Return to: Index of "1994 Country Reports on Economic Practice and Trade Reports" ||
Index of "Economic and Business Issues" || Electronic Research Collections Index || ERC Homepage



U.S. DEPARTMENT OF STATE
BANGLADESH: 1994 COUNTRY REPORT ON ECONOMIC POLICY AND TRADE PRACTICES
BUREAU OF ECONOMIC AND BUSINESS AFFAIRS





                            BANGLADESH

                     Key Economic Indicators
        (Millions of U.S. dollars unless otherwise noted)


                                    1992      1993      1994 1/

Income, Production and Employment:

Real GDP (1985 prices)            14,054    14,307    14,688
Real GDP Growth (pct.)              4.23      4.46      4.90
GDP (at current prices)           23.760    24,746    25,983
By Sector:  2/
  Agriculture                      8,209     8,580     9,068
  Energy/Water                       363       379       N/A
  Manufacturing                    2,140     2,236     2,858
  Construction                     1,385     1,446       N/A
  Financial Services                 461       482       N/A
  Other Services                  10,850    11,341       N/A
Net Exports of Goods & Services   -1,403    -1,526       N/A
Real Per Capita GDP
  (1985 prices/USD)                  118       119       119
Labor Force (000s)                54,300       N/A       N/A
Unemployment Rate (pct.)             N/A       N/A       N/A

Money and Prices:  (annual percentage growth)

Money Supply (M2/bil. Taka)        285.3     315.4     351.3
Base Interest Rate                  9.00      7.00      6.00
Personal Saving Rate                3.80      3.80      3.80
Retail Inflation 3/                 5.09      1.33      1.67
Wholesale Inflation                  N/A       N/A       N/A
Consumer Price Index 3/           724.40    734.30     746.2
Exchange Rate (USD/Taka)
  Official                         38.15     39.15     40.00
  Parallel                           N/A       N/A       N/A

Balance of Payments and Trade:

Total Exports (FOB)                1,901     2,138     2,347
  Exports to U.S.                    832       732       784 4/
Total Imports (CIF)                3,457     3,983     3,905
  Imports from U.S.                  189       129       100
Aid from U.S. 5/                     135      73.5      95.1
Aid from Other Countries           1,611     1,675     1,559
External Public Debt              12,605    13,178    14,027
Debt Service Payments              535.5     505.6     512.4
Gold and Foreign Exch. Reserves    1,612     2,125     2,822
Trade Balance                     -1,556    -1,845    -1,558
  Trade Balance with U.S.            643       603       604 4/


N/A--Not available.

1/ Information for Bangladesh fiscal year, July 1-June 30. 
Data for FY94 is mostly provisional.
2/ FY94 sectoral data is estimated on the basis of sectoral GDP
contribution of FY93.
3/ Inflation figures are based on Consumer Price Index.
4/ Figures are based on Bangladesh Bank calculation on total
amount of commercial bank letter of credit value.
5/ Figures are for the October 1-September 30 fiscal year.



1.  General Policy Framework

    Bangladesh is one of the world's poorest, most densely
populated, and least developed nations.  With 123 million
people and a GDP of $26 billion in Bangladeshi fiscal year 1994
(FY94), per capita income (current basis) was $211.  However, a
low cost of living gives Bangladesh an estimated purchasing
power parity per capita GDP of $1,230.  Many factors have
inhibited the growth of Bangladesh's overwhelmingly
agricultural economy.  These include frequent cyclones and
floods, government interference with the economy, a rapidly
growing labor force which cannot be absorbed by agriculture, a
low level of industrialization, underdeveloped energy
resources, and inefficient power supplies.  A major policy
objective, feeding the rapidly growing population, is supported
by self-sufficiency in rice production and supplemented by
significant U.S. wheat exports to Bangladesh under both PL-480
programs and commercial sales.

