RESTRICTEDWORLD TRADE
ORGANIZATIONWT/BOP/R/50
6 June 2000
(00-2223)
Committee on Balance-of-Payments Restrictions
REPORT ON THE CONSULTATIONS WITH BANGLADESH
1. The Committee met on 4 and 5 May 2000 to hold consultations with Bangladesh.
Consultations were held under regular procedures for the first time since Bangladesh has had recourse
to Article XVIII:B, under the Chairmanship of Mr. Milán Hovorka (Czech Republic).  Theconsultations were held in accordance with the Committee's terms of reference, pursuant to
Article XVIII:12(b) and the Understanding on th e Balance-of-Payments Provisions of the GATT
1994.  The International Monetary Fund was invited to participate in accordance with Article XV:2 of
GATT 1994.
2. The Committee had before it the following documents:
WT/BOP/S/12 Background Paper by the Secretariat
WT/BOP/G/10 Basic Document Supplied by Bangladesh
IMF Bangladesh:  Recent Economic Developments, 10 January 2000
A. O
PENING STATEMENT BY THE REPRESENTATIVE OF BANGLADESH
3. The opening statement by the representative of Bangladesh is attached as Annex 1.
B. STATEMENT BY THE REPRESENTATIVE OF THE INTERNATIONAL MONETARY FUND
4. The statement by the representative of the International Monetary Fund is attached as
Annex 2.
C. DISCUSSIONS IN THE COMMITTEE
(i) Balance-of-payments problems and prospects;  alternative measures to restore equilibrium.
5. Members sympathized with the difficulties faced by Bangladesh, recognizing that the
balance-of-payments position was fragile – reserves amounted to just over 2 months' of imports – and
the economic situation challenging.  While recognizing the widespread economic liberalization
programme, some members cited the weak political support for further reform.  Some members
welcomed the gradual and continuous process of opening up the trade regime, others considered that
greater trade liberalization, institutional and financial sector reform, in particular, and a more flexibleexchange rate would be appropriate.  Others consid ered that the pace of reform needed to take into
account the constraints to choices available, noting, too, that improved market access would help to
alleviate balance-of-payments pressures.
(ii) System, method and effects of the restrictions
6. Members queried the rationale behind the list of products notified for 'trade' reasons and
sought an explanation and criteria for the items on the list.  One Member pointed out that outright
import bans were not foreseen under the balance-of-payments provisions.  The point was made thatWT/BOP/R/50
Page 2
the list served no balance-of-payments stabilization function.  Several members noted that the
provisions of a phase-out plan was an obligation under the 1994 Understanding while Bangladesh, as
a least-developed country, would receive sympathy for a gradual sequenced approach.  One Member
considered that it was premature to discuss consideration of a timetable and that Bangladesh was fully
justified in the type and extent of its measures.
(iii) Replies by the representative of Bangladesh
7. The representative emphasized the need for a gradual approach to reform and that the main
policy priority for his Government was poverty alleviation.  Textile items under restriction were to be
phased out in accordance with the Agreement on Textiles and Clothing, and assorted agricultural
items were protected in order to ensure the development of the domestic sector.  He noted that new
policies under the next five-year Import Policy Or der (2002-2007) would be considered in the near
future and appealed to the Committee to give Bangladesh special consideration as a least-developedcountry.  The closing statement of the representative of Bangladesh is attached as Annex 3.
8. The Committee decided to suspend consultations on the understanding that, with technical
assistance from the Secretariat, Bangladesh would notify a comprehensive phase-out plan for the
removal of the remaining balance-of-payments restrictions by December 2000 and resume
consultations shortly thereafter.WT/BOP/R/50
Page 3
ANNEX 1
Opening statement by the representative of Bangladesh
1. Let me begin by thanking you, Mr. Chairman, and members of the delegations who have so
kindly found time to be here with us this afternoon for this Balance-of-Payments Restrictions – First
Full Consultations with Bangladesh. I consider it also my pleasant duty to thank the staff in the WTO
Committee on Balance-of-Payments Restriction (BOPR) for all the hard work that they have done in
the run-up to today's meeting.  We particularly appreciate the valuable documentation prepared by the
Secretariat and IMF for this occasion.  Let me also assure you that the Government of Bangladeshvalues our membership of this august body highly, and believes sincerely that (BOPR) is an important
exercise, one among many in the wide range of activities which WTO pursues for our mutual benefit.
