Gdp Growth in Bd

Topics: Gross domestic product, Macroeconomics, Monetary policy Pages: 21 (7689 words) Published: March 12, 2013
Economic structure and growth

When the Europeans set up trading posts around the area of Bangladesh, the British dominated the region. As such, Bangladesh was part of British India until the region was split up into India and Pakistan in 1947. Pakistan was comprised of West Pakistan (current Pakistan) and East Bengal (current Bangladesh. This awkward arrangement of a two-part country with its territorial units 1,600 km apart left the Bengalis marginalized and dissatisfied. In 1971, East Bengal separated from Pakistan and was renamed Bangladesh. Ever since, economic development has been very slow, hampered by political turmoil. It is one of the poorest countries in the world with nominal GDP per head of only USD 1,483 and 36% of the population living below the poverty line of USD 1 per day. The low level of human development is also reflected in the UN’s human development index, which ranks Bangladesh 146th out of 182 countries.

Economic development is also hampered by a high vulnerability to inundations. Each year, about a third of the country is flooded during the annual monsoon rains. This severely affects the agricultural sector, washing away crops. While the agricultural sector is not especially important in terms of economic size, since it accounts only for 18% of GDP, it employs 45% of the country’s labor force. The industrial sector contributes 29% to GDP and within this sector the textiles and garment sector is a key growth driver. Unfortunately, the industrial sector is plagued by the terrible infrastructure and frequent power outages, which have become structural impediments to a higher level of economic growth. The large services sector, which contributes 52% to GDP, is not left unaffected by the power outages. Furthermore, the level of corruption is very high and widespread, affecting the overall business environment.

Even so, Bangladesh has been able to post surprisingly robust and stable rates of economic expansion of the last couple of years. Real GDP growth averaged a decent 5.8% annually in the past ten years. Even during the global economic slowdown in 2008-09, the country’s economy grew by 6.2% and 5.7% yoy respectively. This robustness can be attributed to Bangladesh’ relatively low level of integration with the world economy. It does not have developed financial markets exposing it to international capital flows. Also, the banking system has not been exposed to US subprime loans or other western mortgage products. The banking sector is healthy according to the 2010 Financial System Stability Assessment of the IMF. It does note that state-owned banks remain in a financially weak condition, but the banking sector as a whole only poses a moderate contingent liability.

Another indicator pointing to low integration with the world economy is that the openness of the economy only amounts to 43%, which is relatively low. Exports are highly undiversified as textiles and garment products make up 80% of total exports. As Bangladesh’ main export partners are the US and Western Europe, this makes export revenues highly susceptible to the economic cycle of developed countries. For its imports, Bangladesh mostly depends on India and China. It mainly imports capital goods, textiles, petroleum and metals.

The textiles and garment sector is a main driver of economic growth along with the agricultural sector and remittances inflows. Remittances from Bangladeshi workers overseas have proven to be very robust in 2008 and 2009, supporting household consumption. Remittances have grown from USD 1.8bn in 2001 to an estimated USD 11bn in 2010, equivalent to 11% of GDP.

Going forward, the outlook is positive as the economic recovery picks up in the west, albeit very slowly. Domestically, the agricultural sector is expected to grow on the back of supportive government policies, but devastating floods remain a high risk. Overall, the economy is forecasted to grow by 6% in 2011.

The Gross Domestic Product (GDP)...
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