    Despite political unrest and opposition to some elements of
its economic reforms from those who benefit from the status
quo, Bangladesh's democratically elected government continued
its macroeconomic stabilization program throughout FY94.  As a
result, the overall economic condition of the country remained
stable.  The GDP growth rate registered 4.9 percent, an
increase over FY93's growth rate of 4.4 percent.  Further rate
reductions in Bangladesh's tax and tariff regimes and the
liberalization of the foreign exchange regime (including full
convertibility of the taka on the current account) mark major
progress in the government's drive toward a more open, modern,
liberal economy.  Inflation remained low during FY94, at 1.7
percent.  Foreign currency reserves are put at approximately
$2.8 billion, sufficient to cover over eight months of imports.

    Government expenditures, composed of current expenditures
and the annual development budget, stayed under tight control
during FY94.  Domestic revenues, buoyed by improved tax revenue
performance, exceeded current expenditure by 31 billion taka
(equivalent to $775 million).  This surplus provides the
government contribution to the country's development budget,
termed the "Annual Development Program" (ADP).  While most
funding for the ADP comes from donors, the Finance Ministry
claimed to have maintained Bangladesh's contribution at about
33 percent in FY94.  Tax revenues reached a record high of 99
billion taka ($2,475 million), almost double the amount of FY89.

    However, the impact of government stabilization and trade
liberalization programs has cooled the ardor for reform among
many local businessmen.  Leaders of major business associations
representing small and medium-sized firms claim that reforms
(which increased the competition they face) have hit their
pocketbooks, accounting for a 30 percent drop in sales revenue
since 1991, the year the government initiated the stabilization
program.  These businessmen argue that current economic reforms
have opened Bangladesh to a surge of imports, principally from
India, and that reciprocal trade has not occurred.  The local
media have highlighted an apparent increase in smuggling of
Indian salt, sugar, textiles, fruit, leather, livestock,
automotive spares, and cement.  Rather than evaluate
Bangladesh's terms of trade or exchange rate policy vis-a-vis
its neighbors, these trade organizations demand greater tariff
protection for local industries.  Using India as an example,
they favor the classic protectionist "infant industry" path of
industrial development, ignoring the urgent need to enhance
productivity of domestic industries.  Given this kind of
thinking on the part of business, combined with a fractious
political environment, progress on the remaining structural
reforms is likely to stall.

    The microeconomic picture stands in contrast to
Bangladesh's record of achievement in attaining macroeconomic
stability.  State presence in the economy continues to be large
and, despite rhetoric to the contrary, privatization has slowed
to a virtual standstill.  The level of investment from both
private and public sources is among the lowest in Asia.

    Although some liberal investment measures were taken by the
government to foster private sector involvement in the energy
and telecommunication sectors, the investment climate continues
to be generally poor.  Bureaucratic bottlenecks, poor
infrastructure, corruption, labor unrest and a deteriorating
law and order situation continued to discourage domestic and
foreign investors.  Investment, stuck at 12 to 13 percent of
GDP in the FY85-FY92 period, increased slowly to over 13
percent in FY93 and is expected to reach 14 percent in FY94. 
It is generally held that only an investment-to-GDP ratio of 17
to 18 percent and a GDP growth rate of 6 to 8 percent can begin
to make a real difference in lifting Bangladesh out of
poverty.  Bangladesh's current GDP growth rate of 4.9 percent,
while good by historical standards, is not high enough to make
a real difference to the poorest level of the economy.


2.  Exchange Rate Policy

    The Bangladesh Bank follows a semi-flexible exchange rate
policy, revaluing the currency on the basis of a weighted
basket of economic indicators.  The high and rising level of
foreign exchange reserves suggests the taka is undervalued. 
The black market rate is quite close to the official rate and
has been stable.  The taka's effective market value is
bolstered by the large sum of foreign exchange Bangladesh
receives every year through aid transfers, and by continued
high levels of tariff protection and other restrictions on
imports.  Foreign exchange received as remittances from
overseas workers (manpower exports) further strengthens the
taka.  Noting that the real exchange rate for the taka has
risen vis-a-vis the exchange rates for the currencies of export
competitors such as India and China, some economists and
exporters are arguing for more rapid trade liberalization and
further devaluation.  The government has declared the taka to
be fully convertible for current account transactions, and is
considering full convertibility for capital account
transactions by December 1994.

