i

ii

ECONOMIC COMPARISON
OF
BANGLADESH AND SAARC
COUNTRIES

DEPARTMENT OF FINANCE
UNIVERSITY OF DHAKA
COURSE CODE: F-208
COURSE NAME: MACROECONOMICS

SUBMITTED TO:
MAHABUBA LIMA
ASSOCIATE PROFESSOR
DEPARTMENT OF FINANCE
UNIVERSITY OF DHAKA

SUBMITTED BY:
GROUP-13
TAHMINA JAHAN – 26-012
FABIHA FAIROOZ ISLAM – 26-103
TOWSIF-UR-RAHMAN – 26-202
SAMEN YASAR – 26-203
RAGIB AL ANJUM – 26-214

DATE OF SUBMISSION: SEPTEMBER 12, 2022

 iii

Group Details
BBA 26TH BATCH

DEPARTMENT OF FINANCE – Section B

FACULTY OF BUSINESS STUDIES

ID Name Remarks

26-012 TAHMINA JAHAN

26-103 FABIHA FAIROOZ ISLAM

26-202 TOWSIF-UR-RAHMAN

26-203 SAMEN YASAR

26-214 RAGIB AL ANJUM

 iv

Letter of Transmittal

May 07, 2022

Mahabuba Lima
Associate Professor
Department of Finance
University of Dhaka
Nilkhet Road, Dhaka 1000

Subject: Submission of course term paper on “Economic condition of Bangladesh

and comparison with SAARC countries”.

Dear Ma’am,

With due respect, we, the students of the designated group for our course “F-208:
Macroeconomics” are submitting the term paper report on the economic comparison of
Bangladesh and SAARC countries as per your instructions.

We have discussed and presented our interpretation of the factors that we think are
responsible for the discrepancies between the GDP, Unemployment, Interest Rate, Inflation
and Money supply and the FOREX reserve of Bangladesh and other SAARC countries (except
India). Working on this paper has provided us with important knowledge regarding the
economy of Bangladesh and has provided us with insight into the Bangladeshi economy as
compared to its SAARC neighbors. The report reflects our unbiased understanding of how the
international economy interacts with one another in a global context.

We, therefore, request your pardon for any shortcomings in the report and hope it satisfies
your expectations.

Sincerely yours,
Tahmina Jahan – 26-012
Fabiha Fairooz Islam – 26-103
Towsif-Ur-Rahman – 26-202
Samen Yasar – 26-203
Ragib Al Anjum – 26-214
 v

Acknowledgement

We would like to thank our Almighty for keeping us safe and sound during our research,
analysis, and presentation of this report.
 vi

Table of Contents

Contents
Table of Contents ......................................................................................................................................... vi

Executive Summary .................................................................................................................................. viii

Chapter 1 Introduction ................................................................................................................................ 1

1.1 Purpose of the Study........................................................................................................................... 1

1.2 Objectives of the Study ....................................................................................................................... 1

1.3 Research Methodology ....................................................................................................................... 1

1.4 Limitations ........................................................................................................................................... 1

Chapter 2 GDP of Bangladesh and SAARC Countries ............................................................................ 2

2.1 GDP of the SAARC Countries ............................................................................................................ 4

2.2 GDP Growth Rate .............................................................................................................................. 6

2.3 GDP per Capita in Bangladesh and the other SAARC Countries ...................................................... 7

2.4 Components of GDP ......................................................................................................................... 11

2.4.1 Consumption .............................................................................................................................. 11

2.4.2 Capital expenditure .................................................................................................................... 12

2.4.3 Tax Revenues ............................................................................................................................ 13

2.4.4 Export Earnings .......................................................................................................................... 14

2.5 GDP used as a measure of Living Standards ................................................................................... 15

2.5.1 Health expenditure ..................................................................................................................... 15

2.5.2 Education expenditure ............................................................................................................... 15

2.5.3 Agricultural Expenditure ............................................................................................................. 16

Chapter 3 Unemployment ......................................................................................................................... 17

3.1 Unemployment rate, % of total labor force (2001-2021) ................................................................... 17

3.2 Causes of Unemployment in Bangladesh ......................................................................................... 18

3.3 Nature of Unemployment in Bangladesh .......................................................................................... 20

3.4 Consequences of Unemployment in Bangladesh ............................................................................. 20

3.5 Country Comparison (Bangladesh vs SAARC others) ..................................................................... 21

 vii

Chapter 4 Money Supply ........................................................................................................................... 23

4.1 Theoretical Framework ..................................................................................................................... 23

4.2 Money Supply of Bangladesh ........................................................................................................... 24

4.3 Country Comparisons ....................................................................................................................... 28

Chapter 5 Foreign Reserve ....................................................................................................................... 35

5.1 Theoretical Framework ..................................................................................................................... 35

5.2 Foreign Reserve of Bangladesh ....................................................................................................... 37

5.3 Country Comparisons ....................................................................................................................... 40

Chapter 6 Inflation .................................................................................................................................... 44

6.1 Bangladesh ....................................................................................................................................... 44

6.1.1 High Inflation in 2011 in Bangladesh ......................................................................................... 45

6.1.2 Inflation Fall in 2012 in Bangladesh ........................................................................................... 46

6.1.3 In Comparison with other SAARC Countries ............................................................................. 46

6.2 Supporting Information ...................................................................................................................... 47

6.2.1 Afghanistan ................................................................................................................................ 47

6.2.2 Sri Lanka .................................................................................................................................... 48

6.2.3 Bhutan ........................................................................................................................................ 50

6.2.4 Maldives ..................................................................................................................................... 51

6.2.5 Nepal .......................................................................................................................................... 53

6.2.6 Pakistan...................................................................................................................................... 55

Chapter 7 Interest Rate.............................................................................................................................. 57

7.1 Causes of Interest Rate Fluctuations ................................................................................................ 59

7.2 Comparison with SAARC countries .................................................................................................. 61

Chapter 8 Conclusion ................................................................................................................................ 62

Bibliography .............................................................................................................................................. 63

Appendix .................................................................................................................................................... 65
 viii

Executive Summary

Bangladesh is amongst the highest GDP earners in SAARC second only to India and Pakistan.
The sheer magnitude of its population, despite its smaller land mass has helped it achieve this
feat. Most of Bangladesh’s GDP comprises of Consumption, 80% and the rest is invested in Fixed
Capital and used by the Government. Bangladesh has secured its position as one of the
frontrunners in graduating from a Least Developed Country amongst the other SAARC Countries
currently set to graduate as early as 2026.

India accounts for over 80 percent of South Asia's GDP and population. Since pro-liberalization
policies were enacted in 1991, it has been on a path of tremendous growth. It has taken
international initiatives in establishing the BRICS Bank and the concept of the trans-Himalayan
growth axis. The study aims to reveal the most attractive countries of this region for investment.
Bangladesh, India, Sri Lanka, Nepal and Bhutan were taken for analysis. Sri Lanka pose best in
per capita GDP whereas Nepal is in the lowest position. A stable political condition and well
decided policies make Bangladesh and India most attractive investment destination of South Asia.

Money supply is the total available currencies and financial instruments in the economy that can
be used as a medium of exchange, a store of value, and a unit of measurement. Money supply is
determined by the monetary policy of a country, which is undertaken by the central bank. Coins,
notes, and demand deposits are usually classified as M1 or narrow money while M1, time
deposits, and money market securities are considered as M2 or broad money.

All the countries have a growing trend in terms of broad money, Bangladesh is only behind Nepal
in terms of total growth out of the 7 countries compared. Most of the countries have similar YoY
growth rates, although some have gone through massive fluctuations unlike Bangladesh. In terms
of broad money as % of GDP, Bangladesh sits in the middle at a comfortable position compared
to the other countries.

In terms of M1 and M2 distribution, Bangladesh has a low ratio of M1 in the economy, Sri Lanka
has an even lower M1 ratio. Pakistan on the other hand has a massively high ratio of M1 in the
economy. However, all 3 countries follow the trend of growing M1 due to the recent global
situations.

Bangladesh has the highest amount of foreign reserve among the compared countries. The BOP
balance is also in favor of Bangladesh although Pakistan is quite close, other countries are more
 ix

on the border while some are having massive dips recently. In terms of BOT balance, Bangladesh
comes 2nd last to Pakistan, both of the countries showing massive deficits. This shows that they
are import dependent but also shows that they can afford these imports, which cannot be said for
most of the other countries that have been compared.

Inflation was high and volatile, with the year-on-year rate reaching 12 percent in September 2011.
This had been the highest recorded since FY99. Increases in the overall CPI were driven by food
prices, but non-food prices had also started rising in recent months. The rise in non-food inflation
had been driven by rise in prices of clothing and footwear, transport, furniture and household
equipment, and miscellaneous goods and services.

Both supply and demand side factors explain inflation in Bangladesh. Rising international
commodity prices had been the main source of food price increases. Rising oil prices also resulted
in rise in prices of almost all other commodities in the consumer basket. The growing gap between
domestic demand and domestic production appears to have contributed to the rise in non-food
inflation that was concentrated in non-energy items.

The gap between domestic demand and domestic production appears to have contributed to the
rise in non-energy inflation. Both supply and demand side factors explain inflation in Bangladesh.
The growing gap between domestic demand and domestic production appears to have
contributed to the rise in non-food inflation that was concentrated in non-energy items.

Inflation rate in Bangladesh has been declining mainly because of falling rice prices. Pakistan has
gone through a more unstable inflation rate trend over the past 21 years. Given the unprecedent
hyperinflation scenario in Sri Lanka in 2022, it is very important to observe the inflation trend of
Sri Lanka and compare the that of with Bangladesh. From 2005 to 2019, Afghanistan faced
double digit inflation, single digit inflation and deflation whereas Bangladesh's inflation rate was
less flatulating compared to Afghanistan.

The Interest rate potentially determines the potential output in an economy and also effects the
demand and supply of money. Interest rates have an effect on the amount of investment put into
an Economy and ultimately determines economic expansion or contraction. The higher rate of
interest causes people to invest more however higher borrowing cost results in demotivation for
expansionary economic activities by businesses resulting in recession. So a balance between the
cost of borrowing and lending effects the economy in a positive way
 1

Chapter 1
Introduction

1.1 Purpose of the Study

Macroeconomics analyzes how a large-scale market or system acts. Macroeconomics

investigates economy-wide phenomena like inflation, prices, economic growth, national income,
GDP, and unemployment. What creates unemployment? What causes Inflation? What boosts the
economy? Macroeconomics aims to measure an economy's performance, understand its drivers,
and improve its performance. Macroeconomics examines the performance, structure, and
behavior of the overall economy, while microeconomics focuses on individual choices (like
people, households, industries, etc.).

1.2 Objectives of the Study

• Understanding how the economy works.

• Depicting the process of international economic comparison.
• Interpreting the role of macroeconomics and its real-world application.
• Fulfilling our course requirements.

1.3 Research Methodology

• Studying the macroeconomic concepts.

• Collecting information from publicly available news articles.
• Using learnings obtained through academic classes.
• Matching and verifying information collected from varied sources.

