ASSIGNMENT-1

Course: International Finance (FIN444)

Section: 02

Submitted To
Mr. Mirza M. Ferdous
Senior Lecturer
North South University

Submitted By:

Name ID
Sajidur Rahman Khan 2012312030
Taraf Mahabub Ayan 2013240630
Tahmid Shihab Murshed 2013797630
Atik Mahmud 2014084030
Shaffid Razzak Samin 2021114630
Balance of Payment
The Balance of Payment summarizes all the economic transactions of an economy with the rest of
the world. It has three main components, Current account, capital account & financial account.
The current account summarizes a country’s net income and expenses. Whereas, capital and
financial account represents net ownership of assets, both financial & non-financial.

Bangladesh's balance of payments has been showing mixed trends in the past 10 years. The
decrease in the overall balance in 2021 was driven by a larger deficit in the current account,
indicating Bangladesh is importing more goods and services than it is exporting and receiving
more income flows from abroad. However, Bangladesh has seen inflows of foreign aid, remittance
& FDI which implies a surplus in capital and financial account. This surplus has partially offset
the deficit in the current account.

Balance of Trade
It is a measure of a country's
exports and imports of goods
during a specific period. As a
developing country, Bangladesh
has historically experienced a
trade deficit. However, this
should not be a major concern for
potential foreign investors, as
Bangladesh is actively working to
grow and diversify its economy.
Moreover, despite the trade
deficit, Bangladesh has several
sectors that make it an attractive investment destination. Therefore, foreign investors should
carefully analyze the reasons behind the trade deficit and explore potential investment
opportunities.

From the import-export data we can see, over the past decade, Bangladesh has seen a steady
increase in its exports, despite the negative trade deficit. However, due to the COVID-19 pandemic
in 2020, the readymade garments sector, a major contributor to the country's export earnings, was
significantly affected. Thus 2020’s export took a downturn. On the other hand, the import rate has
been gradually increasing over the years with a few exceptions in 2016 & 2020. This increase in
imports indicates a growing demand for imported goods due to Bangladesh's rapid economic
growth and its investments in infrastructure and industrial development.

GDP Growth
With an average annual growth rate of 7.2% over the previous five years, the GDP of the nation
has been increasing steadily. A booming apparel industry, a developing manufacturing sector, and
an increase in remittances from foreign workers are all factors that have contributed to this growth.
In addition, the government has also put measures into place to promote infrastructure expansion
and foreign investment, both of which have aided in boosting economic growth.
The contribution of various industries to GDP plays a significant role in assessing the state of an
economy as a whole. With more than half of the total output, the service sector in this scenario is
the biggest contributor to GDP. This is noteworthy because it suggests that sectors of the economy
like finance, healthcare, and hospitality are extremely important. With a combined share of 34%,
the manufacturing and construction sectors are also important contributors to the GDP.

These industries are significant because of their capacity to increase employment, exports, and
foreign investment. Creating products that can be marketed both domestically and internationally
is the responsibility of manufacturing, whereas construction entails building infrastructure and real
estate that can provide. In recent years, the IT industry has emerged as a possible economic game-
changer, drawing a lot of young people and independent contractors to its opportunities. As a
result, there has been an increase in foreign investment, which has increased the sector's
contribution to GDP even more.

The ability to buffer against economic shocks is one advantage of having a varied variety of
sectors. The other industries can help lessen the impact of a downturn or interruption in one if it
affects them. In general, a healthy GDP is a sign of a strong economy that can support growth,
create jobs, and generate money. Policymakers consider the contribution of various sectors to GDP
as a key statistic to gauge the economy’s health.

GDP Growth of Last 10 Years (2012-2021)

Bangladesh's economy has proliferated in the manufacturing sector, particularly apparel. Over
80% of the nation's exports come from this sector, which has recently been a critical contributor
to economic growth. The pharmaceutical industry, information technology, and agriculture are
some other industries that have experienced tremendous expansion. However, the nation continues
to face issues like income inequality, infrastructure improvement, and political instability, which
could harm prospects for future growth.
Inflation

In the last ten years, the inflation levels of Bangladesh have remained comparatively stable.
However, it fluctuated a little here and there but stayed in the same range. Moreover, inflation has
decreased over the years due to technical development and the implementation of tighter monetary
policies.

