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'''Balance of Payments''' is a record of official estimates of all transactions between two countries during a year. It shows the sum total of all external transactions arising from export and import of goods and services and transfers, such as remittances and capital inflows and outflows (transactions on capital account). Bangladesh has experienced deficits in its balance of trade since its independence and the problem became chronic because of the country's heavy dependence on imports and at the same time, its requirement for running development programmes. The sharp increase in oil prices during the early 1970s enhanced the import payments for crude oil, petroleum products and fertilisers.
'''Balance of Payments''' is a record of official estimates of all transactions between two countries during a year. It shows the sum total of all external transactions arising from export and import of goods and services and transfers, such as remittances and capital inflows and outflows (transactions on capital account). Bangladesh has experienced deficits in its balance of trade since its independence and the problem became chronic because of the country's heavy dependence on imports and at the same time, its requirement for running development programmes. The sharp increase in oil prices during the early 1970s enhanced the import payments for crude oil, petroleum products and fertilisers.  


Due to crop failures caused by devastating floods that occurred most frequently as well as drought, and devastating cyclonic storm, Bangladesh occasionally had to import large amount of food grain on cash payment, which resulted in a massive deterioration in the country's balance of payments situation in the post liberation period of end of the past century. In addition, the terms of trade consistently deteriorated due to rising import prices and instability in export earnings, causing continuous deficits in trade accounts of balance of payments. Despite adoption of various export promotion measures and rising trend in wage earners remittances, the disequilibrium in the balance of payments position persisted. The increased liberalisation of the external sector during the 1990s also contributed to the widening of the gap in the trade balance of the country during this period.
The [[Bangladesh Bank|bangladesh bank]] prepares balance of payments (BOP) positions of the country following the IMF Balance of Payments Manual. The data are derived from various sources such as foreign exchange transaction records of authorised dealers, documents of the Ministry of Food on import of food grain by the government, documents of Ministry of Finance on imports financed through foreign loans and grants, and custom records for the preparation of BOP. Despite adoption of various export promotion measures and rising trend in wage earners remittances, the disequilibrium in the balance of payments position persisted. The increased liberalisation of the external sector during the 1990s also contributed to the widening of the gap in the trade balance of the country during this period. After currency convertibility in 1993 FX market condition and FX reserve position started getting better. During 2002 to 2016 (except 2005, 2011 and 2012) current account of BOP maintained surplus. It was one of the important turning points of Bangladesh economy to take in the emerging stage. Afterward, 2017 to 2021 current account balance showed deficit. At the end of June 2021 deficit was USD 3.8 billion. However, a healthy position of foreign exchange reserves (equivalent to 9 months of important bill payment), remittance and FDI inflow and sufficient level of domestic investment (30% plus since 2017 to onward) might bring back BOP favorable position soon. SDR balance reached at USD 1.09 billion at the end of December 2020.


