1. THE GLOBAL FINANCIAL CRISIS – LIKELY IMPACT ON
BANGLADESH
Study Conducted by BIDS-PRP Team:
Ahmed, Mansur
Mehedi, ATMS
Zabid, I.
Zohir, Salma C.
Led by: Murshid, KAS.
Paper presented to the BIDS-PRP seminar on 16 March, 2009
at BIDS Conference Hall, Agargoan, Dhaka-1207
1

2. INTRODUCTION
Figure : GDP Growth over preceding quarter, for the four quarters
of 2008 of USA and EU European Commission
forecast:
GDP Growth
2
• Advanced economies like
1 USA, EU, Germany and UK are
going to experience negative
economic growth through out
0
2009;
USA EU Germany UK
-1 •The Economic Outlook sees
US output gradually picking up
from middle of next year as the
-2
effects of the credit squeeze
abate; and
-3
•Weak household spending will
limit recovery - US GDP is
-4
projected to fall 1.6 percent in
2008Q1 2008Q2 2008Q3 2008Q4
2009, before rising 1.6 percent
in 2010.
Source: BEA and European commission, 2009.
2

3. INTRODUCTION….
Figure : GDP Forecasts for USA and EU for 2009
Figure : Composite Leading Indicators for
and 2010
Selected Countries
OECD Area Euro Area Germany
EU USA Germany UK
United Kingdom United States
1.5
0
1
-0.5
0.5
0
-1
-0.5
-1.5
-1
-2 -1.5
2009Q 1
2009Q 2
2009Q 3
2009Q 4
2010Q 1
2010Q 2
2010Q 3
2010Q 4
-2.5
Jul-2008 Aug-2008 Sep-2008 Oct-2008 Nov-2008 Dec-08
urce: OECD, 2009 Source: EC, 2009
The vulnerability facing advanced economies is reflected in the OECD’s composite
ading indicators which shows that downturn in the CLI has become flatter and has
egun to turn upward between Oct-Dec 2008. GDP forecasts for EU even worse
3

4. INTRODUCTION….
Table : IMF Projections about the Growth of Global Output Due to Recent Financial Crisis
Projected
Regions 2007 2008 2009 2010
World Output 5.2 3.5 0.5 3.0
Advanced Economies 2.7 1.0 -2.0 1.1
USA 2.0 1.1 -1.6 1.6
Euro area 2.6 1.0 -2.0 0.2
United Kingdom 3.0 0.7 -2.8 0.2
Developing Asia 10.6 7.8 5.5 6.9
China 13.0 9.0 6.7 8.0
India 9.3 7.3 5.1 6.5
Source: IMF, World Economic Outlook, January 2009.
World growth is projected to slow from 5.2 percent in 2007 to 3.5 percent in 2008 to
st over 0.5 percent in 2009 - recovery projected to begin later in 2009.
Major emerging economies such as China, Brazil, Russia and India also affected.
4

5. Linkages: Bangladesh and Global Economy
Figure : Trend in Export-GDP ratio of Bangladesh
► Bangladesh’s export earnings
Export-GDP Ratio
20.00
continuously rising since 1990s.
15.00
Export earnings are over 20
10.00
percent of our GDP.
5.00
► The main driver exports is the
0.00
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
RMG sector which accounts almost
four fifth of our total export
Source: World Development Indicators, 2008.
igure: Direction of Bangladesh’s Exports, 2007
earnings.
Others
Developing
19%
►The export sector is potentially
Countries
12%
vulnerable to the on-going financial
crisis as it heavily depends on EU
and US markets. Almost half of our
EU
USA
46%
exports go to EU, while one quarter
23%
goes to USA.
Source: Direction of Trade, IMF, 2008.
5

