Bangladesh WT/TPR/S/168 
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                                                     I. ECONOMIC ENVIRONMENT 
(1) OVERVIEW  
1. Since its previous Trade Policy Review in 2000,  Bangladesh's real GDP has grown robustly, 
at an average annual rate of around 5.5% (with infla tion averaging a modest 4%), partly as a result of 
prudent macroeconomic policies and ongoing structural  reforms.  Concurrently, GDP per capita rose 
from US$368 in 1999/00 to US$438 in 2004/05.1  Furthermore, stronger state action and civic 
activism allowed for considerable improvement of so cial indicators; as a result, Bangladesh graduated 
in 2003 from the low to the medium UN human development index category of countries, ranking 
139th (out of 177).2  Between 1990 and 2000, in come poverty dropped (from 58.8% to 49.8% of the 
population living below the US$1 a day poverty line), while income disparity (Gini coefficient3) rose 
(from 0.259 to 0.306).4 
2. Notwithstanding its robust economic growth in r ecent years, Bangladesh remains one of the 
poorest Members of the WTO.  Even faster growth is necessary if it is to meet the United Nations' 
Millennium Development Goals (MDGs)5 by 2015.6  However, Bangladesh's growth and 
competitiveness continue to be hampered by, inter alia , poor governance, inadequate investment in 
human capital, and infrastructure bottlenecks, all of  which contribute to the high cost of doing 
business.7  Additional challenges are posed by insuffici ent diversification of export products and 
export markets as well as by uncertainty regarding the impact of the phase-out and removal (as of 
1 January 2005) of MFA/ATC-related quotas on Bangl adesh's textiles and clothing industry, which 
accounts for more than 83% (2003/04) of total merchandise exports. 
3. Following the completion of an Interim Pove rty Reduction Strategy Paper in March 2003, a 
Poverty Reduction Strategy Paper (PRSP) was issued  by the Government in October 2005, with trade 
 
1 Ministry of Finance (2005a), Table 2.1. 
2 UNDP (2005c);  Ministry of Finance (2005b);  and UNDP (2005b). 
3 The Gini coefficient measures the inequality of inco me distribution within a country.  It varies from 
zero, which indicates perfect equality, with every househ old earning exactly the same, to one, which implies 
absolute inequality, with a single household earning a country's entire income. 
4 However, period averages of the population living below income poverty line of US$1 a day rose 
from 29.1% (1989-98) to 36% (1990-03).  See UNDP (2000);  UNDP (2005b);  and IMF (2005a). 
5 The UN Millennium Development Goals (MDGs) are an ambitious agenda for reducing poverty and 
improving lives that world leaders agreed by adopting UN Millennium declaration in September 2000.  For each 
goal, one or more targets have been set, most for 2015, using 1990 as a benchmark.  The UNDP, in 
collaboration with national governments, is coordinating reporting by countries on progress towards the MDGs.  The framework for reporting includes eight goals ( eradicate extreme poverty an d hunger, achieve universal 
primary education,  promote gender equality and empower women,  reduce child mortality,  improve maternal health,  combat HIV/AIDS, malaria and other diseases , ensure environmental sustainability, develop a global 
partnership for development).  Further information is available online at :  http://www.mdgbangla.org/ 
index2.htm [5 December 2005]. 
6 According to the authorities and the UN country team , Bangladesh seems "on track" on the majority 
of the MDGs targets.  Howeve r, the high degree of social inequality, which cuts across all key social targets, and 
the striking rich-poor divide, which showed a lasting upward trend may impede the 'steady' progress (Bangladesh Public Policy Watch, 2005). 
7 According to the World Economic Forum Growth Competitiveness Index, Bangladesh moved from 
the 77th (out of 80 countries) in 2002 to 110th (out of 117) in 2005.  The Index comprises the technology index, 
the public institutions index, and the macroeconomic environment index.  More information is available online 
at:   http://www.weforum.org/site/homepublic.nsf/C ontent/Global+Competitiveness+Programme%5CGlobal+ 
Competitiveness+Report and http://www.weforum .org/pdf/Gcr/GCR_2003_2 004/GCI_Chapter.pdf 
[11 January 2006]. WT/TPR/S/168 Trade Policy Review 
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                                                     as an integral part of this strategy (Chapter II).8  Macroeconomic stabilization and structural reform 
aimed at tackling long-standing structural impe diments and steering the economy onto a higher 
growth path with faster poverty reduction have been pursued with the support of an IMF Poverty 
Reduction Growth Facility (PRGF), approved in June  2003.  This facility was augmented, as of 
July 2004, in accordance with th e IMF's Trade Integration Mechan ism (TIM) to assist Bangladesh’s 
orderly adjustment to the MFA/ATC quota phase-out.9  Steps taken by the Government to improve 
governance include the 2002 Money Laundering Prevention Act and the 2004 Anti-Corruption 
Commission Act.  Tax reforms are also being undertak en to raise tax collection, which, at only 10.9% 
of GDP, would appear to be insufficient to meet Ba ngladesh's developmental needs;  and possibly to 
reduce reliance on trade-related taxes, notably impor t tariffs, which account for a large proportion of 
tax revenues and tend to be more distorting than other indirect taxes.10  Privatization too has 
progressed, albeit slowly.   
4. The economy has also become more outward-o riented, with trade in goods and non-factor 
services rising from 33.1% of GDP in 1999/00 to 39.4% in 2004/05 and inward foreign direct investment increasing almost nine-fold during 2002-04.  Nevertheless, Bangladesh's degree of 
integration into the global econom y still seems to be fairly low.
11 
(2) RECENT ECONOMIC PERFORMANCE  
5. During the period under review, supportive ma croeconomic policies have facilitated 
economic expansion underpinned by a steady growth in industrial and services sectors, reflecting 
expansion in both domestic and external  (export-oriented manufacturing) demand.12  Real GDP 
growth has remained steady (Table I.1), averaging 5.5% annually.  The deceleration in 2004/05 was 
due to the impact of devastating floods, which dama ged major crops (particularly rice), as well as the 
upswing in global oil and commodity prices, wh ich contributed to a surge in inflation.13 
 