    U.S. products and services have become generally more price
competitive in the Bangladesh market to the extent that the
value of the U.S. dollar has declined against competitor
nations' currencies.  Inbound and outbound foreign investment
flows are too small to affect the exchange rate.  Most foreign
firms are able to repatriate profits, dividends, royalty
payments and technical fees without difficulty, provided the
appropriate documentation is presented to the Bangladesh Bank. 
Outbound foreign investment by Bangladeshi nationals requires
government approval and must be in support of export
activities.  Bangladeshi travellers are limited by law to
taking no more than $2,500 out of the country per year.


3.  Structural Policies

    In 1993, Bangladesh successfully completed the
International Monetary Fund's three-year Enhanced Structural
Admustment Facility (ESAF) program, meeting all fiscal and
monetary targets.  Money supply growth has been about 10
percent in FY93 and FY94.  The value added tax (VAT) continued
to generate higher than anticipated revenues for the
government, with collections up eight percent in real terms. 
Government spending has also been curbed through controlling
the level of subsidies provided to several money-losing
parastatals, and attempting to shift more central government
resources towards capital or development expenditures. 
According to the Central Bank, over the first quarter of FY94
Bangladesh actually experienced a bout of deflation.  Continued
fiscal discipline coupled with low money supply growth and
increasing banking liquidity kept FY94 inflation at 1.67
percent.

    While Bangladesh met ESAF monetary and fiscal targets,
progress on sectoral reforms, backed by multilateral
development banks and bilateral donors, has been halting.  Long
an easy source of funds for preferred borrowers who did not
feel obliged to repay, the banking sector in Bangladesh is
undergoing a wholesale reform effort under the Financial Sector
Reform Project (FSRP), supported by the U.S. Agency for
International Development and the World Bank.  The FSRP faces a
daunting challenge in attempting to convert a bureaucratically
run, economically unresponsive network of nationalized banks
into a useful source of capital for entrepreneurs.  Insulation
from market forces permitted the banks to maintain administered
interest rates and to ignore the bottom line in providing and
pricing banking services.  The FSRP continued to make
considerable progress in repricing banking services and
liberalizing interest rates during FY94.

    Efforts at reform often run afoul of vested interest
groups, such as public sector labor unions or domestic
producers in import-competing industries.  The public sector
accounts for only one-fourth of Bangladesh's industrial output,
but it exercises a dominant influence on industry and the
economy.  Most public sector industries, including textiles,
jute processing, and sugar processing, are perennial money
losers, draining the treasury and setting high wages that their
private sector counterparts often feel compelled to meet out of
fear of union action.  Moreover, the fact that crucial 
infrastructure (power, telecommunications, railroads, and the
national airline) is in the public sector tends to limit
private sector productivity.


4.  Debt Management Policies

    Assessed on the basis of outstanding principal,
Bangladesh's external public debt was $14 billion as of June
1994, up six percent from the previous year's level of $13.18
billion.  Given the fact that virtually all of the debt was
provided on highly concessional terms by bilateral and
multilateral donors, the net present value of the total
outstanding debt is significantly lower than its face value. 
Bangladesh currently owes approximately $1,314 million to the
United States, primarily incurred under the old PL-480 Title I
and III food program.  Total medium and long term debt
servicing for FY94 was $512 million, an increase over the $506
million paid out in FY93.


5.  Significant Barriers to U.S. Exports

    Officially, private industrial investment is completely
deregulated and the government has significantly streamlined
the investment registration process.  However, while
registration has been simplified, domestic and foreign
investors typically must obtain a series of approvals from
various government agencies in order to implement their
projects.  Bureaucratic red tape, compounded by rent-seeking
activity, slows decision-making.  The major exception is
investment in the country's Export Processing Zones (EPZ),
located in Chittagong and Dhaka.  Investment proposals for the
EPZs are processed quickly, and the EPZ administrators take
care of the investor's needs, from tax treatment to utility
hook-ups.  Barriers to investment also include the country's
low labor productivity, poor infrastructure, and an uncertain
law and order situation.  The lack of effective commercial laws
makes it difficult to enforce business contracts.

