A Macroeconomic Analysis of Bangladesh - Sanstita Banik

 

Source: Nikkei Asia

Bangladesh

Bangladesh, a major developing market economy in South Asia, comes under the category of lower- middle income country. It is the eight most populous country in the world and shares land borders with India and Myanmar. It is one of the fastest growing economies in the world and holds 35^th position in the world in nominal terms. After its independence in 1971 from Pakistan, Bangladesh went for a mixed economy and introduced economic reforms which promoted free market and foreign direct investment. According to World Bank data, the Gross Domestic Product (GDP) in Bangladesh was worth 416.26 billion US dollars in 2021.

Methodology

The data for this study, i.e., inflation, GDP growth rate, import and exports of Bangladesh, has been collected from a secondary source: the World Bank database. The data is taken for a time period of 1991-2021, which is further divided into three decades which is then graphically represented. The descriptive statistics for both are obtained and decade as well as variable wise the data is compared and the interpretations follow.

Interpretation and Analysis – Macroeconomic Variables

The macro-variables used and their averages are:

	Decade 1	Decade 2	Decade 3
Inflation	5.301	6.396	6.537
Import	9.005	16.972	6.511
Export	12.085	18.816	4.936
GDP growth	4.68	5.578	6.445

 

Inflation

Year	Inflation
1991 [YR1991]	6.3573641
1992 [YR1992]	3.6340769
1993 [YR1993]	3.0148186
1994 [YR1994]	5.3137401
1995 [YR1995]	10.297812
1996 [YR1996]	2.377129
1997 [YR1997]	5.3056011
1998 [YR1998]	8.402238
1999 [YR1999]	6.1066959
2000 [YR2000]	2.2082562
2001 [YR2001]	2.0071737
2002 [YR2002]	3.3325649
2003 [YR2003]	5.6687077
2004 [YR2004]	7.5875364
2005 [YR2005]	7.0466182
2006 [YR2006]	6.7652612
2007 [YR2007]	9.106985
2008 [YR2008]	8.9019449
2009 [YR2009]	5.4234724
2010 [YR2010]	8.1266764
2011 [YR2011]	11.395165
2012 [YR2012]	6.2175042
2013 [YR2013]	7.5304064
2014 [YR2014]	6.9916389
2015 [YR2015]	6.1942802
2016 [YR2016]	5.5135257
2017 [YR2017]	5.7020702
2018 [YR2018]	5.5436214
2019 [YR2019]	5.5919964
2020 [YR2020]	5.6910747
2021 [YR2021]	5.5456543

 

Fig: Inflation (consumer prices, annual %)

Inflation is a situation in which prices of goods and services in an economy rises, which increases the cost of living of people. From the graph above, it is observed that over the past three decades, Bangladesh has witnessed pretty unstable inflation rates. The trendline however shows an upward trend. Starting from the first decade i.e., 1991- 2000, Bangladesh’s inflation rates were under control except in 1995 and 1998, where the inflation was 10% and 8% respectively. But overall, this decade witnessed an average of 5.3% inflation. Inflation overall in the second and third decade was 6.4% and 6.5% respectively. In 2011, Bangladesh’s inflation hit 20-year high, touching a 11.3% due to high prices of food items on one hand and government raising the prices of oil and gas to help relieve subsidy burden on the other. The major causes for overall high inflation in Bangladesh are increase in government expenditure, increase in money supply in the economy, shortage of food, increase in cost of production, increase in exports as a result of which domestic supply decreases and the prices of the commodities increases. However, a point of observation is, during 2008-09 and 2020, when many economies faced high rates of inflation, Bangladesh remained insulated from its effects.  

Yet the consequences of inflation are taking a toll on people’s lives because inflation increases cost of living of living of individuals, without actually increasing their real income. This, in macro level is affecting the economy as with decreased individual savings and investments, dependency on foreign aid and loans increases.

