The macro-economic condition of a nation is an index of its economic health. Before stepping into the topic of Bangladesh, let us have a look at the economic condition of the world, including developed and developing countries.
The rate of the gross domestic product (GDP) growth of the world economy will increase slightly as forecast by the International Monetary Fund (IMF). This will happen because of regained momentum in industrial production, foreign direct investment (FDI) and international trade. GDP growth of the world will rise by 0.4 per cent to 3.5 per cent in 2017 and it will be 3.6 per cent in 2018, whereas it was 3.1 per cent in 2015.The growth rate will increase in the coming years because of the free movement of trade and investment among nations. The economy of the USA will increase by 2.5 per cent from the existing 2.3 per cent due to the regained confidence by the market players.
BANGLADESH SCENARIO: Bangladesh economy is growing at a steady pace registering a growth rate of 7.24 per cent in FY 2016-2017 which was 7.11 per cent in the preceding year. The robust growth of the economy has been possible due mainly to the remarkable contribution of agriculture, industry and service sectors. The three leading driving forces of the economy registered growth at 3.40 per cent, 10.50 per cent and 6.50 per cent respectively. Almost all the sectors have had moderate contributions.
SAVINGS AND INVESTMENT CONDITION OF BANGLADESH: Savings rate and resulting investment are very closely related and foreign investors evaluate the purchasing power of the consumers based on these two concepts. The rate of domestic savings and national savings in Bangladesh are 26.06 per cent and 30.30 per cent of GDP in FY 2016-2017 which was 24.98 per cent and 30.77 per cent respectively in the preceding year. The rate of savings in relation to GDP increased 1.08 per cent in the FY 2016-2017. It would have been higher if the rate of inward remittance inflow had increased. On the other hand, the rate of investment in proportion to GDP in Bangladesh rose to 30.27 per cent which was 29.65 per cent in the previous year due to huge development work done by the public sector which accounted for 7.26 per cent of GDP and the lion's share of investment was made by the private sector which is 23.01 per cent in FY 2016-2017.
INFLATION: Inflation is one of the important indicators of a country's macro-economic condition. Bangladesh, being a developing nation is no exception in this regard. The rate of inflation in Bangladesh is satisfactory due to adequate supply of the products and services in the consumer market. Inflation is mostly dependent on food and food-related items prices of which were fairly under control in recent years (8.56 per cent in FY 2013-14 and 4.92 per cent in 2015-16). Rate of inflation has fixed for the current fiscal year @5.5 per cent as per monetary policy statement of Bangladesh Bank.
REVENUE COLLECTION: Development of a country mainly depends on collection of internal resources. Collection of revenue from internal resources is satisfactory and the amount has been set at BDT 2185.00 billion which is 11.17 per cent of GDP. The National Board of Revenue (NBR) is mainly entrusted with the job of collecting revenues. The target of revenue collection by the NBR has been fixed at BDT 1850.00 billion (9.64 per cent of GDP) which is mostly dependent on tax and duty. In addition, Internal Resources Division and other government wings are also engaged, besides the NBR, to collect resources from the internal sources which is BDT 65.00 billion as tax revenue (0.33 per cent of GDP) and BDT 270.00 billion as Non-Tax revenue (1.38 per cent of GDP). Revenue collection from the internal sources has been increasing every year while the external sources are shrinking due to lower remittances.
CURRENCY AND MONETARY SECTOR: Monetary policy is outlined and published by the central bank on half-yearly basis aimed at controlling money supply of the country. Supply of money in the form of credit is controlled by the monetary policy which is set at 16.50 per cent of GDP in recent monetary policy. Broad money, which is a sign of money out of bank custody, is set to supply at 14.8 per cent of GDP. Inflation target is contained by setting at 5.80 per cent. In recent years, supply growth of all categories of currencies, i.e., narrow money, broad money and reserve money are set as 18.77 per cent, 13.11 per cent and 15.51 per cent respectively.
EXTERNAL SECTOR: External sector of Bangladesh economy comprises export, import and inward remittance. In addition, the components such as balance of payment, foreign currency reserve and exchange rate of foreign currency with the local currency have thriving impact on the macro-economic condition of Bangladesh. Export registered slight growth in the FY 2016-17 at 1.69 per cent which was 9.77 per cent in the previous year.
Import registered 11.25 per cent growth in FY 2016-17. Total import in FY 2015-16 was $43.05 billion and $ 40.70 billion in FY 2016-17. Import of rice, capital machinery and consumer goods constitute the major portion of the import figure.
Nearly 10 million Bangladeshis work abroad and they send their hard-earned foreign currency to their family which is nearly $12 billion in FY 2016-17. The rate of inward remittance into Bangladesh in FY 2016-17 registered huge negative growth due to fragile economic condition in the middle-eastern nations, Brexit in Europe and low prices of oil.
The international trade balance of Bangladesh registered a huge deficit of $9472 million in FY 2016-17 which was $6460 million in the previous year. Nearly $10.00 billion gap between export and import of the country caused the imbalance in the balance of payment situation.
Foreign exchange reserve increased to $32.55 billion at the end of last fiscal which was worth 9.3 months of import requirements. The exchange rate of USD/BDT was slightly volatile at the end of FY-17 and which was capped by the central bank by taking prompt initiative. However, the exchange rate was BDT 79.69.
REFORM MEASURE IN THE MACRO-ECONOMIC MANAGEMENT: Reform is an essential part of a country's macro-economy and is basically carried out to further streamline the economic system so as to enable the government to collect more revenues from internal and external sources. The most important reform measure of the government is the introduction of the VAT law in the economy. Though the implementation of new VAT law has been deferred in the face of the protests by the business community, e-payment system has been introduced which accelerated non-tax revenue earnings. Followings are the reform measures, among other things, taken by the government for collection of internal resources for further development of the economy:
- Introduction of iVAS (Integrated Vat Administration System)
- Introduction of e-Payment system
- Upgradation of iBAS system (Integrated Budgeting and Accounting System)
Besides these reform measures, the government has taken preemptive initiatives to remove the anomalies in the money and capital market keeping the current implementation process of BASEL-III in the banking system on.
The macroeconomic management of a country is so vital that development can not be conceived of if the system is not well managed. Healthy macro-economic management is the core driver of development, eradication of poverty, extinction of corruption from the society.
The writer is a member of MITB-4th Batch, University of Dhaka.