1.4 Limitations

• Lack of experience.
• Lack of diversification of data sources.
• Lack of opportunities to explore the topic further.
• Lack of technological services.
• Time constraints.
 2

Chapter 2
GDP of Bangladesh and SAARC Countries

India accounts for over 80 percent of South Asia's GDP and population. Since pro-liberalization
policies were enacted in 1991, it has been on a path of tremendous growth. It has taken
international initiatives in establishing the BRICS Bank, the concept of the trans-Himalayan growth
axis, and road, rail, and information networks to strengthen SAARC regional economic
cooperation, demonstrating a keen interest in utilizing natural and human resources for economic
development of the regions. It has brought growth with vision and leadership. More than seven
decades have passed to reach this stage. Many claim that around six decades were lost in the
search for the correct ideas, ideologies, and practices necessary for India's rapid economic
progress. This continues to be the situation in Afghanistan, Pakistan, Nepal, and Sri Lanka. India
can contribute to the environment essential for structural changes and the expansion of economic
and social institutions throughout the region. The activities for liberalization and economic reforms
that are currently being proposed and are anticipated to be implemented in the near future can
have far-reaching and more transformative effects on long-term growth than those enacted in the
1990s. India might catch up to the developed nations of the West and East in terms of per capita
GDP within a generation if it maintains an average growth rate of 8 percent. Other SAARC
member states may be able to catch up to India in terms of per capita income if they take the
necessary steps to establish stable institutions and the socioeconomic circumstances essential
for growth. India is the center of economic gravity, with seven smaller economies surrounding it,
based on the size and strength of its economy and workforce. Considering the growth success
story of China during the 1980s, the region's eastern neighbor, it is vital and advantageous for
India to establish an integrated strategy for the development of these South Asian countries. The
latest suggestion by Modi for HIT-ways (highways, information technology, and transmission
ways) for the region is a relevant and innovative growth initiative. In his Independence Day 2014
address, he proposed five new strategies: I a "zero defect" and "zero effect" approach to
manufacturing; ii) a model village in each constituency; iii) a new initiative for expanding bank
accounts to millions of poor households; iv) massive investment in skills and sanitation; and v) an
open approach to foreign direct investment or "make in India." In this context, it is important to
analyze a number of growth strategies derived from the examination of the facts in this paper.

• Given that South Asia is home to 20 percent of the world's population, this area should
strive for growth and boost its proportion of global GDP to 20 percent from around 6.5
 3

percent in 2014. Such growth necessitates a 10 percent increase in the ratio of saving to
investment above the present averages of roughly 35 percent. 23.
• The structural transformation process should continue so that output and employment
expand greatly in the industrial and services sectors, and so that both output and
employment in the agriculture sector decrease to less than 5% from approximately 17 and
50% in recent years. This transition will occur when this region urbanizes and around 90
percent of the population migrate to urban areas with amenities. The construction of such
megacities will provide not just jobs but also income. It will also liberate rural lands for
more scientific cultivations and other economically significant purposes.
• Regarding human resources, it is crucial to reduce the student-teacher ratio from 40 to
close to 16 in order to improve the quality of education and cognitive ability among
youngsters. This is vital for the science and technology-required human capital and for
raising PISA scores. 6.
• Government revenues and expenditures should balance at least over the medium term,
and the debt-to-GDP ratio should not exceed 50% of GDP; the size of the public sector
does not exceed 30% of GDP.
• The trade ratio should climb to almost 100 percent from the current level of 50 percent.
Free trade regimes can improve the economy's supply and demand sides.
• The liquidity of the financial system must at least triple to ensure a continuous flow of loans
for new and current businesses. Free currency conversion is necessary to defend this
region from foreign shocks.
• A high eight percent growth strategy is consistent with the aforementioned and
necessitates firm commitment, efficient and robust public administration.
• For social integrity and cohesiveness, the Gini coefficient should not exceed 35%.

In further analysis of the GDP of the SAARC Countries and Bangladesh, India will be omitted due
to its sheer size and man power which boosts its figures so much so that it becomes less
comparable with the other SAARC Countries.
 4

2.1 GDP of the SAARC Countries

GDP (constant 2015 US$)

$400,000,000,000.00

$350,000,000,000.00

$300,000,000,000.00

$250,000,000,000.00

$200,000,000,000.00

$150,000,000,000.00

$100,000,000,000.00

$50,000,000,000.00

$0.00
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

Afghanistan Bangladesh Bhutan Maldives Nepal Pakistan Sri Lanka

Bangladesh has the second highest GDP among all the SAARC countries being considered here,
excluding India. Bangladesh’s GDP in 2021 alone was 285.26 bn, a figure only exceeded by
Pakistan at GDP of 339.40 bn. The GDP trend of Bangladesh has been upwards mirrored closely
by Pakistan and Sri Lanka.

This significant increase in the GDP in Bangladesh, Pakistan and all the other countries is due to
the sheer sized of the Bangladeshi and the Pakistani workforces. This massive work force is
 5

mobilized to increase capital production and consumption. However, due to the sheer magnitude
of the size of the GDP of Bangladesh and Pakistan, trends in the GDP of other countries are being
drowned out. Which is why some other methods of GDP comparison is necessary.
 6

2.2 GDP Growth Rate

GDP growth (annual %)

40

30

20

10

-10

-20

-30

-40

Afghanistan Bangladesh Bhutan Maldives Nepal Pakistan Sri Lanka

Bangladesh has remained a frontrunner in GDP growth in comparison to other SAARC Countries.
In fact, it is the only SAARC country that was able to boast a positive growth rate even during the
pandemic in 2020 when all the other SAARC countries struggle to maintain their economies.

Bangladesh has an amazing growth and development record. In the past decade, its economy
has been among the fastest growing in the world, underpinned by a demographic dividend, robust
exports of ready-made garments (RMG), remittances, and stable macroeconomic conditions. The
nation experienced a robust economic rebound after the COVID-19 pandemic.

Bangladesh delivers a stunning tale of poverty reduction and progress to the globe. Bangladesh,
which was one of the poorest nations upon its inception in 1971, attained lower-middle income
classification in 2015. It is on pace to be removed from the United Nations' list of Least Developed
Countries (LDC) in 2026. Using the international poverty level of $1.90 per day, the poverty rate
fell from 43.5 percent in 1991 to 14.3 percent in 2016. (Using 2011 Purchasing Power Parity
exchange rate). In addition, human development outcomes improved in multiple areas.
 7

2.3 GDP per Capita in Bangladesh and the other SAARC Countries

GDP per capita (current US$)

12000

10000

8000

6000

4000

2000

0
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

Afghanistan Bangladesh Bhutan Maldives Nepal Pakistan Sri Lanka

Bangladesh is however ranking near the bottom when it comes to the GDP per capita. The
country’s national output is not enough to fully support its population. The causes can however
be identified as follows:

• The key to economic progress is the accumulation of capital, such as roads, buildings,
bridges, machinery, and cars. The accumulation of capital depends on savings. LDCs
such as India are so impoverished that their savings rate is low.
To gain finance, these nations typically borrow from industrialized nations. Additionally,
per capita incomes are low because workers have little access to capital equipment.
Consequently, their productivity and output per capita are low. This hinders their ability to
 8

save. This vicious cycle may frequently only be halted with the cooperation of other
nations.
• Shortage of Skilled and Educated Employees Human capital is as crucial for worker
productivity as physical capital. In the majority of LDCs, workers are frequently illiterate
and poorly trained. Low productivity is the result of a deficiency in both people and physical
capital.
• Lagging Technological Knowledge: Production processes in LDCs are frequently
antiquated. Traditional technology is utilized because of a lack of capital and a poorly
educated and trained labor force. The situation is most severe in agriculture, where the
employment of more modern cultivation techniques might result in large productivity
improvements, freeing up labor for use in industrial activities and producing an exportable
excess of food.
• High Population Growth and Unemployment: In many poor nations, medical
advancements have decreased the death rate while the birth rate has remained high. This
contributes to a population growth rate that is often 10 times that of average industrialized
countries.
In poor nations, the average age of the population is typically low, which contributes to a
higher rate of natural unemployment. A significant portion of unemployment in LDCs is
masked by the fact that the marginal product of a large number of workers is close to zero.
Traditional customs supply many individuals with low-value jobs.
Many government occupations, for instance, may be terminated without causing anyone
to suffer other than those who lose their pay. Similarly, on many farms, four people perform
the work of three. Spreading work among an excessive number of people conceals the
fact that many workers have zero marginal products.
• Political Instability and Production-Discouraging Government Policies: The majority of
LDCs experience political instability. In many nations of Africa, Asia, and Central and
South America, political unrest and civil war are prevalent. Occasionally, governments
implement policies that are beneficial in the near term but hinder long-term development.
Price-control measures may keep food and other basic good costs low, but also weaken
the incentives for farmers to grow and innovate. Governments of LDCs frequently support
their currency by price controls that result in an overvaluation of the currency relative to
its equilibrium value on foreign markets. This diminishes the demand for a nation's exports
and makes its imports appear inexpensive, so discouraging local businesspeople and
farmers from innovating to boost output.
 9

GDP per capita growth (annual %)

40

30

20

10

0
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
-10

-20

-30

-40

Afghanistan Bangladesh Bhutan Maldives Nepal Pakistan Sri Lanka

The above Graph shows the GDP per capita Growth rate which does not show any significant
difference from the GDP growth rate.

However, GDP per capita is often not a good representation of the living standards of that person
in a world-wide perspective since different countries have different prices. To ascertain the global
living standard of that person we can take a look at the GDP per capita in terms of Purchasing
Power Parity, PPP given in the next page.
 10

GDP per capita, PPP (current international $)

25000

20000

15000

10000

5000

0
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

Afghanistan Bangladesh Bhutan Maldives Nepal Pakistan Sri Lanka

In the above graph we can see how after adjusting the GDP for the purchasing power there has
been a significant boost in the GDP per capita with earnings shifting by as high as 3 times from
just above $2000 to around $6000. However, Bangladesh still ranks near the bottom of the
SAARC countries, but its strong performance in 2020 amidst the pandemic has done a lot to
improve its GDP growth rate in comparison to the other SAARC countries.
 11

2.4 Components of GDP

The national accounting calculates GDP based on 4 components namely: Consumption,

Investment, Government Expenditure and Net Exports in the Products approach.

Each year, the public consumes a vast array of final commodities and services, including goods
such as apples, computer software, and blue jeans, and services such as health care and
haircuts. We only include final, consumable goods. The gross domestic product (GDP) of this
simplified economy is equal to the total amount of money spent on these final items.

Value-added approach: To prevent double counting, we include only final items in GDP and
exclude intermediate goods that are consumed in the production of final goods. By assessing the
value added at each level and deducting expenditures on intermediate items purchased from
other firms, the lower-loop earnings method prevents duplicate counting and captures wages,
interest, rents, and profits only once.

