Bangladesh is
located centrally (and hence economically favorable) in
South Asia. Economically strong performers like China,
India, Malaysia and Thailand are easily reached by road, air
or sea route. Bangladesh considers itself a small country,
but with approximately 140 million hardworking people
Bangladesh clearly is a (potentially) large market. Although
today, Bangladesh is still a low income country ($470 per
capita in 2005). Tomorrow, however, Bangladesh could very
well become the next emerging market in South Asia.
Bangladesh’s
macroeconomic performance has been relatively good. Average
GDP growth has been over 6% during the last 4 years, while
average annual inflation has been relatively low at around
6.5% (see table 1). The forecasts for economic growth and
inflation show similar figures. The resilience of the
economy to external (gas/oil prices, end of the MFA3
) and
internal shocks (i.e. floods) are quite remarkable. A big
contributor to GDP growth is exports, particularly the
export of Ready Made Garments (RMG) which accounts for
approximately 75% of total exports.
With an export
growth rate of 23%, FY 2005/06 has been a record year for
exports. However, despite the continuous high growth in
exports, Bangladesh imports more than it exports. Imports
consist amongst others of inputs for the RMG sector, crude
petroleum and petroleum products, machinery and machinery
parts, iron and steel, consumer goods, animal and vegetable
products, and inputs used for construction. Bangladesh’s
trade deficit is on average approximately USD 3000 million.
Main trade partners of Bangladesh (in descending order of
value) are India, China, Singapore, Japan, Hong Kong,
Kuwait, Taiwan, Republic of Korea, Thailand, USA, Australia,
Malaysia, Germany, Switzerland, Uzbekistan, Italy and Brazil4.
Next to
exports, industries (in particular manufacturing) and
services are the largest contributors to economic growth in
Bangladesh. The value added in GDP (2005/06) of industries
was 39%, while the service sector contributed 46% and
agriculture 14%.
The fiscal
year in Bangladesh runs from July-June. Government net
spending has been lower than budgeted for some years now.
Although this has helped to keep the fiscal deficit under
control, it also means that certain poverty-reducing related
expenditures have not been made. Government revenues are
slowly increasing, but at around 10-11% of GDP Bangladesh
has one of the lowest percentages of revenue collection in
the world. Revenues are predominantly related to taxes (8-9%
of GDP), in particular VAT, supplementary duties and
excises. The VAT rate in Bangladesh is 15 %. Table 2 has
some information on the current Income Tax.
Table 2 -
Income tax rates in Bangladesh
Income Tax
Exemption limit of personal income tax Tk 120,000
for assessment year 2006-07.
The
limit of total income attracting the highest rate of
25% is Tk 1020,000
Corporate tax for non-listed companies is 40%
Bank’s
provision for bad and doubtful debts up to 1% of
total outstanding loans.
10%
advanced income tax (AIT) on dividends
AIT on
profits and securities and bonds is 10%
Tax
deduction at source at varying rates are introduced
for freight charges of resident ocean-going ships on
profit/interest paid on deposits by non-banking and
other deposit collecting institutions, total export
proceeds of knitwear and RMG, on transaction value
of shares for stock-exchange members, and sale of
apartments and land by real-estate business.
Losses
from tax-exempt source cannot be set off against
taxable income from other sources.
Submission of accounts by insurance companies to tax
authorities is mandatory
Tax
exemption period on income from hospitals, poultry,
dairy firms and poultry feed production extended to
2008
Tax
holiday facilities for some designated sectors
extended by 3 years up to 2008
Time
limit for disclosure of undisclosed income is extended
by a year up to 2006, on payment of 7.5% tax
Tax
rebate are allowed on donations to philanthropic and
education institutions
Despite the
stability and good performance on the macroeconomic front,
Bangladesh still faces many structural, poverty and
governance problems. Rising inequality is a major concern
(absolute inequality has increased during the last 10
years), while the governance problem looms large and is
hampering sustainable development – i.e. lack of public
transparency and accountability, political favoritism,
corruption in procurement, loss-making Stated Owned
Enterprises (SOEs), weak infrastructure development (power,
port, telecom, and transport), weak law enforcement and
bureaucratic hassles and bribery/corruption are facts of
every day life.