6. Forecasts Based on Export Demand Function: A SURE Approach
● To estimate the income elasticities for our exports to USA and EU, an attempt was made to
estimate country specific and product specific export demand functions for Bangladesh.
● Literature: Weight of evidence - real income of the trading partners and relative prices are
the determinants of export demand but magnitude of elasticity varies widely.
● This study estimates market specific disaggregated export demand behavior for
Bangladesh’s exports using quarterly data and by applying seemingly unrelated regression
(SUR) technique.
● Two major importing regions considered: USA, and Europe (EU-15).
● Demand theory identifies price as the main explanatory variable, and incomes, tastes and
preferences, prices of related products (substitutes and complements) as demand shifters.
Because of data limitations, a simplified model was estimated:
Log X= α+βlogY+θlogE+u
here X = Quantity of Export Demand, Y = Real GDP; E=Real Exchange Rate; and
error term.
6

7. Forecasts Based on Export Demand Function: A SURE Approach …..
le : Regression Results: Income and Exchange rate Elasticities
Regions Products Income Elasticity Exchange Rate
Elasticity
USA Knitwear 0.2903911* 1.85298**
Income Elasticity:
Woven 0.2855428* 0.8005111*
Fish 0.0086 0.7962688
► Income elasticities for all items for
Jute 0.241779 0.2557664
USA and EU are low but significant.
Leather 2.329824* 5.307921*
Exception: leather products export to
Products
USA which shows high positive and
Rawhide 0.6911198** 2.042887**
significant elasticity (more volatile); and
Total 0.3680913* 0.7344868*
fish and jute exports to USA – which
European Knitwear 0.3850197* 0.0074014*
have insignificant elasticity.
Union
Woven 0.386823* 0.0001788*
► The low income elasticities imply
Fish 0.2326834* 0.0021747
that there is a small, positive
Jute 0.1866102* 0.0071777*
association between the income or
Leather 0.0041508* 0.0017311*
GDP of the importing countries and
Products
export demand from Bangladesh.
Rawhide 0.1995184* 0.0040831*
Total 0.4474187* 0.0035401*
7

8. Forecasts Based on Export Demand Function:
A SURE Approach …..
Exchange Rate Elasticity:
►These were derived in terms of USD and Euro vs BDT implying that
increase in exchange rate (more taka per $ or E) means depreciation of
BDT.
► For most commodities, exchange rate elasticities were positive and
significant – implying that exports were responsive to exchange rate
changes.
► Especially stronger response indicated for leather goods, rawhide and
knit to USA.
8

9. Forecasts Based on Export Demand Function: A SURE Approach …..
Table: Impact on Exports: Forecast for 2009 and 2010 (Percentages)
Forecast for USA Markets
Quarters 2009Q1 2009Q2 2009Q3 2009Q4 2010Q1 2010Q2 2010Q3 2010Q4
Knitwear -0.06 -0.29 -0.23 -0.03 0.15 0.26 0.35 0.41
Woven wear -0.06 -0.29 -0.23 -0.03 0.14 0.26 0.34 0.40
Fish 0.00 -0.01 -0.01 0.00 0.00 0.01 0.01 0.01
Jute -0.05 -0.24 -0.19 -0.02 0.12 0.22 0.29 0.34
Leather Products -0.47 -2.33 -1.86 -0.23 1.16 2.10 2.80 3.26
Rawhides -0.14 -0.69 -0.55 -0.07 0.35 0.62 0.83 0.97
Total -0.07 -0.37 -0.29 -0.04 0.18 0.33 0.44 0.52
Forecast for EU Markets
Knitwear -0.04 0.00 0.08 0.23 0.31 0.39 0.42 0.50
Woven wear -0.04 0.00 0.08 0.23 0.31 0.39 0.43 0.50
Fish -0.02 0.00 0.05 0.14 0.19 0.23 0.26 0.30
Jute -0.02 0.00 0.04 0.11 0.15 0.19 0.21 0.24
Leather Products 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.01
Rawhides -0.02 0.00 0.04 0.12 0.16 0.20 0.22 0.26
Total -0.04 0.00 0.09 0.27 0.36 0.45 0.49 0.58
Using EC GDP estimates: Qtr 2 and 3 are the worst periods for the US market with the leather sector
especially hard-hit.
In the EU market export growth is negative in qtr 1 of 2009 but improves slowly thereafter.
9