2.4.1 Consumption

Final consumption expenditure (% of GDP)

120

100

80

60

40

20

0
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

Afghanistan Bangladesh Bhutan Maldives Nepal Pakistan Sri Lanka

GDP only takes into its calculation the final consumption to prevent the error of double counting.
Bangladesh has a near constant consumption that is just below 80% of total GDP and the other
SAARC countries are all crowded around Bangladesh. This reaffirms our previous statement
about the GDP being really high in Bangladesh, Pakistan and India due to the population being
high and considering consumption constitutes 80 percent of GDP explaining the higher GDP due
to the higher consumption.
 12

2.4.2 Capital expenditure

Gross fixed capital formation (% of GDP)

80

70

60

50

40

30

20

10

0
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

Afghanistan Bangladesh Bhutan Maldives Nepal Pakistan Sri Lanka

Bhutan has the highest investment in fixed capital as a percentage of total GDP. This explains
why it has the highest GDP among all the other SAARC countries. Bhutan is willing to forgo
current consumption by investing in mega projects, like its hydroelectric powerplant, for future
consumption which explains its higher-than-average growth rate. Bangladesh has failed to see
similar growth because of its lower investment in fixed capital. However, Bangladesh is still a front
runner when it comes to investment in Fixed Capital as shown by its higher-than-average
investment of its GDP. Another interesting is the investment activity of Maldives which has
surpassed Bangladesh in recent years. This is due to its increased Investment in the tourism
sector as travel bans lift and people start to tour the beaches of Maldives.
 13

2.4.3 Tax Revenues

Tax revenue (% of GDP)

25

20

15

10

0
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

Afghanistan Bangladesh Bhutan Maldives Nepal Pakistan Sri Lanka

The tax revenues can be seen as a good indicator of Government Expenditure. The higher the
Tax Revenue the higher the government expenditure on important services like infrastructure,
education and health care systems. Bangladesh has the lowest Tax revenue collection amongst
all the other countries. Countries like Bhutan that have heavy investments are also collecting more
taxes.

Military expenditure (% of GDP)

4.5
4
3.5
3
2.5
2
1.5
1
0.5
0
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

Afghanistan Bangladesh Bhutan Maldives Nepal Pakistan Sri Lanka

 14

Military spending is also a major source of government expenditure. Bangladesh also has
amongst the lowest expenditure amongst all the SAARC countries. This is positive news as it
means that the government spends most of its revenues for the development of the economy.

2.4.4 Export Earnings

Exports of goods and services (% of GDP)

100

80

60

40

20

0
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20

Afghanistan Bangladesh Bhutan Maldives Nepal Pakistan Sri Lanka

Bangladesh has one of the lowest Export earnings as a percentage of its GDP. There also seems
to be a slowdown at recent times. But overall, the trend is constant. This is because of the fixed
demand from foreign countries for its RMG. For more than four decades, Bangladesh has mostly
concentrated on a limited range of RMG products with relatively low added value. Bangladesh
has not utilized RMG as a springboard to expand into more complicated products, as have many
East Asian nations in the past. To comprehend why this is the case, a political economy
perspective is required. It would appear that both trade policy and industry policy have been
hijacked by interest organizations linked with the RMG business, and in particular by industry
captains.

Bangladesh is the only country in South Asia that has consistently increased the manufacturing
share of GDP during the previous two decades, as assessed by the frequently used metric "share
of value contributed by manufacturing" in GDP. Bangladesh is susceptible to external shocks as
a result of its reliance on a single exportable product and a small number of markets. In addition,
exports represent a very small portion of GDP, which declined to 15.32 percent in 2019 from
20.16 percent in 2012. 2020 saw a further decline to 12.18 percent.

The higher exports seen in Malaysia is all due to its invisible exports of Tourism worldwide.
 15

2.5 GDP used as a measure of Living Standards

2.5.1 Health expenditure

Current health expenditure (% of GDP)

16
14
12
10
8
6
4
2
0
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Afghanistan Bangladesh Bhutan Maldives Nepal Pakistan Sri Lanka

Bangladesh has one of the lowest expenditures in the health sectors as a percentage of its GDP
only at around 2 percent much below the highest spending countries spending as much as 14
percent in recent years. There has been an understandable spike in health sector spendings in
2019 and 2020 due to the global pandemic however Bangladesh’s health expenditure has
remained constant.

2.5.2 Education expenditure

Government expenditure on education, total (% of GDP)

8
7
6
5
4
3
2
1
0
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

Afghanistan Bangladesh Bhutan Maldives Nepal Pakistan Sri Lanka

 16

Education remains one of the most important sectors to invest in to ensure an increase in the
potential total output of the economy. Bangladesh has once again kept its investment in the
education sector at a minimum which could lead to slowed increase in national outputs in
comparison to the SAARC countries which places a higher emphasis on education based on their
expenditure on the sector as a percentage of GDP.

2.5.3 Agricultural Expenditure

Agriculture, forestry, and fishing, value added (% of GDP)

45
40
35
30
25
20
15
10
5
0
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

Bangladesh Afghanistan Bhutan Maldives Nepal Pakistan Sri Lanka

A trend is seen in recent years where developed countries phase out their primary sector to make
room for the secondary and the tertiary sector. Therefore, a decreasing primary sector can mean
a growing secondary and tertiary sector which is an important milestone for all countries that try
to become a developed one. Bangladesh still spends 20 percent of its GDP on the agricultural
sector which seems really high but it is one of the lower spending ones in comparison to countries
like Nepal, Pakistan and Afghanistan. This might mean that Bangladesh is closer to being a
developed country than the aforementioned countries.
 17

Chapter 3
Unemployment

Unemployment is a condition in which a person does not have a source of income and can affect
people of all educational levels. It also refers to the proportion of the labor force that is unemployed
but available for and seeking work.

3.1 Unemployment rate, % of total labor force (2001-2021)

Figure: Unemployment rate, % of total labor force (2001-2021)

Looking at the graph above, we can see that Bangladesh's unemployment rate was quite low from
2001 to 2009. This is fantastic news for Bangladesh at a time when population growth has been
relatively slow. The rate of unemployment was very close to 3 percent. This is not a particularly
large number. However, the unemployment rate has been rising since 2009. That's a difference
of up to 4%. Which is increasing significantly. The rate of unemployment is rising as a result of
the world's growing population. On the other hand, unemployment is expected to continue rising
well into 2020. This equates to 5.41 percent. This could be due to the unanticipated emergence
of COVID-19. The rate came down to 5.23 percent in 2021. However, the unemployment rate is
increasing at an alarming rate. It is possible that it will rise significantly in the future.
 18

3.2 Causes of Unemployment in Bangladesh

• Overpopulation: The main cause of unemployment in this country is the country's high
population growth rate and overpopulation. The population is growing by the day, but there
is a lack of investment.
• Underdeveloped economy: Bangladesh's economy is underdeveloped and based on
agriculture. In a developing economy, it is extremely difficult to employ everyone.
• Lack of capital: Because of their lower per capita income, Bangladeshis have limited
savings. As a result, capital formation is either impossible or limited to a small amount.
Without capital, there can be no investment or employment.
• Lack of technical education: All industries require skilled labor. The majority of
Bangladeshi workers lack knowledge of current technology and skills.
• Natural calamities: Every year, many people lose their jobs as a result of river erosion,
flooding, cyclones, and other natural disasters.
• Political instability: Political insecurity and inept administration erode our social structures.
It makes people nervous about making new investments.
• Agricultural dependency: Agriculture employs the majority of Bangladeshis, either directly
or indirectly. Agriculture has a seasonal unemployment problem.
• RMG dependency: RMG industries have grown in importance to the Bangladeshi
economy. The vast majority of Bangladeshi workers, both men and women, are employed
in the RMG industry. This is a very dangerous thing to do. The government is in charge of
developing a wide range of fields for the general public.
• Corruption: Corruption can be found in every industry in Bangladesh. It is impeding the
country's overall growth. There is evidence of corruption at every level of the business
process. Foreign investors perceive disappointment as a result of corruption.
• Limited land: Nature has bestowed upon us the gift of land. It never changes and has no
chance of increasing, as there is with population growth. Because Bangladesh's
population is rapidly increasing, there is insufficient land to support the country's growing
population. The environment is under severe stress. In more rural areas, the majority of
the population relies solely on agriculture for subsistence. There is a relatively limited
supply of land in relation to the number of people. It exacerbates the problem of
unemployment for a large number of people whose livelihoods rely on agriculture.
• Annihilate cottage industries: Bangladeshi cottage industries are disappearing because
they are unable to compete with foreign industries. This leads to unemployment.
 19

• Defective education: The education received on a daily basis is subpar, and this is only
confirmed in the classroom setting. The primary goal of this endeavor is to obtain
certification. The current educational system places more emphasis on earning a degree
than on job preparation. It fails to meet requirements because it is more general than
vocational. People who have only received a general education are unable to work in any
capacity. They are to be referred to as useless on the ground because they are unable to
find work here; however, they may discover ways to engage in self-employment. It is a
factor that contributes to both unemployment and underemployment.
 20

3.3 Nature of Unemployment in Bangladesh

• Disguised unemployment: It is prevalent in rural areas, particularly in Bangladesh's

agriculture sector. Everyone in the family works on the farm. If one or two members remain
idle, the total output remains constant. Everything appears to be in order there, but the
marginal productivity of those employees is negative or zero.
• Educated unemployment: Despite having a diploma, they lack the qualifications and
motivation to work in an existing position.
• Regular unemployment: Some people in our country are unemployed all the time because
they are idle or do not get expected jobs.
• Seasonal unemployment: Agriculture employs a large number of seasonal workers
because only sowing and harvesting require workers.
• Others: In addition to the aforementioned types of unemployment, Bangladesh has
another type of unemployment. These include technological unemployment, frictional
unemployment, and voluntary unemployment, among others.

3.4 Consequences of Unemployment in Bangladesh

According to an investigation conducted by the International Labor Organization (ILO), the rate of
expansion of the jobless rate in Bangladesh during the 1990s was 1.9 percent. The projected
increase in the unemployment rate in 2022, on the other hand, is 5.40 percent. People who work
for a living not only draw resources from the economy, but they also contribute to it by engaging
in various forms of production and providing a variety of services (Ladd, Le, Gauthier and Werner,
2019). Those who are unable to find work, on the other hand, must rely solely on the support of
their family, the government, or both. They are an impassable barrier for the government to
overcome. They are perceived as liabilities not only from an economic standpoint, but also from
a political and social standpoint, as a source of stress and unrest. Unemployment and crime are
inextricably linked, as should be expected. Before the situation deteriorates further, Bangladesh's
various administrations will need to address the issue of unemployment head-on. Recent floods,
which resulted in the layoff of employees from state-run businesses, have contributed significantly
to the unemployment problem. Even though the COVID-19 pandemic, one of the prime causes of
the increased rate of unemployment in 2020, has been being dealt with and the situation is much
stable now, it is not eliminated completely which still throws a threat to the country in this regard.
Therefore, the government is required to launch a slew of new labor programs right away.
 21

3.5 Country Comparison (Bangladesh vs SAARC others)

Figure: Unemployment rate comparison (Bangladesh vs SAARC others)

Here we can see relative trends of Bangladesh to other countries (members of SAARC). The
graphs shows that Bangladesh clearly had lower unemployment rates during the last two decades
than Afghanistan and Maldives had indicating Bangladesh to be better at employing its human
resource. The rate gets somewhat closer between Bangladesh and Sri Lanka from 2001 to 2021
even though the trend shows downward sloping for the latter and upward sloping for the former.
This proves Sri Lanka’s determination and execution in reducing unemployment in their country
 22

unlike Bangladesh. Bangladesh seems to be in a poorer position compared to Bhutan Nepal and
Pakistan having greater unemployment rates than them throughout the period of last 20 years
which both a matter of concern and a guideline for Bangladesh.
 23

Chapter 4
Money Supply

4.1 Theoretical Framework

Money supply is the total available currencies and financial instruments in the economy that can
be used as a medium of exchange, a store of value, and a unit of measurement. Money supply is
determined by the monetary policy of a country, which is undertaken by the central bank. The
central bank may choose to go with expansionary policies or contractionary policies. An
expansionary policiy involves increasing money supply in the economy while a contractionary
policy involves reducing the money supply.