    The government has made significant progress in
liberalizing what had been one of the most restrictive trade
regimes in Asia.  Tariff reform was accelerated significantly
in FY94 by the compression of customs duty rates into a range
of 7.5 to 100 percent for most products, with the exception of
large vehicles, alcohol, cigarettes and air-conditioners, for
which duties remain in excess of 100 percent.  The trade
weighted average import tax rate was 43 percent in FY94
compared to 59 percent in FY92.  In July 1992 the government
replaced an import sales tax with a trade-neutral VAT, leaving
only the 2.5 percent "advance income tax" to be removed to make
customs duty the only protective instrument for most imports. 
The number of products subject to an import ban or restriction
was reduced during FY94 and import procedures have been further
streamlined.  The formerly cumbersome procedure for opening
letters of credit also has been simplified.  Bangladesh
continues to raise relatively high shares of its government
revenue from customs duties.  Bangladesh ratified the Uruguay
Round agreements and became a founding member of the World
Trade Organization (WTO) on January 1, 1995.


6.  Export Subsidies Policies

    The Bangladesh government attempts to encourage export
growth through measures such as ensuring duty-free status for
some imported inputs, including capital machinery, and
providing easy access to financing for exporters.  Ready made
garment producers are stimulated by bonded warehousing and
back-to-back letter of credit facilities.  Exporters are now
allowed to exchange 100 percent of their foreign currency
earnings through any authorized dealer.  Government financed
interest rate subsidies to exporters were slightly reduced in
FY91 and further reduced over FY93-FY94.

    The growth in garment exports, still by far the most
dynamic performer in Bangladesh's economy, continued to taper
in FY94, up only 15 percent compared to a robust growth of 68
percent in FY91 and 48 percent in FY92.  At over $1.4 billion
in FY94, garments now comprise 60 percent of the value of 
Bangladesh's total exports. However, because most of the trade
consists of assembling imported cloth for re-export, the total
value added to garments in Bangladesh is only about one fourth
of the exported value.  Bangladesh is shifting a larger share
of its garment exports towards the European Union, while U.S.
garment imports from Bangladesh dropped slightly in FY94. 
Recent years have seen some challenges to Bangladeshi garment
exporters from U.S. labor groups protesting child labor
practices, and from U.S. garment producers alleging that some
products are being dumped or covertly subsidized.


7.  Protection of U.S. Intellectual Property

    Bangladesh intellectual property law dates from the
colonial era and has many similarities with the current British
system.  The Patent and Design Act of 1911, as amended by the
Patent and Design Rule of 1933, the Trademark Act of 1940, and
the Copyright Ordinance of 1962, govern patents, trademarks,
and copyrights in Bangladesh.

    Drafts of new legislation have been produced by the legal
profession in some cases and are under review by governmental
committees.  A new "Companies Act 1994" has been approved by
the parliament although it has not yet been publicly released
nor implemented.  Although the government has not given
intellectual property rights a high priority, Bangladesh has
been a member of the World Intellectual Property Organization
in Geneva since 1985 and is represented on two of its permanent
committees.  Intellectual property infringement is common, but
is of limited significance for U.S. firms, with the possible
exception of pharmaceutical products and audio and video
cassettes.


8.  Worker Rights

    a.  The Right of Association

    The Bangladesh constitution guarantees freedom of
association, the right to join unions, and, with government
approval, the right to form a union.  With the exception of 
workers in the railway, postal, telegraph, and telephone
sectors, state administration workers are forbidden to join
unions.  However, some workers covered by this ban have formed
unregistered unions.  The ban also applies to security-related
government employees, such as in the military and police. 
Bangladeshi civil servants forbidden to join unions, such as
those for teachers or nurses, have joined associations which
perform functions similar to labor unions.  Workers in
Bangladesh's two EPZs have also skirted prohibitions on forming
unions by setting up associations.  The government has stated
that labor law restrictions on freedom of association and
formation of unions in the EPZ will be lifted by 1997.  In the
burgeoning garment industry, there have been numerous
complaints of workers being harassed and fired in some
factories for trying to organize workers.

    b.  The Right to Organize and Bargain Collectively

    Unions in Bangladesh are highly politicized.  Virtually all
the National Trade Union centers are affiliated with political
parties, including the ruling Bangladesh Nationalist Party.

