Analysis on the Growth of Balance of Payment and Sectoral Growth in Bangladesh

9185 Words Aug 1st, 2015 37 Pages
Introduction
Bangladesh characterised by high population density, low resource base, recurrent natural disasters and persistent socio-cultural instability has come a long way since its independence in 1971. The country has performed well especially in recent years, showing that a country can achieve significan human and social development at relatively low levels of income along with creating strong fundamentals and future growth. The integration of developing and least developed countries with the global economy increased sharply in the 1990s with change in their economic policies and lowering of barriers to trade and investment. Foreign direct investment (FDI) is expected to benefit poor countries such as Bangladesh in a number of ways.
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The acceleration in the growth of per capita income owed itself both to a slowdown in population growth and a sustained increase in the rate of GDP growth (which averaged 5.21 percent annually during the second half of the 1990s). During this time, the progress in the human development indicators has been even much more impressive. Bangladesh is in fact among the top performing countries in the 1990s in terms of the extent of improvement in the Human Development Index as estimated by the UNDP. However, there are signs that continued progress in this respect may prove increasingly.

Balance of Payment:
The Balance of Payment slipped into a deficit for the first time in a decade resulting in heightened risks to Bangladesh’s external position. The government agreed a three-year reform programme with the International Monetary Fund (IMF) styled Memorandum of Economic and Financial Policies (MEFP) to access credit the IMF’s Extended Credit Facility (ECF) arrangement to stave-off the pressures on the BoP. The access to IMF funds requires reduction in aggregate demand by employing mechanisms such asdepreciation of currency and cut in import demand and supply of investible funds to the entrepreneurs. The central bank has already allowed the local currency to depreciate significantly against the foreign currencies and put in place contractionary monetary policy to restrict money supply to the private sector and import of goods and services.

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