Imports

Year	Imports
1991 [YR1991]	-15.01744409
1992 [YR1992]	-8.790663437
1993 [YR1993]	37.41890616
1994 [YR1994]	-6.11108228
1995 [YR1995]	48.39639524
1996 [YR1996]	14.10956062
1997 [YR1997]	3.041216158
1998 [YR1998]	4.470970651
1999 [YR1999]	2.305577787
2000 [YR2000]	10.23392459
2001 [YR2001]	12.84862892
2002 [YR2002]	-4.84742393
2003 [YR2003]	8.549548348
2004 [YR2004]	84.74948725
2005 [YR2005]	38.06278676
2006 [YR2006]	18.19044873
2007 [YR2007]	15.98603514
2008 [YR2008]	-1.901232519
2009 [YR2009]	-2.599654974
2010 [YR2010]	0.686454981
2011 [YR2011]	29.1529647
2012 [YR2012]	10.51855917
2013 [YR2013]	1.218151546
2014 [YR2014]	1.168323867
2015 [YR2015]	3.202705182
2016 [YR2016]	-7.091884622
2017 [YR2017]	5.164200015
2018 [YR2018]	23.93497773
2019 [YR2019]	0.50548511
2020 [YR2020]	-11.40956195
2021 [YR2021]	15.26594174

 

Fig: Imports of goods and services (annual% growth)

Imports are goods or services that are bought in one country while its production took place in some other country. Bangladesh mostly imports oil and petroleum, textile and food items. In the first decade, its average imports were around 9%, which took a huge lead of 16.9% in the second decade but then it again came down to 6% in the third decade, which is a positive sign indicating that Bangladesh reduced its spending on imports which helped bringing inflation under control. The trendline is almost stable and slightly moving downwards.

Exports

Year	Exports
1991 [YR1991]	-3.091548166
1992 [YR1992]	21.8455919
1993 [YR1993]	16.39291604
1994 [YR1994]	3.678369103
1995 [YR1995]	30.72410679
1996 [YR1996]	8.075394542
1997 [YR1997]	14.31777893
1998 [YR1998]	12.26754876
1999 [YR1999]	2.250689225
2000 [YR2000]	14.39815673
2001 [YR2001]	14.90388964
2002 [YR2002]	-0.164097459
2003 [YR2003]	-1.696385574
2004 [YR2004]	85.61331209
2005 [YR2005]	43.00126706
2006 [YR2006]	25.47630979
2007 [YR2007]	12.97560308
2008 [YR2008]	7.080609288
2009 [YR2009]	0.02850448
2010 [YR2010]	0.941532178
2011 [YR2011]	29.33912475
2012 [YR2012]	12.53225869
2013 [YR2013]	2.451884337
2014 [YR2014]	3.201149272
2015 [YR2015]	-2.829990167
2016 [YR2016]	2.196749645
2017 [YR2017]	-1.843280816
2018 [YR2018]	6.105919706
2019 [YR2019]	11.45647339
2020 [YR2020]	-17.50239229
2021 [YR2021]	9.191456118

 

Fig: Exports of goods and services (annual% growth)

Exports are commodities which are produced in one country and traded with other. Bangladesh famous for its textile and clothing industries, mainly accumulates foreign exchange earnings through export of ready made garments. From the graph, it is seen that the exports drastically falls from 2004 when it was 85.61 to 2009 when it reduced to 0.02. This is the effect of the global economic recession of 2008-09 that greatly affected Bangladesh’s export sector. This is because Bangladesh economy highly relied on garment sector which in turn was heavily depended on US and UK for their exports. As observed, the trendline shows a slow downfall in the export sector. In 2020, the exports were in negative, an all-time low due to the COVID-19 pandemic.

