Balance of Trade

Balance of Trade refers to the difference between the value of a country';s merchandise exports and the value of its merchandise imports. The trade regime of Bangladesh has undergone many changes over the years. Initially, it followed a line of import substitution, implying a stress on restricting imports. The country also had difficulties in import financing during the 1970s. But with the change in government policy towards promoting a laissez faire economy and with inflows of foreign aid in increased volumes, Bangladesh started to import more in the early 1980s. There was a marked departure in the trade policy of the country in the 1990s, when its trade regime was substantially liberalised with the implementation of the Financial Sector Reforms programme.

The export policy of the country up to 1990 was characterised by adoption of adhoc measures, which discouraged the growth of the manufacturing sector having high export potentialities. The two-year export policy announced in 1993 contained a lot of incentives. Later, the government announced a five-year export policy for 1997-2002, which aimed at increasing production and trade through attracting entrepreneurs to establish export-oriented industries, improving the balance of payments through narrowing the trade gap with the diversification of exportable, and expanding the export base, developing marketability of export items, and establishing backward linkage with export-oriented industries. The five-year export policy contains an export development strategy leading to intensive export-oriented activities.

Bangladesh has been experiencing deficits in her trade balance despite adoption of many export promotion measures during the 1980s and 1990s. The deficit in the trade balance of the country increased from 8.5% of the GDP in 1975-76 to 14.1% of the GDP in 1981-82, and then gradually declined to 6.6% of the GDP in 1991-92. The deficit remained at a moderate level during the 1990s and was 6.9% of the GDP in 1997-98 and 5.5% of the GDP in 1999-2000. The decline in deficits in the trade balance was due to faster growth of exports during 1984-85 to 1994-95. During this period, there was a significant shift in the structure of the export sector from primary goods to manufactured goods and from traditional to non-traditional items of exports. The percentage share in the value of traditional items of exports declined from 97.27 in 1972-73 to 68.99 in 1982-83, and further to 12.17 in 1994-95. The percentage shares in the value of manufactured commodities, on the other hand, increased form 57.03 in 1972-73 to 64.58 in 1982-83 and further to 86.98 in 1994-95. This marked shift in the structure of exportable goods was due to the substantial growth of the readymade garments sector during this period.

Along with the growth in exports, the import payments of Bangladesh also showed continuous increase. Export receipts as percent of GDP increased, amidst fluctuations, from 4.0 in 1974-75 to 6.9 in 1984-85, and further to 13.3 in 1994-95. Import payments as percent of the GDP, on the other hand, increased sharply from 8.0 in 1974-75 to 19.7 in 1984-85, and further to 22.6 in 1994-95. There were some structural changes in the composition of imports. Import payments in respect of major primary goods declined from $836 million in 1984-85 to $585 million in 1989-90, but rose to $868 million in 1994-95, and further to $1,448 million in 1998-99. On the other hand, import payments in terms of major intermediate goods increased from $433 million in 1984-85 to $567 million in 1989-90, to $924 million in 1994-95, and further to $1,104 million in 1998-99. Import of capital goods increased substantially from $691 million in 1984-85 to $1,296 million in 1989-90, $1,688 million in 1994-95, and further to $1,969 million in 1998-99. Despite the steep rise in import payments, a corresponding rise in export receipts helped in restricting the growth of the trade deficit.

Bangladesh provided a series of incentives to augment her export earnings viz., duty drawback facilities, tax holidays, bonded warehouse facilities, income tax rebates, availability of credit to exporters at concessional rates, retention of foreign exchange by exporters, the export credit guarantee scheme, Export Development Fund, depreciation of taka against dollar, etc. Consequent upon taking all these measures, export receipts from traditional items of exports continued to decline while export of manufactured products continued to increase during the nineties. The percentage share of traditional exports in total export earnings declined from 25.51 in 1990-91 to 12.17 in 1994-95, to 8.41 in 1997-98 and further to 7.55 in 1999-2000. The percentage share of manufactured products increased from 82.18 in 1990-91 to 86.98 in 1994-95, to 90.27 in 1997-98, and further to 92.45 in 1999-2000. The emergence of exportable goods like leather and leather goods and frozen foods in addition to readymade garments, added a new dimension to the export market of Bangladesh, leading to a rise in export earnings from manufactured goods.

Export growth of Bangladesh on an average stood at more than 15% from FY 2000 till now in which growth of readymade garments stood on an average about 20%. This indicates that despite gradual intensification of international competition in the post MFA regime, export sector of the country is performing very well. At present apparel sector is contributing about three-fourth share of the export basket. A remarkable improvement in export/GDP ratio is also discernible in this period, which increased from12.2% in FY 2000 to 17.33% in FY 2009. The share of non-traditional items to total export earnings stood at 97.3% at the end of FY 2009, while that of manufacturing sector to more than 96%. However, the destination of export showed a continued heavy dependence on the market of EU block and the NAFTA block (North America), which stood at about 49% and 29% respectively, followed by SAARC countries (17%) in FY 2009. In order to facilitate export growth, Government has taken a number of steps like providing fiscal incentives to the exporters particularly to the new exporters, creation of export processing zone etc. So far, 8 Export Processing Zone has been established, off shore banking arrangements also have been made and a new export policy for 2006-2009 has been put on place for implementation. Despite some set back in export sector due to GSP crises in the past decade and worldwide economic crises, exports of Bangladesh experienced a very healthy trend. Recently, the reemergence of jute and jute goods as exportable items and the shipbuilding as a new exportable have added a new vista in the export sector of the country.

Yearly import growth during the FY 2003 to 2009 recorded on an average more than 20% due to increased import of machinery and capital goods, which are necessary for enhancing the domestic capacity and economic growth. Besides, higher import growth was also due to increase in the prices of imported goods. The most observable characteristics of import scenario is that during this period import of foodstuff declined due mainly to healthy trend of food grain production in the country. Reduction of tariff stages and rates also contributed to the higher growth of import. The highest tariff rate, which was 37.5% in FY 2001, was reduced to 25% in FY 2009. Thus total import as percentage of GDP increased from 16.0 in FY 2000 to 22.6 in FY 2009. Higher growth of import payments compared to a relatively lower growth of export receipts resulted to a wider trade gap during this period. Trade gape, which was 4.2% of GDP in FY 2003, stood at more than 5% in 1009. However, despite the widening of the trade gap, current account balance of the country remains positive due to increased flow of remittances. '

The rise in import payments was faster than the rise in export earnings, resulting in the persistence of the trade deficit in Bangladesh. Faster rise in import payments occurred due to the liberal import policy pursued by the government, rise in prices of petroleum products, and rise in food imports from time to time and also due to increased imports of intermediate goods and capital goods during the 1980s and 1990s. [Syed Ahmed Khan and A Samad Sarker] [Khan, Sayed Ahmed General Manager (research), Bangladesh Bank]