The central bank changes the interest rate, conducts open market acitivities, takes on policies to
control the exchange rates and more in order to control various aspects of the economy such as
inflation, unemployement, consumption, investment etc. These activities altogether influence the
demand and supply of money. The process is described as monetary transmission mechanism.
The central bank influences these factors through its activities, which determines the supply of
money in an economy.

Higher money supply is linked with inflation, unemployment reduction, investment activities and
more. There are different theories regarding how closely they are linked and what policies the
central bank should or should not take in order to keep the economy stable. Money is demanded
for transaction demands and asset demands. The aggregate demand and the aggregate supply
finds the equilibrium point, which determines the total amount of broad money available in the
economy at a given time.

Broad money can be defined in various ways. In general, M1 is considered narrow money, which
includes coins and notes, demand deposits, and anything that can easily be converted to cash.
M2 is considered as broad money, which includes M1, time deposits, money market securities
etc.

In this discussion, money supply will refer to the supply of broad money unless stated otherwise.
We will now look into the money supply of Bangladesh and analyze it in various ways. We will
also compare it with multiple SAARC countries to paint a broader picture of the scenario.
 24

4.2 Money Supply of Bangladesh

The money supply in Bangladesh has seen a steady growth over the years. The following graph
contains the data from year 2000-2020-

Broad Money in Million LCU

20,000,000
18,000,000
16,000,000
14,000,000
BDT IN MILLIONS

12,000,000
10,000,000
8,000,000
6,000,000
4,000,000
2,000,000
-
2002

2014
2000
2001

2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013

2015
2016
2017
2018
2019
2020
YEAR

The chart above shows an exponential growth in the past 21 years. In year 2000, Bangladesh
had a total money supply of BDT 820,385 million, which is BDT 18,313,603 million in 2020. This
tells us that there has been a compound annual growth rate or CAGR of 15.94% over the span of
21 years. The total growth during this time has been 2,132%. This tells us that Bangladesh has
been taking on expansionary monetary policies in order to expand the economy, incentivize
consumption and investment, and reduce unemployment.

However, the growth rate has slowed down over the years. In year 2000, the money supply growth
rate was 19.35%, which is now 9.43% in the year 2022. Another important aspect that should be
noted is that the country saw a massive uptick of 43% in money supply in the year 2001. This
serves as an outlier, which may distort the perception of average growth rate over the years. This
large 43% uptick is likely caused by the 2001 parliamentary elections, which would have required
the country to supply more money into the economy in order to sustain the ongoing activities. On
top of that, terrorist activities also saw an increase during this period and Bangladesh was
transitioning into a country with more expansionary projects. All of these together are likely to
have caused the 43% increase in the year 2001.
 25

Money Supply Growth %

50.00 %
45.00 %
40.00 %
PERCENTAGE 35.00 %
30.00 %
25.00 %
20.00 %
15.00 %
10.00 %
5.00 %
0.00 %

2010
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009

2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
YEAR

The graph shows that the trend line has actually been downwards and not upwards over the span
of past 23 years. This is likely due to the increase in inflation over the years as contracting money
supply is likely to cool down inflation and keep it under control.

Moving on, broad money as a % of GDP serves as an important metric as well. The following
graph shows broad money as a % of GDP in Bangladesh over 21 years-

Broad Money as % of GDP

70.00 %

60.00 %

50.00 %
PERCENTAGE

40.00 %

30.00 %

20.00 %

10.00 %

0.00 %
1998 2001 2004 2006 2009 2012 2014 2017 2020 2023
YEAR
 26

It can be seen that broad money as a % of GDP has grown over the years, but it has taken a dip
in recent years. The dip in 2016 can be attributed to the rise in real GDP as Bangladesh touched
7.1% growth rate in GDP for the first time in nearly a decade. Other than that, the central bank
policies did not significantly increase money supply and the global economy was relatively stable,
leading to lower inflation rates.

The overall high ratio and increasing trend is in line with the expansionary policies of the country.
The high percentage indicates high liquidity in the economy stimulating investment and
consumption, eventually leading to higher inflation rates. The recent dip is aligned with the recent
policies that have been put in place to try and control inflation.

We may also look at the distribution of M1 and M2 in the Bangladeshi economy. The data from
the past 5 years are illustrated below-

In Million BDT
Components Jun, 2022 Jun, 2021 Jun, 2020 Jun, 2019 Jun, 2018
1. Currency Outside banks
2,364,489 2,095,177 1,921,145 1,542,870 1,409,175
2. Deposits of FIs with BB
(except DMBs)* 5,964 5,865 6,210 7,885 7,591
3. Demand Deposits with
DMBs* 1,888,594 1,657,245 1,355,284 1,182,179 1,132,171

4. Time Deposits with DMBs* 12,822,17 11,850,66 10,454,71

9,463,181 8,550,873
5 6 2
5. Money Supply (M1) (1+2+3)
4,259,047 3,758,287 3,282,639 2,732,934 2,548,937

6. Money Supply(M2) (4+5) 17,081,22 15,608,95 13,737,35 12,196,11 11,099,81

2 3 1 5 0
M1:(M2-M1) Ratio 0.33 0.32 0.31 0.29 0.30

A ratio of M1:(M2-M1) has been calculated to show the distribution of narrow money and non-
narrow money in the economy. We can see that M2-M1 is the larger ratio, which is attributed to
the development of financial aspects leading to more savings and investments compared to idle
money in cash or demand deposit form. However, we can also see that M1 started regaining
portions of the ratio from 2020. This can be attributed to the COVID-19 pandemic as well as the
 27

Russia-Ukraine war and natural calamities as people have needed more cash in hand for safety
and emergency purposes and many investment opportunities were dissipated.

The following stacked column chart shows the higher ratio of M2-M1 compared to M1 over the
last 5 years but also shows that the difference between the 2 slowly decreased over time due to
the COVID-19 pandemic as well as Russia-Ukraine war and natural calamities-

M1:(M2-M1)
20,000,000

15,000,000

10,000,000

5,000,000

-
Jun, 2018 Jun, 2019 Jun, 2020 Jun, 2021 Jun, 2022

M2-M1 M1

The central bank continues to follow 3 objectives in its recent monetary policy revelation, which
are

1. Inflation control
2. Employment generation
3. GDP growth

The central bank has targeted a broad money growth rate of 12.1% in the coming financial year
although the previous year’s target fell short as depicted in the graph below-
 28

The new target is lower than the target of the previous FY but higher than the actual broad money
growth of the previous FY. There are contradictory policies being undertaken, in order to keep the
inflation under control in the tight money situation, interest rates are being raised and open market
activities are being conducted. And to generate more investment and raise employment,
conducting import-substituting activities, providing stimulus packages to businesses, and capping
the lending interest rate are the policies that are being undertaken.

All the past trends and the recent changes are in line with the theoretical framework and they also
show the effects of the COVID-19 pandemic, the Ukraine-Russia war, and the recent floods and
other disasters taking place. The money supply is being affected by all of these factors and the
future policies are also being planned by keeping these issues in mind.

4.3 Country Comparisons

Broad money is shown in LCU or local currency units, hence, they are not directly comparable.
However, we can look at the trend of money supply over the years for these countries just like we
have for Bangladesh-

Afghanistan (Broad Money in Million LCU)

700000

600000

500000

400000

300000

200000

100000

0
1998 2001 2004 2006 2009 2012 2014 2017 2020 2023

Afghanistan shows a trend of growth, much like that of Bangladesh. However, it is not as
exponential as that of Bangladesh’s. The compound annual growth rate has been 13.94%, which
is lower than that of Bangladesh’s. The total growth over the period is 609%, which is much lower
than that of Bangladesh’s, but it should be noted that the data for Afghanistan is over a period of
15 years while the data for Bangladesh is over a period of 21 years.
 29

Bhutan (Broad Money in Million LCU)

200,000
180,000
160,000
140,000
120,000
100,000
80,000
60,000
40,000
20,000
-
1998 2001 2004 2006 2009 2012 2014 2017 2020 2023

Bhutan has also seen growth in money supply over the years, more exponential than that of
Afghanistan’s but less than that of Bangladesh’s. The CAGR is 14.58% while the total growth over
the period is 1642%, both lower than the rates of Bangladesh.

Maldives (Broad Money in Million LCU)

45,000
40,000
35,000
30,000
25,000
20,000
15,000
10,000
5,000
-
2010

2013

2016
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009

2011
2012

2014
2015

2017
2018
2019
2020

Maldives saw growth as well but it has been relatively low compared to the other 3 countries
observed so far. The CAGR has been 13.28% while total growth has been 1271%, both much
lower than the rates of Bangladesh.
 30

Nepal (Broad Money in Million LCU)

5,000,000
4,500,000
4,000,000
3,500,000
3,000,000
2,500,000
2,000,000
1,500,000
1,000,000
500,000
-

2009
2000
2001
2002
2003
2004
2005
2006
2007
2008

2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
Nepal has seen exponential growth of money supply over the years. The CAGR during the 21-
year period has been 16.22% and the total growth has been 2250%, both much higher than the
rates of Bangladesh.

Pakistan (Broad Money in Million LCU)

30,000,000

25,000,000

20,000,000

15,000,000

10,000,000

5,000,000

-
2013

2017
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012

2014
2015
2016

2018
2019
2020

Pakistan has seen a CAGR of 14.62% and total growth of 1655%, both lower than the rates of
Bangladesh although similar to the rates of the countries in the region in general.
 31

Sri Lanka (Broad Money in Million LCU)

10,000,000
9,000,000
8,000,000
7,000,000
6,000,000
5,000,000
4,000,000
3,000,000
2,000,000
1,000,000
-

2010

2017
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009

2011
2012
2013
2014
2015
2016

2018
2019
Sri Lanka has data available up till 2019, and it has seen similar growth during the period. A CAGR
of 16.03% is higher than the CAGR of Bangladesh. However, the total growth of 1857% is lower
than the rate of Bangladesh.

The chart below summarizes the comparison-

Country Money Supply CAGR Money Supply Total Growth

Bangladesh 15.94% 2132%
Afghanistan 13.94% 609%
Bhutan 14.58% 1642%
Maldives 13.28% 1271%
Nepal 16.22% 2250%
Pakistan 14.62% 1655%
Sri Lanka 16.03% 1857%

We can see that the countries have similar rates with the range ranging from 13.28% to 16.03%
in terms of CAGR. This shows that all of these countries are taking on expansionary policies in
order to boost the economy and increase investment, consumption, and employment.