''Figure'' 1  Current Account Balance of BOP, Bangladesh (million USD)
[[Image:BalanceofPayments.jpg|right|thumbnail|600px|''Sources'' Economic Trend and BBQ, April-June 2021, Bangladesh Bank.]]
Despite liberalisation of import trade of the country, improvements in current account deficit continued during the late 1990s due mainly to increase in export receipts, decline in deficits in services account, and increase in wage earner's remittances. The account became positive in FY 1997 and continued to be so till FY2000. The positive or surplus situation was brought back again in FY 2002 and continued to FY 2016 excluding a few exceptions. Though the current account showed a deficit in FY 2017 to 2021, the deficit is getting down gradually. The external sector’s overall situation is proven to have a stable outlook.
''Table 1'' Balance of Payment of Bangladesh FY 2011-2020 (million US dollar).
{| class="table table-bordered table-hover"
{| class="table table-bordered table-hover"
|-
|-
| Items || FY-2000 || FY-01 || FY-02 || FY-03 || FY-04 || FY-05 || FY-06 || FY-07 || FY-08 || FY 08-09
| Items || FY 2011 || FY 2012 || FY 2013 || FY 2014 || FY 2015 || FY 2016 || FY 2017 || FY 2018 || FY 2019 || FY 2020
|-
|-
| Import || -7566 || -8430 || 7697 || -8707 || -9840 || -11870 || -13301 || -15511 || -19481 || -20291
|Export f.o.b || 22,592 || 23,989 || 26,567 || 29,777 || 30,697 || 33,441 || 34,019 || 36,285 || 39,604 || 32,832
|-
|-
| Export  || 5701 || 6419 || 5929 || 6492 || 7521 || 8573 || 10412 || 12053 || 14151 || 15583
|Import f.o.b || 32,527 || 33,309 || 33,576 || 36,571 || 37,662 || 39,901 || 43,491 || 54,463 || 55,439 || 50,690
|-
|-
| Trade Balance || -1865 || -2011 || -1768 || -2215 || -2319 || -3297 || -2889 || -3458 || 5330 || -4708
|Trade Balance || -9,935 || -9,320 || -7,009 || -6,794 || -6,965 || -6,460 || -9,472 || -18,178 || -15,835 || -17,859
|-
|-
| Services (net) || -645 || -918 || -499 || -691 || -874 || -870 || -1023 || -1256 || -1525 || -1621
|Services (net) || -2,612 || -3,001 || -3,162 || -4,096 || -3,186 || -2,708 || -3,288 || -4,201 || -3,177 || -2,541
|-
|-
| Income (net) || -302 || -344 || -402 || -358 || -374 || -680 || -702 || -905 || -994 || -1361
|Primary Income (net) || -1,454 || -1,549 || -2,369 || -2,635 || -2,252 || -1,915 || -1,870 || -2,641 || -2,993 || -3,106
|-
|-
| Current Transfer Of which workers' remittances || 2394 || 2171 || 2826 || 3340 || 3743 || 4290 || 5438 || 6554 || 8551 || 10154
|Secondary Income || 12,315 || 13,423 || 14,928 || 14,934 || 15,895 || 15,345 || 13,299 || 15,453 || 16,903 || 18,780
|-
|-
| || 1949 || 1882 || 2501 || 3062 || 3372 || 3848 || 4802 || 5979 || 7915 || 9689
|Of which Workers' Remittances || 11,513 || 12,734 || 14,338 || 141,16 || 15,170 || 14,717 || 12,769 || 14,703 || 16,196 || 18,014
|-
|-
| Current Account Balance   || -418 || -1098 || 157 || 176 || 176 || -557 || 824 || 936 || 702 || 2536
|Current Account Balance || -1,686 || -447 || 2,388 || 1,409 || 3,492 || 4,262 || -1,331 || -9,567 || -5,102 || -4,723
|-
|-
| Capital Account || 561 || 432 || 410 || 428 || 196 || 163 || 375 || 490 || 509 || 451
|Capital Account || 642 || 482 || 629 || 598 || 496 || 464 || 400 || 331 || 239 || 256
|-
|-
| Financial Account || -116 || 682 || 391 || 413 || -31 || 784 || -141 || 762 || -392 || -808
|Financial Account: || 651 || 1,436 || 2,863 || 2,813 || 1,267 || 944 || 4,247 || 9,011 || 5,907.2 || 7,537
|-
|-
| FDI || 383 || 550 || 391 || 376 || 276 || 800 || 743 || 793 || 748 || 941
|1. FDI || 775 || 1,191 || 1,726 || 1,432 || 2,525 || 2,502 || 3,038 || 3,290 || 4,946 || 3,234
|-
|-
| Portfolio Investment || 0 || 0 || -6 || 2 || 6 || 0 || 32 || 106 || 47 || -159
|2. Portfolio Investment || 109 || 240 || 368 || 937 || 379 || 139 || 457 || 349 || 172 || 44
|-
|-
| Other Investments (Net) || -499 || 132 || 6 || 35 || -313 || -16 || -916 || -137 || -1187 || -1590
|3.Other Investments (Net) || -233 || 5 || 769 || 444 || -284 || -480 || 2,137 || 6,884 || 3,108 || 6,222
|-
|-
| Errors and Omissions || 152 || -297 || -550 || -202 || -170 || -323 || -720 || -695 || -488 || -121
|Errors and Omissions || -1,376 || -977 || -752 || 663 || -882 || -634 || -147 || -632 || -865.2 || -145
|-
|-
| Overall Balance || 179 || -281 || 408 || 815 || 171 || 67 || 338 || 1493 || 331 || 2059
|Overall Balance || -656 || 494 || 5128 || 5,483 || 4,373 || 5,036 || 3,169 || -857 || 179 || 2,925
|}
|}


''Source'' Bangladesh Bank.
''Source'' Bangladesh Bank.


