Acknowledgement At the starting of our report, we would like to thank the Almighty Allah for blessing us with the

strength, aptitude and patience for successfully completing our term paper. We would like to thank our course teacher of International Trade and Finance, Mokta Rani arker for gi!ing us this assignment as a result of which we ha!e got the opportunity to know many more about "alance of #ayment of "angladesh, its different components, its history of trends and so on which has widened our knowledge. We ha!e tried our best to implement his suggestions while doing this assignment. Finally our sincere thanks go to each and e!eryone who has helped and supported us significantly in different stages during the completion period of this assignment.

Executive summary The "alance of #ayments is the summary statement or statistical record of a country$s international economic transactions with the rest of the world o!er a certain period of time presented in the form of double%entry bookkeeping. It pro!ides an o!er!iew of a country$s international transactions. For "alance of #ayments "angladesh "ank follows &th edition of the classificatory scheme of the IMF's "alance of #ayments Manual ("#M&). It has been being followed since *++,%+-. The main source documents for compilation of the balance of payments of "angladesh are the records of the Authori.ed /ealers, supplemented by information obtained from the "angladesh "ank and 0conomic Relations /i!ision (0R/) of the Ministry of Finance. In "angladesh "alance of #ayments are recorded under two main heads1 current account and capital 2 financial account. As per the basic con!entions in accounting, balance of payments transactions are recorded in the form of double%entry book keeping, with each credit%entry e3actly balanced by an offsetting debit%entry and !ice !ersa. A credit%entry records the pro!ision of real resources denoting e3ports of goods and ser!ices and a decrease in holding of foreign financial assets or an increase in foreign financial liabilities. 4on!ersely, a debit%entry records the pro!ision of real resources denoting imports of goods and ser!ices and an increase in holding of foreign financial assets or a decrease in foreign financial liabilities. 5nre6uited transfers and counter%parts are shown as credits when the entries to which they pro!ide the offsets are debits and as debits when those entries are credits. The net positions are arri!ed at by deducting debits from credits. Thus for assets, whether real or financial, a positi!e (credit) figure represents a decrease in holdings while a negati!e (debit) figure represents an increase. In contrast, for liabilities, a positi!e figure shows an increase and a negati!e figure a decrease. The o!erall "alance of #ayments is determined through adding all the net balances of all accounts. From *++* to *++, in calculating current account of "alance of #ayments trade balances, ser!ices balances and unre6uited transfer balances are considered and after *++, in calculating current account of "alance of #ayments along with trade balances and ser!ices balances, income balances and current transfer$s balances are also considered. #re!iously only capital accounts are considered but now along with capital account, financial accounts are also considered. From *++* to 78** there occur many changes, up and down in different accounts. ome of which ha!e considered as good for our country and some of which are not. In this report we ha!e tried our best to present the changes and the impacts of them.

Letter of Transmittal

*9th April, 78*: Mokta Rani arker Faculty of "usiness Administration /epartment of Finance 5ni!ersity of Information Technology and ciences. Subject: Submission of term paper on Balance of ayment of Banglades!" /ear Madam, We ha!e completed this term paper as part of our course ;International Trade and Finance<. The assignment has been compiled as per your re6uirements. It gi!es us immense pleasure to tell you that working on this assignment has gi!en us a wide range of e3posure. The assignment is based on the knowledge, e3periences and the skills that we ha!e ac6uired studying the course, International Trade and Finance. We are thus submitting this assignment with the hope that it li!es up to your satisfaction. =owe!er we would be glad if you enlighten us with your thoughts and !iews regarding the assignment. In addition, if you wish to en6uire about any of the aspects of the assignment, we would be glad to answer your 6ueries. Thank for your cooperation. incerely >>>>>>>>. Md. Faisal Ahamed I/1 *8?*8&**