2. Knowing that appropriate documentation has already been circulated among members, I do
not wish to take much time in this opening statemen t.  I shall be brief, covering only a few salient
features of our economy which, I hope, will shed some helpful light on our discussion.
3. In recent days the Government of Bangladesh has been undertaking widespread economic
reforms aimed towards the creation of a liberal investment and trading environment and promotion of
an open, free-market economy.  The erstwhile system of licences, permits and controls on business
activities has been abolished and exchange restrictions removed for current account transactions.
Those members, who took part in the just concluded TPR of Bangladesh have, we believe, been leftwith a correct assessment of the Bangladesh economy at this point in time.
4. Bangladesh is diligently taking appropriate policy measures to implement fully and properly
its commitments under the Uruguay Round Agreements.  We have fulfilled a large part of the many
obligations in different areas of the Agreement especially relating to tariffs, textiles and clothing.
Despite the costs involved and the difficulties confronted in the process, our commitments to live upto our contractual obligations will remain on track.
5. For a proper assessment of the BOP situation of Bangladesh, it would be necessary to keep in
mind the distinctive features of our import trade. Bangladesh's main imports are industrial raw
materials, machinery and food items.  The erratic, yet sharp upward trend in the import cost of these
items is for us a major cause for concern.  But, domestic price increases in food particularly has a
disproportionately high negative welfare impact on low income households who form the
overwhelming bulk of our p opulation.  To pre-empt or rectify a sharp increase in the price of essential
food items, Bangladesh often has no choice but to import considerable amounts of food grains paid
for from her own meagre resources.  Such emergency food imports affect the foreign exchange
reserve position.  But more important, this causes a painful shift of scarce revenue from the vital
developmental sectors like education, health and infrastructure, delaying the socio-economic
development process of the country as a whole.
6. In order that the macro-economic environment in terms of foreign exchange reserve level and
transparency may be more predictable, the Government of Bangladesh has lengthened the Import
Policy Order validity period from two years to a five-year period.WT/BOP/R/50
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ANNEX 2
Statement by the representative from the International Monetary Fund
1. Bangladesh’s policy performance over the last decade has been mixed. In the early 1990s,
considerable progress was made in lowering inflation, promoting trade liberalization and financial
deepening, and restoring external viability.  However, the momentum of reform faltered and financial
discipline was eroded during a prolonged period of political strife and civil disturbances in the mid-
1990s.  As a result, growth slowed, inflation picked  up, and the level of international reserves fell.
Inflationary pressures eased somewhat following elections and a change of government in the summerof 1996, which led to a lull in political confrontation.  However, the macroeconomic situation has
remained fragile and the building of political co nsensus for much-needed reforms has been slow.
Deep-seated weaknesses in governance have hampered the mobilization and effective use of public
resources, undermined the performance of state-owned enterprises and the banking system,
discouraged entrepreneurial activity, and prevented effective allocation of scarce private savings anddonor funds.
2. Economic growth has, therefore, remained lack luster and progress in reducing the country’s
pervasive poverty has been slow. With annual outp ut growth unable to break out of the 4-5 per cent
range,  per capita income growth has been modest.
3. Massive floods in July-September 1998 led to a temporary drop in economic activity.  The
recovery from the floods was uneven, although overall output and inflation performance suffered only
a small setback during 1998/99 (July-June).  Real GDP growth is estimated to have fallen only
marginally below trend in 1998/99.  However, this outturn reflects in large part a bumper boro  rice
crop in mid-1999, which more than offset earlier flood-related crop losses, and a strong boost to
construction activity in the latter part of 1998/99 resulting from post-flood reconstruction.  Thegrowth of value added in manufacturing, by contrast, slowed to 1.6 per cent, from around 9 per cent in
1997/98, owing in part to a sustained weakening in export performance.
4. Export growth slowed to 3 per cen t in U.S. dollar terms in 1998/99, or less than a fifth of the
annual average earlier in the decade.   While influenced by the floods, this slowdown was aggravated
by an appreciated real exchange rate (see below), recurrent power shortages, inadequate port facilities,
and other infrastructural bottlenecks.  With a sharp rise in food grain imports, the current account
deficit (including official current grants, but excluding capital grants) widened from 0.6 per cent ofGDP in 1997/98 to nearly 2 per cent of GDP in 1998/99, despite buoyant workers’ remittances.