Bangladesh received a substantial amount of assistance under various facilities of the International Monetary Fund to correct her balance of payment disequilibrium position. The amount drawn by Bangladesh from IMF under a stand-by arrangement in June 1974 and July 1975 stood at SDR 93.75 million. Bangladesh received SDR 62.50 million under Compensatory Financing Facility for export shortfall in December 1972. This stand-by programme was attributed to declines in the current account deficit of $881 million or 12.33% of the GDP in 1975-76, to $439 million or 6.42% of the GDP in 1976-77. Bangladesh also received a substantial amount of grants and concessional loans from bi-lateral sources as well as other international financial institutions and organisations. Despite all these Balance of Payment of the country could not be reached to a sustainable level. Thus the situation warrants some effective measures like correction of the country's overvalued exchange rate as well as liberalisation of the trade regime.
Decline in import growth coupled with steady export growth narrowed the trade deficit at the end of FY 2002. From 2002 to 2016, except for a couple of years, the current account of BOP maintained surpluses. As a result, Bangladesh Taka started to get stronger against the US dollar and it brought stability in the exchange rate. After FY 2017, the current account returned to its deficit position, gradually decreasing the deficit but continued to FY 2021. However, FX reserve at satisfactory level (equivalent to 9 months import payment), maintaining competitiveness of Bangladeshi garments in international market (2nd position), FDI and remittance inflow and satisfactory level of domestic investment (30%plus) indicates return back to current account surplus soon. [Syed Ahmed Khan and A Samad Sarker]
 
To make country's external sector competitive the first devaluation was done in 1975. Thus, the devaluation of Bangladesh currency in terms of US dollar by 61% in May 1975 and further, by 10% and 11% within June to December 1975, and January to December, 1976, had a positive impact on the balance of payments situation of the country. Bangladesh also undertook other internal corrective measures during that period like adoption of restrictive monetary and fiscal policies. These were reflected in the raising of bank rate from 5% to 8%, reduction of subsidies, and upward adjustment of prices of some public utilities. Along with these measures, policies for export promotion and import substitution were undertaken by the government to correct imbalances in payments situation.
 
The current account deficit of BOP of Bangladesh reached $1,436 million or 11.23% of the GDP in 1979-80, but gradually declined to $1,055 million or 6.85% of the GDP in 1985-86, and further to $981 million, or 4.19% of the GDP in 1990-91. Bangladesh's drawings from the IMF continued to increase. These drawings during the period from 1976 to 1982 amounted to SDR 689.39 million under various facilities viz., Compensatory Financing Facilities, Oil Facilities, Trust Fund Facilities, Stand-by Arrangements and Extended Fund Facilities. The adjustment policies that Bangladesh pursued under various facilities of the IMF brought about some positive changes in the economy. The aggregate demand management policies initiated by IMF through streamlining fiscal and monetary systems proved largely successful. The exchange rate and interest rate policies of Bangladesh brought about positive results. The Fund's arrangements for high conditional loans also worked as a 'seal of approval' for enhanced foreign assistance to Bangladesh. Bangladesh entered into Structural Adjustment Facility with IMF in February 1987 and into Enhanced Structural Adjustment Facility in August 1990 to improve her balance of payments position. Bangladesh also received emergency assistance from IMF in November 1998.
 
The current account deficit during the 1990s did not pose a serious problem for Bangladesh. The deficit in the current account declined from $981 million, or 4.19% of the GDP in 1990-91, to $664 million, or 2.28% of the GDP in 1994-95, but rose to $1,291 million, or 4.05% of the GDP in 1995-96. Thereafter, this deficit continued to decline till 1999-2000. Notable developments that have taken place in Bangladesh during the 1990s include a continued trade liberalisation policy and implementation of the Financial Sector Reforms Programme. A liberal Import Policy Order for 1995-97 was put into effect to remove quantitative restrictions on imports. A fairly liberal five-yearly trade policy became effective from July 1998. Average nominal tariff rate declined from 57% in 1991-92 to 20% in 1997-98 and further, to 16% in 1999-2000. The highest decline in tariff rate was from 90% in 1991-92 to 37.5% in 2000-2001.
 