10. Forecasts Based on Export Demand Function: A SURE Approach …..
Figure : Forecasts based on IMF Projections
Export Forecast based on IMF Projections for 2009
USA EU
-4
-3.5
-3
-2.5
-2
-1.5
-1
-0.5
0
Knitwear Woven Fish Jute Leather Rawhides Total
wear Products
♦ IMF estimates show negative performance for all categories, especially leather
♦ If IMF GDP forecasts are used, whole of 2009 will post negative export growth.
10

11. ACTUAL EXPORT PERFORMANCE
Figure : Half Yearly Growth of Bangladesh’s Export Figure : Quarterly Exports of Bangladesh in
(Year-over-Year) Million USD
25.39 24.93 Exports in Million USD
23.18 5000
25
4500
20
16.70 4000
3500
15
3000
9.22 2500
10
6.88
2000
1500
5
1000
0 500
Jan-June July-Dec Jan-June July-Dec Jan-June July-Dec 0
2005Q1
2005Q2
2005Q3
2005Q4
2006Q1
2006Q2
2006Q3
2006Q4
2007Q1
2007Q2
2007Q3
2007Q4
2008Q1
2008Q2
2008Q3
2008Q4
2006 2007 2008
Source: IFS, 2008 and Bangladesh Bank Source: IFS, 2008 and Bangladesh Bank
•Export performance positive but December performance has raised concerns.
11

12. ACTUAL EXPORT PERFORMANCE…….
Table : Quarterly Growth of Exports of Major Items to USA
Growth of Exports (Jul-Dec 2008 on July-Dec2007) (Year-on-Year)
►Bangladesh is experiencing
BD USA* China India Pakistan Philippines Sri Lanka Vietnam
positive export growth while
oven 12.49 -3.62 5.06 -8.88 4.08 -3.87 7.82 many other emerging Asian
economies already affected,
nit 25.88 -1.57 4.71 0.24 -0.89 -3.18 -25.23 0.57
e.g. India, Philippines and Sri
Lanka.
ish -16.46 3.48 19.42 -17.99 -6.51 -20.58 -41.30 7.44
► Bangladesh share of US
ome
extile 16.93 -3.99 -2.46 2.92 -9.39 1.34 -21.42 -25.36
market increasing at the
expense of other countries.
eadgears -11.53 3.12 5.44 -23.22 44.28 8.46 -11.47 7.89
► Bangladesh exports rose in
utes -19.76 2.55 -2.95 3.24 7.95 -7.71
the face of declining imports
of RMG products in USA –
lastics 6.69 2.02 10.48 33.61 -13.26 -0.04 15.31
imports fell almost 9% while
BD exports rose 18% (last
otal 13.57 2.59 5.48 4.93 2.49 -12.21 -3.10 20.19 qtr 2008).
Source: Calculated based on data accessed from USITC, 2009.
12

13. ACTUAL EXPORT PERFORMANCE
able : Growth of Exports to EU (July-Oct 2008 over July-Oct 2007)
►However, Bangladesh is
Banglade
facing problems in EU market
sh China India Pakistan Sri Lanka
Woven -2.04 6.46 4.56 1.88 3.92
(especially in shrimp,
Knit 6.66 32.11 -4.48 -1.57 2.07
headgear, jute and rawhides).
Fish -15.88 4.51 -11.96 0.93
► Bangladesh experienced <4
Home
Textile 4.28 1.50 -4.33 0.15 -14.23
% export growth in EU market
Headgears -20.02 5.08 12.91 10.09 -0.16
while all other countries
Plastics 33.13 7.45 -3.72 127.99 -2.69
(except Sri Lanka) have
Jutes -13.30 2.64 -2.48 -4.87
experienced higher growth
Rawhide -25.44 -26.96 -12.20 -23.94 -35.00
than Bangladesh.
Leather
Products 15.23 -1.12 11.32 14.57
Total 3.58 7.23 10.91 7.45 1.57
Source: Calculated based on data accessed from Euro stat, 2009
The above data and analysis show that still Bangladesh has been coping well
h the on going global financial meltdown, though there is a clear indication
t growth rate of exports from Bangladesh is going to face a slow down.
13

