. 
 WORLD TRADE  
ORGANIZATION  WT/BOP/S/13 
16 November 2004 
 
 (04-4881) 
Committee on Balance-of-Payments Restrictions  
  
 
CONSULTATIONS WITH  BANGLADESH 2004 
 
Background Document by the Secretariat
 
 
 
1. This note has been prepared in accordance with paragraph 12 of the Understanding on the 
Balance-of-Payments Provisions of the GATT 1994. 
I. PREVIOUS CONSULTATIONS WITH BANGLADESH 
2. The Committee concluded its previous consulta tions with Bangladesh on 2 October 2002.  At 
the start of consultations in May 2000, Bangladesh  had submitted a phase-out plan with respect to a 
number of products, mainly textiles and clothing, which was to be implemented between January 
2002 and January 2005.1  Since then the Committee has been notified about the removal of 
restrictions on some of these items.2  During the resumed consultations in October 2002, the 
Committee approved the maintenance of import restri ctions for balance-of-payments purposes on four 
additional items: chicks, eggs, cartons and common  salt until 2009.  The Committee agreed that 
Bangladesh would submit a phase out plan for its import restrictions applied to these products by 
2007 or earlier if possible.  The Committee also dete rmined that it would hold consultations  with 
Bangladesh in 2004 and 2006 as required under the WTO provisions.3 
II. MACROECONOMIC AND TRADE DEVELOPMENTS 
A. RECENT ECONOMIC PERFORMANCE  
3. In recent years, economic performance in Banglad esh has been healthy.  Real GDP has grown 
by an average of 5 per cent over the last several y ears, but at per capita income of $360, Bangladesh 
still faces considerable development challenges.  Nearly half of its 135 million people live below the 
poverty line;  the country is subject to natural disast ers such as the extensive floods earlier this year.  
While the textiles and clothing industry has been th e main source of growth and exports, the sector 
contributes just 5 per cent to GDP and indirectly accounts for 40 per cent of manufacturing sector employment;  in contrast, agriculture accounts for 30 per cent of GDP and em ploys over 60 per cent 
of the labour force.  
4. The budget deficit, in response to tight fiscal polic y, has declined in the last few years to a 
manageable 3.8 per cent of GDP (FY 2003/04), as revenue has increased and certain loss-making 
state-owned enterprises sold (Table 1).  External publ ic debt has also been reduced. while debt service 
is low given the high propor tion of concessional finance.
4  Some years ago, the Government limited 
the contracting of new non-concessional foreign debt.  Reserves have continue d to grow and at the 
end of the last fiscal year were valued at a little under 3 months of imports (Table 2). 
                                                      
1 WT/BOP/R/57, 23 January 2001. 
2 WT/BOP/N/62, 18 February 2004. 
3 WT/BOP/R/64, 21 November 2002. 
4 Japan is providing debt relief upfront. WT/BOP/S/13 
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Table 1 
 
Selected Economic Indicators 
 
 
Fiscal year (ending 30 June) 1999/2000 2000/2001 2001/2002 2002/2003 2003/2004 
    (% change)  
Real GDP 5.9 5.3 4.4 5.3 5.5 
Inflation (annual average) 3.4 1.6 2.8 4.4 5.9 
Export growth 8.2 11.4 -7.6 9.5 13.3 
Import growth 4.8 11.4 -8.7 13.0 15.8 
Central government budget    (% of GDP)  
 Total revenue 8.4 9.0 10.2 10.3 10.6 
 Total expenditure 13.5 14.1 14.9 13.7 14.4 
 Overall balance -5.1 -5.1 -4.7 -3.4 -3.8 
  Including grants -3.6 -3.5 -2.9 -1.5 -2.1 
 Domestic financing 2.7 3.1 2.6 1.3 2.3 
 Foreign financing 2.4 2.0 2.1 2.1 1.5 
Source : IMF 
  WT/BOP/S/13 
 Page 3 
 
 
Table 2 
 
Balance-of-Payments 2000/01-2003/04  
(US$ million) 
 