8 Poverty Reduction Strategy Papers (PRSPs) are prepared by member countries in broad consultation 
with stakeholders and development partners, including the staffs of the World Bank and the IMF.  Updated 
every three years with annual progress reports, they descri be the country's macroeconomi c, structural, and social 
policies in support of growth and poverty reduction, as well as associated external financing needs and major 
sources of financing (IMF, 2005a).  More in fo on the process is also available at:  
http://www.lcgbangladesh.org/prsp /index.php [3 December 2005]. 
9 PRGF loans carry an annual interest rate of 0. 5% and are repayable over ten years with a 5½-year 
grace period on principal payments (IMF, 2005c).  The Trade Integration Mechanism was introduced in 
April 2004 to assist IMF member countries to meet ba lance-of-payments shortfalls that might result from 
multilateral trade liberalization.  It is not a special lend ing facility, but a policy designed to make resources more 
predictably available under existing IMF facilities (IMF on line information.  Availabl e at:  http://www.imf.org/ 
external/np/exr/facts/tim. htm [3 December 2005]). 
10 Tariffs tend to be a relatively "expensive" type of tax distortion.  Hence, a tariff cut, financed by 
raising indirect taxes to compensate for the lost reve nue would increase welfare.  More specifically, for each 
dollar of tax revenue raised in Bangladesh, the welfare gain could be as much US$0.82 to US$2.18 if the Government switched from import tariffs to output taxes as the revenue collecting policy instrument (see 
Devarajan and Thierfelder, 2001).  With customs duties accounting for 2.2% of GDP in 2004/05, it follows that 
replacement of these duties with less distorting produc tion taxes could raise Bangladesh's GDP by between 
1.8% and 4.8%.  
11 For example, according to the 2005 Globa lization Index, prepared by A.T. Kearney/ Foreign Policy  
magazine, Bangladesh ranks 56th overall (out of 62 countries), and last in  the area of economic integration, and 
within that category, second to last on foreign direct investment, third to last on portfolio investment flows, and 
fifth from last on trade openness (World Bank, 2005b).   
12 Bangladesh Bank (2004). 
13 IMF (2005c). Bangladesh WT/TPR/S/168 
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Table I.1 
Selected macroeconom ic indicators, 1998-05 
  1998/99 1999/00 2000/01 2001/02 2002/03 2003/04 2004/05 
National accounts (Percentage change) 
Real GDP  4.9 5.9 5.3 4.4 5.3 6.3 5.4 
Consumption .. 3.9 4.7 5.7 4.7 .. .. 
Private consumption 1.3 4.1 4.7 4.9 4.1 .. .. 
Government consumption 0.6 0.9 4.5 19.2 13.2 .. .. 
Gross fixed capital formation 12.6 0.1 5.8 8.2 7.9 .. .. 
Exports of goods and non-factor 
services .. 14.4 14.9 -2.3 6.9 .. .. 
Imports of goods and non-factor 
services .. 10.3 11.2 -11.2 7.4 .. .. 
Unemployment rate (%) .. 3.6 .. .. .. .. .. 
Productivity (Percentage change) 
Labour productivity .. .. .. .. .. .. .. 
Capital productivity .. .. .. .. .. .. .. 
Total factor productivity .. .. .. .. .. .. .. 
Prices and interest rates (Per cent) 
Inflation (CPI, % change) 7.1 2.8 1.9 2.8 4.4 5.8 6.5 
Lending rate (period average) .. .. 13.8 13.2 12.8 11.0 10.9 
Deposit rate (period average) .. .. 7.0 6.7 6.3 5.7 5.6 
Money credit (end period) (Percentage change) 
Money supply (M2) 12.8 18.6 16.6 13.1 15.6 13.8 16.8 
Credit to private sector (end period) 13.8 10.8 16.9 14.4 14.9 14.2 17.0 
Exchange rate        
Taka per US$ 48.1 50.3 54.0 57.4 57.9 58.9 61.4 
Real effective exchange rate index (% change) 
1.9 -3.2 -5.6 -0.5 -4.4 -3.7 -3.3 
Nominal effective exchange rate index (% change) 
.. .. .. .. .. .. .. 
 (Per cent of GDP, unless otherwise indicated) 
Fiscal policy        
Government budget balance -4.6 -6.1 -5.2 -4.7 -4.2 -4.2 -4.5 
Revenue 9.0 8.5 9.6 10.2 10.4 10.6 10.6 
Tax revenue 7.4 6.8 7.8 7.8 8.3 8.5 8.7 
NBR-tax revenue 6.8 6.4 7.4 7.4 7.9 7.9 8.1 
Custom duties 2.2 1.8 2.0 2.0 2.2 2.1 2.1 
Expenditure 13.6 14.5 14.8 14.9 14.5 14.8 15.1 
Public sector total debt  42.4 46.4 46.2 50.0 49.0 48.2 47.4 
Domestic debt 11.0 13.0 15.0 16.6 16.3 16.4 16.5 
Saving and investment         
Gross national savings 22.3 23.1 22.4 22.4 24.9 25.4 26.5 
Gross domestic savings 17.7 17.9 18.0 17.9 18.6 19.5 20.2 
Gross domestic investment 22.2 23.0 23.1 23.0 23.4 24.0 24.4 
Savings-investment gap 0.1 0.1 -0.7 -0.6 1.5 1.4 2.1 
External sector        
Current account balance  -1.0 -0.9 -2.3 0.3 0.3 0.3 -0.9 
Net merchandise trade  -4.2 -4.0 -4.3 -3.7 -4.3 -4.1 -5.5 
Value of exports 11.6 12.1 13.7 12.5 12.5 13.3 14.3 
Value of imports 16.0 16.1 17.9 16.2 16.8 17.4 19.8 
Services balance -1.3 -1.4 -1.9 -1.0 -1.3 -1.5 -1.4 
Capital account 0.8 1.2 0.9 0.9 0.8 0.3 0.3 
Table I.1 (cont'd) WT/TPR/S/168 Trade Policy Review 
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  1998/99 1999/00 2000/01 2001/02 2002/03 2003/04 2004/05 
Financial account  -0.8 -0.2 1.5 0.8 0.8 0.1 1.3 
Direct investment 0.4 0.8 1.2 0.8 0.7 0.7 1.3 
Balance of payments  -0.4 0.4 -0.6 0.9 1.6 0.3 0.1 
Terms of trade, 1988/89=100 100.0 99.1 94.4 89.9 85.5 82.6 .. 
Merchandise exports (% change) 3.5 7.9 12.6 -7.6 9.5 15.9 14.0 
Merchandise imports (% change) 8.0 3.4 11.4 -8.7 13.1 13.0 20.6 
Service exports (% change) 0.0 20.1 -10.6 14.0 2.5 4.2 27.4 
Service imports (% change) 2.6 14.0 12.0 -18.5 15.7 13.9 13.8 
Gross official reservesa 
(US$ million) 1,523.3 1,602.1 1,306.7 1,582.9 2,469.6 2,705.0 2,929.9 
in months of imports 2.0 1.9 1.7 1.8 2.9 2.8 2.6 
External debt, end of FY 
(US$ million) 14,843.0 16,211.0 15,074.0 16,276.0 17,411.0 18,511.0 18,777.0 
% of GDP 32.5 34.4 32.1 34.2 33.5 32.8 31.3 
Debt service ratiob7.0 7.0 6.4 6.1 5.6 4.3 5.0 
.. Not available. 
a Gross foreign reserves of Bangladesh Bank,  including resident foreign currency deposit. 
b In per cent of current earnings defined as the sum of e xports of goods, non-factor services and private transfers. 
Note: Bangladesh's fiscal year is July-June.  Interest rates for 2004/05 are provisional. 
Source:  Data provided by the authorities;  and Central Bank of Bangladesh.  Available at:  http://www.bangladesh-
bank.org/pub/monthly/econtrds/econtrd s.html (March 2006), http://www. bangladesh-bank.org/pub/quaterly/ 
bbquarterly/bbquaterly/bbquarterly.html (July-Septembe r 2005), and http://www.bangladesh-bank.org/econdata/ 
econdata.html [as of April 2006].  
 