14. RELATIVE SUCCESS OF BANGLADESH: CLOSER FOCUS ON RMG
Trend in US Apparel Sales and Import
20
Retail sales World Bangladesh
15
10
5
0
Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter
17 27 37 47 18 28 38 48
-5
-10
• Retail clothing sales declined by 8.05 percent in the fourth quarter of
2008, and consequently US import of apparel declined by 2.94 percent.
•But US import from Bangladesh increased by 18.5 percent during the
fourth quarter of 2008. Main competitors of Bangladesh in US are
Vietnam and Indonesia.
14

15. RELATIVE SUCCESS OF BANGLADESH: CLOSER FOCUS ON RMG
Figure: Product Diversification
Product Div e rsification in RM G
100%
Others
90%
Share in RMG export
80% Sweater
70%
T-Shirt
60%
50%
Jackets
40%
30% Trousers
20%
Shirts
10%
0%
95-96
96-97
97-98
98-99
99-00
00-01
01-02
02-03
03-04
04-05
05-06
06-07
07-08
08-09 (sept)
♦The share of knitwear increased; woven share fell. Bangladesh started as exporter of
shirts, and has subsequently diversified to trousers, jackets, T-shirt and sweaters
♦ The share of shirts was 31.7 percent in 1995/96 but fell to 8.55 percent in 2007-08. On
the other hand trouser share increased from 4.4 percent to 23.48 percent
15

16. RELATIVE SUCCESS OF BANGLADESH: CLOSER FOCUS ON RMG
Cost Advantage:
Bangladesh has a clear cost advantage compared to its competitors. US imports
from Bangladesh increased by 18.5 percent. The market share of BD in US
market has increased from 4.19 percent in 2007 to 4.81 percent in 2008.
Table : Price per doz in selected Asian countries: first half 2008
Quota on World Bang China India Pakistan Vietnam
China
Categories
347 Cotton M/B Trousers Q 70.44 52.54 85.50 82.85 55.18 61.86
340 Woven Shirts, M/B Q 80.50 47.68 83.40 63.61 23.59 61.11
348 W/G Slacks Q 60.08 47.76 85.50 82.85 55.18 54.17
338 Knit Shirts, M/B Q 30.64 22.12 60.41 42.73 33.18 45.24
647 Trousers M/B Q 53.73 35.17 73.20 84.44 32.46 64.10
352 Cotton underwear Q 10.88 8.69 17.93 12.88 10.79 11.95
341 W/G woven blouse 62.15 38.82 61.56 63.61 23.59 42.73
339 W/G knit blouse Q 33.84 22.36 55.22 37.51 20.95 34.83
Source: emerging textiles.
16

17. Can this growth be sustained in 2009?
►The safeguard on China was withdrawn from January 1, 2009 in the US market. This
may lead to a further reduction in prices as competition from China will intensify.
► Bangladesh has benefited from safeguard on China: Out of the top ten products of
Bangladesh exported to USA in 2007, seven products had a quota on China.
► The closest competitor is Pakistan in terms of prices, but Bangladesh enjoys greater
economic and political stability compared to Pakistan.
► China and India are high-end producers of these products. As restrictions are
withdrawn from China, will they move back into lower end products??
17

18. Challenges in EU Market
●The European Union (EU) became the largest single market for clothing
imports in 2007 (35% in woven and 58% in Knit; US: 48% in woven and 17%
Knit).
● The end of quotas on China from 1st January 2008 brought downward
pressure on prices in the EU clothing market and required the suppliers to
become more efficient.
● During the period July-Oct, 2008, knitwear imports from Bangladesh rose by
6.9 percent, while that of woven declined by 2.2 percent.
● The share of Bangladesh fell from 17 to 15 percent while of India declined
from 10 to 8 percent during this period (for Knit).
● For woven imports, the share of China increased from 74 to 75 percent, but
declined for Bangladesh from 7 to 6 percent.
18

