Some measures of correcting Bangladesh balance of payment deficits.

 Balance of Trade and Bangladesh Economy:

The economy of Bangladesh is constituted by that of a developing country. Its per capita income in 2008 was est. US$ 1500 (adjusted by per chasing power parity). According to the International Monetary Fund (IMF) Bangladesh ranked as the 48th largest economy in the world in 2009, with a GDP of US$ 256 billion. The economy has growth at the rate of 6-7% p.a. over the past few years. More than half of the GDP belongs to the service sector, nearly half of Bangladesh are employed in the agriculture sector.

Remittances from Bangladeshis working overseas, mainly in the Middle East are the major source of foreign exchange earnings; exports of garments and textiles are the main sources of foreign exchange earnings. GDP’s rapid growth due to sound financial control and regulations has also contributed to its growth. However, foreign direct investment is yet to rise significantly. Bangladesh has made major strides in its human development index.

 The Most successful countries are those where import restrictions have been relaxed more slowly than barriers to exporting. The International Monetary Fund, World Bank and the world trade organization should pay much more attention than they do at present to the balance of payments consequences of trade liberalization when they design their liberalization program. Bangladesh should relax restrictions on imports more slowly than barriers to export. This is because it takes longer for exporters to respond to trade liberalization than it does for imports to flood in, potentially causing seriously disruptive balance of payments difficulties.

In Bangladesh researches find that on average, export growth has increased less than import growth leading to an increase in the trade deficit – enough to trigger financial crisis. The adjustment necessary to rectify the trade deficit has decreased GDP growth below what it otherwise would have been if a balance between export and import have been maintained. These results have important policy implications for the sequencing of trade liberalization to keep a balance between export and import so as to avoid balance of payment crisis. This sequencing is as important as the sequencing of internal and external financial liberalization.

Future expectations:

- Foreign direct investment (FDI) may increase if there is political stability and continuation at policies.

- If the IMF, World Bank and Asian Development Bank release their loans for Bangladesh as promised, than our balance of payment may show some improvement.

- Friends of Bangladesh have promised significant monetary support. It is realizes than it will have a positive effect.

- Imports are expected to decrease. If it happens it will have a positive effect on balance of payment is relying on foreign element and support. If it realizes than balance of payment deficit would decrease, otherwise its future look bleak.

Suggestions:

- Bangladesh must increase its production so that surplus can be exported.

- Bangladesh doesn’t need to enter IMF and World Bank programs.

- New water Reservoirs need to made.

- Pro Active Export policy and better marketing of surplus goods.

- Electricity and Gas crisis needs to be solved urgently so that open mills and factories give more production and closed units open again.

- Bangladesh needs a leadership with competence, very strong nerves, clean understanding of the issues and psyche of the other side of the table, ability to negotiate with the super powers and come out with a most suitable package.

MEASURES TO CORRECT DISEQUILIBRIUM IN THE BOP

1. Monetary Measures:

a) Monetary Policy The monetary policy is concerned with money supply and credit in the economy. The Central Bank may expand or contract the money supply in the economy through appropriate measures which will affect the prices.

b) Fiscal Policy Fiscal policy is government's policy on income and expenditure. Government incurs development and non-development expenditure, It gets income through taxation and non-tax sources. Depending upon the situation government’s expenditure may be increased or decreased.

c) Exchange Rate Depreciation By reducing the value of the domestic currency, government can correct the disequilibrium in the BOP in the economy. Exchange rate depreciation reduces the value of home currency in relation to foreign currency. As a result, import becomes costlier and export become cheaper. It also leads to inflationary trends in the country

d) Devaluation: devaluation is lowering the exchange value of the official currency. When a country devalues its currency, exports becomes cheaper and imports become expensive which causes a reduction in the BOP deficit.

e) Deflation: Deflation is the reduction in the quantity of money to reduce prices and incomes. In the domestic market, when the currency is deflated, there is a decrease in the income of the people. This puts curb on consumption and government can increase exports and earn more foreign exchange.

f) Exchange Control All exporters are directed by the monetary authority to surrender their foreign exchange earnings, and the total available foreign exchange is rationed among the licensed importers. The license holder can import any good but amount if fixed by monetary authority.

2. Non-Monetary measures:

a) Export Promotion to control export promotions the country may adopt measures to stimulate exports like: export duties may be reduced to boost exports; cash assistance, subsidies can be given to exporters to increase exports; goods meant for exports can be exempted from all types of taxes.

b) Import Substitutes Steps may be taken to encourage the production of import substitutes. This will save foreign exchange in the short run by replacing the use of imports by these import substitutes.

c) Import Control Import may be kept in check through the adoption of a wide variety of measures like quotas and tariffs. Under the quota system, the government fixes the maximum quantity of goods and services that can be imported during a particular time period.

1. Quotas Under the quota system, the government may fix and permit the maximum quantity or value of a commodity to be imported during a given period. By restricting imports through the quota system, the deficit is reduced and the balance of payments position is improved.

2. Tariffs: Tariffs are duties (taxes) imposed on imports. When tariffs are imposed, the prices of imports would increase to the extent of tariff. The increased prices will reduced the demand for imported goods and at the same time induce domestic producers to produce more of import substitutes.