Despite liberalisation of import trade of the country, improvements in current account deficit continued during the late 1990s due mainly to increase in export receipts, decline in deficits in services account, and increase in wage earner's remittances. The net position under services' account became positive in 1996-97 and continued to be so till 1999-2000. The wage earners remittances recorded increase from $555 million in 1985-86 to $764 million in 1990-91, to $1,217 million in 1995-96, and further to $1,949 million in 1999-2000.
 
Decline in import growth coupled with steady export growth narrowed the trade deficit as percentage of GDP up to end of 2002. On the other hand there occurred a sharp rise in the service account deficit that largely offset the improvement in trade the country's trade account. However, a recorded improvement in the worker's remittances during this period turned the current account deficit to a surplus level. Improvement in current transfer also helped improvement in current account balance. This trend continued except in FY 2005 and the current balance at the end of 2006 stood a record level surplus of US $824 million. On the other hand the capital and the financial account experienced a bit pressure during this period. Particularly the deterioration in capital account was remarkable in FY 2004 and FY 2005, although it showed some improvement in FY 2006. Financial account also deteriorated during this period due mainly to substantial reduction in the flow of Medium and Long Term (MLT) loans coupled with a sizeable net outflow of the short term loans and trade credit. With these trends the overall balance of payment during FY 2001to FY 2006 did not show a very comfortable picture and in a number times went at alarming level. However, the country's Balance of Payment showed a healthy trend from 2006 to onwards except in 2008 particularly due to worldwide economic crises. Despite increase in deficit in the service and income account of the BOP's current account, the balance in this account is showing a continuous surplus till now due mainly larger inflow of worker's remittances. Increased flow of workers abroad, improvement of banking services along with enhanced anti money laundering activities and depreciation of the BDT, were perceived to be among the reasons behind this healthy trend.'
 
Both capital and financial account of the country's BOP depicted a gloomy picture from FY 2000 onwards. Reduction in inflow of loans and grants due mainly to lower implementation status of the country's ADP, lower institutional capacity etc, lower inflow of foreign investment both FDI and Portfolio due to tighter global credit market and massive capital erosion of the global financial institutions, increased attention of the international investors to other South and South East Asian countries might have contributed this. Poor performance of the energy sector, insufficient infrastructural facility, political uncertainty, slow decision-making process also contributed this. Despite these, the overall balance reached a comfortable level of US $1493 million in FY 2007. However, although the overall; balance showed some deterioration in FY 2008 due to worldwide economic meltdown the situation improved in FY 2009 and it stood at US $2058.'
 
The [[Bangladesh Bank|bangladesh bank]] prepares balance of payments (BOP) positions of the country following the IMF Balance of Payments Manual. The data are derived from various sources such as foreign exchange transaction records of authorised dealers, documents of the Ministry of Food on import of food grain by the government, documents of Ministry of Finance on imports financed through foreign loans and grants, and custom records for the preparation of BOP. The deficit in the current account of balance of payment in 1972-73 was $370 million. It rose to a record level at $1,003 million in 1974-75 or 7.08% of GDP. The current account of the BOP of Bangladesh are continuously showing surplus from FY 2002 till now except in FY 2005. [Syed Ahmed Khan and A Samad Sarker]
 
[[Category:Financial Institutes]]


[[Category:Financial Institutes]]
[[Category:Financial Institutes]]


[[bn:লেনদেন ভারসাম্য]]
[[bn:লেনদেন ভারসাম্য]]

Latest revision as of 20:32, 13 October 2023

Balance of Payments is a record of official estimates of all transactions between two countries during a year. It shows the sum total of all external transactions arising from export and import of goods and services and transfers, such as remittances and capital inflows and outflows (transactions on capital account). Bangladesh has experienced deficits in its balance of trade since its independence and the problem became chronic because of the country's heavy dependence on imports and at the same time, its requirement for running development programmes. The sharp increase in oil prices during the early 1970s enhanced the import payments for crude oil, petroleum products and fertilisers.