19. REVIEW/ASSESSMENT OF MAJOR DEVELOPMENTS FOR RMG
Increasing market share in US but decline in EU
Sourcing from China become expensive as Chinese currency appreciated
and labour laws were being implemented more rigorously. Relatively, Textile
is considered to be a low price item in China and hence could potentially shift
to Bangladesh. Hong Kong based buyers consider Bangladesh to be a
reliable and stable supplier as other competing countries like India, China,
Pakistan and Turkey were facing problems. A small diversion from China
has been a big gain for Bangladesh. Bangladesh benefited from the
safeguard measure against China in both EU and US. This helped expand
capacity base.
Diversifying to new markets
Suppliers in Bangladesh have been trying to enter the Japanese market with
little success. About 80 percent of the clothing export to Japan is from China.
The other major supplier is Vietnam. Japan is a high quality market. By the
end of 2008, buyers were searching for sourcing from other low cost
countries, including Bangladesh – this is an opportunity.
19

20. REVIEW/ASSESSMENT OF MAJOR DEVELOPMENTS FOR RMG
Diversification to higher-end products
By the end of 2008, the buyers started to search for suppliers for outer wear -
jackets, men’s suits, in a bid to relocate away from China. For sweater, polo
shirt, trousers (especially denim) and home textile Bangladesh has strong
potential. BD is better than India in T-shirt and polo shirts. Vietnam and
Cambodia does not have backward linkages for knitwear. BD also has good
quality yarn, which reduces the lead-time for export. This trend needs to be
strengthened.
Figure: Cost advantage persists
L a b o u r c o s t in c o m p e t in g c o u n t r ie s
C h i n a ( In l a n d ) 250
In d i a 232
200
In d o n e s i a
195
S ri L a n k a
B ang= 100
V ie t n a m 173
P a k is t a n 168
150
C a m b o d ia
100
B a n g la d e s h
B a n g l a d e sh = 2 2 c e n t s/ h o u r
Source: Jassin O’Rourke, 2008
20

21. Emerging Risks
►Financing: local bank issue of BB/LC based on mother LC – potential risk
► Decline in mother L/C - replaced by direct contracts, based on which local
banks open BB/LC. This increases risk of default.
► LCs favour buyers: after goods shipped some buyers seek to change terms -
agree to pay 30 percent and remainder to be paid only if goods are sold or
goods returned!
► Request for Discount: Most European buyers demand 2 to 5 percent discount
on prices.
► Request to delay shipment
21

22. IMPACT ON REMITTANCES
Current remittance earnings of Bangladesh are about $9 billion (compare RMG expor
of around $11 billion) and (put it in perspective, equivalent to 9.5 % of GDP).
Factors determining remittance are numerous (host and home country GDP, exchang
rate, no. of migrants, earnings, length of stay, education of migrant, inflation rate and
interest rate differentials, household incomes and employment)
Table :Top remittance recipient
developing countries (million US $)
Fig. 10: Top ten remittance-recipient
country year % change
developing countries in 2007 & 2008
over 2007
35 40
2006 2007 2008e
35.62 35
30
India 25,426 27,000 30000 11.11
30
billion US $
25 25
24.09 China 23,319 25,703 27000 5.05
% change
20
20 18.37
Mexico 25,052 25,037 23800 -4.94
15
14.79
15 11.11 10 Philippines 15,251 16,291 18700 14.79
8.45
5.47
5.05 4.80 5
10
Poland 8,496 10,496 11000 4.80
0
5
Nigeria 5,435 9,221 10000 8.45
-4.94 -5
- -10
Egypt 5,330 7,656 9500 24.09
ak h
gl ia
ia
Ma
a
d
n
es
om t
o
es
p
n
an
di
an
ta
er
ic
Romania 6,718 8,533 9000 5.47
gy
hi
in
In
ex
ad
is
ig
ol
C
lip
E
N
P
hi
R
P
an
Bangladesh 5,428 6,562 8900 35.62
P
B
2007 2008e % change over 2007
Pakistan 5,121 5,998 7100 18.37
Source: World Bank staff estimates based on the International Monetary Fund's Balance of Payments Statistics Yearbook 2008.
22