Per Capita Income

The per capita income of Bangladesh has rapidly increased from $877 to $2458 in the last ten
years. Even during the global COVID pandemic, the per capita income has increased
progressively.
Interest Rate

As we know, if interest rates are high, it’s expensive to borrow money. When they’re low, it’s
much cheaper. In the last ten years, the interest rate of Bangladesh has significantly decreased.
That means people can borrow and invest more money than they ever could in the last ten years.
This has increased the money supply in the market resulting in the per capita income of Bangladesh
increasing drastically.

However, economics suggests that when the money supply increases, the purchasing power also
increases, and due to limited goods, the price of goods and services increases, causing inflation.
However, we see that even though Bangladesh’s interest rate is being lowered, the inflation is
stable or is getting low. Corruption and lack of governance must be the reason for this abnormal
situation.

Industry to Invest in as a Foreign Investor

Taking the facets of the Bangladeshi Economy into consideration, we can come to the conclusion
that investing in Bangladesh is a green light as many sectors are full of opportunities. But
furthermore, they also remain devoid of development, hindering their potential growth. One of
these sectors that feature much potential is the energy sector.

Bangladesh has one of the most progressive economies in the world. Its successful pivot from a
war-ridden country to one of the most powerful countries in South Asia has turned it into an
attractive destination for global investors. Moreover, the country’s rising population makes it the
perfect investment port of call (Tachev, 2022). Due to rapid industrialization and increasing
dependency on technological advancements energy sector has become one of the most critical
factors behind the country’s economic growth.

Aside from traditional energy sources, Bangladesh is moving towards new renewable energy
sources like solar energy, hydropower, and wind energy. Furthermore, rapid climate change is also
responsible for many progressive countries to push forward to renewable energy. With the looming
global energy crisis, the need to shift towards sustainable energy to reduce the current impact of
excessive fossil fuel use (The National Bureau of Asian Research, 2022). Many countries are
enforcing regulations to stop the extraction and usage of natural resources, which include fossil
fuels required for energy generation. Asian countries have been proactive in providing power to
their people rapidly in the last 20 years. In a recent estimation, it was seen that 25% of global
greenhouse emissions are due to the energy sector, and the growth rate is ever-increasing (The
National Bureau of Asian Research, 2022).

In Bangladesh, the renewable energy policy was enforced in 2008 when the Ministry of Power,
Energy, and Mineral Resources went forward with its policy guideline (Tachev, 2022). Fast
forward to 15 years later Bangladesh has made very good progress at a steady rate. Currently, Solar
Energy is the most dependable Renewable Energy resource considering the low potential of Wind
as RE (Chisti, 2022a). Grid-tied utility-scale solar parks and rooftop projects are getting vast
amounts of foreign and local investments. The future of RE will be strong if the Government
becomes determined in pushing forward incentives and other benefits. Bangladesh’s National
Solar Energy Plan envisioned plans to move towards a renewable energy policy by aiming for 40
gigawatts (GW) to be installed by 2041 (Islam, 2020).

The Government of Bangladesh declared plans to install solar panels on rooftops of educational
institutions to feed the excess solar power to the grid. Electric vehicles are also becoming more
common as people are looking for fossil fuel alternatives. Although the development of alternative
energy sources is slow, recent reports show that Bangladesh is there alongside countries like China,
Japan, and India leading the movement towards renewable energy (REN21, 2019). So, the energy
sector of Bangladesh is prospective which is lucrative for investors as they can invest in the
upcoming solar projects to fully utilize the future benefits.
Reference

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CEICdata.com. (2023). Bangladesh Balance of Payments: Current Account. www.ceicdata.com.

https://www.ceicdata.com/en/bangladesh/balance-of-payments-current-account

Chisti, I. H. a. I. A. (2022a, February 19). The future of renewable energy in Bangladesh. The

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