6. On the supply side, the shares of manufacturing, and services in GDP grew progressively 
while those of agriculture, fisheries, and forestry, the most labour intensive sector, registered a 
declining trend, mainly due to a significant reduction of growth in crops and horticulture (Table I.2).14  
Increased agricultural production, industrial output and trade-related activities underpinned growth of the services sector. 
Table I.2  
Basic economic and social indicators, 1998-05 
 1998/99 1999/00 2000/01 2001/02 2002/03  2003/04 2004/05a
Real GDP (Tk billion, 1995/96 pri ces) 1,934.3  2,049.3  2,157.4  2,252.6  2,371.0  2,519. 7  2,655.1  
Real GDP (US$ billion, 1995/96 prices) 40.2  40.7  40.0  39.2  41.0  42.8  43.2  
Nominal GDP (Tk billion) 2,197. 0  2,370.9  2,535.5  2,732.0  3,005.8  3,329.7  3,684.8  
Nominal GDP (US$ billion) 45.7  47.1  47.0  47.6  51.9  56.5  60.02  
GDP per capita (Tk) 17,394.9  18,507.9  19,518.6  20,760.0  22,532.2  24,628.2  26,896.0  
GDP per capita (US$) 361.9   367.9  361.7  361.5  389.2  417.9  438.1  
 Annual percentage change  
GDP by industry at 1995/96 prices        
Agriculture and forestry 3.2  6.9  5.5  -0.6  3.3  4.4  -0.7  
Fishing 10.0   8.9  -4.5  2.2  2.3  3.1  4.0  
Mining  1.3   9.5  9.7  4.5  7.2  7.7  8.4  
Manufacturing 3.2  4.8  6.7  5.5  6.7  7.1  8.4  
Electricity, gas, and water  6.0  6.8  7.4  7.6  7.9  9.2  9.1  
Construction 8.9  8.5  8.6  8.6  8.1  8.3  8.7  
Table I.2 (cont'd) 
                                                      
14 Bangladesh Bank (2004). Bangladesh WT/TPR/S/168 
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 1998/99 1999/00 2000/01 2001/02 2002/03  2003/04 2004/05a
Services 5.2  5.5  5.5  5.4  5.4  5.7  6.6  
Wholesale and retail trade 6.5   7.3  6.4  6.6  6.1  6.6  6.9  
Hotels and restaurants 6.6  6.9  7.1  6.9  7.0  7.1  7.3  
Transport, storage and 
communication 5.9  6.1  7.9  6.6  6.8  6.2  8.1  
Financial intermediation 5.4  5.5  5.6  6.7  6.7  7.0  8.9  
Real estates, renting and business activities 3.8  3.8  3.4  3.4  3.5  3.6  3.6  
Public administration and defence 5.7  6.0   5.9   5.9  5.3  7.1  11.1  
Education 7.7  7.7  7.1  7.6  7.5  7.7  8.4  
Health and social work 4.6  4.8  4.9  5.3  5.6  6.2  6.9  
Community, social and personal 
services 3.0  3.1  3.1  3.2  3.3  4.0  4.8  
Customs, excise and duties 2.0  1.3  1.9  5.8  3.3  18.2  -2.4  
 Per cent  
Share of main sectors in GDP (%)        
Agriculture and forestry 19.6  18.9  18.0  16.8  16.2  15.7  15.0  
Fishing 5.7  5.8  5.3  5.1  4.7  4.4  4.2  
Mining 0.9  1.0  1.0  1.1  1.1  1.1  1.1  
Manufacturing 14.9  14.7  15.1  15.3  15.2  15.5  16.0  
Electricity, gas, and water 1.3  1.3  1.3  1.3  1.3  1.3  1.3  
Construction 7.1  7.4  7.6  7.7  7.7  7.6  7.9  
Services 46.9  47.5  48.3  49.1  50.1  50.2  50.7  
Wholesale and retail trade 12.4  12.3  12.8  12.9  13.0  13.2  13.6  
Hotels and restaurants 0.6  0.6  0.6  0.6  0.6  0.7  0.7  
Transport, storage and communication 8.2  8.3  8.7  9.3  10.4  10.3  10.3  
Financial intermediation 1.5  1.5  1.5  1.5  1.6  1.6  1.6  
Real estates, renting and business 
activities 8.9  8.9  8.8  8.8  8.5  8.3  8.1  
Public administration and defence 2.5  2.6  2.6  2.6  2.6  2.6  2.7  
Education 2.1  2.3  2.3  2.3  2.4  2.4  2.4  
Health and social work 2.2  2.3  2.3  2.2  2.2  2.2  2.2  
Community, social and personal services 8.4  8.6  8.5  8.7  8.9  9.0  9.2  
Customs, excise and duties 3.5  3.5  3.4  3.5  3.6  4.1  3.7  
 Share of sector in total employment (%)  
Agriculture, forestry and fisheries  ..  50.8   ..   ..  51.7   ..   ..  
Mining and quarrying ..  0.5  ..  ..  0.2  ..  ..  
Manufacturing ..  9.5  ..  ..  9.7  ..  ..  
Electricity, gas, and water ..  0.3  ..  ..  0.2  ..  ..  
Construction ..  2.8  ..  ..  3.4  ..  ..  
Services ..  36.2  ..  ..  34.8  ..  ..  
Trade, hotels and restaurants ..  15.6  ..  ..  15.3  ..  ..  
Transport and communication ..  6.4  ..  ..  6.8  ..  ..  
Finance and business  ..  1.0  ..  ..  0.7  ..  ..  
Community and personal  ..  13.1  ..  ..  5.6  ..  ..  
Public administration and defence ..  .. ..  ..  6.3  ..  ..  
Memorandum        
Infant mortality (per 1,000 live birt hs) 59.0  58.0  56.0  53.0  .. .. .. 
Life expectancy at birth 67.6  68.2  68.3  64.9 .. .. .. 
.. Not available. 
a Preliminary. 
Source:   Data provided by the authorities;  and Ce ntral Bank of Bangladesh (latest issue March 2006).  WT/TPR/S/168 Trade Policy Review 
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                                                     7. Achieving the income poverty target15, set under the MDGs, requires real GDP growth per 
capita of 4% to 5% per annum16;  between 1998/99 and 2004/05, annual average real GDP per capita 
growth was 3 .91% (in Taka terms) and/or a negative rate of -0.42% (in U.S. dollar terms).  During the 
review period, nominal GDP per capita has risen stead ily by an overall rate of 21% to an estimated 
US$438.1 (2004/05) (Table I.2), among the lowest in the world (138th out of 177 countries) and the 
lowest in South Asia.17   
8. Aggregate poverty rates in Bangladesh remain high, with 36% of the population estimated to 
be living under the poverty threshold of US$1 a day.18  With a policy focused on family planning, 
improved health, and nutrition, child mortality was halved during the 1990s and life expectancy rose 
from 56.1 years in 1991 to 62.8 years in 2003.19  Despite these considerable achievements, the 
challenges ahead are formidable, fo r example access of poor households  to food, maternal mortality 
(one of the highest outside s ub-Saharan Africa), gender disparity (in both human and income 
poverty), unsafe levels of arsenic in the groundwater, and quality of education.20  The goal set out in 
the 2005 PRSP involves halving the proportion of the population living below the poverty threshold 
by 2015 through the acceleration of pro-poor growth , improvements in governance, investment in 
human development, women's adva ncement, and social protection.21  A number of actions have been 
taken by the Government, including a decision to increase poverty-reduction expenditure from 6.02% 
of GDP in 2003 to 8.39% of GDP in 2006.  In 2002, a National Poverty Focal Point was created at the 
Planning Commission. 
9. Bangladesh's high incidence of poverty, dense population22, and vulnerability to natural 
disasters, including periodic flooding and cyclones, makes food security a major policy objective (Chapter IV).  Bangladesh is a large recipient of foreign aid, a substantial portion of which entails 
food.  In 2004, the authorities, in collaboration with development partners, were in the process of 
finalizing a Five Year Strategic Plan for the Comprehensive Disaster Management Programme (2004-2008)
23;  at the time of completion of this repor t no further information was available on this 
matter.  The Plan incorporates programmes to strengthen the capacity of the Bangladesh disaster 
management system in order to reduce risk and improve response and recove ry management at all 
levels. 
10. Bangladesh has an abundant supply of labour, more  than half of which remains engaged in 
agriculture (Table I.2).  While cheap unskilled labour is readily available, labour productivity in 
Bangladesh lags behind the country's Asian neighbours due to a shortage of skilled workers24, lack of 
machinery, poor management, and inefficient infrastructure.25  Official statistics indicating a low 
 