23. IMPACT ON REMITTANCES
From 2003 to 2008, world remittance flows have almost doubled ($206 to 375 billion)
Developing countries – similar trend (from $143 b to 283 b)
Estimated that 50% routed through informal channels (World Bank 2006)
BD share of world remittance market: 2.4% (rising from 1.8% in 2006).
USA, KSA and UK account for almost 60%.
The largest recipients are India ($30 billion), followed by China ($27 billion).
Remittance flows to developing countries increasing even in year 2008, when GDP
rowth rates declining worldwide. Growth in BD in 2008 striking!
M onthly inflow of re m ittance (m illion US $)
0
Remittance inflow from all % change (y-
0
countries o-y)
0
Country 2007 2008
0
0
U.S.A 1086.88 1582.49 45.60
0
U.K 889.74 823.42 -7.45
0
Kuwait 768 949.53 23.51
0
K.S.A 1788.28 2733.69 52.87
0
0
U.A.E 938.15 1379.54 47.04
0
Malaysia 29.71 165.03 455.47
Total 6568.03 9019.6 37.33
Year:2007 Year:2008 Year:2009
23

24. Actual Remittance Inflows by Major Source Countries
Remittance from U.S.A (2007 & 2008) Remittance earnings from UK
160 100
(2007 & 2008)
90
140
100 30
80
120 20
million US $
70 17.54
Tk per US $
15.55
80
illion U $
11.24 10
100 8.83
% change
60
S
3.16 1.79 0
60
80 50 -2.73
-6.47
-10
40
60 40 -17.46
-18.59 -20
30
40 -30
M
20 20
-40
20 -42.00 -44.21
10
0 -50
0 0
ber
ber
ber
November
September
December
June
January
July
arch
ctober
February
ay
April
August
June
January
July
March
October
February
May
April
August
ovem
ecem
Septem
M
M
O
N
D
U.K-07 U.K-08 % change
U.S.A-07 U.S.A-08 % change
●End of 2008 a suggestion of lower growth
Remiitance earnings from Saudi
Arabia(2007 & 2008)
300 100
% change over previous
on monthly basis
90
87.03
250 80
illion U $
72.24 70
200
S
● Highest increase from Malaysia and lowest
61.47 63.85 61.90 60
59.37
150 47.11 50
(negative growth) from UK !
39.89 40
39.63 38.46 37.81
38.35
100 30
M
20
50
● March-April peak more pronounced!
10
0 0
ber
ber
ber
June
January
July
arch
ctober
February
ay
April
August
ovem
Septem
ecem
M
M
O
N
D
Saudia Arabia-07 Saudia Arabia-08
% change
Source: Bangladesh Bank
24

25. What next?
• Most of the oil exporting countries are taking expansionary monetary policy to
encourage large investments and consumption expenditure based on bank credit
– good for employment
• Bulk of the share of earnings (above 60 percent) come from Middle East - it
could be that remittance inflows from Middle East will offset the negative growth-
expected to arise from U.S.A and U.K.
Reasons for Cautious Optimism:
• The rising share of skilled labor in total overseas employment of Bangladeshi
workers in 2008 over 2007
• Stable exchange rate: better than volatility
• Remittance flows do not seem to be influenced by GDP growth rate (host, World)
• Accumulated stock of migrants large and rising.
• The rising trend of remittance inflows in most developing countries including
Bangladesh in the last year – and increasing share of BD.
25

26. ur remittance earnings are Remittance out flows from
t influenced by the World Saudi Arabia not influenced
DP growth rate by oil prices
Comparison of remittance growth with world Remittance outflows from Saudi Arabia not
80
real GDP growth inluenced by oil prices
80 20
60
70
rem ittance growth
40 60 15
B illio n U S $
50
20
US $
40 10
30
0
20 5
-20 10
0 0
-40
y 1976
y 1977
y 1978
y 1979
y 1980
y 1981
y 1982
y 1983
y 1984
y 1985
y 1986
y 1987
y 1988
y 1989
y 1990
y 1991
y 1992
y 1993
y 1994
y 1995
y 1996
y 1997
y 1998
y 1999
y 2000
y 2001
y 2002
y 2003
y 2004
y 2005
y 2006
y 2007
y1978
y1979
y1980
y1981
y1982
y1983
y1984
y1985
y1986
y1987
y1988
y1989
y1990
y1991
y1992
y1993
y1994
y1995
y1996
y1997
y1998
y1999
y2000
y2001
y2002
y2003
y2004
y2005
y2006
y2007
y2008
brent oil(US $/barrel)
remittance outflows from Saudi Arabia
World GDP growth remittance growth
Source: Monthly oil Market Report, OPEC, february,2009
rce: World development indicator-2008
26