 
Fiscal year (ending 30 June) 2000/2001 2001/2002 2002/2003 2003/20041 
Trade balance -3,047 -1,768 -2,204 -2,718 
 Exports 6,477 5,929 6,492 7,353 
 Imports -9,524 7,697 8,699 10,071 
Services -365 -500 -688 -845 
Transfers 2,296 2,826 3,418 3,696 
 Of which:   workers' remittances 1,882 2,201 3,082 3,371 
Current account balance -1,116 237 328 -97 
Capital account balance 536 446 577 479 
 Of which:   net aid flows 760 541 634 251 
  foreign investment 419 60 99 97 
Errors and omissions 151 -354 -94 -161 
Overall balance -429 329 811 221 
Memorandum items:     
Current account balance/GDP -2.8 0.5 0.6 -0.2 
Gross reserves (US$ million) 1,302 1,582 2,471 2,600 
 (In months of imports of goods 
 and non-factor services) 1.5 2.1 2.9 2.6 
Medium- and long-term external public 
debt (US$ million) 16,227 16,276 16,519 16,770 
External debt/GDP 35.3 34.4 31.9 29.9 
Debt-service ratio 7.5 6.1 5.5 5.4 
Real effective exchange rate (99 = 100a)     
Nominal GDP (US$ million) 46,998 47,303 51,744 56,136 
Source :  IMF 
1/  Provisional. 
 
 
5. Trade represents over 30 per cent of GDP a nd exports of clothing three-quarters of 
merchandise exports (Tables 3 and 4).  The European Union and the United States are the main markets for Bangladesh exports: principal suppliers to Bangladesh are more diverse but led by China 
and India, the latter has an extensive border with Bangladesh.  WT/BOP/S/13 
Page 4  
 
Table 3 
 
Main Exports  
(US$ million) 
 
 1999/2000 2000/2001 2001/2002 2002/2003 2003/2004 
TOTAL 5,752 6,467 5,986 6,548 7,603 
Of which:      
 Ready-made garments 3,083 3,364 3,125 3,258 3,538 
 Knitwear and hosiery products 1,270 1,496 1,459 1,654 2,148 
 Frozen shrimp and fish 344 363 276 322 390 
 Jute goods 263 229 242 257 246 
 Leather and leather products 195 254 207 191 211 
 Raw jute 72 67 61 82 80 
 Tea 18 22 17 15 16 
Source :  IMF 
 
 
6. The removal of quotas at the beginning of 2002 induced a drop in exports of those products 
by over 40 per cent in major markets, especially in the US.  Nevertheless, overa ll exports continued to 
grow, mainly due to growth in exports to the EU  as a result of the Everything But Arms Initiative 
introduced in March 2001.  The import has become even  stronger in the last few years when Europe's 
share of exports from Bangladesh grew from 49 to 58 per cent (see Table 5).  The trade deficit was 
4.8 per cent of GDP at the end of FY 2003/04 but  the current account remained roughly in balance 
due to buoyant workers' remittances.  Against th e backdrop of the final phase out of MFA quotas, the 
impact on the trade balance could be as much as one per cent of GDP, with exports slowing 
significantly, tempered by a corresponding reduction in imports for the clothing  sector.  Nevertheless, with duty-free access to the European and Canadian markets, Bangladesh will be somewhat sheltered 
from the full effects of competition. 
 
   WT/BOP/S/13 
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Table 4 
 
Main Imports  
(US$ million) 
 
 1999/2000 2000/2001 2001/2002 2002/2003 2003/2004 
TOTAL 8,403 9,364 8,540 9,658 10,867 
Of which:      
 Capital goods 2,133 2,400 2,617 2,735 2,875 
 Textiles 1,153 1,320 1,063 1,106 1,285 
 Petroleum products /  406 575 481 620 643 
  crude petroleum 232 273 242 267 260 
 Yarn and staple fibre 343 367 332 311 378 
 Oil and oil seeds 346 300 323 428 517 
 Cotton 277 360 312 393 535 
 Food grains 381 380 186 409 412 
Source :  IMF 
 
 B. M
ACROECONOMIC , STRUCTURAL  AND TRADE POLICY FRAMEWORK  
7. Macroeconomic policies have been prudent in the last few years and inflation has been kept in 
check.  The Government's overarching goal is to substantially reduce chronic poverty and invigorate 
social development while recognizing the need to  accelerate economic growth.  This year's budget 
aims to strengthen the revenue effort by 0.5 pe r cent of GDP while poverty-reducing spending is 
expected to set to increase to 7.4 per cent of GDP, financed by higher concessional external 
assistance.   
8. The policy agenda elaborated under the inte rim PRSP, supported by a $500 million PRGF 
from the IMF (and an equivalent amount from IDA f unds) includes a pro-poor shift in spending on 
infrastructure and human capital development.  Th e final PRSP is to be completed by December 
2004;  according to the latest Integrated Framew ork evaluation, the Gove rnment should consider 
launching a DTIS to reconfirm and refine priorities so that trade is fully mainstreamed in the PRSP.5  
In anticipation of the lifting of MFA quotas at the end of this year, Bangladesh has requested and received an augmentation of PRGF resources unde r the new Trade Integration Mechanism, of 
$78 million, to be disbursed in three equal tranches. 
9. In tandem with sound macroeconomic manageme nt, the momentum for structural reform, 
including more liberal trade and exchange regimes,  has been renewed.  Multilateral and bilateral 
donors help Bangladesh enhance growth and poverty reduction by supporting key reforms in banking, 
tax and public administration and trade liberaliz ation which in turn improve the climate for 
investment.  Constraints to competitiveness include w eak infrastructure, corruption and an inefficient 
banking sector.  Except in the export processing zone, which accounts for about 12 per cent of 
                                                      