Balance of ayment Analysis: Banglades! erspective

Balance of ayment "alance of payment is a record of all transactions made between on particular country and all other countries during a specified period of time. "@# compares the dollar difference of the amount of e3ports and imports including all financial e3ports and imports. "@# may be used as an indicator of economic and political stability. A negati!e balance of payment means that more money is flowing out in the country than coming in and !ice%!ersa. Balance of payments #Annual $ata% (In million US$) &tems * Trade balance 03port f.o.b.(including 0#A) @f which 1 Readymade garments Import f.o.b (including 0#A) Services 4redit /ebit rimary income 4redit /ebit @f which1 @fficial interest payments Secondary income @fficial transfers #ri!ate transfers @f which 1 Workers' remittances(current aBc portion) -urrent Account Balance -apital account 4apital transfers @thers /inancial account Foreign direct in!estment (net) '()(*)) '())*)' , +uly* +uly* -!anges +une +une . over ' 7 %,,?? 77&+7 *,+*? :8::9 %7:9+ 7&,: ?+?7 %*?&? *7? *&,:?& *7?&7 *8: *7:?+ **9&8 --& 9?7 9?7 8 %*+78 ,,& : %,++& 7:++7 *+8+8 :*+-, %7&99 79-? &7&8 %*&8*+& *,8: :,: *:9++ *8& *:&+? *7-?: *9:8 ?9+ ?9+ 8 %+&& ++& 7-.:+ *8.8*8.7? &,.79 ,.+7 ?.:* 9.7: 9.7 9.&9 &.?? ?

#ortfolio in!estment (net) @ther in!estment (net) Medium and long%term (MCT) loans MCT amorti.ation payments @ther long term loans (net) @ther short term loans (net) Trade credit (net) @ther assets /M"s and D"/4s (net) Assets Ciabilities Errors and omissions 0verall Balance 1eserve Assets "angladesh "ank (net) AssetsE Ciabilities 2emorandum &tems : Fross reser!es (before !aluation adGustments) Haluation AdGustment /uring the #eriod

%7%799, *8:7 ,:+ %*8* &:* %7&9+ %99* %*98 ?&7 7+7 %79: %9&9 9&9 9&9 %?-* *,& *8&:%:,?

*+%7*?*?98 ,-+ %&, 7?7 %*?&8 %*989 &7 ??: ?+& %9&8 ?+? %?+? %?+? 7+: %78* *89:9 7,7 *8:9? :.: %&9?*.?, 9.,,

Fross reser!es (after !aluation adGustments) *8+*7 In months of imports of goods and ser!ices :.,* @/s to A/s and Reser!e held at @"5s 79+

-omponents of balance of payment: "alance of payment is generally grouped under the following heads, 4urrent Account 4apital Account 5nilateral or 4urrent Transfer Account @fficial ettlement Account

In the "angladesh "alance of #ayments statements are grouped under two maGor categories as gi!en below, 4urrent Account and 4apital and Financial Account. *. Trade Balance: The difference between a country's imports and its e3ports. "alance of trade is the largest component of a country's balance of payments. /ebit items include imports, foreign aid, domestic spending abroad and domestic in!estments abroad. 4redit items include e3ports, foreign spending in the domestic economy and foreign in!estments in the domestic economy. A country has a trade deficit if it imports more than it e3portsI the opposite scenario is a trade surplus. From the balance of payments of "angladesh during 78*8%** fiscal years, we see that its import is greater than its e3port and it has a trade deficit. That$s why it has got 5 /J ,,?? million deficit in 78*8%** fiscal year. 7. Balance of Services Account: In 78*8%** the ser!ice account is showing a deficit amount and the deficit amount is *,7,8,, million 5 /ollar. The o!erall balance of ser!ice account is showing a negati!e balance. :. 3nilateral4-urrent Transfer Account: From the abo!e balance of payment sheet, in 78*8%** fiscal years the current transfer is 5 /J 7:9+ million, which is a deficit amount. And in 78**%*7 fiscal year, which is 5 /J 7&99million. It is seen that the transfer account is increase year to year. It is ob!iously good sign for our economy.