15 The authorities recognize that the nature and dimension of pover ty is wide and multi-faceted.  It 
involves income levels, food security, quality of life,  asset bases, human resource capacities, vulnerabilities and 
coping with human security and initiative horizons (Ministry of Finance, 2005b). 
16 IMF (2005a). 
17 UNDP (2005c). 
18 IMF (2005a);  World Bank (2005a);  and UNDP (2005b). 
19 World Bank (2005a);  and UNDP (2005b). 
20 World Bank (2003a). 
21 IMF (2005a). 
22 Bangladesh's land area is 145,570 square kilometres.  With a current population of 127 million, this 
implies a population density of 872 persons per square kilometre, nearly three times the density of India, more 
than five times that of Pakistan, and around eight times that of Indonesia. 
23 Planning Commission (2004). 
24 Skilled workers often find employment in the Middle East and East Asia at substantially higher 
wages.  Remittances have become an important source of  foreign exchange in recent years, and now exceed aid 
provided in the form of concessional loans and grants (USTC, 2003). 
25 World Bank (2005b);  and IMF (2005a). Bangladesh WT/TPR/S/168 
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                                                     unemployment level26 obscure a large and growing under-employment problem in Bangladesh.27  
Both major political parties in Bangladesh have been equally active in using national strikes ( hartals ) 
as a means of protest, costing 3%-4% of GDP annually during the 1990s.28  
11. The informal sector dominates employment;  be tween 80% and 90% of the labour force is 
believed to work in the informal sector.29  The informal sector of th e economy encompasses the urban 
informal sector (manufacturing, construction, trade, transport and other services) and the informal part 
of the rural non-farm economy (crop and non-crop agriculture), which, according to the authorities, 
accounted for over one third of GDP in 1995/96.30  The sector is characterized by unregistered 
small-scale labour-intensive activities mainly by sel f-employed family labour with small amounts of 
self-financed capital, and low level of skill, productivi ty, and thus wages.  The urban informal sector 
provides over one third of total informal sector employment, of which over four fifths comes from 
"small" trade (i.e. traditional small-scale enterprises  in the urban area), transport and other services.  
Rural non-agricultural activities account for about two thirds of total informal employment in the 
private sector. 
12. During the period under review, inflation dropped progressively to 1.9%  (2000/01) before 
climbing up to 6.5% (2004/05) (Table I.1), mainly as a result of the temporary surge in food prices (owing to flood damage to major crops) as well an upswing in global oil and commodity prices.
31  
(3) MAIN MACROECONOMIC POLICY DEVELOPMENTS  
(i) Monetary and exchange rate policy 
13. While actively involved in the design and impl ementation of monetary  and exchange rate 
policy, the Bangladesh Bank (BB) has limited institutional autonomy in this respect;  the responsibility for the conduct of the policy resides in the Ministry of Finance.  Consequently, as indicated at the previous Review, the exchange ra te seems subject to political influence.  The 
authorities indicate that BB's authority and aut onomy in designing and implementing monetary 
policies have been enhanced by amendments en acted in 2003 to the Bangladesh Bank Order 1972 and 
Bangladesh Banks Nationalization Order 1972.  Wh ile the BB appears to have full institutional 
autonomy in respect of licensing, regulation, a nd supervision of banks and other deposit-taking 
institutions, its quasi-fiscal activities, including subsidized BB lending to specialized credit 
institutions not subject to the scrutiny of the budget process, appear to have undermine the Bank's financial position.  However, the authorities st ate that these activities ar e fully secured by the 
Government's repayment guarantees, and do not in any way undermine its financial position.  
 
26 Economic expansion has increased the number of the employed population;  however, the growth of 
employment has not kept pace with the increase in the numbe r of people entering the labour force, thus leaving 
unemployment rates unchanged between 1999-00 and 2001-02 and causing a jump in the under-employment 
rate.  Unemployment rates are especially high amongst th e young and amongst groups laid off or retrenched due 
to the privatization and closing down of factories (IMF, 2005a;  and USTC, 2003). 
27 USTC (2003). 
28 UNDP (2005a);  and IMF (2004). 
29 International Labour Office online information.  Available at:  http://www.ilo.org/public/english/ 
region/asro/bangkok/arm/bgd .htm [5 December 2005]. 
30 IMF (2005a). 
31 IMF (2005c);  IMF (2004);  and Bangladesh Bank (2004). WT/TPR/S/168 Trade Policy Review 
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                                                     (a) Monetary policy 
14. During the review period, monetary policy has been broadly supportive of growth, but in an 
environment of rising international oil prices and increased import requirements for food, an 
accommodative stance in early 2005 contributed to pressures on inflation and the exchange rates.32  
Interest rates continued to decline, aided by lowe red interest rates on national savings certificates 
(Table I.1).33  Higher (than targeted) broad money growth w as driven mainly by growth in net foreign 
assets and private sector credit;  this was in part  due to lending to the agriculture sector for flood 
rehabilitation and strong demand for credit in a low-interest-rate environment (Table I.1).34  Since 
March 2005, monetary tightening was implemented by increasing the cash reserve requirement by 
half a percentage point (to 4.5%) and raising interest rates on treasury securities (by 3 percentage points on 28-day bills);  this policy stance is essen tial to ensure price stability and orderly exchange 
market conditions.
35 
(b) Exchange rate policy 
15. Since the floating of the taka on 31 May 2003, th e exchange rate has been managed flexibly 
(managed float with no pre-announced path for the exchange rate, according to the IMF)36;  the BB 
has no longer been announcing a trading band for its foreign exchange transactions.37  The floating 
exchange rate regime allows i ndividual banks to set their own buying and selling rates for foreign 
currency based on supply and demand.  BB's interventions in the interbank foreign exchange market consisted of purchasing U.S. dollars at times of surplus in the market, and sales/overdrafts to banks in U.S. dollars at times of tightness of liquidity.  BB 's recent resort in part to non-market means for 
handling the exchange market pressures was considered disappointing by IMF staff
38;  the authorities 
clarified that their response to the recent rise of import prices of oil consisted of BB's interventions 
intended to avoid extreme day-to-day volatility of exch ange rates rather than to prevent the exchange 
rate from reflecting the supply scarcity.  They are e xpected to confine their interventions to building 
reserves to a more comfortable level and to co untering disorderly market conditions, especially 
against the background of the phase-out of MFA/ATC-related quotas.39  The taka is convertible for 
current account transactions, such as import trade and travel needs, but not for capital account 
transactions, such as investment or currency speculation. 
16. The authorities intend to enhance the operation of the exchange rate system by removing 
restrictions, and to use it as a first line of defen ce against external shocks (e.g. the potential impact 
 