5 WT/IFSC/6/Rev.2, 26 November 2003. WT/BOP/S/13 
Page 6  
 
exports, foreign direct investment is severely rest ricted in order to protect local producers.  Trade 
facilitation is also a major focus of development assistance;  the World Bank suggests that with 
improved infrastructure and a modern customs admini stration to enhance the speed and transparency 
of customs processing, substantially more exports could be generated.
6   
10. Reform measures for the banking sector and in tax and trade policy have been implemented 
and will need to be sustained, along with improve ments in governance, for the economic recovery to 
be maintained and the impact of the MFA phase out lessened.  An inter-ministerial committee has 
been set up to define a comprehensive post-MFA quot a programme to assist in the transition to a new 
era.  The programme, in addition to trade refo rm, includes improvements in the foreign direct 
investment regime in the clothing sector. 
11. Prior to the floating of the taka on 31 May 2003 the taka was fixed to the US dollar and 
periodically adjusted.  Since, the exchange rate h as been managed flexibly and allowed to depreciate 
so that the rate of export growth could be main tained.  The monetary authorities recognize that a 
market-based depreciation of the taka will be impor tant to maintaining external competitiveness.  The 
Bangladesh Bank, which since the last consultatio ns has obtained greater operational autonomy and 
strengthened regulatory powe rs, pursues the objective of building up a comfortable level of reserves, 
currently at about 2 months of import coverage .  In December 2000, Bangladesh Bank introduced 
margin requirements on letters of credit for mo st commercial imports, which is an exchange 
restriction subject to the jurisdiction of the IMF.  These requirements were lowered and finally eliminated on 2 December 2003. 
12. Over the last few years, the authorities have ta ken steps to reduce and rationalize trade taxes.  
Trade reform was given renewed impetus in the 2003 Budget when the top customs duty rate was 
reduced by 5 percentage points to 32.5 per cent a nd the number of rates reduced to five.  The 2005 
Budget introduces a three-tier structure for tariffs (7.5, 15 and 25 per cent);  the maximum rate 
reduced from 30 to 25 per cent.7  Supplementary duti es have also been lowered; the highest from 75 
to 30 per cent. and the number of products subject to quantitative restrictions reduced to 63.  
                                                      
6 An Export Diversification Project, supported by the World Bank, has a component designed to build 
capacity within the Tariff Commission for ta riff analyses and WTO-related negotiations. 
7 Estimates by the World Bank suggest that the overall revenue impact of these tariff reforms will be 
neutral.  WT/BOP/S/13 
 Page 7 
 
 
 
Table 5 
Bangladesh:  Geographical Distribution of Foreign Trade – 1997/98-2003/04 
  
(In per cent of total) 
 
 1999/2000 2000/2001 2001/2002 2002/2003 2003/2004 
Exports:      
 United States 37 36 37 32 26 
 Canada 2 2 2 2 4 
 Western Europe 48 49 48 49 58 
 Eastern Europe 1 1 1 1 1 
 India 1 1 1 1 1 
 Pakistan 1 1 1 1 1 
 Japan 2 1 2 1 2 
 Hong Kong, SAR 2 2 2 2 2 
 Singapore 0 1 0 1 1 
 Iran, Islamic Republic of 1 1 1 1 1 
 China 0 0 0 0 0 
 Other 5 6 7 9 3 
 Total 100 100 100 100 100 
Imports:      
 United States 4 3 3 2 3 
 Canada 1 1 1 1 1 
 Western Europe 13 13 13 14 11 
 Eastern Europe 3 0 1 1 1 
 India 10 17 12 14 19 
 Pakistan 1 1 1 1 1 
 China 7 10 10 10 13 
 Hong Kong, SAR 5 7 5 4 5 
 Singapore 8 12 10 10 10 
 Korea, Republic of 4 6 4 3 5 
 Malaysia 1 2 2 2 3 
 Indonesia 10 3 2 2 3 
 Thailand 2 3 2 2 3 
 Saudi Arabia 2 2 2 2 1 
 Australia 2 3 2 2 3 
 Japan 8 5 8 6 5 
 Other 18 13 23 24 13 
 Total 100 100 100 100 100 
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