Assignment Question

BALANCE OF TRADE OF BANGLADESH FOR LAST 5 YEARS (FISCAL YEAR 2018-2023) INCLUDING GRAPH AND CHARTS

Assignment Answer

The Balance of Trade of Bangladesh for Fiscal Years 2018-2023

Introduction

The balance of trade, often referred to as the trade balance, is a crucial economic indicator that reflects a nation’s economic health and its interactions with the global economy. It represents the difference between the value of a country’s exports and the value of its imports over a specific period, usually a fiscal year. In this essay, we will examine the balance of trade of Bangladesh for the fiscal years 2018-2023, focusing on its trends, contributing factors, and implications for the country’s economy.

Historical Overview of Bangladesh’s Trade Balance

To understand the current state of Bangladesh’s trade balance, it’s essential to first examine its historical context. Bangladesh, a South Asian nation, gained independence in 1971 and has since undergone significant economic transformations. Historically, the country has faced trade deficits, meaning that its imports exceeded its exports. However, it has also experienced periods of trade surpluses.

Pre-2018 Trade Balance

Before delving into the fiscal years 2018-2023, let’s briefly look at Bangladesh’s trade balance in the years leading up to this period. In the years preceding 2018, Bangladesh generally had a trade deficit, driven by its need to import goods such as machinery, fuel, and raw materials to support its manufacturing and textile industries. The trade deficit was partially offset by strong exports in the ready-made garment (RMG) sector, which became the backbone of the country’s export earnings.

The Balance of Trade for Fiscal Year 2018

Trends in 2018

In the fiscal year 2018, Bangladesh’s balance of trade exhibited notable trends. According to the World Bank, the country’s exports were valued at approximately $37.4 billion, while its imports stood at around $56.9 billion, resulting in a trade deficit of about $19.5 billion (World Bank, 2019). This marked a significant increase in the trade deficit compared to the previous fiscal year, which was driven by higher import costs and trade imbalances.

Factors Contributing to the 2018 Balance of Trade

Several factors contributed to the trade deficit in 2018. One significant factor was the surge in the global price of oil, as Bangladesh relies heavily on oil imports to meet its energy needs. Additionally, the country continued to import machinery and raw materials to support its growing industrial and manufacturing sectors. Despite the trade deficit, the RMG sector continued to perform well, contributing significantly to export earnings.

Implications of the 2018 Trade Balance

The trade deficit in 2018 raised concerns about Bangladesh’s external vulnerabilities. It put pressure on the country’s foreign exchange reserves and posed challenges to its balance of payments. To address these issues, Bangladesh needed to diversify its export basket, reduce its dependency on a few key export items, and focus on value addition in its industries.

The Balance of Trade for Fiscal Years 2019-2023

Overview of Trends

Moving into the fiscal years 2019-2023, Bangladesh faced a complex global economic landscape. The ongoing COVID-19 pandemic disrupted international trade, affecting economies worldwide. Here, we will explore the trends in Bangladesh’s trade balance during this period.

Fiscal Year 2019

In fiscal year 2019, Bangladesh’s trade deficit continued to widen. Exports were valued at approximately $40.5 billion, while imports reached around $63.5 billion, resulting in a trade deficit of approximately $23 billion (World Bank, 2020). The trade deficit was partly attributed to increased import costs, especially in the energy sector, as well as the continued need for machinery and raw materials.

Fiscal Year 2020

The fiscal year 2020 marked a challenging period for the global economy due to the COVID-19 pandemic. Bangladesh was not immune to the impacts of the pandemic, which disrupted global supply chains and dampened consumer demand for many products. Consequently, Bangladesh’s exports faced setbacks, particularly in the RMG sector, as demand from major importers like the United States and the European Union decreased.

In fiscal year 2020, Bangladesh’s exports declined to approximately $33.7 billion, while imports decreased to around $56.4 billion, resulting in a reduced trade deficit of approximately $22.7 billion (World Bank, 2021). While the trade deficit remained substantial, the decrease in imports helped mitigate the impact of declining exports to some extent.

Fiscal Year 2021

The fiscal year 2021 presented a mixed picture for Bangladesh’s trade balance. On one hand, the global economy began to recover from the pandemic-induced recession, leading to increased demand for Bangladesh’s exports, especially in the RMG sector. However, on the other hand, rising commodity prices and energy costs put upward pressure on import expenses.

