title

38.1453
40
20
0
1995-1996
1991-1992
1992-1993
1993-1994
1994-1995

1996-1997
1997-1998
1998-1999
1999-2000
2000-2001
2001-2002
2002-2003
2003-2004
2004-2005
2005-2006
2006-2007
2007-2008
2008-2009
2009-2010
2010-2011

Exchange rate (period Average)

Graph 8: Exchange Rate

From the graph of exchange rate it can be noticed that exchange rate is continuously
increasing from year to year. In 1991-92 the foreign exchange rate was BDT38.15, in
2000-01 it was BDT 57.43 and in 2010-11 it has reached to BDT 71.17 against per US
Dollar.

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Balance of Payment Tables

Year Current Trade Export Import Services Receipt Payment Unrequited Workers Capital Overall Foreign Exchange
Account Balance (2) (2) (3) &(1) (3) (3) Transfers remittance Account / Balance Exchange rate
Balance (2) (net) (4) & (4) Capital & (6) reserve (period
(1) (1) Financial (7) Average)
Account(1) (million (7)
& (5) US $) (Taka/Dol
lar)
1991-1992 8107 -46292 72627 -118919 -14013 21537 -35550 68412 32415 17669 22745 1608 38.1453
1992-1993 7172 -50258 92575 -142833 -16380 24141 -40521 73810 36984 18541 23179 2121 39.1395
1993-1994 11193 -49623 100976 -150599 -17436 26808 -44244 78252 43549 23215 28453 2765 40.0009
1994-1995 -7381 -71632 139285 -210917 -28835 32937 -61772 93086 48144 19983 18280 3070 40.2005
1995-1996 -38850 -93809 158791 -252600 -32987 33003 -65990 87946 49778 -1154 -33209 2039 40.8365
1996-1997 -6361 -83660 188130 -271790 -29793 32381 -62174 107092 63043 -7070 -10782 1719 42.7008
1997-1998 -11729 -73167 234669 -307836 -25897 32140 -58037 91872 69509 15519 -3790 1739 45.4563
1998-1999 -18926 -91617 255464 -347081 -28435 34397 -62832 107656 82056 961 17965 1523 48.0644
1999-2000 -4915 -92214 288696 -380910 -32192 42750 -74942 134668 98136 156 4759 1602 50.3112
2000-2001 -59573 -108853 345996 -454849 -49319 40955 -90274 117145 102661 74829 -15256 1307 53.9592
2001-2002 9220 -101685 340377 -442062 -28661 49644 -78305 162673 143771 23248 -32468 1583 57.4347
2002-2003 1983 -135855 375872 -511727 -40127 51367 -91494 198871 177288 -1360 -623 2470 57.9000
2003-2004 18643 -133130 455347 -588477 -44963 59591 -104554 219906 198470 -10956 -7687 2705 58.9353
2004-2005 -23554 -189838 539614 -729452 -49804 75067 -124871 265507 238439 53472 -29918 2930 61.3939
2005-2006 47901 -194204 699008 -893212 -66499 89780 -156279 358638 321956 -8966 -38935 3484 67.0797
2006-2007 64138 -240292 832051 -1072343 -87297 102352 -189649 452740 412698 -19067 -45071 5077 69.0318
2007-2008 54958 -366552 971101 -1337653 -102564 129103 -231667 583148 542969 -52030 -2928 6149 68.6019
2008-2009 145053 -323845 1071950 -1395795 -114183 122451 -236634 679676 655607 -147566 2513 7471 68.8012
2009-2010 229561 -356379 1123451 -1479830 -102574 154534 -257108 788661 746675 -176301 -53260 10750 69.1848
2010-2011 62254 -521819 1641592 -2163411 -172077 182929 -355006 850603 820188 -6243 -56011 10912 71.1719

*** All the data are expressed In million US ($) Dollar.

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Bibliography

Book:

International Economics by H.G. Mannur, M.A., PH.D (USA),

University f Papua New Guinea, Port Moresby.
International Economics by Dominick Salvatore.

Reference:

Last 20 years Balance of Payment of Bangladesh Bank.

Balance of Payment Manual 4 and Manual 5 of IMF.
Balance of Payment Component Information by Department of
Economics, Cambridge University.
Foreign Direct Investment in Bangladesh: An Empirical
Analysis on its Determinants and Impacts by Quader, Syed
Manzur

Website:

http:// www.bangladesh-bank.org/
http://mpra.ub.uni-muenchen.de/26134/
http://www.nationsencyclopedia.com/Asia-and-
Oceania/Bangladesh-BALANCE-OF-
PAYMENTS.html#b#ixzz1rKmZjtKn

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