GDP Growth Rate

Year	GDP Growth
1991 [YR1991]	3.485227816
1992 [YR1992]	5.44268555
1993 [YR1993]	4.711561725
1994 [YR1994]	3.890126441
1995 [YR1995]	5.121277897
1996 [YR1996]	4.522919217
1997 [YR1997]	4.489896498
1998 [YR1998]	5.177026873
1999 [YR1999]	4.670156369
2000 [YR2000]	5.293294719
2001 [YR2001]	5.077287775
2002 [YR2002]	3.83312394
2003 [YR2003]	4.7395674
2004 [YR2004]	5.23953291
2005 [YR2005]	6.535944941
2006 [YR2006]	6.671904981
2007 [YR2007]	7.058599357
2008 [YR2008]	6.013789759
2009 [YR2009]	5.045124794
2010 [YR2010]	5.571788188
2011 [YR2011]	6.464379123
2012 [YR2012]	6.521458781
2013 [YR2013]	6.013605658
2014 [YR2014]	6.061059359
2015 [YR2015]	6.552639879
2016 [YR2016]	7.113478213
2017 [YR2017]	6.590249998
2018 [YR2018]	7.31941263
2019 [YR2019]	7.881915151
2020 [YR2020]	3.448021455
2021 [YR2021]	6.938675089

 

Fig: GDP Growth (annual %)

The GDP Growth rate compares the year-over-year change in a country’s economic output to measure how fast an economy is growing (Fernando, n.d.). The trendline for GDP growth rate here shows an upward trend. The major downfall in GDP growth as observed is in 2020, when the pandemic hit. Even in 2009, a downfall is seen due to the global recession. Overall, Bangladesh has managed to show a positive economic growth moving from one decade to another. In decade 1, its GDP growth rate was 4.68% which increased to 5.57% and 6.44% in decade 2 and decade 3 respectively. The prosperity of Bangladesh is the result of a variety of interconnected factors, including macroeconomic stability and investments in human capital. By increasing investments in energy, inland connectivity, urban projects, and transportation infrastructure as well as giving climate change adaptation and disaster preparedness top priority on its path toward sustainable growth, the nation is now laying the groundwork for additional economic growth and job creation.

Descriptive statistics

Inflation			Imports
Mean	6.0936		Mean	10.69072
Standard Error	0.402803		Standard Error	3.64486
Median	5.70207		Median	4.470971
Mode	#N/A		Mode	#N/A
Standard Deviation	2.242715		Standard Deviation	20.29372
Sample Variance	5.029769		Sample Variance	411.8351
Kurtosis	0.195149		Kurtosis	4.956119
Skewness	0.177845		Skewness	1.916163
Range	9.387991		Range	99.76693
Minimum	2.007174		Minimum	-15.0174
Maximum	11.39517		Maximum	84.74949
Sum	188.9016		Sum	331.4123
Count	31		Count	31

 

Exports			GDP Growth
Mean	11.71996		Mean	5.596637
Standard Error	3.27419		Standard Error	0.211527
Median	8.075395		Median	5.442686
Mode	#N/A		Mode	#N/A
Standard Deviation	18.22992		Standard Deviation	1.177735
Sample Variance	332.33		Sample Variance	1.38706
Kurtosis	8.481506		Kurtosis	-0.80949
Skewness	2.385071		Skewness	-0.07346
Range	103.1157		Range	4.433894
Minimum	-17.5024		Minimum	3.448021
Maximum	85.61331		Maximum	7.881915
Sum	363.3189		Sum	173.4957
Count	31		Count	31

 

Conclusion

Bangladesh has a proven track of progress and expansion, particularly during periods of significant global unpredictability. Over the past 20 years, fast economic expansion has been backed by a large demographic dividend, solid ready-made garment (RMG) exports, sustained remittance inflows, and stable macroeconomic circumstances. Bangladesh is likewise a wonderful example of development and poverty reduction. Bangladesh, which was one of the poorest countries when it was founded in 1971, attained lower-middle income classification in 2015. It is expected to leave the UN's list of least developed nations (LDC) in 2026. Furthermore, there was improvement in many areas of human growth.

References

·      Gross Domestic Product (GDP): Formula and How to Use It. (2022, September 30). Investopedia. https://www.investopedia.com/terms/g/gdp.asp

·       Overview. (n.d.). World Bank. https://www.worldbank.org/en/country/bangladesh/overview

·       Ferdous, A. R. (2020, October 22). An overview of inflation in Bangladesh. BD Economy. https://oikosmist.com/inflation-bangladesh/