?. -urrent Account: At present the current account balance of "angladesh is showing a positi!e sign. 78*8 FK "angladesh 4urrent account balance is 5 /J --& million and 78** FK 5 /J *9:8 those are positi!e balance. 4urrent Account is increases. It is good for our country. &. -apital Account: "angladesh has a huge deficit in capital account. Its capital account shows 5 /J 9?7 million that is positi!e and financial account is 5 /J *+78 million which is deficit. o it$s o!erall capital account is 5 /J *7,million, a negati!e amount. At present "angladesh is trying to o!ercome this situation. 9. Balance of ayments: The e3istence of a current account deficit is not in itself a sign of bad economic policy or bad economic conditions. Cet$s see our two FK balance of payment. &n '()(*)) fiscal year Balance of ayments 5 Balance of 6-urrent account 7 -apital and /inancial account8

B0 5 9::;7 6<='*)>'(8? million dollar 5 9::;7 6*)'@:8? 5 *.>.7 6*'<. Errors and 0missions8 5 *<;< From the abo!e calculation we see that the deficit balance 5 /9&9 million is come from capital account. A common misconception is that balance of payments deficits are always bad for the economy. This is not necessarily true. It may able to repay the loan and that$s why it is show negati!e balance. When a country repay its debt it is good for its economy. In principle, there is nothing wrong with a trade deficit. It simply means that a country must rely on foreign direct in!estment or borrow money to make up the difference. In the short term, if a country is importing a high !olume of goods and ser!ices this is a boost to li!ing standards because it allows consumers to buy more consumer durables. &n '())*)' fiscal year Balance of ayments 5 Balance of 6-urrent account 7 -apital and /inancial account8 B0 5 9)<.(7 6=<>*>;;8? million dollar 5 9)<.(7 6*=:<8? 5 ))==7 6*<;( Errors and 0mission8 5 =>= From the abo!e calculation we see that there is a positi!e balance 5 /J ?+? million in 78**%*7 fiscal years. And it is come from the current account. o it is good for our country.

Balance of payment of Banglades!: A contemporary analysis The economic performance of a country is reflected in its balance of payment ("o#). "angladesh is an emerging economy in the world. The impro!ement of its economy also depends on the performance of its "o#. According to "angladesh "ank, the o!erall balance for the fiscal year 78*8%** was in the negati!e territory, (%) J9&9 million and the 78**%*7 fiscal year, J?+? million. The main features and weaknesses of our "o# are that it is import%dominated. The growth of import is significantly higher than that of e3port. If we can reduce the import dependency or increase the le!el of e3port, then it will help reduce the pressure on of our "o#, generated from import dependence. As our growth of e3port is lower than that of import most of the time our trade balance is negati!e Lin 78*8%** it is minus J:8::9 millionM. @ur balance of trade consists of two components %% import and e3port. @ur performance of e3port makes us both happy and worried. According to the 0conomic Re!iew%78**, the contribution of readymade garments (RMF) to our total e3port re!enue was ,,.,,N. =ere we are proud of our golden goose or ORMFO. The economy of "angladesh is branded worldwide because of its 6uality RMF products. "ut our e3port is