    Some unions are militant and engage in intimidation and
vandalism.  General strikes, or "hartals" continue to be used
by the political opposition to pressure the government. 
Hartals cause significant economic and social disruption
through loss of work hours and production.  The Essential
Services Ordinance permits the government to bar strikes for
three months in any sector deemed "essential."  Mechanisms for
conciliation, arbitration, and labor court dispute resolution
were established under the Industrial Relations Ordinance of
1969.

    c.  Prohibition of Forced or Compulsory Labor

    The constitution prohibits forced or compulsory labor.  The
Factories Act and Shops and Establishments Act of 1965 set up
inspection mechanisms to enforce laws against forced labor, but
limited resources prevent the rigorous enforcement of these
laws.

    d.  Minimum Age of Employment of Children

    Bangladesh has laws that prohibit child labor.  The
Factories Act of 1965 bars children under the age of 15 from
working in factories.  In reality, enforcement of these rules
in inadequate.  According to United Nations estimates, about
one third of Bangladesh's population under the age of 18 is
working.  In a society as poor as Bangladesh's, the extra
income obtained by children, however meager, is welcome and
sought after.  In anticipation of possible U.S. legislation
prohibiting the import of products made by child labor,
thousands of underage children employed in Bangladesh's garment
industry were fired in 1993, and this trend continued
throughout 1994.

    e.  Acceptable Conditions of Work

    Regulations regarding minimum wages, hours of work, and
occupational safety and health are not strictly enforced.  The
legal minimum wage varies depending on occupation and
industry.  It is generally not enforced.

    The law sets a standard 48-hour workweek with one mandated
day off.  A 60-hour workweek, inclusive of a maximum 12 hours
of overtime, is allowed.  The Factories Act of 1965 nominally
sets occupational health and safety standards.  The law is
comprehensive but appears to be largely ignored by many
Bangladeshi employers.

    f.  Rights in Sectors with U.S. Investment

    U.S. investment stock in Bangladesh is very small,
totalling less than $30 million.  It is concentrated in the
capitalization and physical assets of a life insurance company,
a commercial bank and a representative banking office, and a
few other service and manufacturing operations.

    The manufacturing firms with U.S. investment have unions
and bargain collectively.  The threat of worker layoffs due to
reductions-in-force can cause serious management-labor
disputes.  As far as can be determined, firms with U.S. capital
investment abide by the labor laws and the provisions of the 31
International Labor Organization conventions ratified by
Bangladesh.  Similarly, these firms respect the minimum age for
the employment of children.  According to both the Bangladesh
government and representatives of the firms, workers in firms
with U.S. capital investment generally earn a much higher
salary than the minimum wage set for each specific industry. 
In some cases, workers in these firms enjoy shorter working
hours than those working in comparable indigenous firms.



  Extent of U.S. Investment in Selected Industries.--U.S. Direct
Investment Position Abroad on an Historical Cost Basis--1993

                    (Millions of U.S. dollars)
                                                                
              Category                          Amount          

Petroleum                                               0
Total Manufacturing                                   (1)
  Food & Kindred Products                     0
  Chemicals and Allied Products             (1)
  Metals, Primary & Fabricated                0
  Machinery, except Electrical                0
  Electric & Electronic Equipment             0
  Transportation Equipment                    0
  Other Manufacturing                         0
Wholesale Trade                                         0
Banking                                               (1)
Finance/Insurance/Real Estate                           1
Services                                                0
Other Industries                                        0
TOTAL ALL INDUSTRIES                                  (1)      

(1) Suppressed to avoid disclosing data of individual companies

Source: U.S. Department of Commerce, Bureau of Economic
Analysis

(###)


To the top of this page