27. The rising share of skilled
The rising trend of total
labor in total overseas
no. of migrants
employment
Growth comparioson-Renittance earnings vs
Distribution of overseas employment by different
no. of overseas employment
profession
100% 1 10
0.9 9
re m itta n ce e a rn in g s (b illio n U S
4 2 .9 7
4 4 .5 4
80% 0.8 8
no. of e m ploy m e nt
4 8 .8 8
5 1 .5 4
5 2 .4 4
5 8 .0 0
6 0 .5 9
0.7 7
M illio n s
0.6 6
60%
0.5 5
9.71
$)
20.18
7.35 15.19 0.4 4
15.18
40%
8.90
0.3 3
22.06
3 4 .7 6
4 4 .9 8
0.2 2
3 2 .1 2
3 2 .0 1
20% 3 2 .1 6
3 0 .2 7
0.1 1
1 9 .8 6
0 0
6.34 4.72 3.9 0.77 0.24 0.08 0.21
0%
y 1995
y 1996
y 1997
y 1998
y 1999
y 2000
y 2001
y 2002
y 2003
y 2004
y 2005
y 2006
y 2007
y 2008
y1976- y1986- y1996- y2005 y2006 y2007 y2008
y1985 y1995 y2004
no. of overseas w orkers remittance
Skilledyear Semi-skilled
Professional Unskilled
Source: World development indicator-2008
Source: BMET
27

28. Impact of migrants on remittances – staggered effects of
migration on remittances?
Table: Regression Results
Dependent variable: Log of Remittance inflows
Explanatory variables Coefficient t-value
Exchange rate 0.04* 6.38
Log of no. of overseas workers (t) 0.64* 2.65
Log of no. of overseas workers lagged by one year), t+1 0.43* 1.94
•indicates significance at the 5 % level
Source: Authors Estimate
We wanted to check if there was a staggered effect of migration on
remittances. In fact, the staggered effect is quite pronounced although not as
strong as the current year effects. In other words the current migrants have a
significant impact on remittance flows in the current period, with remaining
effect (also significant) staggered over time.
28

29. Exchange rate effect: Significant but small?
Exchange rate effect on remittance Taka per currency asssuming January'07
900 70.5 as hundred
120
70
800 115
69.5
700 110
69 105
tk per currency
600
68.5
Tk per $
100
500
68 95
400 90
67.5
300 85
67
80
200 66.5
75
100 66 70
0 65.5
Jan,07
Feb,07
ar,07
ay,07
Jun,07
July,07
Oct,07
Nov,07
Dec,07
Jan,08
Feb,08
ar,08
ay,08
Jun,08
July,08
Oct,08
Nov,08
Dec'08
Jan'09
ept,07
ept,08
pr,07
ug,07
pr,08
ug,08
Nov,06
Nov,07
Nov,08
July,06
Jan,07
Jun,07
July,07
Jan,08
Jun,08
July,08
Aug,06
Sept,06
Oct,06
Dec,06
Feb,07
Mar,07
Apr,07
May,07
Aug,07
Sept,07
Oct,07
Dec,07
Feb,08
Mar,08
Apr,08
May,08
Aug,08
Sept,08
Oct,08
M
M
M
M
A
A
A
A
S
S
EURO Indian Rupee
Japanese Yen US Do llar
remittance(million $) exchangerate(tk per us $) U.K.P o und Sterling chinese Yuan
Source: Economic trend Of Bangladesh Bank, January,2009
►The graph shows that even in the face of a stable exchange rate since
September 2007, remittances continued to rise rapidly.
29

