RESTRICTEDWORLD TRADE
ORGANIZATIONWT/BOP/S/9
28 April 1999
(99-1722)
Committee on Balance-of-Payments Restrictions
1999 CONSULTATIONS WITH BANGLADESH (SIMPLIFIED PROCEDURES)
Background Paper by the Secretariat
I. PREVIOUS CONSULTATIONS WITH BANGLADESH
1. Starting in 1973, the GATT Committee on Balance-of-Payments Restrictions held eleven
simplified consultations with Bangladesh.  In 1997, the first simplified consultations were held with
Bangladesh in the WTO Committee.  At that time, the Committee "determined that full consultations
would be desirable as a means of clarifying the balance-of-payments situation and promoting greater
transparency….before May 1999".1  In September 1998, Bangladesh requested a postponement of the
full consultations citing the damage caused by unprecedented flooding in the country.2  T h e
Committee agreed to this request but decided to consult under simplified procedures in the interim.3
II. TRADE AND ECONOMIC DEVELOPMENTS
2. In line with its plan to progressively lower the maximum tariff, under the current Budget, a
new tariff structure was introduced, lowering the maximum tariff from 42.5 to 40 and reducing the
number of tariff bands to six.4  The 1998-2002 Import Policy Order removed quantitative restrictions
on fertilizers, some pharmaceutical products and certain petroleum products but made no changes to
the list of imports (mainly food and textiles) restricted or banned for "trade" reasons.5  Export bans or
restrictions remain on various agricultural and manufactured goods.
3. In 1997/1998, real GDP grew by 5.1%, led by exports, of which the large majority (72%) is
garments and knitwear.  Severe floods between July and September of 1998 have caused considerable
hardship to the population, seriously damaging infrastructure and crop production and weakening
economic prospects.  Output will be lower and infla tion higher this year:  GDP growth is expected to
fall to 3.8% in the 1998/1999 fiscal year  and consumer price inflation to be 7.6% at fiscal year-end.
The budget deficit to widen to 4.6% of GDP.
4. Direct damage caused by the floods has been estimated at as much as US$1.2 billion.  In
addition, there are the opportunity costs of lost production and exports.  In response, the Government
introduced a revised macroeconomic framework, reorienting development expenditures towards reliefand rehabilitation.  It also introduced a package of fiscal measures, including a 4% temporary
surcharge on all goods.  Longer-term reform measures include the strengthening of customs
administration (where problems of governance ex ist) and the paring down of exemptions and
incentives in the tax system.
./.
                                                     
1 WT/BOP/R/28, 28 May 1997.
2 WT/BOP/18, 17 September 1998.
3 WT/BOP/R/42, 16 October 1998.
4 In addition to tariffs, impacts on subject to a longstanding Infrastructure Development Surcharge of
2.5%.  The six tariff bands include a zero band.
5 See Annex I of WT/BOP/G/1.WT/BOP/S/9
Page 2
5. In terms of structural reforms, administered prices have been increased for fertilizers, some
petroleum products,  electricity and natural gas.  A committee has been formed to investigate ways of
improving backward and forward linkages to the clothing industry.  Protection for the domestic textile
sector, including minimum local content requirements, remains high and the country is currently able
to meet only very limited amounts of its need for inputs to the clothing sector.  Elsewhere, reforms areunderway in the banking system, where non-performin g loans comprise a significant share of loan
portfolios.
6. In spite of considerable trade liberalization in th e last several years, trade contributes just 27%
to GDP;  foreign direct investment (0.5% of GDP) is one of the lowest in Asia.  Traditional exports,
jute and tea, have remained stagnant for some time whereas in fiscal year 1998, garment and knitwear
exports (most of which go to the EU and US under GSP schemes) performed well, helping to narrow
the current account deficit to 1.4% of GDP.  Foreig n direct investment inflows rose and gross official
reserves increased marginally, more than US$1.7 billion at the end of June 1998 (2.5 months of
import cover).
7. In the current fiscal year, as a result of the flooding, exports are down and the current account
deficit will widen as imports, mostly of food grains and equipment for reconstruction, grow.
Devaluations by competitor countries in the region, in response to the Asian crisis, have led to a realeffective appreciation of the taka in spite of regular, albeit small, downward adjustments in the
nominal exchange rate.  With respect to other components of the current account, private transfers are
expected to increase modestly.  Foreign exchange reserves should remain relatively stable owing to
inflows of foreign aid.  Flood-related grants and aid have amounted to more than US$500 million
(US$200 million from the World Bank and US$138 million from the IMF under emergencyassistance).  External debt (37% of GDP) is mostly on concessional terms and debt service runs about
8% of current receipts.
BANGLADESH:  SELECTED ECONOMIC INDICATIONS
1996/1997-1998/1999e
1996/1997 1997/1998 1998/1999e
Real GDP (percentage charge) 5.3 5.1 3.8
Inflation (annual average) 2.6 7.0 8.0
Fiscal balance/GDP -4.5 -4.2 -4.7
Exports (US$ million) of which
garmentsknitwear4,418
2,238
7635,172
2,844
9375,267
------
Imports (c.i.f.) (US$ million) -7,162 -7,604 -8,209
Workers' remittances (US$ million) 1,475 1,525 1,600
Current account balance (US$ million)
as % of GDPwith grants-918
-2.2-0.4-606
-1.4-0.1-1,184
-2.7-1.2
Gross official reserves (US$ million)
in months of imports1,719
2.61,733
2.51,670
2.2
External debt/GDP of which
short-term36.6
0.437.5
0.437.2
---
Debt service/current receipts 8.7 8.2 8.2
REER:  (1990=100) 95.3 107.0 100.4
e = estimated.
Source: IMF
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