The main contributors to this chapter were Mr. Raj Nallari (ext. 35881) and Ms. Yan Sun (ext. 35371).
Article 22 of the Bangladesh Bank Order of 1972 empowers BB to deal with authorized dealers at the buying and selling rates, but the responsibility for setting the exchange rates is with the Ministry of Finance.
A parallel market also exists; there has been a small premium since August 2000, which declined subsequently after recent devaluations.
Including: (i) requirement for advance payments for imports of certain goods and services; (ii) restrictions on convertibility and transferability of current proceeds from nonresident taka accounts; (iii) limits on travel, education, and medical expenses abroad; and (v) prohibition on payments for other invisibles.
In Bangladesh, the letters of credit are normal short-term facilities for import payments. As Bangladesh accepted the obligations under Article VIII, Sections 2, 3 and 4 in March 1994 to maintain full convertibility of the current account, this margin requirement constitutes a restriction under Article VII, Section 2(a) because it increases the price of making import payment (current transactions).
On February 1, 2002, in response to an increase in rice and wheat prices following a decline in grain production, the authorities reduced the margin requirements on letters of credit for imports of rice and wheat from 100 percent to 25 percent.
According to the Fund’s index of trade restrictiveness, Bangladesh is rated at 8 on a scale of 1 to 10, with 10 being the most restrictive. In a regional context, Bangladesh has the same trade restrictiveness as that of India, but it remains more restrictive than in Malaysia, Nepal, Pakistan, South Korea, Sri Lanka, and Thailand.
For discussions on advantages and disadvantages of various competitiveness indicators, see Maciejewski, Edouard B., “Real” Effective Exchange Rate Indices, IMF Staff Papers, Vol. 30,491–541 (September 1983); Marsh, Ian W., and Stephen P. Tokarick, Competitiveness Indicators: A Theoretical and Empirical Assessment, International Monetary Fund, Working Paper 29 (March 1994); and Zanello, Alessandro, and Dominique Desruelle, A Primer on the IMF’s Information Notice System, International Monetary Fund, Working Paper 71 (May 1997).
The ULC-based measures take into consideration the wage rates in the economy and in the manufacturing sector in particular, using both the simple average wage and weighted average wages in Bangladesh based on the share of each industry in total output.
The standard INS weights are based on: manufacturing trade (MT); primary commodity trade (PCT); bilateral manufacturing imports (BMI); bilateral manufacturing exports (BME); and third market competition (TMC).
The decrease (increase) of REER implies a depreciation (appreciation).
A11 Bangladesh’s competitors have adopted more flexible exchange rate regimes and have adjusted more quickly than Bangladesh to rapidly changing external developments.
Published by the Heritage Foundation, U.S.A.
The index, which takes into account the state of financial intermediation and infrastructure and governance problems, was calculated for 155 countries and Bangladesh ranked 132nd among these countries.
According to the Gini-Hirschman indices of export commodity diversification and export geographic diversification, the degree of export concentration in Bangladesh became the highest in the last decade among its major competitors (China, India, Indonesia, Pakistan, Sri Lanka, and Thailand).