Notwithstanding higher aid inflows, official rese rves fell from US$1.7 billion at end-June 1998 to
US$1.5 billion at end-June 1999, the equivalent of  2.1 months of imports of goods and non-factor
services.  Preliminary data for the first half of 1999/2000 indicate that overall import growth has
continued at the about the same rate as in 1998/99, despite a sharp decline if food imports.  Whileexport performance seems to have picked up recently, workers’ remittances have continued to grow
rapidly.  Reserves have remained in the US$1.5-1.7 billion range during the first nine months of
1999/2000.
5. The overall fiscal deficit is estimated to have  risen from 4.2 per cent of GDP in 1997/98 to a
little over 5 per cent of GDP, or slightly above the official post-flood budget target, in 1998/99.Notwithstanding the introduction of some revenue-raising measures in the aftermath of the floods,
revenues fell short of the post-flood budget target, reflecting mainly a poor performance of VAT and
customs duties stemming from disruptions in industrial activity and imports.  Total expenditure was
broadly in line with the post-flood target, with a slower-than-targeted implementation of externally
funded Annual Development Program (ADP) projects helping to more than offset overruns on interestWT/BOP/R/50
Page 5
payments, public sector salaries and pensions, and subsidies to loss-making SOEs.  However, with a
significantly larger than targeted increase in domestically funded ADP spending, government reliance
on domestic bank financing rose to 1 per cent of GDP in 1998/99, well above the post-flood budget
target.  The trend toward a widening of th e budget deficit has continued in 1999/2000, with
disappointing revenue performance and expenditures well above target.  As a result, the officiallybudgeted deficit target for the year of 4.6 per cent of GDP is likely to be sign ificantly exceeded.  With
a large deficit overrun already leading to much heavier than expected domestic bank borrowing by the
government during the first nine months of 1999/2000, including from Bangladesh Bank, the
weakening fiscal position is placing mounting pressure on the monetary accounts.
6. Monetary policy during 1998/99 was primarily geared toward accommodating the impact of
the floods.  In the event, both bank credit to the government and Bangladesh Bank credit to
agricultural banks remained above target through June 1999.  Monetary and credit developments sofar in 1999/2000 have been dominated by the need to finance the increase in the budget deficit.  Net
bank credit to the government rose by Tk 45 billion (2.1 per cent of GDP) during July 1999-March
2000, compared with an official monetary program target of Tk 15 billion (0.7 per cent of GDP) for
the whole year.  The growth in total domestic credit has, so far, been moderated by an apparent
crowding out of credit to the private sector.  The y ear-on-year rate of growth of credit to the private
sector fell during the last quarter of 1999 to about 11 per cent, or some 3 percentage points below the
official monetary program target, and remained at that depressed level as of end-February 2000.  Even
so, broad money growth accelerated from a twelve-month rate of less than 13 per cent in June 1999 to
over 17 per cent as of end-February 2000.
7. Exchange rate policy has continued to be based on discrete, periodic adjustments of the taka
vis-à-vis the U.S. dollar in light of movements in the real effect ive exchange rate and other
macroeconomic indicators.   The taka was accordingly devalued 5 times by a total of about 11 per cent
during 1998 and 1999.  However, notwithstanding the recovery of key trading partner and competitor
currencies from their troughs associated with the Asian crisis, these adjustments have been
insufficient to reverse the real effective appreciation of the taka that occurred during 1997 and the firsthalf of 1998.  Thus, the real effective exchange rate at end-1999 remained some 10 percentage points
above the end-1996 level.
8. During the last year, there were some improvements in the regulatory and legal framework for
the banking system, but the pace of reform in most other structural areas has remained disappointingly
slow.   Loan classification and provisioning regulations were tightened in January 1999 in order to
bring them more into line with international standards.  In July 1999, the interest rate ceilings for
credit to small and cottage industries and agriculture were removed, leaving export credits as the onlycategory still subject to interest rate ceilings.  However, there has been no sign of improved
management in the nationalized commercial banks (NCBs) and specialized credit institutions, over
which Bangladesh Bank’s effective supervisory authority and enforcement capability are limited.  The
capital base of the domestic banks has been significantly eroded as a result of bad loans extended in
the past.  As of end-June 1999, classified loans were close to 47 per cent of total loans outstanding forthe NCBs, 29 per cent for the private domestic banks, 68 per cent for the specialized credit
institutions, but only 4 per cent for foreign banks.  In the trade system, the pace of trade liberalization
remained slow.  The 1999/2000 budget included only modest steps toward tariff reduction, mainly on
intermediate inputs and raw materials, which have in fact resulted in increasing tariff dispersion.  In
addition, the budget introduced costly new subsidies for exports of some sectors.