Although the money supply itself is not very comparable due to the amounts being in their local
currencies, the growth rates over the period provide much better comparability. Showing money
supply growth of all 7 countries in a single chart would look quite chaotic and reduce comparability,
but comparing each country with Bangladesh does create insightful visualizations.
 32

Money Supply Growth %

BD VS AFG BD VS BTN

Bangladesh Afghanistan Bangladesh Bhutan

BD VS MDV BD VS NPL

Bangladesh Maldives Bangladesh Nepal

BD VS PAK BD VS SL

Bangladesh Pakistan Bangladesh Sri Lanka

Afghanistan had a steep downward trend but has slowly started to increase its money supply
growth percentage and currently sits around the rate of Bangladesh. Bhutan had a similar trend
in the beginning with Bangladesh but has since gotten more volatile and currently has a much
higher growth rate than the rate of Bangladesh, which may indicate that the country is or will be
facing significant inflation problems soon. Maldives and Bangladesh have had similar trend lines
with one major uptick for each and currently having similar rates. Nepal also has a similar trend
to that of Bangladesh’s but is a lot more volatile throughout the entire period. Pakistan and
 33

Bangladesh have both had one large uptick and have been extremely similar in terms of broad
money growth rate. Sri Lanka also follows a similar pattern although money supply is currently
downwards for the country. Overall, it shows that the countries are similar, but not exactly the
same and are dealing with their issues in their own ways.

Broad Money as % of GDP

140.00 %

120.00 %

100.00 %

80.00 %

60.00 %

40.00 %

20.00 %

0.00 %

Bangladesh Afghanistan Bhutan Maldives Nepal Pakistan Sri Lanka

If we compare the broad money as a percentage of GDP among these countries, we will see that
Bangladesh sits at the middle currently. Although the countries have gone through somewhat
similar situations, they are overall at quite different stages in terms of broad money as % of GDP.
Nepal with a constantly increasing and currently holding 117.75% rate may face large waves of
inflation. Bhutan is also in a similar position with 100.87% rate. The rate for Sri Lanka is gradually
growing while Maldives has had a sudden dip followed by a sudden uptick. Both of the counties
currently have higher rates than Bangladesh having surpassed it recently. Pakistan seems to be
the only country that has followed a similar trend to that of Bangladesh’s of rising rates in the past
followed by policies leading to corrections in the economy lowering the rate. Afghanistan has a
very low rate although it is slowly increasing. This indicates that the country is going through a
possible recession. Overall, Bangladesh seems to be doing quite well compared to the other
countries in the list with a comfortable rate of 57.76% at the moment.
 34

Moving forward with the broad money and narrow money distribution comparisons, we will look
into 2 SAARC countries, Sri Lanka and Pakistan.

In Million Rupees (Pakistan)

Components 2020-2021 2021-2022 2022-2023
M1 19,807,613 22,141,241 22,255,655
M2 23,690,612 26,768,160 26,798,766
M3 27,698,069 30,417,400 30,371,622
M2-M1 3,882,999 4,626,919 4,543,111
M3-M2 4,007,457 3,649,240 3,572,856
(M2-M1)+(M3-M2) 7,890,456 8,276,159 8,115,967
M1:(M2-M1)+(M3-M2) 2.51 2.68 2.74

Pakistan shows its money supply in M1, M2, and M3 format. We may consider (M2+M3)-(M1*2)
as its M2-M1, or put simply, consider M3 as M2. Here, we see a drastic difference from
Bangladesh as Pakistan has more M1 in the economy compared to M2-M1. The M1:(M2-M1)
ratio is in the range of 2.51-2.74 while for Bangladesh it was around 0.30-0.33. However, the trend
of M1 increasing over the years continues, which can be attributed to similar reasons to that of
Bangladesh’s.

In Million Rupees (Sri Lanka)

Components 2019 2020 2021
M1 865,467 1,177,150 1,459,895
M2 7,624,121 9,405,734 10,647,309
M2-M1 6,758,654 8,228,584 9,187,413
M1:(M2-M1) 0.13 0.14 0.16

Comparing the M1 and M2 of Sri Lanka gives us a similar picture to that of Bangladesh’s, but the
ratio of M1 is actually lower here. The range of 0.13-0.16 is lower compared to the range we saw
in the Bangladeshi economy. But the trend of having more M2 than M1 is present here. Also, the
trend of increasing M1 in the economy is also present in the economy of Sri Lanka.

Comparing Bangladesh with these 2 countries in terms of M1 and M2 distribution shows that the
countries in the region are going through their own unique situations, which is leading to different
types of distribution of M1 and M2. In some countries M1 is more dominant while in some
countries it is not. But the trend of increasing M1 is persistent in the countries due to the COVID-
19 pandemic, Russia-Ukraine war, and other calamities.
 35

Chapter 5
Foreign Reserve

5.1 Theoretical Framework

Foreign reserves are currencies and other forms of assets and instruments held by the central
bank of a country in order to back its liabilities and also influence monetary policy. Foreign
reserves allow the country to trade with foreign countries.

Foreign reserves play a vital role in the exports and imports of a country. The global economy is
growing every day, and it is making the countries pay close attention to its foreign reserves.
International trade and the price of commodities in the global market are largely dictated by the
reserves of different countries.

Gold used to be the common form of reserve for most countries even in the 20 th century. But in
1944, the US dollar became the reserve currency for 44 countries as a result of its accumulated
strength. It had the backing of the world’s largest gold reserve. But during the 1970s, the gold
standard was not being maintained anymore and the age of floating rates was entered by the US
dollar. Currently, most countries around the world keep the majority of their reserves in USD. This
is due to its wide acceptance all over the world and its overall strength.

The lack of foreign reserves may lead to massive consequences as the countries will have their
own currency devalued. This in turn would lead to issues in international trade as the country
would find it costlier to make imports. The country will also have issues repaying its international
debts due to the lack of foreign reserves. On the other hand, high amount of foreign reserve will
lead to more debts for the country. Consumption will also decrease in the situation but it may lead
to higher investments and drive economic growth.

Balance of trade and balance of payments are important metrics in this segment as they
determine the current international trade status of a country. Balance of payment is the difference
between inflow and outflow of foreign exchange. It is recorded as debits and credits, and much
like the rules of accounting has 2 sides to it that results in a balance of 0. It includes current
accounts, which represent the goods being imported and exported. The other part is the financial
account, which represents the reserves and investments from government and private sectors.
 36

The financial accounts offset the current accounts, which results in zero balance of the balance
of payments.

Balance of trade is simply the difference between imports and exports. It can be any amount. The
negative, positive, or 0 balance of trade of the country alone cannot determine its status. Other
aspects need to be considered in order to understand why the country is having trade deficits or
surpluses.
 37

5.2 Foreign Reserve of Bangladesh

The first thing we can look at is the foreign reserve of Bangladesh in USD, the following chart
shows the total foreign reserve trend of Bangladesh during the period of year 2000-2021.

Total Reserves (Includes Gold, Current Million

US$)
50000
45000
40000
35000
30000
25000
20000
15000
10000
5000
0
2003

2017
2000
2001
2002

2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016

2018
2019
2020
2021
It can be seen that Bangladesh has seen a large growth in foreign reserve over the years. A
compound annual growth rate or CAGR of 16.80% is perceived over the span of 22 years from
year 2000 to 2021. The total growth during the period is 2946%. The rise in the forex exchange
indicates that Bangladesh has managed to strengthen its currency over time, has been able to
take on more investment projects, and has been able to engage in international trade with enough
credibility to repay its debts. As of 2022, the foreign reserve of Bangladesh is USD 46.17 billion.
In recent times, the fluctuation of the reserve has been a cause of concern, the reserve has dipped
below 40 billion USD from time to time, causing major concerns for the country in terms of
maintaining currency strength, liability repayment credibility, and international trade engagement.

Although theoretically the balance of payments or BOP should always be zero for a country, it is
rarely the case in real life as the countries do not just transact with one other country but rather
transact with a ton of different countries. So, some countries end up having a surplus while some
end up having a deficit. The only sheet that would balance in this case is the balance of the entire
world as everyone is accounted for there. However, exchange rate changes and other statistical
issues also lead to the discrepancies in the BOP, which leads to disequilibrium and gives out a
surplus or a deficit. We can look into the BOP of Bangladesh over the years to understand the
state of its foreign reserves.
 38

Reserves and Related Items (BoP, Current

Million US$)
10,000.00

8,000.00

6,000.00

4,000.00

2,000.00

-
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
(2,000.00)

(4,000.00)

The Bangladeshi economy has gone through a lot of fluctuations with the BOP ranging from
surpluses to deficits over the years. But the country has shown an overall increasing trend during
the timeline, which indicates positive things. The upward sloping trend line and the existing
surplus shows that more currency and assets have gotten into the country than they have gone
out. So, the country can afford to make payments for its trades and overall, it can drive short-term
economic growth. However, the country has to start consuming more in order to stop itself from
being too export-dependent.

Balance of trade is another important aspect. It is a part of the balance of payments; the largest
part in fact. It does not need to be zero theoretically unlike BOP. BOT only includes some of the
current account aspects or put simply, the balance of imports and exports of goods and services.
We can look at the balance of trade of Bangladesh to understand the state of its current accounts.
 39

Net Trade in Goods and Services (BoT,

Current Million US$)
5,000.00
-

2005
2000
2001
2002
2003
2004

2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
(5,000.00)
(10,000.00)
(15,000.00)
(20,000.00)
(25,000.00)
(30,000.00)
(35,000.00)
(40,000.00)

Here, we can see that Bangladesh has suffered trade deficits the entire time period in terms of
balance of trade. Not only did the country suffer from deficits in BoT but it is also continuing a
downward trend, which tells us that the situation is not likely to change anytime soon. In recent
times, the deficit has been drastic as it can be seen in the graph above. This means that
Bangladesh is a massively import-dependent country. The country does not export nearly enough
goods and services compared to the amount it has to import from other countries in order to fulfill
local needs. This shows that Bangladesh is far from being self-sufficient, and paying for all these
imports is likely to have a negative impact on the foreign reserve of the company, which in turn
may create problematic situations in the economy.
 40

5.3 Country Comparisons

The values of foreign reserve are all denominated by the US dollar, which means they are all
comparable with the use of current USD values. Bangladesh has seen the highest growth among
the countries Bangladesh, Afghanistan, Sri Lanka, Pakistan, Maldives, Nepal, and Bhutan.

Total Reserves (Includes Gold,

Current Million US$)
50000

45000

40000

35000

30000

25000

20000

15000

10000

5000

0
2003

2017
2000
2001
2002

2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016

2018
2019
2020
2021

Bangladesh Afghanistan Bhutan Maldives

Nepal Pakistan Sri Lanka
 41

The graph shows that Bangladesh has far outpaced the other countries in terms of foreign
reserves. It is followed by Pakistan, which is still massively behind and has gone through a lot of
fluctuations. Nepal comes third with slow and steady growth, while Sri Lanka and Afghanistan
saw massive dips in recent times after a period of slow and steady growth. Maldives and Bhutan
have pretty much been going through a plateau and have the lowest amount of foreign reserve
out of the 7 countries. But Pakistan and Sri Lanka are the high-risk countries due to their massive
dip in recent times surpassing Bhutan and Maldives in terms of low amount of foreign reserve.