32 IMF (2005c). 
33 Bangladesh Bank (2004). 
34 Bangladesh Bank (2004). 
35 IMF (2005c). 
36 IMF (2005c). 
37 Until 30 May 2003, the taka was fixed to the U.S.  dollar, but was adjusted periodically.  It was 
devalued on three occasions during 2000-02, when the trading band for BB's transactions was correspondingly 
widened or raised.  From January 2002 to 30 May 2003, the official band for the taka remained unchanged at 
Tk 57.4-58.4 per U.S. dollar.  Authorized dealer (AD) banks set their own buying and selling rates for the U.S. 
dollar and other currencies, generally within the band, until October 2002.  Since November 2002, however, AD 
banks have set rates outside the band. 
38 By mid-2005, BB's interventions had taken the form of sale of foreign exchange reserves 
(January 2005) as well as moral suasion through th e nationalized commercial banks (NCBs) to curtail the 
movement of the exchange rate, while allowing them to run shortfalls in their net open foreign exchange 
positions.  IMF (2005c). 
39 To this end, the authorities can use market-b ased instruments, like buying and selling foreign 
exchange, tightening/loosening moneta ry policy, foreign borrowing, and acceptable controls on the exchange 
payments, all in support of the exchange rate policy (Planning Commission, 2004). Bangladesh WT/TPR/S/168 
 Page 9 
 
 
from the lifting of MFA/ATC-related quotas).40  On 18 July 2002, release of foreign exchange for 
education and travel abroad, including travel on me dical grounds, was further liberalized.  Mandatory 
margin requirements for letters of credit (L/Cs) we re removed in December 2003.  With effect from 
20 December 2004 authorized dealers may make a dvance payments against imports without prior 
approval by Bangladesh Bank, provided that the supplier furnishes a repayment guarantee acceptable 
to the authorized dealers, from a bank abroad.  The compulsory covering of forward sales by forward 
purchases in the same amount was relaxed on 4 January 2005;  authorized dealers are now required to cover at least 50% of their forward sales by forward purchases, and forward sales associated with swap transactions are not required to be covered by forward purchases. 
17. The authorities intend to avoid disorderly exchange rate movements with high day-to-day 
volatility, which is seen as unpopular and politi cally unacceptable; reportedly they consider 
market-based depreciation of the taka to be consistent with the need to maintain external competitiveness.
41  External competitiveness has been fac ilitated by the depreciation of the U.S. 
dollar against most major currencies, especially  the euro.  Between 1999/00 and 2004/05, the taka 
depreciated by 22% (against the U.S. dollar) in no minal terms and by about 15% in real effective 
terms (Chart I.1);  similarly, since the introduction of the floating exchange rate regime (May 2003), 
the taka has depreciated by 9% (nominal) and 5% (real effective) (to June 2005).42  Reportedly, the 
foreign exchange volatility in early 2006 could be  due to unhealthy competition among some banks.43 
405060708090100110120130140150160170180
1998/99 1999/00 2000/01 2001/02 2002/03 2003/04 2004/05Chart I.1
Exchange rates and consumer price index developments, 1998-05
Source :  Central Bank of Bangladesh.CPI
 (1995/96=100)
Real effective exchange 
(1994/95=100)
Taka/US$
 
                                                      
40 IMF (2005c);  and IMF (2004). 
41 IMF (2004). 
42 IMF (2005c). 
43 The Financial Express , Thursday 23 February 2006.  WT/TPR/S/168 Trade Policy Review 
Page 10 
 
 
                                                     (ii) Fiscal policy 
18. Bangladesh's medium-term fiscal strategy rema ins centered on boosting revenue performance 
and reorienting expenditure to better support job-creating growth and the MDGs, while maintaining 
fiscal sustainability44;  it provides for increased allocation of resources to growth-supporting 
infrastructure and to programmes supporting human development, poverty reduction, and 
employment generation.  At 10.9%, Bangladesh's re venue to GDP ratio remains among the lowest in 
the world, owing to the narrow tax base and problems encountered in tax collection.45  As a result, 
public investment in infrastructure and human cap ital has been inadequate compared with most 
countries in the region.  Bangladesh maintains a variety of measures (including duty concessions for 
specific purposes, duty drawbacks, bonded warehouses, export processing zones (EPZs), and cash 
grants) in an attempt to offset the adverse effect s of import taxes on exporters;  but such measures 
contribute to the complexity of its tr ade (and tax) regime (Chapter III). 
19. During the period under review, the fiscal stance  has been fairly prudent, with the overall 
budget deficit declining from 5.2% of GDP to 3.2% (2003/04), rising again to 4.2% of GDP (2004/05), partly due to expenditure associated with flood relief efforts (Table I.1).  The share of 
revenue from domestic sources to GDP has increased at  a faster pace than the share of expenditure 
(though 40% larger than the revenue share).  Slower than projected revenue growth reflected delays in 
the implementation of tax administration refo rms and resulting lingering enforcement weaknesses
46;  
similarly on the spending side, development expenditu re was estimated to be lower than projected.  
The structure of deficit financing remains sound, with domestic financi ng capped at 2% of GDP, 
whereas external financing continues to be on concessional terms.47 
20. The overall fiscal position of the public sector as a whole (consolidated to take into account 
non-financial SOEs) is rather wo rse, however, owing to the weak  operational performance of these 
enterprises and their capital expenditure programme (Chapter III).  The operations of non-financial 
SOEs have been sustained largely through gove rnment-guaranteed borrowing from state-controlled 
banks and an accumulation of domestic and external arrears.  
21. Progress has been made in improving the basic areas of fiscal transparency, but significant 
weaknesses in other areas remain.48  Major concerns include:  (i) weak coordination, monitoring, and 
reporting of foreign-financed projects;  (ii) lack of a medium-term expenditure framework;  (iii) weak 
parliamentary mechanisms for oversight of public fi nances;  (iv) weak internal audit mechanisms;  
and (v) lack of estimates of contingent liabiliti es and costs of quasi-fiscal activities in the budget 
documents and/or in other annual fiscal accounts.   
(4) MAIN STRUCTURAL POLICY DEVELOPMENTS  
22. Structural reforms, being part of the PRGF arrangement, are, inter alia,  focused on:  pursuing 
further tax administration reform;  continuing di vestment of nationalized commercial banks (NCBs) 
and reforms in the energy-sector SOEs;  and improving economic governance.49  Structural 
 
44 IMF (2004). 
45 IMF (2005c). 
46 As indicated in the previous Review, Bangladesh's difficulties in tax collection were to some extent 
due to weak tax administration exacerbated by reportedly endemic corruption among tax and customs officials, 
arising partly from their discretionary power.  Moreover, tax evasion (and smuggling) was widespread, apparently costing the Government US$2  billion annually in lost tax revenues . 
47 IMF (2005c). 
48 IMF (2004). 
49 IMF (2005c). Bangladesh WT/TPR/S/168 
 Page 11 
 
