Balance of Payments

The balance of payments is a measurement of all transactions

between domestic and foreign residents over a specified period of
time. The transactions are presented in three groups a current
account, a capital account, and a financial account.
The current account summarizes the flow of funds between one
specified country and all other countries due to the purchases of
goods or services, the provision of income on financial assets, or
unilateral current transfers (like gift, grants, private remittances). A
current account deficit suggests a greater outflow of funds (like
import) than inflow of funds (like export) of the specified country for its
current transactions.

The current account includes the balance of trade, which is simply the
difference between merchandise exports and merchandise imports.

Capital account records the transfer of non financial assets like land
or machines.

Financial account records inflow and outflow of foreign aid, and

Foreign Direct Investment.

Balance of Payments (Contd.)

The new capital account (as defined in the 1993 System of
National Accounts and the fifth edition of IMFs Balance of
Payments Manual) is adopted by the Bangladesh in 1998
(U.S. in 1999).
It includes unilateral current transfers that are real shifts in
assets, not current income. e.g., debt forgiveness,
transfers by immigrants, the sale or purchase of rights to
natural resources or patents.
The financial account (which was called the capital account
previously) summarizes the flow of funds resulting from the
sale of assets between one specified country and all other
countries.
Assets include official reserves, other government assets,
direct foreign investments, investments in securities, etc.

Current Account of Balance of Payments

A. Trade balance
Export f.o.b.(including EPZ)
Import f.o.b (including EPZ)
B. Services
Credit
Debit
C.Primary income
Credit
Debit

Of which: Official interest payments

D.Secondary income
Official transfers
Private transfers
Of which : Workers' remittances(current
a/c portion)
1.Current Account Balance (A+B+C+D)

Million US $

20132014
-6794
29777
36571
-4099
3115
7214
-2635
131
2766
427
14934
83
14851

201415
-9917
30768
40685
-4628
3017
7645
-2995
74
3069
404
15895
75
15820

14116 15170
3
1406 -1645

Balance of Payments 2013/14-2014/15

Million US $
1406 1645
598 491
2813 5150
1432 1700

1.Current Account Balance (A+B+C+D)

2.Capital account
3. Financial account (a+b+c)
a. Foreign direct investment (net)
b. Portfolio investment (net) (Incl. wage Earners
bond $113 m)
937 618
c. Other investment (net) (i-ii+iii+iv+v+vi)
444 2832
i. Medium and long-term (MLT) loans
2404 2444
ii. MLT amortization payments
1018 910

iii. Other long term loans (net)

477 -33
iv. Other short term loans (net)
-838 -161
v. Trade credit (net)
-340 690
vi. DMBs and NBDCs (net) (Assets-Liabilities)*
-241 802
Errors and omissions
666 377
Overall Balance (1+2+3+Errors & omission)
5483 4373
Reserve Assets
-5483-4373
4
Bangladesh Bank (net)
-5483-4373

Import Composition
Items
A. Food Grains (Rice +wheat)
B. Consumer goods
1. Milk, Spice, Pulse & sugar
2. Edible oil
C. Intermediate Goods
1. Clinker, Chemical
2. Petroleum, oil and Lubricant
3.Oil seeds
4. Pharmaceutical products
5. Fertilizer
6. Dyeing, Cotton, Yarn, textile fiber
7. Plastic , rubber, iron & metal
D. Capital Machinery & Others
E. Other unclassified
Grand Total
Of which: EPZ

2013/14
906
4504
1558
2946.3
23176.3
2210.7
3443.8
453.6
210.8
940.9
11194.9
4721.6
8807.4
3222.1
40616.4
3077

Million US $

Perce Percen
2014/1 nt
t
5
2013/ 2014/1
14
5
1490.7 0.02
0.03
4426.1 0.11
0.10
1682.6
0.04
0.04
2743.5
0.07
0.06
26153.
4 0.57
0.58
2362.1
0.05
0.05
5058.5
0.08
0.11
374
0.01
0.01
136.9
0.01
0.00
1338.9
0.02
0.03
11565.7
0.28
0.26
5317.3
0.12
0.12
9358.7 0.22
0.21
3761.3 0.08
0.08
45190.2
1.00
1.00
3138.1
0.08
0.07

Note: Import reduction is neither feasible nor desirable

Export Composition

A. Frozen food (Fish, Shrimp and others)

B. Agricultural (Vegetables, Tobacco, Flower, Fruits &
Others
C. Manufactured products
`1. Petroleum bi-products, Chemical & plastic
2. Leather and footwear
3. Raw Jute & jute goods
4. Cotton, cotton product, specialised textiles and
home textile
5. Knitwear
6. Woven garments
RMG Sector (4+5+6)
7. Engineering products, ship, boats & floating
structure
8. Others

Million US $

Edite
2013- 2014- Perce d
15 nt
14
(14/1 Perc
14/15 5)
ent

638

568 0.02 568 0.05

615 586 0.02 586 0.05

2893 3004
3
4 0.96

341 290 0.01 290 0.03

677 587 0.02 587 0.05
824 869 0.03 869 0.08
1017
1205
0
1244
2
2550
9

1018 0.03

1242
7 0.40

1306
5 0.42

2651
0 0.85 6627 0.59

367 463 0.01 463 0.04

1215 1326 0.04 1326 0.12
Note: Line of export is narrowly concentrated. Figures 3018
of RMG
suffer from
3119
1131 6
overestimation.
Total
(A+B+C) Export potentials are low.
7
8 1.00
6 1.00

Country-wise Remittances
Middle East Countries (Percentage of
middle East Contribution)
Country

2009/1 2010/1
2012/1 2013/1
0
1
2011/12 3
4
2014/15

Bahrain

0.02

0.03

0.04

0.04

0.05

0.06

Kuwait

0.14

0.15

0.14

0.13

0.13

0.12

Oman

0.05

0.05

0.05

0.07

0.08

0.10

Qatar

0.05

0.04

0.04

0.03

0.03

0.03

K.S.A.