We may also summarize the CAGR and total growth rates of the countries below-

Country CAGR Total Growth

Bangladesh 16.80% 2946%
Afghanistan 9.37% 220%
Bhutan 7.71% 375%
Maldives 8.93% 556%
Nepal 10.92% 878%
Pakistan 11.48% 993%
Sri Lanka 7.60% 401%

It can be clearly seen from the table that Bangladesh is the biggest in terms of foreign reserve
compared to these South Asian countries.

We may also look at the BoP comparison of these countries as they are comparable through
current USD-
 42

Reserves and Related Items (BoP,

Current Million US$)
15,000.00

10,000.00

5,000.00

-
2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020

(5,000.00)

(10,000.00)

Bangladesh Afghanistan Bhutan Maldives

Nepal Pakistan Sri Lanka

Bangladesh and Pakistan have the best BOP right now, but Pakistan has seen a lot more deficit
and has been extremely volatile. Nepal and Sri Lanka are currently in the negatives although
performing similarly to the rest of the countries in the given period. The other countries are in the
border.

Finally BOT gives us a good idea of if the countries are export-dependent or import-dependent.
 43

Net Trade in Goods and Services (BoT,

Current Million US$)
5,000.00

2005
2000
2001
2002
2003
2004

2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
(5,000.00)

(10,000.00)

(15,000.00)

(20,000.00)

(25,000.00)

(30,000.00)

(35,000.00)

(40,000.00)

(45,000.00)

Bangladesh Afghanistan Bhutan Maldives

Nepal Pakistan Sri Lanka

Pakistan has the worst trade deficit among the countries while Bangladesh has the second worst.
However, this also means that these countries can afford to make large amounts of imports, which
is a good sign in many ways. Maldives and Bhutan are in a surplus while the rest are slightly
below the borderline. Nepal also has a large deficit. Overall, Bangladesh seems to be doing great
in terms of foreign reserve compared to these South Asian countries.
 44

Chapter 6
Inflation

6.1 Bangladesh

Inflation, consumer prices (annual %)

12

10

0
2002 [YR2002]

2019 [YR2019]
2000 [YR2000]
2001 [YR2001]

2003 [YR2003]
2004 [YR2004]
2005 [YR2005]
2006 [YR2006]
2007 [YR2007]
2008 [YR2008]
2009 [YR2009]
2010 [YR2010]
2011 [YR2011]
2012 [YR2012]
2013 [YR2013]
2014 [YR2014]
2015 [YR2015]
2016 [YR2016]
2017 [YR2017]
2018 [YR2018]

2020 [YR2020]
Year Inflation, consumer prices (annual %) 2021 [YR2021]
2000 [YR2000] 2.208256209
2001 [YR2001] 2.007173742
2002 [YR2002] 3.332564933
2003 [YR2003] 5.668707734
2004 [YR2004] 7.587536385
2005 [YR2005] 7.046618162
2006 [YR2006] 6.765261171
2007 [YR2007] 9.106984969
2008 [YR2008] 8.901944895
2009 [YR2009] 5.423472362
2010 [YR2010] 8.126676392
2011 [YR2011] 11.39516516
 45

2012 [YR2012] 6.217504221

2013 [YR2013] 7.530406409
2014 [YR2014] 6.991638892
2015 [YR2015] 6.19428023
2016 [YR2016] 5.513525727
2017 [YR2017] 5.702070157
2018 [YR2018] 5.543621395
2019 [YR2019] 5.591996399
2020 [YR2020] 5.691074747
2021 [YR2021] 5.545654308

6.1.1 High Inflation in 2011 in Bangladesh

Inflation was high and volatile, with the year-on-year rate reaching 12 percent in September 2011.
This had been the highest recorded since FY99. Increases in the overall CPI were driven by food
prices, but non-food prices had also started rising in recent months. The rise in non-food inflation
had been driven by rise in prices of clothing and footwear, transport, furniture and household
equipment, and miscellaneous goods and services.

Both supply and demand side factors explain inflation in Bangladesh. Rising international
commodity prices had been the main source of food price increases. Rising oil prices also resulted
in rise in prices of almost all other commodities in the consumer basket. The growing gap between
domestic demand and domestic production appears to have contributed to the rise in non-food
inflation that was concentrated in non-energy items.
 46

6.1.2 Inflation Fall in 2012 in Bangladesh

Favorable international price trends and monetary tightening reduced inflation. Inflation reduced
to 7.4 percent in September 2012, due to a deceleration in both food and non-food price rises.
Slowdown in global demand pushed both fuel and non-fuel commodity prices downward.
Bangladesh had once again demonstrated its ability to overcome macroeconomic pressure
through timely and adequate policy response notwithstanding the difficult political economy
challenges associated with the needed policy adjustments.

Food inflation in Bangladesh had been declining mainly because of falling rice prices. Adequate
production in two consecutive years and higher government procurement had led to increased
level of stock and supply of food grains. A number of safety net programs were in place to
safeguard the poor from the impact of a possible global food crisis. With favorable weather
condition and satisfactory stock level, Bangladesh food outlook for FY13 appears to be stable.

6.1.3 In Comparison with other SAARC Countries

From 2005 to 2019, Afghanistan faced double digit inflation, single digit inflation and deflation
whereas Bangladesh’s inflation rate was less flatulating compared to Afghanistan. In case of
Bhutan and Nepal, Bangladesh’s inflation rate trend is quite similar more or less. Pakistan has
gone through a more unstable inflation rate trend during the past 21 years.

Given the unprecedent hyperinflation scenario in Sri Lanka in 2022, it is very important to observe
the inflation trend of Sri Lanka and compare the that of with Bangladesh. After the rise and fall of
inflation rate in 2011 and 2012 consecutively, Bangladesh almost went through a stagnant rate of
inflation whereas, Sri Lanka’s inflation rate trend is unexpectedly fluctuating in those years. The
annual change of inflation rate in the past 21 years in Sri Lanka is 0.11% which is -0.0271% for
Bangladesh.
 47

6.2 Supporting Information

6.2.1 Afghanistan

Inflation, consumer prices (annual %)

30

25

20

15

10

-5

-10

Year Inflation, consumer

prices (annual %)
2000 [YR2000] ..
2001 [YR2001] ..
2002 [YR2002] ..
2003 [YR2003] ..
2004 [YR2004] ..
2005 [YR2005] 12.68627
2006 [YR2006] 6.784597
2007 [YR2007] 8.680571
2008 [YR2008] 26.41866
2009 [YR2009] -6.81116
2010 [YR2010] 2.178538
 0
5
10
15
20
25
6.2.2 Sri Lanka
2000 [YR2000]
2001 [YR2001]
2002 [YR2002]
2003 [YR2003]
2004 [YR2004]
2005 [YR2005]
2006 [YR2006]
2007 [YR2007]
2021 [YR2021]
2020 [YR2020]
2019 [YR2019]
2018 [YR2018]
2017 [YR2017]
2016 [YR2016]
2015 [YR2015]
2014 [YR2014]
2013 [YR2013]
2012 [YR2012]
2011 [YR2011]

2008 [YR2008]
2009 [YR2009]
2010 [YR2010]
2011 [YR2011]
2012 [YR2012]
2013 [YR2013]
2014 [YR2014]
2015 [YR2015]
2016 [YR2016] Inflation, consumer prices (annual %)
2017 [YR2017]
2018 [YR2018]
2019 [YR2019]
..
..

2020 [YR2020]
-0.66171
11.80419

2.302373
0.626149
4.975952
4.383892
4.673996
7.385772
6.441213

2021 [YR2021]
48
 49

Year Inflation, consumer prices (annual

%)
2000 [YR2000] 6.176276
2001 [YR2001] 14.15846
2002 [YR2002] 9.551032
2003 [YR2003] 6.314638
2004 [YR2004] 7.575926
2005 [YR2005] 11.63969
2006 [YR2006] 10.02018
2007 [YR2007] 15.84211
2008 [YR2008] 22.5645
2009 [YR2009] 3.464963
2010 [YR2010] 6.217649
2011 [YR2011] 6.716768
2012 [YR2012] 7.542914
2013 [YR2013] 6.90845
2014 [YR2014] 3.179002
2015 [YR2015] 3.768368
2016 [YR2016] 3.958888
2017 [YR2017] 7.704138
2018 [YR2018] 2.135038
2019 [YR2019] 3.528394
2020 [YR2020] 6.153945
2021 [YR2021] 7.014781
 50

6.2.3 Bhutan

Inflation, consumer prices (annual %)

15

10

2019 [YR2019]

2021 [YR2021]
2000 [YR2000]
2001 [YR2001]
2002 [YR2002]
2003 [YR2003]
2004 [YR2004]
2005 [YR2005]
2006 [YR2006]
2007 [YR2007]
2008 [YR2008]
2009 [YR2009]
2010 [YR2010]
2011 [YR2011]
2012 [YR2012]
2013 [YR2013]
2014 [YR2014]
2015 [YR2015]
2016 [YR2016]
2017 [YR2017]
2018 [YR2018]

2020 [YR2020]
-5

-10

-15

-20

Year Inflation, consumer prices

(annual %)
2000 [YR2000] 4.010994
2001 [YR2001] 3.410405
2002 [YR2002] 2.48343
2003 [YR2003] 1.566152
2004 [YR2004] -18.1086
2005 [YR2005] 5.311513
2006 [YR2006] 5.000454
2007 [YR2007] 5.156111
2008 [YR2008] 8.32716
2009 [YR2009] 4.361122
2010 [YR2010] 7.036383
2011 [YR2011] 8.848986
2012 [YR2012] 10.91966
2013 [YR2013] 7.006667
 51

2014 [YR2014] 8.271061

2015 [YR2015] 4.548144
2016 [YR2016] 3.219887
2017 [YR2017] 4.955084
2018 [YR2018] 2.723964
2019 [YR2019] 2.725821
2020 [YR2020] 5.629992
2021 [YR2021] 7.346839

6.2.4 Maldives

Inflation, consumer prices (annual %)

14
12
10
8
6
4
2
0
2002 [YR2002]

2019 [YR2019]
2000 [YR2000]
2001 [YR2001]

2003 [YR2003]
2004 [YR2004]
2005 [YR2005]
2006 [YR2006]
2007 [YR2007]
2008 [YR2008]
2009 [YR2009]
2010 [YR2010]
2011 [YR2011]
2012 [YR2012]
2013 [YR2013]
2014 [YR2014]
2015 [YR2015]
2016 [YR2016]
2017 [YR2017]
2018 [YR2018]

2020 [YR2020]
2021 [YR2021]