The bangladesh bank prepares balance of payments (BOP) positions of the country following the IMF Balance of Payments Manual. The data are derived from various sources such as foreign exchange transaction records of authorised dealers, documents of the Ministry of Food on import of food grain by the government, documents of Ministry of Finance on imports financed through foreign loans and grants, and custom records for the preparation of BOP. Despite adoption of various export promotion measures and rising trend in wage earners remittances, the disequilibrium in the balance of payments position persisted. The increased liberalisation of the external sector during the 1990s also contributed to the widening of the gap in the trade balance of the country during this period. After currency convertibility in 1993 FX market condition and FX reserve position started getting better. During 2002 to 2016 (except 2005, 2011 and 2012) current account of BOP maintained surplus. It was one of the important turning points of Bangladesh economy to take in the emerging stage. Afterward, 2017 to 2021 current account balance showed deficit. At the end of June 2021 deficit was USD 3.8 billion. However, a healthy position of foreign exchange reserves (equivalent to 9 months of important bill payment), remittance and FDI inflow and sufficient level of domestic investment (30% plus since 2017 to onward) might bring back BOP favorable position soon. SDR balance reached at USD 1.09 billion at the end of December 2020.

Figure 1 Current Account Balance of BOP, Bangladesh (million USD)

File:BalanceofPayments.jpg
Sources Economic Trend and BBQ, April-June 2021, Bangladesh Bank.

Despite liberalisation of import trade of the country, improvements in current account deficit continued during the late 1990s due mainly to increase in export receipts, decline in deficits in services account, and increase in wage earner's remittances. The account became positive in FY 1997 and continued to be so till FY2000. The positive or surplus situation was brought back again in FY 2002 and continued to FY 2016 excluding a few exceptions. Though the current account showed a deficit in FY 2017 to 2021, the deficit is getting down gradually. The external sector’s overall situation is proven to have a stable outlook.



Table 1 Balance of Payment of Bangladesh FY 2011-2020 (million US dollar).

Items FY 2011 FY 2012 FY 2013 FY 2014 FY 2015 FY 2016 FY 2017 FY 2018 FY 2019 FY 2020
Export f.o.b 22,592 23,989 26,567 29,777 30,697 33,441 34,019 36,285 39,604 32,832
Import f.o.b 32,527 33,309 33,576 36,571 37,662 39,901 43,491 54,463 55,439 50,690
Trade Balance -9,935 -9,320 -7,009 -6,794 -6,965 -6,460 -9,472 -18,178 -15,835 -17,859
Services (net) -2,612 -3,001 -3,162 -4,096 -3,186 -2,708 -3,288 -4,201 -3,177 -2,541
Primary Income (net) -1,454 -1,549 -2,369 -2,635 -2,252 -1,915 -1,870 -2,641 -2,993 -3,106
Secondary Income 12,315 13,423 14,928 14,934 15,895 15,345 13,299 15,453 16,903 18,780
Of which Workers' Remittances 11,513 12,734 14,338 141,16 15,170 14,717 12,769 14,703 16,196 18,014
Current Account Balance -1,686 -447 2,388 1,409 3,492 4,262 -1,331 -9,567 -5,102 -4,723
Capital Account 642 482 629 598 496 464 400 331 239 256
Financial Account: 651 1,436 2,863 2,813 1,267 944 4,247 9,011 5,907.2 7,537
1. FDI 775 1,191 1,726 1,432 2,525 2,502 3,038 3,290 4,946 3,234
2. Portfolio Investment 109 240 368 937 379 139 457 349 172 44
3.Other Investments (Net) -233 5 769 444 -284 -480 2,137 6,884 3,108 6,222
Errors and Omissions -1,376 -977 -752 663 -882 -634 -147 -632 -865.2 -145
Overall Balance -656 494 5128 5,483 4,373 5,036 3,169 -857 179 2,925

Source Bangladesh Bank.

Decline in import growth coupled with steady export growth narrowed the trade deficit at the end of FY 2002. From 2002 to 2016, except for a couple of years, the current account of BOP maintained surpluses. As a result, Bangladesh Taka started to get stronger against the US dollar and it brought stability in the exchange rate. After FY 2017, the current account returned to its deficit position, gradually decreasing the deficit but continued to FY 2021. However, FX reserve at satisfactory level (equivalent to 9 months import payment), maintaining competitiveness of Bangladeshi garments in international market (2nd position), FDI and remittance inflow and satisfactory level of domestic investment (30%plus) indicates return back to current account surplus soon. [Syed Ahmed Khan and A Samad Sarker]

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