0.47

0.46

0.44

0.42

0.37

0.37

U.A.E.

0.26

0.28

0.29

0.31

0.32

0.31

Libya

0.00

0.00

0.00

0.01

0.01

0.01

Iran

0.00

0.00

0.00

0.00

0.00

0.00

Total
Contribution of Middle East to
total

1.00

1.00

1.00

1.00

1.00

1.00

0.66

0.62

0.65

0.63

0.59

0.59

Remittances
Other than Middle East Countries
2009/10 2010/11

2011/12

2012/13

2013/14 2014/15

Australia

0.00

0.00

0.01

0.01

0.01

0.01

Hongkong

0.00

0.00

0.01

0.00

0.00

0.00

Italy

0.02

0.05

0.05

0.04

0.05

0.04

Malaysia

0.05

0.16

0.19

0.19

0.18

0.22

Singapore

0.02

0.05

0.07

0.09

0.07

0.07

U.K.

0.08

0.20

0.22

0.19

0.15

0.13

U.S.A.

0.13

0.42

0.33

0.35

0.40

0.38

Germany

0.00

0.01

0.01

0.00

0.00

0.00

Japan

0.00

0.00

0.00

0.00

0.00

0.00

S.Korea

0.00

0.01

0.01

0.01

0.01

0.01

Others

0.04

0.11

0.10

0.10

0.11

0.13

Sub total
Total (Million US
$)

0.34

0.38

0.35

0.37

0.41

0.41

10987

11650

12843

14461

14228

15317
8

IMFs Funding Facilities

1. Permanent facilities for general balance of payment support such as
(a) Reserve tranche credits is an unconditional borrowings against the quota of the
country.
(b) Stand-by Credits/Credit tranche facility (1952) Short term credit for bop problems
available under 4 installments. Subject to performance. Repayable in 3-5 years time
(c) Extended funds facility (1974) given for long term structural problems. Available
over 3 year period and repayable in 10 years.
2. Special facilities such as
(a) Compensatory financing facility (1963) is given to meet export fluctuations due to
uncontrollable factors. Since 1981 it is available to meet fluctuations in cereal import
payments. Repayable in 5 year time. It is substituted by contingency financing facility
in 1988.
(b) Supplemental Reserve facility (1997) is for countries that experience exceptional
BOP problems on account of large short term financing vis--vis sudden loss of
market confidence. Available for 1 year term and repayable within 2 years.
(Continued to next slide)

 (c) Emergency assistance facility is provided in two cases: in the wake of

natural disaster and of political turmoil, civil unrest and international armed
conflict The first one was created in 1962 and the second one in 1995.
Repayable within 5 year term.
3. Facilities for low-income countries such as
(a) Poverty Reduction and Growth facility (PRGF) (1999) is an
amalgamated form of structural adjustment facility (1986) enhanced
structural adjustment facility (1987). A long term assistance to address
BOP problems through poverty reducing growth program. Interest rate is
0.5% and repayable in 10 years.
(b) Exogenous shock facility (2006) addresses temporary BOP shock
arising out of temporary shock among low income countries. Interest rate
is 0.5% and payable in 10 years time.

Credit Lines of World Bank-IMF

Special Drawing Rights

Compensatory Financing
Stand-by facility
Extended Fund Facility
Structural Adjustment Facility (SAF)
Special Structural Adjustment Facility (SSAF)
Poverty Reduction and Growth Facility (PRGF)

11

Features of IMF Stabilization Package

Abolition of Import control

Import liberalization
Devaluation of the official exchange rate
Familiarization of market mechanism and with drawl
of subsidies
Reduction of government expenditure
Promotion of government revenue
Reduction of budget deficit
Control of wage increase
Stringent anti-inflationary program
Greater hospitality to foreign investment
12

Conclusion:
All these features represents globalization.
Bangladesh had to depend on foreign aid,
particularly the World Bank-IMF financing for the
management of her balance of payment crisis.
So, Bangladesh is now more globalized a
country than the comparable countries like India
and Pakistan.

13

Effectiveness of Devaluation

Tk.55

Context: Bangladesh made use of

almost all credit lines of IMF-World
Bank. Devaluation is a condition of
stabilization package of some of these
credit lines. During the period 19752003 Bangladesh devalued its currency
for more than hundred times by the
suggestion of IMF. The argument is:

Tk.50

Source Before

After

Effect

Export

OQ1

OQ2

Increase

Import

OQ4

OQ3

Decrease

Deficit

Q1Q4

Q2Q3

Decrease

$1=Tk

Q 1 Q2

Q 3 Q4

14

Ineffectiveness of Devaluation:
Bangladesh case
$1=Tk

Composition of export suggests that

most of the items have less elasticity
of supply. Similarly, composition of
import shows inelasticity of demand.
The demand curve shifts right as
well.

Tk.55

Source Before

After

Effect

Tk.50

Export

OQ1

OQ2

increased slightly

Import

OQ4

OQ3

Increased a lot

Deficit

Q1Q4

Q2Q3

Increased

D1
O

D2

Q 1 Q 2 Q 4 Q3
15