 
                                                     impediments to growth, such as physical infr astructure bottlenecks, inadequate human capital 
investment, relatively restrictive trade, and the high cost of doing business, have discouraged private 
investment, especially foreign direct investment, a nd led to inefficient allocation of public resources, 
reflected in part by the poor financial c onditions of the NCBs and the large SOEs. 
(i) Tax reform 
23. During the period under review, annual budgets c ontained important steps aimed at improving 
revenue collection and addressing corruption in tax a nd customs administration.  In line with certain 
policy priorities, revenue-related measures were focu sed on the income tax, taxes on imports, and the 
VAT (Chapter III).  The exemption limit for personal in come tax has been raised .  At the same time, 
the tax rate on income from capital gains arising out  of the transfer of stocks and shares of private 
limited companies, the tax rate affecting textile and jute industries, and the rate of deduction of tax on 
approved securities and bonds were all reduced.  The peak rate and tiers of customs duties were reduced, the supplementary duty rates were modified , and a regulatory duty was introduced.  Several 
services were brought under VAT, while VAT was removed on insura nce, freight and clearing and 
forwarding agent's commission relating to 100% export-oriented industries.
50 
24. While reducing customs duties through trade liberalization may lower import-related tax 
revenue, the authorities believe that overall tax reve nue should increase due to the restructuring and 
rationalization of customs duty, supplementary duty , and income tax rates, as well as import growth, 
expanded coverage of the income tax and VAT, and, above all, strengthened administrative measures.
51  Tax administration reform has advanced, but has yet to translate in to revenue gains.  
Despite the setting up of institutional structures (e.g. the large taxpayers units (LTUs) for income tax 
and VAT, the Central Intelligence Cell) enforcemen t, audit and collection efforts remain weak, 
reflecting capacity constraints and opposition from vested interests.52  Extensive court injunctions in 
tax cases have undermined the function of the Nationa l Board of Revenue (NBR);   two benches in the 
High Court have been created to deal exclusiv ely with tax cases and to expedite the clearing 
process.53  In 2005, the Tax Ombudsman Bill was passed;  the role of the Office of the Ombudsman, 
as set out in the Bill, is to investigate deficiencies and corruption in the tax system.54  An independent 
audit unit was to be created in the NBR by end-November 2005 (in accordance with a PRGF structural performance criterion), to en hance enforcement and audit operations. 
(ii) Privatization 
25. State intervention in the Bangladeshi economy conti nues to be pervasive (Chapter III);  at the 
time of the previous Review, SOEs accounted fo r one fifth of manufacturing output, most of the 
services provided by utilities, and a large share of bank assets;  for this report, no recent estimates were available from the authorities concerning non-financial SOEs.  Inefficient SOEs together with 
 
50 Bangladesh Bank (2004).  
51 Bangladesh Bank (2004);  and IMF (2005b). 
52 By early 2006, the number of tax identification nu mber holders was said to be 1.7 million, out of 
which 0.54 million submitted their tax returns (or 0.4% of the entire population) in the previous fiscal year.  Not 
all registered taxpayers in Bangladesh pay income ta xes due to unlimited exemptions and tax holidays.  
Financial Express, "Missing taxpayers and eco nomic necessities", 18 January 2006.  Available at:  
http://www.financialexpress-bd.com/index3.asp? cnd=1/18/2006&section_id=1&newsid=13020&spcl= 
[20 April 2006];  and Sarker (2004). 
53 IMF (2005c). 
54 South Asian Media Net online info rmation, 14 July 2005, "Tax Ombudsman bill passed".  Available 
at:  ttp://www.southasianmedia.net/cnn.cfm? id=220990&category=Politics&Country=BANGLADESH 
[15 March 2006]. WT/TPR/S/168 Trade Policy Review 
Page 12 
 
 
                                                     administered pricing had also contributed to the l ack of reliable basic infrastructure, including power, 
transportation, and telecommunications , which are essential business inputs. 
26. Privatization is a key element in the Govern ment's private-sector-led development strategy 
(Chapter III).  During the period under review, progress has been mixed in reforming the SOEs, but 
their financial condition remains weak.  The adju stment of prices for energy products in 2004 and 
2005 helped reduce the financial losses of energy- sector SOEs and improve their viability.  After 
initial success in the closure of manufacturing SOEs  in 2002/03, further closures/downsizing of SOEs 
stalled due to difficult labour issues.  Loss-making units can no longer resort to bank financing or 
budgetary resources and have been encouraged to downsize through hiring freezes and a voluntary 
retirement scheme. 
27. The pace of withdrawal of public resources from business enterprises has remained quite slow 
due to the absence of a coherent privatization strategy, faulty rules/regulations, bureaucratic 
impediments, stiff opposition by vested interests, and the lack of firm political commitment.  From 
November 2001 to January 2006 the Privatization Commission (Chapter III) handed over 20 factories 
(mainly sugar/jute/textile/corn flour mills, fish net f actories) to the private sector through international 
tender; five more enterprises were privatized th rough the off-loading of shares, and seven industries 
had been subject to letters of intents and were  waiting to be handed over to buyers;  and five 
manufacturing SOEs were closed during 2003/04 with around 16,000 workers retrenched.55  As of 
January 2006, the privatization programme for the year comprised a further eight SOEs (including 
several mills and the Rupali Bank);  in most cases, the valuation process had been completed or was 
under way, while in a couple of cases, the process ha d moved further (tender invited, request for 
expression of interest issued).  
(iii) Governance 
28. Issues relating to the transparency and account ability of public administration as well as the 
proper management of public affairs have an im portant impact on the economic environment and 
growth prospects of Bangladesh.  Bangladesh has re ceived a lot of negative attention lately due to 
perceptions of widespread corruption in public-private dealings.56  Transparency International places 
Bangladesh at the bottom of its 2005 Corruption Perceptions Index57, and the World Bank states that 
corruption is a major constraint on business operatio ns, estimating that it exacts a toll of 2%-3% on 
annual GDP growth each year.58 
29. Structural reforms for achieving better econom ic governance are a high priority.  During the 
period under review, reforms have covered tax administration, the management of the nationalized 
banking system, the trade regime, and public procurement (Chapter III).  In 2002, a Money Laundering Prevention Act was passed aimed at increasi ng financial transparency in public life;  
banks and financial institutions ar e obliged to monitor transactions of large amounts to ensure that 
they are not acquired by unlawful means or transferred for illegal purposes.
59  In 2004, the 
Government passed the Anti-Corruption Commissi on Act.  The Anti-Corruption Commission (ACC) 
has the power to conduct enquiries and investigations into specific acts of corr uption, file cases based 
on its findings, and submit recommendations to th e President that may be adopted to prevent 
 
55 IMF (2004). 
56 World Bank (2005b). 
57 Transparency International (2005). 
58 World Bank (2000);  and USTC (2003). 
59 Presentation by H.E. Moudud Ahmed, Minister for Law, Justice & Parliamentary Affairs, Promoting 
Good Governance and Human Security,  at the Bangladesh Development Forum, held in Dhaka on 9 May 2004.  
Available at:  http://www.minlaw.gov.bd/bdf2004.htm [2 June 2005]. Bangladesh WT/TPR/S/168 
 Page 13 
 
