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Balance of Trade and Balance of Payments: The Case of Bangladesh Habibullah Bahar Agrani Bank Chair Professor BIBM

, Mirpur The economic acti ities in any country may be grouped under the follo!ing four ma"or sectors: #$ Monetary sector %money demand, money supply, domestic credit, etc$& '$ ()ternal sector %()port, import, remittance, *+I, foreign aid etc$& ,$ *iscal sector %go ernment re enue, e)penditure, go ernment borro!ing, budget deficit, etc$& -$ .eal sector %sa ings, in estment, /+P gro!th, etc$& The abo e sectors are not independent of one another$ It means that they are dependent and actions taken in one sector !ill directly affect the acti ities in another sector$ *oe e)ample, if there is fiscal deficit0surplus, it !ill affect the monetary sector and the e)ternal sector$ Again, if there is deficit0surplus in the e)ternal sector, it !ill affect monetary and fiscal sector$ The sum total of all the acti ities in the first three sectors !ill be reflected in the real sector in the form of rise0fall in the /+P gro!th rates$ In our today1s discussion, !e shall mostly concentrate on the outcome of the e)ternal sector !hich is mostly represented by the Balance of Trade %BoT& and the Balance of Payments %BoP&$ The /eneral Concepts The BoP is a systematic record of all transactions bet!een a country %for e)ample, Bangladesh& and the rest of the !orld$ It is generally compiled by the central bank of the country on behalf of the go ernment in accordance !ith the pro isions laid do!n in the IM*1s Balance of Payments Manuel 2$ As per the basic con entions of accounting, BoP transactions are recorded in the form of double3entry book keeping, !ith each credit entry e)actly balanced by an off setting debit entry and ice3 ersa$ A credit entry records the pro ision of real resources denoting e)ports of goods and ser ices and con ersely, a debit entry records the pro ision of real resources denoting imports of goods and ser ices$ *or compilation purpose of BoP, the Bangladesh Bank collects data from the

'7 million in *8#9 and in *8## respecti ely$ It remains in deficit in almost all the de eloping countries of the !orld$ The credit entries mainly co er merchandise e)ports on *$:$B$ basis and are taken from customs records pro ided by (PB$ The debit entries deri ed from e)change records mainly represent merchandise imports and are reported on C$I$*$ basis The e)change data are supplemented by data on imports against e)ternal official debts and grants pro ided by (. go t$ employees. Customs office. %business tra elers.A$ B: Services Account .ecording of ser ices imply pro ision or ac<uisition of ser ices of an economy to and from rest of the !orld$ The credit entries measure the ser ices pro ided to and the debit entries measure the ac<uisition of ser ices from the rest of the !orld$ =ome of the ser ices may be cited as: %i& Transportation: Transportation co ers all transportation %sea.eport of the Bangladesh Bank is gi en at Anne)3# for ready reference$ /eneral Components of BoP A: Trade Account It generally comprises isible items like e)ports and imports$ The difference bet!een e)ports and imports is termed as Trade Account %TB&$ *or e)ample. goods procured in ports by carriers are e)cluded from transportation but repairs on transportation e<uipments are included in this item$ %ii& Travel: Tra el represents receipts and payments under tourism and other tra els.+ and (PB$ A traditional format of BoP as published in the Annual .Authori4ed +ealers. (. mo ement of goods %freight& charter of carriers !ith cre! and other related supporting and au)iliary ser ices$ Acti ities like freight. rail and road& ser ices that are performed by residents for those of non3residents and ice3 ersa and in ol ed !ith carriage of passengers. insurance. .s.+$ To arri e at a uniform aluation !ith e)ports. data for !hich are pro ided by the B(P. transportation and insurance ser ices at an estimated rate of #9 percent are deducted from C$I$* import data$ It may be noted here that e)ports and imports those made through enterprises operating in the (P. the amount of TB in Bangladesh !as in deficit to the e)tent of 52#22 million and 5 6. air.

the CAB !as in surplus position during the last fe! years$ The CAB sho!ed a surplus of 5.6'million in *8#9 !hich came do!n to 5AA2 million in *8##$ A surplus in the CAB indicates a strong position in the e)ternal sector in any country$ But. salaries of local employees and other benefits recei ed by short3term !orkers %less than one year& from non3resident employers and that of local employees of embassies and international organi4ations are treated as credit entries !hile the re erse is the debit entries under this head$ +: Current Transfers: It includes. among employees.eceipts by banks operating in Bangladesh from their offices and correspondents abroad are included here$ (vi) Computer and Information services: (vii) Royalties and license fees (viii) Other business services Income Account: Income earned from the factors of productions. !orkers1 remittances from abroad$ (: Current Account alance (CA & ? %A@B@C@+&: In Bangladesh. educational and health purposes etc$& %iii& Construction services: It co ers receipts for !ork abroad on construction pro"ects$ %i & Insurance services: It co ers net premium on direct insurance and re3insurance assumed by resident insurance companies$ % & Financial services: . religious. it turned out to be in deficit to the e)tent if 5#. among others %i& +irect in estment %ii& Portfolio in estment and other in estments %mostly trade credit& H: !rrors " Omissions: I: Overall alance (!#F#$#%) Conclusion: Balance of payments al!ays balances . it means dra! do!n of foreign e)change reser es$ *: Capital Account: It includes capital transfers !hich consist of transfer of o!nership of fi)ed assets or forgi eness of financial liabilities bet!een residents and non residents !ithout any <uid pro <uo$ /: Financial Account: It includes. like capital and labor are included under this head$ The income earned from capital is called in estment income and from labor is called compensation to employees$ >ages.million during the first fi e months of *8#'$ If it is in deficit.