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Balance of Payments
The balance of paymentsis a
measurement of all transactions between
domestic and foreign residents over a
specified period of time.
Each transaction is recorded as both a
credit and a debit, i.e. double-entry
bookkeeping. The transactions are presented in three
groups a current account, a capital
account, and a financial account.
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The current accountsummarizes the flow of fundsbetween one specified country and all other countries
due to the purchases of goods or services, the provision
of income on financial assets, or unilateral current
transfers (e.g. government grants and pensions, private
remittances).
A current account deficitsuggests a greater outflow of
funds from the specified country for its current
transactions.
The current account is commonly used to assess the
balance of trade, which is simply the difference between
merchandise exports and merchandise imports.
Balance of Payments
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The new capital account(as defined in the
1993 System of National Accountsand the
fifth edition of IMFs Balance of Payments
Manual) is adopted by the Bangladesh in1998 (U.S. in 1999).
It includes unilateral current transfers that are
real shifts in assets, not current income. e.g.,
debt forgiveness, transfers by immigrants, the
sale or purchase of rights to natural
resources or patents.
Balance of Payments (Contd.)
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The financial account(which was called
the capital account previously)
summarizes the flow of funds resultingfrom the sale of assets between one
specified country and all other countries.
Assets include official reserves, other
government assets, direct foreign
investments, investments in securities,
etc.
Balance of Payments (Contd.)
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BOP BangladeshCurrent Account 2005-06 2006-07
Export 10,412 12,053
Import -13,301 -15,511
Trade Deficit -2889 -3458
Services -1023 -1261
Income -702 -883
Current transfers 5,438 6,554
Current Account Balance 824 952
Capital Account 375 490
Financial Account -141 721
Errors and Omissions -720 -670
OVERALL BALANCE 338 1493
Bangladesh Bank -338 -1493
Million US $
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Detailed Financial AccountMillion US $
2005-06 2006-07
Foreign direct investment (net) *743 760
Portfolio investment 32 106
Other investment -916 -145
MLT loans (excluding suppliers credit) 1023 1037
MLT amortization payments -488 -525
Other long term loans (net) -37 -29
Other short term loans (net) -256 493
Of which : Borrowing 487 1289
Repayment -743 -797
Other capital -495 -524
Trade Credit (net) -898 -470
Commercial Bank 235 -127
Net Financial Account -141 721
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Import Composition (Percentage)2006-07
Food grains (Rice 1%, Wheat 2.34%) 3.38Edible oil 4.02Other food items (Like milk, spices, sugar, pulse, etc) 3.94Petroleum 13.02Cement clinker 1.40Raw materials (Chemical, pharmaceutical, Fertilizer, Plastic, iron & Steel) 15.68Dyeing & Tanning 0.94Cotton, yarn, textile article, staple fibre 20.00Capital machinery 11.26Other (Inc. EPZ) 26.36Total 100.
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Export composition 2006-07
Export
Percentage EditedRaw Jute 1.25 3.18Jute goods 3.3 8.48Tea 0.05 0.14Leather 2.9 7.46Fish & shrimp 4.69 12.06RMG 65.74 33.82Naphtha
0.41
1.06
Fertilizer 0.34 0.88Others (Incl EPZ) 21.33 32.92Total 100.00 100
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Credit Lines of World Bank-IMF
Special Drawing Rights
Compensatory Financing
Extended Fund Facility
Structural Adjustment Facility (SAF)
Special Structural Adjustment Facility (SSAF)
Poverty Reduction and Growth Facility
(PRGF)
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Features of IMF Stabilization Package
Abolition of Import control
Import liberalization
Devaluation of the official exchange rate
Familiarization of market mechanism and withdrawl of subsidies
Reduction of government expenditure Promotion of government revenue
Reduction of budget deficit
Control of wage increase
Stringent anti-inflationary program
Greater hospitality to foreign investment
Most of these features are known as globalization. Bangladeshhas become more globalize a country than the comparablecountries like India and Pakistan in consequence of IMF credit.
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Effectiveness of devaluation
Value of $ in taka
Q1 Q2 Q3 Q4
Quantity
E2
E1
S
D
Import decrease
Export increases
Deficit decreases
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Ineffectiveness of Devaluation:Bangladesh case
$1=Tk
O Q1 Q2 Q4 Q3
D1
S
Tk.55
Tk.50
Source Before After Effect
Export OQ1 OQ2 increased slightly
Import OQ4 OQ3 Increased a lot
Deficit Q1Q4 Q2Q3 Increased
D2
Composition of export suggests thatmost of the items have less elasticityof supply. Similarly, composition ofimport shows inelasticity of demand.The demand curve shifts right aswell.