9. While the average inflation rate so far in 1999/2000 has fallen below 5 per cent, from 9 per
cent in 1998/99, and the regional environment continues to improve, the macroeconomic outlook for
Bangladesh is vulnerable.  In the light of the strong competitive pressures on exports, the staff
projects that, on current policies, the deficit on the current account of the balance of payments will
remain in a range of 1-2 per cent of GDP in 1999/2000.  Manufacturing activity is projected to remainWT/BOP/R/50
Page 6
subdued, and GDP growth to remain at around 4½-5 per cent.  In the absence of more rapid progress
in addressing the country’s pervasive weaknesses in governance and infrastructural bottlenecks,
which continue to undermine the confidence of donors and investors, the capital account balance is
likely to be affected by slowing disbursement of pr oject aid and weak foreign investment.  The overall
balance of payments position is, therefore, likely to remain fragile.  A principal downside risk to thisoutlook is that sustained political pressures and mounting civil unrest could lead to a continuing
easing of fiscal and monetary policies in anticipation of the parliamentary elections in 2001, posing a
growing threat to stability and growth.
10. To improve the prospects for sustainable growth and poverty reduction, there is a pressing
need to adopt a comprehensive adjustment program aimed at encouraging outward-oriented and
private sector-led investment and growth.  This will need to include prudent fiscal and monetary
policies, a more flexible exchange rate policy gear ed to protecting external competitiveness, and a
reinvigorated program of structural reforms.  To protect fiscal sustainability and restore investor
confidence, bold measures will need to be taken to remove the entrenched weaknesses in governance
that hamper revenue mobilization and undermine the performance of the SOE and banking systems.
In addition, to promote economic efficiency and enhance the economy’s growth potential, a medium-
term plan will need to be adopted to rationalize and lower Bangladesh’s tariff structure, reduce tariffdispersion, remove quantitative restrictions on imports, phase out export subsidies, and consider
options for the export of natural gas.WT/BOP/R/50
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ANNEX 3
Concluding statement of the representative of Bangladesh
1. Let me once again begin by thanking you, Mr. Chairman, our friends from the Secretariat and
the distinguished delegations for being with us th is afternoon for this resumed session of the BOPR
full consultation with Bangladesh.
2. I intend to be very brief.  In yesterday's prolonged session, our delegation presented a
snapshot of our economic situation as of now, with pa rticular reference to our ongoing difficulties as a
least-developed country (LDC).  Our economic difficulties are well known and in appreciation ofthese, the membership of the WTO has always shown understanding and patience while reviewing our
situation in every area of our obligations across the pr ovisions of the Agreement.  Albeit, we think this
is a proper reflection of the spirit of the special and differential treatment (S&DT) measures and
special dispensations which the LDCs lawfully expect from the multilateral trading system (MTS)
under the terms of the WTO Agreement.
3. If our understanding of the discussion yesterday is correct, the only issue which some
members would like us to further spell out is a phase-out plan for the remaining trade impeding
restrictions in our relevant policy regime. The very few QRs were particularly flagged by some
members in this context.  We explained our position yesterday which we thought received
appreciation from a wide spectrum of membership present.  We would like to reiterate our positionagain that our commitment towards fulfilment of all our obligations in the MTS remain steadfast.
However, on the insistence of some distinguished delegations that we give a definite phase-out plan,
we would like to submit the following for the Committee's consideration:
(i) Our Government would notify its intenti on to phase out the remaining QRs according
to a time schedule to be mutually agreed in the forthcoming resumed session between
us and the membership.  This notification, we hope to submit to the Committee by the
end of the current calendar year. On the understanding that the notification will have
been circulated and studied by members, we further submit that the present
negotiations resume sometime during the latter part of the first quarter of the year
2001.  In this resumed meeting we hope finally to adopt the definite phase-out time
plan, which the Government of Bangladesh, as we have already said, would by then
have submitted.
(ii) In the spirit of the discussion of yesterday, and what we have said just now, we would
like further to request the Committee to ask the Secretariat to provide our
Government with necessary technical assistance (TA) in the preparation of the phase-out plan to be submitted by December this year.
4. Let me conclude by thanking the Committee for its patience and understanding and
for agreeing to consider favourably our proposal.
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