concentrated on a single item. It is not di!ersified. If the e3port of RMF falls by a significant per cent, then our "o# will come under a se!ere negati!e impact. That is why we should di!ersify our e3port items. To e3plore more e3port items we should ha!e a national research and de!elopment (R2/) wing. 03port di!ersification does not mean that we should stop searching for more RMF e3port markets. It only implies a strong commitment on our part to the realistic goals and obGecti!es of economic diplomacy on a sustained footing to help e3plore more and more e3port markets. The strongest component of our "o# for the fiscal year (FK) 78**%*7 was the remittance inflow. According to "angladesh "ank, the remittance inflow in Panuary, 78*7 was J*.77 billion and J*.** in February, 78*7 which was the highest e!er in the history of "angladesh. Foreign direct in!estment (F/I) is another important aspect of things relating to our "o#. The amount of F/I inflow to "angladesh has not been at the desired le!el. After the fiscal year 788?%8&, the growth of F/I flow to "angladesh on an a!erage decreased e3cept the FK 788-%8+. Again after that fiscal year, it has decreased se6uently. In FK 788?%8& the contribution of F/I to the country's gross domestic product (F/#) was *.::N and in FK 78*8%** it is only 8.,8N.If the present trend continues the e3pected contribution of F/I to F/# for FK 78*?%*& may come down to 8.99N. In fiscal *+,-%,+, the contribution of F/I to total in!estment was ,.:7N but in fiscal 78*8%78**, came down to 7.-&N only. We ha!e two dimensional problems in case of poor F/I performance. Firstly, lack of branding of our in!estment potential along with a poor R2/ wing for F/I. econdly, we ha!e poor infrastructural facilities, insufficient gas and power supply and an unstable political setting, besides the red%tapism of bureaucracy. We need to brand our best 6ualities, traits or attributes to the global community properly so that we can utili.e our full in!estment potential. According to F/I maga.ine of The Financial Times we ha!e the third best cost%effecti!e 03port #rocessing Aones (0#A) in the world. We ha!e two deep international sea ports to facilitate the carriage of goods and ser!ices worldwide. In fiscal 78*8%**, the economic growth rate of de!eloping countries was 9.8N but our economy has grown at the rate of 9.,N.At the same time the world economy has grown at the rate of &.8N for the year 78*8%**, where our economy has grown at 9.,N.@ur growth rate is certainly positi!e, enough for attracting F/Is. "angladesh has no default history from its inception. 2# and Moody's In!estor er!ice ha!e consecuti!ely rated "angladesh ""% and "a: for the years, 788+%*8 and 78*8%**. It indicates the country's sound macroeconomic stability, along with positi!e economic prospects and congenial en!ironment for attracting more F/Is. "ut we should be concerned about the fact that though we look for more F/I inflows, but

we ha!e to determine how much F/Is we need and in which sectors. We ha!e to set our limit and try to attract F/I within this limit. If this limit crosses, then we ha!e to consider otherwise. Another significant component of our "o# is portfolio in!estment. The rough guess is that the contribution of portfolio in!estment in our capital market is on an around only :.8N. "ut we should take proper initiati!e to increase the amount of portfolio in!estment in the country's stock market. @ur foreign missions can play a great role for attracting more portfolio in!estment. The infrastructural facilities at /haka tock 03change (/ 0) and 4hittagong tock 03change (4 0) should be impro!ed so that online trading for the foreigners can be ensured. #olitical instability is one of the greatest obstacles to attracting more foreign portfolio in!estment to the country. 4redible financial reporting, 6uality research and good corporate go!ernance can ser!e as catalysts to impro!e the portfolio in!estment in the "angladesh capital market. Introduction of deri!ati!e products and more bonds are also needed for our market de!elopment and attracting portfolio in!estment. @ur foreign e3change (fore3) reser!e situation is now showing a steady picture. In Panuary, 78*7 it rose to J*8.8, billion. The international standard is that the reser!e should support at least three months' import. @ur reser!e is able to co!er more than three months' import re6uirements. The increase in inflow of remittance and decrease of fuel import can further impro!e the health of our fore3 reser!e. If we can tackle our import, then the condition will certainly impro!e more in the future. -onclusion The most important thing that we need is better coordination among different policy% making bodies and economic policy instruments for maintenance of a healthy condition of our "o#. This is because the policy being pursued by one body affects the acti!ities of another policy%making body. If there is proper coordination, then we can mo!e to a healthy "o# situation for ensuring a better economy of "angladesh.