 
corruption.  The authorities are currently receiving assistance from the World Bank and the Asian 
Development Bank to make the ACC (estab lished in November 2004) fully effective.60  
(5) BALANCE -OF-PAYMENTS DEVELOPMENTS  
(i) Current and trade accounts 
30. Between 2001/02 and 2003/04 Bangladesh regist ered current account surpluses at 0.3% of 
GDP, Table I.1) largely due to steadily rising worker remittances from abroad through official channels, induced by the operation of the M oney Laundering Prevention Act 2002 (section (4)(iii), 
Tables I.1 and I.3).
61  Moderate export earnings (due to a sh arp decline in prices associated with the 
elimination of MFA/ATC-related quotas) and large im port growth (due to higher oil and commodity 
prices, an increase in food imports, and stronger demand for investment goods) drove the external 
current account to a deficit estimated at 0.9% of GDP in 2004/05 (Table I.1).62  
31. During the period under review, Bangladesh's pe rsistent merchandise trade deficit widened 
somewhat faster than the services deficit, to 5.5% of the GDP against 1.4% for services (Tables I.1 
and I.3) in 2004/05. 
32. After a drop in 2000/01, gross official reserves have resumed a steadily rising trend largely 
due to the increased flow of remittances from overseas workers (Table I.1).  By November 2005, 
Bangladesh's reserves were US$3 billion, equivalent to 2.6 months of imports of goods (up from almost two months in 2000/01, Table I.1).  Taki ng into account higher payments for oil imports, 
reserves were expected to drop below the 2004/05 level.
63  
Table I.3  
Balance of payments, 1998-05 
(US$ million)  
 1998/99 1999/00 2000/01 2001/02 2002/03 2003/04 2004/05 
Current account -477.0 -418.0 -1,098.0 157.0 176.0 176.0 -557.0 
Goods and services balance -2,537.0 -2,510. 0 -2,925.0 -2,267.0 -2,906.0 -3,193.0 -4,167.0 
Trade balance -1,934.0 -1,865.0 -2,011.0 -1,768.0 -2,215.0 -2,319.0 -3,297.0 
Exports 5,283.0 5,701.0 6,419.0 5,929.0 6,492.0 7,521.0 8,573.0 
Imports 7,217.0 7,566.0 8,430.0 7,697.0 8,707.0 9,840.0 11,870.0 
Services balance -603.0 -645.0 -914.0 -499.0 -691.0 -874.0 -870.0 
Receipts 707.0 849.0 759.0 865.0 887.0 924.0 1,177.0 
Payments 1,310.0 1,494.0 1,673.0 1,364.0 1,578.0 1,798.0 2,047.0 
Income balance -135.0 -302.0 -344.0 -402.0 -358.0 -374.0 -680.0 
Credit 91.0 97.0 97.0 50.0 64.0 63.0 116.0 
Debit -226.0 -399.0 -441.0 -452.0 -452.0 -437.0 -796.0 
Current transfers (net) 2,195.0 2,394.0 2,171.0 2,826.0 3,440.0 3,743.0 4,290.0 
Official current transfers 220.0 165.0 72.0 69.0 82.0 61.0 37.0 
Private transfers 1,975.0 2,229.0 2,099.0 2,757.0 3,358.0 3,682.0 4,253.0 
Workers' remittance 1,706.0 1,949.0 1,882. 0 2,501.0 3,062.0 3,372.0 3,848.0 
Capital and fina ncial account 17.0 445.0 1,114.0 801.0 841.0 274.0 923.0 
Capital account 387.0 561.0 432.0 410.0 428.0 196.0 163.0 
Table I.3 (cont'd) 
                                                      
60 IMF (2005c). 
61 Planning Commission (2004). 
62 The IMF estimates this deficit at US$1.1 billion (or 1.8% of GDP) (IMF, 2005c). 
63 IMF (2005c). WT/TPR/S/168 Trade Policy Review 
Page 14 
 
 
 1998/99 1999/00 2000/01 2001/02 2002/03 2003/04 2004/05 
Financial account -370.0 -116.0 682.0 391.0 413.0 78.0 760.0 
Foreign direct investmenta, net 198.0 383.0 550.0 391.0 376.0 385.0 540.0 
Portfolio investment -6.0 0.0 0.0 -6.0 2.0 6.0 0.0 
Other investment -562.0 -499.0 132.0 6.0 35.0 -313.0 -16.0 
Medium and long-term loansb821.0 806.0 790.0 733.0 918.0 544.0 940.0 
Medium and long-term amortization payments -341.0 -396.0 -416.0 -435.0 -452.0 -397.0 -449.0 
Other long term loans, net -41.0 127.0 -13.0 -42.0 -20.0 -41.0 -46.0 
Other short term loans, net -53.0 71.0 31.0 63.0 142.0 13.0 241.0 
Other capital -58.0 -190.0 -114.0 -87.0 -125.0 -125.0 -182.0 
Trade credit, net -829.0 -641.0 -260.0 -253.0 -499.0 -321.0 -320.0 
Commercial bank -61.0 -276.0 114.0 27.0 71.0 14.0 -200.0 
Assets -31.0 -161.0 147.0 -90.0 217.0 86.0 -91.0 
Liabilities -30.0 -115.0 -33.0 117.0 -146.0 -72.0 -109.0 
Net errors and omission 267.0 152.0 -297.0 -550.0 -202.0 -279.0 -299.0 
Reserve assets 193.0 -179.0 281.0 -408.0 -815.0 -171.0 -67.0 
.. Not available.  
a FDI flows are on the basis of enterprise surveys. 
b Excluding suppliers' credit. 
Source: Central Bank of Bangladesh.  Available at:  http ://www.bangladesh-bank.org/econda ta/bop.html [25 July 2005], 
and at:  http://www.bangladesh- bank.org/selectedecooind/magec oindapr06.pdf [as of May 2006].  
(ii) External liabilities/debt 
33. Bangladesh's external public debt ratio to GDP dropped from 34.4% (1999/00) to 31.3% 
(2004/05) (Table I.1).  Nevertheless, during the same period the amount of medium- and long-term 
public debt rose by around 16%, from US$15.3 billi on to US$17.8 billion;  debt service payments 
registered a fall.  In 2004, the IMF was confident th at Bangladesh would be able to continue its debt 
service to the agency without difficulty;  even  including the augmentation of access in accordance 
with the TIM (section (1)), the total debt outstanding to the IMF was expected to  peak at less than 1% 
of GDP and total debt service to the IMF as a proportion of exports of goods and services is expected 
to be small and peak at less than 1.5% in 2011/12 when repayments fall due to the Fund.64 
(6) DEVELOPMENTS IN MERCHANDISE TRADE  
34. During the period under review, the ratio of Bangladesh's trade (exports plus imports) in 
goods and non-factor services to GDP followed an upwa rd trend (from 31.8% in 1998/99 to 39.4% in 
2004/05), reflecting the increased importance of foreign trade to the economy (Chart I.2). 
(i) Composition of trade 
35. In the absence of major diversification, Bangl adesh remains largely dependent on exports of 
clothing and, to a lesser extent, textiles (Chart I.3).  Imports are concentrated in five product 
categories:  food, textiles, chemicals, and mach inery and transport equipment, which together 
represent more than 67% of total imports (Tables AI .1 and AI.2).  Workers remittances from abroad 
were more than triple the receipts for exports of services in 2004/05. 
36. Import and export figures do not reflect the substa ntial unofficial trade (estimated at 13% of 
total trade in 2000) that is be lieved to take place, particularly  with Bangladesh's large neighbour, 
India, with which it shares a long border. 
                                                      
64 IMF (2004). Bangladesh WT/TPR/S/168 
 Page 15 
 
 
05101520253035404550
1998/99 1999/00 2000/01 2001/02 2002/03 2003/04 2004/05Chart I.2                                           
Trade in goods and non-factor services, 1998-2005
Per cent
Source :   Central Bank of Bangladesh.(MGS)/GDP
(XGS)/GDP(MGS+XGS)/GDP
 
(ii) Direction of trade 
37. India has strengthened its position as Bangladesh's main source of official imports, accounting 
for 18.5% of total imports, followed by China,  Singapore, and the EC-15 (Chart I.4).  The 
United States and the EC, with which Bangladesh en joys privileged GSP treatment access, are by far 
its largest export markets;  the EC's position as Bangladesh's major export market was further 
strengthened upon the exclusion of clothing items from Bangladesh from U.S. GSP treatment, and the 
passing of the Trade and Development Act 2000 (A frican Growth and Opportunity Act) providing 
duty and quota-free access to sub-Saharan Africa and Caribbean Basin Initiative countries only.  
India's market accounts for a little less than 1% of Bangladeshi exports, a major trade imbalance given 
its large share in Bangladesh's imports (Tables AI.3 and AI.4). 
 