30. Reasons for concern
● New visas not being issued by Saudi Arabia (but not related to GFC)
● Kuwaiti visas not issued for last 3 years (but not related to GFC)
● U.A.E, Qatar, Malaysia Singapore, Bahrain remain risky destinations – visas
could be stopped at any time.
● U.A.E has stopped or suspended many construction projects worth of $582
billion – definitely related to GFC.
According to BMET each day about 6000 clearances were given in early
2007 – dropped to 3000 in 2008. In December 2007, 77977 clearances
issued whereas in 2008 it fell to 44378. Can we attribute this to GFC?
Perhaps only partly – but nevertheless worrying.
►In a nutshell, Growth rate in remittances likely to slow down a
little in 2009-10; UK situation is poor; USA – no sign of downturn
yet; Middle East – how worried should we be?
30

31. IMPLICATIONS FOR IMPORTS
●Bangladesh imports as a share of GDP has been rising over the past three decades. In
2007-08, 27% of Bangladesh’s GDP was spent on imports
● 76% of export earnings are due to RMG and 54% of this is used to import RMG inputs.
% change of total import by month
50
45
40
35
% change
30
25
20
15
10
5
0
September
November
June
January
July
March
October
February
May
April
August
% change over 2007 % change over 2006
Source: Bangladesh bank
31

32. IMPLICATIONS FOR IMPORTS
■Overall import so far has increased by 31 percent in 2008
over 2007
■ Total merchandise imports showed a robust 35 percent
growth during July-October 2008 despite a sharp decline
in imports of food grains over the corresponding period of
the previous fiscal year
■ Non-food imports, especially fertilizer, crude and raw
materials expanded
■ Intermediate and capital goods imports expanded
significantly
Much of the imports seem to have gone to
productive, capacity enhancing sectors. This will put
us in a better position to address any adverse effects
of the GFC.
32

33. Percentage Change in Import LCs
Composition of Import (million US $)
Opened & Setteled
2007 2008
July-Dec. 2007- July-Dec. 2008-
Items July-Nov July-Oct July-Nov % change
08 09
(4 over 2)
Opening Settlemen Openin Settleme
A. Food Grains 492.2 239.7 367.2 -25.4 Commodity
t g nt
Rice 252.3 158.5 187.5 -25.68
Wheat 239.9 81.2 179.7 -25.09
Food grains( rice 256.47 164.48 -55.99 -35.83
Edible oil 411.1 311.6 368.9 -10.27 & wheat)
Sugar 130 156.4 182.9 40.69
Capital -3.4 -7.74 -20.68 13.9
C. Consumer & 3465 4365.4 5162.9 49
machinery
Intermediate Goods
Clinker 137.3 97.4 119.8 -12.75 Machinery for 15.56 19.76
Crude petroleum misc. industry
219.7 403.1 403.1 83.48
Fertilizer 196.9 597.5 694.1 252.51
Petroleum -23.99 6.17 16.25 16.87
Dyeing and tanning 84.2 112 129 53.21
materials
Industrial raw 28.13 15.33 12.27 33.77
Raw cotton 425.3 460.1 563.7 32.54
materials
Yarn 260.6 305.5 366.4 40.6
Others 18.69 17.32 13.73 24.9
Textile and articles thereof 785.1 747.5 905.7 15.36
D. Capital Goods & Others 2740.6 2762.9 3439.7 25.51
Total 21.37 17.25 4.24 22.44
Capital machinery 752.2 541.5 661.9 -12
Grand Total (A+B+C+D) 7999.4 8417.9 10231.1 27.9
Source: Bangladesh Bank
33

34. Inflation Impact: World prices
% Change in commodity price index
Jan/Dec Jan 09/Jan ‘08
Dec/Nov Dec 08/Dec 07
4.1 -37
Commodity -14.1 -36.4
4.2 -25.5
Non-Energy -6.8 18.4
4 -43
Energy -18.5 -42.7
5.7 -51.6
Crude -23.2 -53.6
7.7 na
Agriculture* -4.0 na
6.4 -16.8
Food -2.7 -18.4
9.5 -16.1
Corn -3.0 -40.3
8.7 -35.2
Wheat -3.6 -23.2
10.8 -34
Soybean Oil -6.5 -33.7
7.1 na
Sugar -4.0 -1.7
1 -41.4
Industrial Metals -10.9 -36.4
5.2 na
Gold* 7.3 na
-3 na
Fertilizers* -10.9 na
Sources: IMF; Estimations based on data provided by the IMF.
* World Bank Index
34