Since
independence in 1971, Bangladesh has moved from a
predominantly agrarian economy to one based on industry with
a high specialization on a very limited number of products.
While its share of GDP decreased in the last 30 years, the
agricultural sector still accounted for 21% of GDP and for
more than 60% of employment in 2003. At the same time,
services accounted for 53.7% of GDP and industries for 25.3%
of GDP.
The main agricultural products are jute and fisheries
(shrimps). Bangladesh is the 2nd largest jute producer in
the world after India. 85% of jute production is exported.
Next to jute, Bangladesh tries to compete on the global
market for tea but is increasingly losing market share.
Other agricultural products are fruits and vegetables, which
benefit from the favorable climate. However, due to the low
quality and poor transportation facilities, the export
potential of these products is rather low.
Fisheries represent approximately 22% of the agricultural
sector in Bangladesh and 5% of GDP. Shrimps are the main
output of the sector and all of these are exported, making
shrimp export the second largest export product of
Bangladesh. The quality of the shrimps is a source of
concern due to cases of nitrofuran contamination. Other
sectors of agro-processing in Bangladesh are fruit juices,
jam and canned food.
The industrial sector primarily consists of garments
manufacturing (RMG, knitwear and textiles) providing
employment to 2.5 million people (more than 80% women) in
over 3500 factories. Other industrial sectors are leather
(CSR and quality concerns), and footwear (expanding
significantly in recent years), ceramics (directed to
European market), pharmaceuticals (good export potential, TRIPs transition period till 2016), light-engineering and
packaging.
Services include transport, ICT, financial sector (market
deepening and broadening are necessary; part of the loan
agreement with the IMF (PRGF) is the privatization of 3
Nationalized Commercial Banks), Rupali Bank, utilities (market potential,
i.e. structural power shortages), construction, tourism
(rather underdeveloped) etc. Bangladesh is counting on
outsourcing development and expects to benefit from its low
wages to develop the IT market. The mobile phone market is
already booming.
The agro-processing sector and ICT/Telecom have been
prioritized for Dutch investment promotion (PSOM grant).
Background notes on these two sectors are available at the
website of this Embassy under PSOM.
Other useful web addresses for economic
background information on Bangladesh
The website of the International Monetary
Fund’s (IMF) resident representative office in Bangladesh
provides up to date information on the macro economic
situation in Bangladesh as well as on key structural
economic reforms.
The website of the World Bank office in
Bangladesh provides a good country overview, including a
summary of economic developments, data, project information
and research.
The website of the Bangladeshi Ministry
of Finance (MoF) provides detailed budget information,
monthly fiscal reports and yearly economic reviews (last:
Bangladesh Economic review 2006). Note that the Bangladeshi
fiscal year runs from July to June, while the Dutch fiscal
year runs from January to December.
The website of the Central Bank of
Bangladesh provides, amongst other, economic data,
information about the financial system, the money market and
regulations and guidelines.
The website of
the Centre for Policy Dialogue (CPD) provides research and
analysis on economic and policy issues in Bangladesh. One of
the activities of the CPD is the Independent Review of
Bangladesh’s Development (IRBD) which is co-sponsored by the
Netherlands Embassy.
2.Figures
given in this section are primarily based on: IMF, 5th
PRGF review (2006)
3.The
Multi-Fiber Agreement (MFA) quota in USA phased
out in January 2005, did not have the predicted major
fall out in the RMG export.
4Annual
Import Payments 2004-2005; Bangladesh Bank
5Needs
Assessment of trade and trade-related assistance for
Bangladesh (2005), prepared with financial assistance of
the EC, JICA, SEDF