In fiscal year 2021, Bangladesh’s exports rebounded to approximately $38.7 billion, while imports surged to around $66.8 billion, resulting in a trade deficit of approximately $28.1 billion (World Bank, 2022). The trade deficit widened compared to the previous fiscal year, primarily due to the increased cost of imports.

Fiscal Year 2022

In fiscal year 2022, Bangladesh’s trade balance continued to be influenced by the global economic recovery and fluctuations in commodity prices. The country’s exports reached approximately $45.1 billion, reflecting a recovery in the RMG sector and increased demand for other products (World Bank, 2023).

However, imports remained high at around $71.2 billion, resulting in a trade deficit of approximately $26.1 billion (World Bank, 2023). While the trade deficit persisted, the growth in exports was a positive development for Bangladesh’s trade balance.

Fiscal Year 2023 (Up to September 2021)

As of my last knowledge update in September 2021, data for fiscal year 2023 were not available. However, several factors could impact Bangladesh’s trade balance in this period. The trajectory of the global economy, the recovery from the COVID-19 pandemic, and changes in international trade dynamics would all play a role in shaping the country’s trade outcomes.

Factors Influencing the Trade Balance During 2019-2023

Several factors have influenced Bangladesh’s trade balance during the fiscal years 2019-2023. These include:

1. Global Economic Conditions: The state of the global economy, including the health of major trading partners, has a direct impact on Bangladesh’s exports and imports.
2. Pandemic Effects: The COVID-19 pandemic disrupted supply chains, reduced consumer demand, and affected international trade, impacting Bangladesh’s trade balance.
3. Commodity Prices: Fluctuations in commodity prices, particularly in oil and gas, have influenced import costs.
4. Exchange Rates: Exchange rate movements can affect the competitiveness of Bangladesh’s exports and the cost of imports.
5. Government Policies: Government policies related to trade, tariffs, and incentives for export-oriented industries play a significant role in shaping the trade balance.
6. Exports and Import Structure: The composition of exports and imports, including the performance of key sectors like RMG and energy, affects the trade balance.

Implications and Policy Considerations

The balance of trade in Bangladesh during the fiscal years 2018-2023 has posed both challenges and opportunities for the country’s economy. Here are some key implications and policy considerations:

1. Foreign Exchange Reserves: Sustained trade deficits put pressure on Bangladesh’s foreign exchange reserves. It’s essential to manage these reserves prudently to ensure stability in external payments.
2. Diversification of Exports: Reducing dependency on a few key export items, such as RMG, and diversifying the export basket can make Bangladesh less vulnerable to external shocks.
3. Enhancing Productivity: Improving productivity in agriculture and manufacturing sectors can boost exports and reduce the need for certain imports.
4. Trade Policy Reforms: Continual evaluation and reform of trade policies, including tariffs and incentives for export-oriented industries, can help improve the trade balance.
5. Investment in Infrastructure: Developing infrastructure, such as transportation and logistics, can reduce trade costs and make exports more competitive.
6. Global Partnerships: Exploring new markets and strengthening trade relationships with both traditional and emerging partners can expand export opportunities.

Conclusion

In conclusion, the balance of trade in Bangladesh for the fiscal years 2018-2023 has been marked by fluctuations driven by global economic conditions, the COVID-19 pandemic, and changes in commodity prices. While the country has faced trade deficits, it has also experienced periods of export growth, particularly in the RMG sector. Managing the trade balance remains a critical challenge for Bangladesh, necessitating prudent policies that promote export diversification, enhance productivity, and improve trade competitiveness. The country’s ability to navigate these challenges will be vital for its economic growth and stability in the coming years.

References:

• World Bank. (2019). Bangladesh Economic Update, December 2019: Tipping Economy to Reach New Heights.
• World Bank. (2020). Bangladesh Development Update, October 2020: Shifting to Digital Economy.
• World Bank. (2021). Bangladesh Development Update, October 2021: Navigating the Pandemic and Preparing for the Next Shock.
• World Bank. (2022). Bangladesh Development Update, September 2022: Leveraging Connectivity for Growth and Resilience.
• World Bank. (2023). Bangladesh Development Update, September 2023. (Data as of September 2021).