-2
-4

Year Inflation, consumer prices (annual

%)
2000 [YR2000] -1.174756812
2001 [YR2001] 0.67257737
2002 [YR2002] 4.178672399
2003 [YR2003] -1.260651135
 52

2004 [YR2004] -1.685412125

2005 [YR2005] 1.300275009
2006 [YR2006] 2.738421316
2007 [YR2007] 6.794773539
2008 [YR2008] 12.04145835
2009 [YR2009] 4.530176591
2010 [YR2010] 6.149885368
2011 [YR2011] 11.27341461
2012 [YR2012] 10.88469566
2013 [YR2013] 3.805630009
2014 [YR2014] 2.120001757
2015 [YR2015] 0.953206659
2016 [YR2016] 0.502509414
2017 [YR2017] 2.817473382
2018 [YR2018] -0.133373386
2019 [YR2019] 0.220029731
2020 [YR2020] -1.369774256
2021 [YR2021] 0.543149689
 53

6.2.5 Nepal

Inflation, consumer prices (annual %)

12

10

0
2002 [YR2002]

2019 [YR2019]
2000 [YR2000]
2001 [YR2001]

2003 [YR2003]
2004 [YR2004]
2005 [YR2005]
2006 [YR2006]
2007 [YR2007]
2008 [YR2008]
2009 [YR2009]
2010 [YR2010]
2011 [YR2011]
2012 [YR2012]
2013 [YR2013]
2014 [YR2014]
2015 [YR2015]
2016 [YR2016]
2017 [YR2017]
2018 [YR2018]

2020 [YR2020]
2021 [YR2021]
Year Inflation, consumer prices (annual %)
2000 [YR2000] 2.478820207
2001 [YR2001] 2.688303735
2002 [YR2002] 3.029399487
2003 [YR2003] 5.707009319
2004 [YR2004] 2.841811312
2005 [YR2005] 6.836332659
2006 [YR2006] 6.920335807
2007 [YR2007] 2.269219244
2008 [YR2008] 9.907830053
2009 [YR2009] 11.09482374
2010 [YR2010] 9.326504107
2011 [YR2011] 9.227075461
2012 [YR2012] 9.459809804
2013 [YR2013] 9.040163119
2014 [YR2014] 8.364154697
 54

2015 [YR2015] 7.868908956

2016 [YR2016] 8.79034332
2017 [YR2017] 3.627096107
2018 [YR2018] 4.061163388
2019 [YR2019] 5.568685478
2020 [YR2020] 5.052366553
2021 [YR2021] 4.087910459
 55

6.2.6 Pakistan

Inflation, consumer prices (annual %)

25

20

15

10

0
2000 [YR2000]
2001 [YR2001]
2002 [YR2002]
2003 [YR2003]
2004 [YR2004]
2005 [YR2005]
2007 [YR2007]
2008 [YR2008]
2009 [YR2009]
2010 [YR2010]
2011 [YR2011]
2012 [YR2012]
2013 [YR2013]
2014 [YR2014]
2015 [YR2015]
2016 [YR2016]
2017 [YR2017]
2018 [YR2018]
2019 [YR2019]
2020 [YR2020]
2021 [YR2021]
Year Inflation, consumer prices (annual %)
2000 [YR2000] 4.366664513
2001 [YR2001] 3.148261446
2002 [YR2002] 3.290344726
2003 [YR2003] 2.914134701
2004 [YR2004] 7.444624693
2005 [YR2005] 9.06332737
2007 [YR2007] 7.598684411
2008 [YR2008] 20.28612109
2009 [YR2009] 13.64776506
2010 [YR2010] 12.93887056
2011 [YR2011] 11.91609271
2012 [YR2012] 9.682351861
2013 [YR2013] 7.692156119
2014 [YR2014] 7.189384028
2015 [YR2015] 2.529328173
 56

2016 [YR2016] 3.765119164

2017 [YR2017] 4.08537368
2018 [YR2018] 5.078057259
2019 [YR2019] 10.5783618
2020 [YR2020] 9.739993139
2021 [YR2021] 9.496210561
 57

Chapter 7
Interest Rate

Interest Rate effectively determines the potential output of the country by determining the
investment and net exports of a country. It also determines the money supply of the country. If the
interest rate of a country is higher this declines the investment and the net exports of the country.
This ultimately declines the potential output of the country. Again when in an economy the interest
rates are higher the supply of money in that economy.

Bangladesh deposit Interest rate varied of the year from 2000 to the present year but have declined
in the last few decade at a higher percentage.

Bangladesh BGD Lending interest rate (%)

FR.INR.LEND
16
14
12
10
8
6
4
2
0
2013 [YR2013]
2000 [YR2000]
2001 [YR2001]
2002 [YR2002]
2003 [YR2003]
2004 [YR2004]
2005 [YR2005]
2006 [YR2006]
2007 [YR2007]
2008 [YR2008]
2009 [YR2009]
2010 [YR2010]
2011 [YR2011]
2012 [YR2012]

2014 [YR2014]
2015 [YR2015]
2016 [YR2016]
2017 [YR2017]
2018 [YR2018]
2019 [YR2019]
2020 [YR2020]
2021 [YR2021]

From the year 2000 the lending interest rate in Bangladesh showed a mixed trend with rising
interest rate at the beginning of the century in 2000. Then it declined for some time and during the
 58

year before and after recession it again started rising. It reached the peak during the worldwide
recession in 2009 with a staggering 13.3267%. In the last decade however the lending interest rate
slowly declined with reaching its lowest in 2021 by having a rate of 7.32%. The effect of such
lower interest rate caused a higher demand of money in the market which is the one of the primary
reasons we are observing higher inflation rate in our country throughout the year of 2022.
 59

7.1 Causes of Interest Rate Fluctuations

Post COVID-19 Economic Recession: From the year 2019 a pandemic engulfed the whole world
and all kinds of economic activities came at a standstill. This caused the decline of new economic
expansion and development of new industries. The demand for investment funds declined along
with it. Now that the pandemic is coming to an end people are still recovering from the financial
turmoil the demand for essential goods have increased manifolds but the increased demand cannot
be fulfilled because of supply shock.

Russia -Ukraine War: The war between Russia and Ukraine played a vital role in soaring
inflation around the world because Ukraine a major supplier of agricultural goods around the world
and Russia a major supplier of fossil fuel around the world. The war between two countries caused
a major suspension of exports of fossil fuel and agricultural goods causing a supply shock and the
rise of prices of fossil fuel in the world market.

Inflation: Inflation is a major cause of rise in Interest Rates. Inflation causes the rise in demand
of loanable funds as the cost of living increases and at the same time if also declines the supply of
funds in the economy as savings is highly effected as a result of Inflation. This inward shift of the
supply of loanable funds and outward shift of the demand curve of loanable funds causes the
interest rates to rise. Bangladesh is experiencing highest level of inflation since the past decade
having an Inflation rate of 7.56% as the fuel prices rose almost 50 percent in the current year. The
rise in Inflation rate has been observed since April of 2022.

Interest Rate policies by Bangladesh Bank: Bangladesh Bank recently increased the REPO rate
by 50 basis point raising the rate to 5.5 % as a part of annual monetary policy of 2022-2023. The
rise of REPO rate will increase the borrowing cost of banks and ultimately increase the lending
cost to consumers. The higher lending cost by banks with increased interest rate will cause the
decline in demand of funds and inflation will be kept in check.
 60

Devaluation of Dollar prices: The recent increase in Dollar prices and its devaluation throughout
the year of 2022 have affected the exports and imports and business expansion due to higher rate
of interests.
 61

7.2 Comparison with SAARC countries:

The following graph shows a leading trend in lending interest rate comparison of the Bangladesh
and other SAARC countries including Pakistan, Maldives, Bhutan and Sri Lanka.

Lending Interest Rate of Bangladesh BGD Lending

SAARC Countries interest rate (%) FR.INR.LEND
15
30
25 10
20 5
15
0
10
5
0
1 2 3 4 5 6 7 8 9 1011121314151617181920212223

Bhutan BTN Lending interest rate (%) FR.INR.LEND

Sri Lanka LKA Lending interest rate (%) FR.INR.LEND
Pakistan PAK Lending interest rate (%) FR.INR.LEND
Maldives MDV Lending interest rate (%) FR.INR.LEND

From the analysis we can see that the countries facing Chinese debt trap, undergoing financial
crisis and showing major level of inflation shows volatile lending rate of interest. The lending rate
of interest in Pakistan and Sri Lanka has deviated on a higher basis in the past two decades. With
countries like Bhutan and Maldives the lending interest rate have followed a smooth pattern with
Maldives having a trend around 10% rate and Bhutan with a higher rate having a trend around 15
% rate of interest. Bangladesh among all the SAARC countries have shown little fluctuations over
the time period and the lending interest rate is among the lowest in recent times. This is because
there is a deposit cap of 6% imposed by the Bangladesh Bank. From the analysis the position of
Bangladesh in terms of lending interest rate bolstered by monetary policies of Bangladesh Bank
holds a strong position.
 62

Chapter 8
Conclusion

The report in comprehension gives off an overview of the condition of major economic indicators
like GDP, unemployment, money supply, interest rate, interest exchange, and foreign reserve in
Bangladesh. How some of them are stable or denotes a positive trend while others represent an
alarming situation for the country. Besides, elaborated and constructive comparisons have been
done of Bangladesh with other SAARC countries (except India) based on this indicators that
shows where our country stands economically and how it can improve by following certain
countries’ measures and avoiding others.
 63

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 65

Appendix

Chapter 4

Broad Money in Million LCU

Year Bangladesh Afghanistan Bhutan Maldives Nepal Pakistan Sri Lanka
2000 820,385 9,935 3,020 194,816 1,476,676 483,421
2001 1,173,131 10,716 3,254 227,497 1,689,764 549,129
2002 1,343,240 15,336 3,957 233,546 1,987,440 622,479
2003 1,532,211 16,115 4,636 257,409 2,342,356 717,835
2004 1,748,702 18,721 6,091 291,091 2,784,954 858,637
2005 2,025,231 21,153 6,737 319,454 3,240,931 1,022,266
2006 2,434,644 81,248 25,101 8,009 373,713 4,631,578 1,204,542
2007 2,764,498 115,693 28,057 9,939 442,957 5,439,249 1,404,016
2008 3,218,075 152,002 35,399 12,110 615,007 5,794,144 1,522,761
2009 3,869,555 202,231 44,548 13,855 797,171 6,814,496 1,806,147
2010 4,685,213 256,727 51,962 15,884 873,613 7,807,083 2,091,402
2011 5,477,734 311,433 54,243 19,062 1,036,719 8,790,980 3,136,752
2012 6,409,569 338,614 57,384 20,002 1,190,739 10,320,173 3,689,691
2013 7,361,378 372,186 59,534 23,677 1,448,629 11,694,370 4,288,473
2014 8,510,505 402,465 74,962 27,197 1,682,443 13,044,335 4,910,589
2015 9,777,918 414,857 77,876 30,492 2,093,549 14,633,263 5,747,103
2016 11,410,611 455,204 96,203 30,436 2,457,063 16,625,735 6,677,336
2017 12,978,360 473,837 112,873 32,006 2,751,121 18,276,890 7,839,494
2018 14,471,672 486,034 120,266 33,088 3,294,618 20,074,311 8,734,015
2019 16,194,563 513,759 135,211 36,241 3,749,718 22,417,592 9,460,995
2020 18,313,603 575,738 173,072 41,385 4,578,927 25,922,069
CAGR 15.94% 13.94% 14.58% 13.28% 16.22% 14.62% 16.03%
Total Growth 2132% 609% 1642% 1271% 2250% 1655% 1857%