 WT/TPR/S/168 Trade Policy Review 
Page 16 
 
 
Chart I.3
Product composition of merchandise trade, 1997/98 and 2003/04
1997/98 2003/04
(a)    Exports (f.o.b.)
Manufactures
87.2
Total:   US$5,056.9 million Total:  US$5,796.9 million
(b)    Imports (c.i.f.)
Chemicals
9.1
Iron & steel
6.6Transport 
 equipment
6.5
Manufactures
69.5Office machines &
 telecom. equipment
2.2Textiles
21.7
Non-electrical 
machinery
9.4
Food
15.3Non-electrical
machinery
10.3
Other  0.2Textiles
17.2
Other semi-
manufactures
5.1Transport 
equipment
6.4
Chemicals
11.2Manufactures
61.8Office machines &
telecom. equipment   3.1
Total:   US$7,018.0 million Total:   US$8,537.4 millionPer cent
Manufactures
89.6Clothing
76.6Clothing
74.9
Other manuf.
5.1
Other   0.2Textiles
8.6Other  0.5
Semi-manufactures
  4.9Agriculture
9.9
Fuels
7.5
Source :  UNSD, Comtrade database (SITC Rev.3).Other manuf.
  5.5
Mining
10.3Other manuf.
1.4
Textiles
   6.7Semi-manufactures
3.7Agriculture
8.9
Other semi-
manufactures
8.4
Agricultural raw 
materials
8.8Agriculture
27.7Agriculture
20.7
Mining
9.7Iron & steel
3.4Other manufactures
3.6
Other   0.4
Other 
mining
2.2Other 
mining
2.5Fuels
7.8Agricultural raw 
materials
5.4Food
18.9
 Bangladesh WT/TPR/S/168 
 Page 17 
 
 
Chart I.4
Direction of merchandise trade, 1997/98 and 2003/04
1997/98 2003/04
(a)    Exports (f.o.b.)
Total:   US$5,056.9 million Total:  US$5,796.9 million
(b)    Imports (c.i.f.)
Africa  1.2Other S. Asia    1.4
China
10.4EC15
12.3Middle
 East
3.9Singapore
6.5United States
4.3
EC15
9.7
China
13.1 Other East Asia
9.2
Singapore
10.5U.S.   2.6
Total:   US$7,018.0 million Total:   US$8,537.4 millionPer cent
Middle East    1.6
Other America
4.3
Middle
East
4.2Korea,  Rep. of
4.8Korea, Rep. of   
6.1United States
39.4South Asia   1.1
India
18.5United States
25.6Other    1.9
Source :  UNSD, Comtrade database (SITC Rev.3).Japan
5.4
Other America
2.5Canada
3.5EC15
58.4
Canada
3.0
South Asia
20.1 South Asia
16.3
Japan
6..8Other  1.8Oceania  2.7EC15
43.0
Other   2.4Middle East   2.1Other Europe   2.0
Other Europe
4.2 Other
Europe
2.6South Asia  2.0
Other East Asia
8.4
Oceania   6.6Chinese  Taipei
4.3Chinese  Taipei
5.7India
14.8
Other S. Asia  
1.6Other Europe  1.9
East Asia  5.1East Asia   7.0
East Asia
52.3East Asia
49.6Hong Kong, China
5.0Hong Kong, China
5.7
 WT/TPR/S/168 Trade Policy Review 
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(7) TRENDS AND PATTERNS IN FOREIGN INVESTMENT  
38. Bangladesh maintains one of the most liberal FDI regimes in South Asia, with no limits on 
foreign equity participation.  According to UNCTAD estimates, possibly due to "a better enabling 
investment environment" and reductio n of investment expenditure (cost)65, annual FDI inflows into 
Bangladesh grew almost nine-fold during 20 02-04, increasing from US$52 million to US$460 million 
(less than indicated by the authorities in Chart I.5);  outflows were US$3 million and US$4 million.66  
Telecommunications (owing to the opening of public switched telephone network (PSTN) to the 
private sector), energy and power, and textiles manufacturing accounted for the bulk of FDI inflows in 
2004 (Chart I.5).  The EC-15 and Norway have been the main sources. 
Telecommunications
35.9
Other manuf.
3.6
Chemicals
7.2Leather & rubber
2.8Engineering
1.9Other services  0.6Power generation
2.4
Financial 
institutions
10.1Oil, gas & coal
17.8Chart I.5
FDI inflows by sector and origin, 2004
Sector Origin
Source:  Board of Investment (2005), FDI in Bangladesh during 2004, June, Bangladesh.Total:  US$660.8 millionHong Kong, 
China
4.9Other
 6.7United States
9.1
Korea,
 Rep. of
9.1Canada
4.1
Malaysia
6.8Norway
26.6
Japan
4.7  Chinese Taipei
4.9Per cent
Textiles
17.7EC
18.0Egypt   3.0
Services
66.8
Manufacturing
31.3India  1.9
 
39. According to the World Bank, significantly higher  FDI inflows would be needed to support a 
higher growth environment to compensate for domestic  resource constraints and to enable Bangladesh 
to benefit from associated knowledge and technological spillovers.67  The intensive efforts by the 
Board of Investment (Chapter II) to promote the conducive investment climate and economic stability 
of Bangladesh have attracted large FDI proposals;  in 2005, BOI estimated that total investment 
                                                      
65 The 15th Survey of Investment-Related Cost Comparison in Major Cities and Regions in Asia, 
conducted by the Japan External Trade Organization in March 2005, found that investment costs in Bangladesh 
had become cheaper and Bangladesh had become more comp etitive than other countries.  This made it attractive 
to foreign investors (Ministry of Finance, 2005a). 
66 UN (2005), Annex Table B.1, p. 306. 
67 World Bank (2005b) . Bangladesh WT/TPR/S/168 
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                                                     proposals could reach about US$12 billion and, if the related negotiations were completed on time, it 
would require three to four years to implement these projects.68 
(8) OUTLOOK  
40. A broadly favorable medium-term outlook can be envisaged with continued reforms.  
Determined implementation of policies, especially in tax administration and NCBs, together with 
credible actions to strengthen governance, are critical  for turning initial progress into faster and lasting 
growth to reduce poverty and help the economy to better cope with the lifting of MFA-related quotas 
and meet the MDGs.69  Risks to implementation of reforms are significant, both external (post-
MFA/ATC shock, high world oil prices) and dom estic (flood-related reconstruction, political 
confrontation, strikes, infrastructure, power s upply, law and order problems).  With textiles and 
clothing dominating its exports, and the bulk of those exports going to the EC and the United States, 
Bangladesh needs to diversify both its export base and export markets. 
 
68 Ministry of Finance (2005a). 
69 IMF (2005c).