Broad money growth (annual %)

Year Bangladesh Afghanistan Bhutan Maldives Nepal Pakistan Sri Lanka
2000 19.35 % 17.37 % 4.17 % 18.85 % 12.13 % 12.86 %
2001 43.00 % 7.85 % 7.77 % 16.78 % 14.43 % 13.59 %
2002 14.50 % 43.12 % 21.58 % 2.66 % 17.62 % 13.36 %
2003 14.07 % 5.08 % 17.18 % 10.22 % 17.86 % 15.32 %
2004 14.13 % 16.17 % 31.37 % 13.09 % 18.90 % 19.61 %
2005 15.81 % 12.99 % 10.61 % 9.74 % 16.37 % 19.06 %
2006 20.22 % 18.66 % 18.87 % 16.99 % 42.91 % 17.83 %
 66

2007 13.55 % 42.40 % 11.78 % 24.10 % 18.53 % 17.44 % 16.56 %

2008 16.41 % 31.38 % 26.17 % 21.85 % 38.84 % 6.52 % 8.46 %
2009 20.24 % 33.05 % 25.84 % 14.41 % 29.62 % 17.61 % 18.61 %
2010 21.08 % 26.95 % 16.64 % 14.64 % 9.59 % 14.57 % 15.79 %
2011 16.92 % 21.31 % 4.39 % 20.01 % 18.67 % 12.60 % 49.98 %
2012 17.01 % 8.73 % 5.79 % 4.93 % 14.86 % 17.40 % 17.63 %
2013 14.85 % 9.91 % 3.75 % 18.37 % 21.66 % 13.32 % 16.23 %
2014 15.61 % 8.14 % 25.91 % 14.87 % 16.14 % 11.54 % 14.51 %
2015 14.89 % 3.08 % 3.89 % 12.11 % 24.44 % 12.18 % 17.03 %
2016 16.70 % 9.73 % 23.53 % -0.18 % 17.36 % 13.62 % 16.19 %
2017 13.74 % 4.09 % 17.33 % 5.16 % 11.97 % 9.93 % 17.40 %
2018 11.51 % 2.57 % 6.55 % 3.38 % 19.76 % 9.83 % 11.41 %
2019 11.91 % 5.70 % 12.43 % 9.53 % 13.81 % 11.67 % 8.32 %
2020 13.08 % 12.06 % 28.00 % 14.19 % 22.11 % 15.63 %

Broad money as % of GDP

Year Bangladesh Afghanistan Bhutan Maldives Nepal Pakistan Sri Lanka
2000 30.55 % 52.08 % 41.09 % 51.34 % 34.80 % 38.44 %
2001 40.27 % 49.21 % 30.55 % 51.53 % 36.52 % 39.02 %
2002 42.74 % 60.57 % 34.46 % 50.83 % 40.39 % 39.35 %
2003 43.99 % 57.27 % 34.43 % 52.29 % 43.58 % 39.39 %
2004 45.62 % 60.52 % 38.79 % 54.23 % 44.89 % 41.07 %
2005 47.42 % 60.19 % 45.24 % 54.20 % 45.48 % 41.68 %
2006 50.48 % 23.34 % 63.32 % 39.72 % 57.14 % 56.37 % 40.99 %
2007 50.28 % 23.83 % 58.08 % 41.56 % 60.86 % 58.87 % 39.23 %
2008 51.19 % 29.51 % 66.27 % 41.65 % 75.40 % 54.47 % 34.52 %
2009 54.88 % 33.06 % 74.58 % 46.15 % 80.66 % 51.63 % 37.35 %
2010 58.75 % 35.35 % 73.41 % 47.95 % 73.24 % 52.51 % 32.61 %
2011 59.81 % 36.62 % 65.40 % 47.05 % 66.49 % 48.10 % 43.45 %
2012 60.74 % 32.91 % 60.29 % 45.10 % 67.72 % 51.48 % 42.25 %
2013 61.40 % 32.68 % 57.85 % 46.76 % 74.32 % 52.24 % 44.71 %
2014 63.34 % 34.21 % 64.41 % 47.83 % 75.36 % 51.83 % 47.39 %
2015 64.51 % 33.93 % 60.59 % 48.29 % 86.38 % 53.32 % 52.48 %
2016 54.97 % 37.22 % 66.31 % 45.22 % 94.21 % 50.80 % 55.66 %
2017 55.84 % 36.86 % 70.73 % 43.75 % 89.40 % 51.41 % 58.82 %
2018 54.83 % 36.61 % 71.87 % 40.56 % 95.33 % 51.22 % 61.12 %
2019 54.87 % 34.96 % 75.72 % 42.01 % 97.17 % 51.18 % 63.09 %
2020 57.76 % 37.21 % 100.87 % 71.89 % 117.75 % 54.55 %
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Chapter 5

Total reserves (includes gold, current million US$)

Year Bangladesh Afghanistan Bhutan Maldives Nepal Pakistan Sri Lanka
2000 1516 0 318 123 987 2087 1131
2001 1306 0 323 93 1080 4218 1357
2002 1722 0 355 133 1070 8796 1705
2003 2625 0 367 159 1286 11816 2334
2004 3222 0 399 204 1529 10718 2205
2005 2825 0 467 186 1565 11109 2735
2006 3877 0 545 232 1935 12878 2832
2007 5277 0 699 308 2014 15798 3518
2008 5787 3042 765 241 2458 9024 2617
2009 10342 4266 891 261 2819 13606 5354
2010 11175 5162 1002 350 3003 17256 7195
2011 9175 6345 790 335 3703 17698 6739
2012 12754 7152 955 305 4418 13688 7106
2013 18088 7289 991 368 5434 7651 7500
2014 22320 7529 1245 615 6216 14307 8211
2015 27493 6977 1103 564 8145 20028 7302
2016 32284 7282 1127 467 8735 22028 6008
2017 33431 8097 1206 587 9435 18456 7959
2018 32028 8207 987 712 8335 11837 6921
2019 32697 8498 1238 753 8713 16586 7648
2020 43172 9749 1510 985 11468 18522 5664
2021 46166 806 9661 22812
CAGR 16.80% 9.37% 7.71% 8.93% 10.92% 11.48% 7.60%
Total Growth 2946% 220% 375% 556% 878% 993% 401%

Reserves and related items (BoP, current million US$)

Year Bangladesh Afghanistan Bhutan Maldives Nepal Pakistan Sri Lanka
2000 (30.74) (4.31) (76.97) (2,627.14) (360.83)
2001 (143.92) (29.69) (299.61) 2,196.57 (308.12)
2002 497.43 40.08 (313.42) 4,083.98 (262.20)
2003 888.51 26.16 100.57 2,916.18 (365.03)
2004 503.43 44.06 (101.94) (1,359.59) (934.82)
2005 (416.09) (23.33) 170.89 259.56 (498.43)
2006 865.29 116.47 44.97 307.73 1,429.62 (717.00)
2007 1,372.80 122.27 76.71 (31.99) 2,561.82 (1,374.20)
2008 1,018.74 1,377.51 18.38 (65.34) 831.15 (9,004.66) (2,967.78)
2009 4,334.65 920.34 142.01 15.37 2.85 1,662.89 (1,303.84)
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2010 1,019.72 1,016.88 89.90 82.35 162.27 693.79 (2,781.97)

2011 (1,813.88) 1,055.62 14.12 (15.15) 999.65 (275.84) (3,071.85)
2012 3,543.37 688.20 (159.45) (30.42) 717.67 (2,017.05) (22.99)
2013 5,276.78 281.07 167.95 69.24 1,456.04 (2,555.94) 1,566.13
2014 4,571.03 374.12 70.52 253.37 846.44 7,099.19 2,267.82
2015 5,416.75 (259.02) (4.68) (49.10) 2,329.04 3,851.87 860.69
2016 5,094.74 657.21 189.33 (95.82) 668.71 1,415.88 (349.57)
2017 628.28 600.51 (19.64) 120.12 384.51 (4,032.86) 2,600.33
2018 (1,057.68) 207.84 43.50 125.38 (649.09) (6,303.25) (1,253.19)
2019 635.23 96.78 66.21 42.22 346.25 3,432.64 10.59
2020 9,277.49 499.58 241.45 202.29 2,720.20 839.41 (1,689.84)
2021 3,493.48 (178.49) (2,364.23) 4,555.69

Net trade in goods and services (BoT, current million US$)

Year Bangladesh Afghanistan Bhutan Maldives Nepal Pakistan Sri Lanka
2000 (2,458.88) 5.50 (507.98) (2,029.00) (1,726.75)
2001 (2,817.99) 8.19 (566.64) (1,481.00) (954.05)
2002 (2,234.84) 39.48 (724.93) (408.00) (1,111.89)
2003 (3,141.65) 49.36 (856.82) (435.00) (1,139.96)
2004 (3,854.88) (33.60) (1,059.08) (5,979.99) (1,823.85)
2005 (4,156.76) (384.04) (1,427.96) (10,170.20) (2,178.71)
2006 (3,896.30) (135.67) (269.39) (1,699.39) (14,558.00) (3,113.71)
2007 (5,462.93) 50.40 168.19 (2,218.90) (15,640.00) (3,353.70)
2008 (7,672.64) (1,877.65) (112.00) (107.21) (2,660.85) (22,456.50) (5,579.00)
2009 (6,025.30) (1,956.52) (107.90) 232.17 (3,559.21) (12,838.43) (2,731.50)
2010 (7,816.34) (3,205.30) (344.76) 314.23 (4,307.32) (11,960.00) (4,118.50)
2011 (10,888.03) (4,149.50) (558.99) 146.92 (4,584.80) (15,718.00) (8,611.15)
2012 (10,157.90) (7,442.38) (478.83) 339.50 (4,916.71) (17,528.00) (8,155.17)
2013 (9,933.20) (8,671.43) (433.04) 508.34 (5,334.67) (19,124.00) (6,428.66)
2014 (12,119.39) (6,261.26) (459.21) 545.05 (6,366.75) (20,547.00) (6,406.61)
2015 (10,606.50) (7,044.96) (496.73) 375.92 (5,467.90) (20,018.00) (6,063.31)
2016 (10,505.30) (6,191.46) (594.97) (50.67) (7,898.50) (25,036.90) (5,993.87)
2017 (17,594.49) (6,803.56) (518.57) (182.31) (9,393.30) (35,006.62) (6,317.05)
2018 (21,457.17) (6,378.17) (462.86) (517.54) (11,960.66) (37,647.99) (6,576.79)
2019 (19,272.61) (5,855.06) (452.20) (348.34) (11,110.08) (27,305.93) (5,147.67)
2020 (18,300.38) (5,506.55) (401.80) (662.13) (8,923.10) (24,764.87) (5,188.54)
2021 (35,916.65) 449.19 (14,466.80) (40,826.25)