Performance Analysis of Macroeconomic Indicators Last three decades of Bangladesh (1981 - 2010)

Group 02

Date of Submission: 25thMay 2011

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Performance Analysis of Macroeconomic Indicators: Last three decades of Bangladesh

SUBMITTED TO

Ms. Nusrat Khan Lecturer

Department of Finance Faculty of Business Studies

University of Dhaka

SUBMITTED BY

Group No: 02

BBA 16th Batch

Section-A Department of Finance

University of Dhaka

Date of Submission: 25th May 2011

Name Roll Muhammad KamrulHasan 16-003 ReefatZamanShourov 16-005 Md. Sazidul Islam 16-037 Md. Khalid RahmanGazi 16-045 Md. Shamsuddin 16-055 Md. ModabberHossainBhuiyan 16-095 Ashif Mahmud Galib 16-105 Mohammad AsrarulHaque 16-111 Md. AbdurRahman 16-131 MinaraKhanam 16-173

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Letter of Transmittal

25th May 2011 Ms. Nusrat Khan Lecturer Department of Finance Faculty of Business Studies University of Dhaka Subject: Letter regarding submission of Report Dear Madam Here is the report on “Performance analysis of macroeconomic indicators for last three decades” as you assign us to do. It is a great pleasure for us to submit this report. We have concentrated our best efforts to achieve the objectives of the Report and hope that our endeavor will serve the purpose. We sincerely believe that the knowledge we have gathered during the preparation of the Report will immensely help us to clear up our concept about the major macroeconomic indicators of Bangladesh. We thank you for providing us with this opportunity and hope that you will approve our submission cordially. Faithfully yours Muhammad Kamrul Hasan Roll: 16-003 On behalf of Group-02 Section-A Department of Finance Faculty of Business Studies University of Dhaka

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Executive Summary

Macroeconomic indicators are the variables that help to understand the economy by providing information about different sectors. GDP, Inflation, Unemployment, Export, Import, Interest rate, Exchange rate, Remittance and Capital market are some of these indicators and are the main focus point of this report. These variables are not only presented here but also their performances are also analyzed.

GDP of Bangladesh has increased over time as like its natural trend. In 2009-10 FY, its GDP reaches 7282.61 billion TK. at a growth rate of 11.84%. Inflation fluctuates highly in different times and stands at 8.5 at 2010. On the other hand, unemployment has increased twice than last year and stands at 5.1.

Bangladesh always faces a trade deficit. It has a better export transaction but its import is too high that it has to suffer this negative surplus each year. In 2010 this trade deficit amounts 620930 million TK and at a rate of change of 8.22%.

It has a very good remittance earning each year and its amount is increasing at a good rate continuously. Last year total remittance earning was 7508 million TK. It is very much socking that the value of money is decreasing over time against dollar that’s why now exchange rate is about 71 TK per dollar.

For higher inflation each year interest rate is increasing and it becomes more than 16% in 2010. BB regulates the money supply through its monetary policies regularly. In 2010, M1 was amounted as 879983 million TK and M2 was 3630311 million TK.

Though not very strong, Capital market of Bangladesh is becoming very important and effective stock market.

As a developing country Bangladesh still has many economical lacings in different sector. Proper policy and decision should be taken by effective and strong authority towards this situation and thus the country will become a developed country soon.

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Table of Contents

No. Contents Page no. 1. Introduction 7

Introduction Objectives of the report Methodology Limitation

8 8 8 9

2. Literature Review 10 3. Macroeconomic Indicators 16

Gross Domestic Product 17 Export and Import 20 Remittance 25 Exchange Rate 28 Money supply 31 Interest rate 34 Inflation and Unemployment 37 Capital Market 40

4. Analysis and Conclusion 48 Regression Analysis 49

Remittance and GDP regression

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Export and Exchange rate regression

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Net export and GDP regression

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DSE general index regression

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Findings and Conclusion 52

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List of Tables

Table-1: GDP of Bangladesh in billion TK

Table-2: Total Export, Import and Trade deficit of Bangladesh in ten million TK

Table-3: Growth rate of Export, Import and Trade deficit of Bangladesh

Table-4: Remittance Income of Bangladesh in million TK

Table-5: Exchange rate for last three decades in Bangladesh

Table-6: M1 and M2 over last three decades in ten million TK

Table-7: Lending Interest rate of Bangladesh from 1981 to 2010

Table-8: Inflation and unemployment from 1981 to 2010

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List of Figures

Figure-1: GDP of Bangladesh for Last Three Decades

Figure-2: Growth rate of GDP

Figure-3: Total Export, Import and Trader Deficit of Bangladesh

Figure-4: Export-Import Ratio of Bangladesh

Figure-5: Growth rate of Export, Import and Rate of change in Trade deficit

Figure-6: Remittance Income of Bangladesh

Figure-7: Exchange rate of Bangladesh

Figure-8: percentage change in exchange rate

Figure-9: Narrow money supply (M1) in last three decades

Figure-10: Quasi money supply (M2) in last three decades

Figure-10: Interest rate condition of Bangladesh

Figure-11: Inflation and unemployment of Bangladesh for last three decades

Figure-12: Philips Curve

Figure-13: Listed securities of Dhaka Stock Exchange

Figure-14: Issued Capital

Figure-15: Issued Capital and Enlisted Issues

Figure-16: Market Capitalization

Figure-17: Market Capitalization

Figure-18: Recent Crash in Capital Market

Figure-19: Relationship between Market capitalization and DSE General Index

Figure-20: Change in GDP relative to Remittance

Figure-21: Change in Export relative to Exchange rate

Figure-22: Change in GDP relative to Net Export

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Chapter 1

Introduction

Introduction

Objectives

Methodology

Limitation

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Introduction

Macroeconomics deals with the major units and problem of the day. It uses many important tools

in defining the overall condition of economy. It focuses of economic behavior and policies that

effect consumption, investment, determination of unemployment and inflation, monetary and

fiscal policy, money stock, budget and interest rate and so on. In the world macro economy is

concerned with the aggregate behavior of economy. In our report we found the various economic

trend and presented brief analysis regarding their changes. We tried our best to analyze these in a

sequential manner that represents the best use of our collected information. We hope that the

report will be informative for the reader and also serve the purpose of the concerned parties.

Objectives of the report

Macroeconomics is used to forecast the overall economic of a country and through our study we

have tried our best to show the performance of the macroeconomic indicators. Different

objectives work behind the preparation of the report. These are:

1. Observing the performance of the major macroeconomic indicators over last three

decades in Bangladesh.

2. Analyzing the performance of these indicators and finding out the reasons behind the

fluctuation in the value of these macroeconomic variables.

3. Relating different indicators with the GDP and understanding their effects on GDP.

4. Getting idea about the practical trend of these macro indicators.

5. Getting clear knowledge about macroeconomics from the practical field.

Methodology

To prepare the report we use totally secondary data from different sources. The data sources are:

1. Bangladesh Bank

2. Ministry of Finance

3. Central Library of the University of Dhaka

4. Seminar Library of Faculty of business studies

5. Bureau of Statistics of Bangladesh

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Besides these sources we have taken help of some websites for the images and information for

the report. Further we have different text books for understanding the concept of different

macroeconomic indicators.

Limitation

Economic analysis is a relative matter which means it varies among the opinion of the

economists. So the best policy for the overall economy will be the one which serves the purpose

of the short run and long run objective of the government. In our report we have analyzed the

outcome based on empirical evidence. We did not use the concept of political economy. The

decision and the analysis varied based on point of view. However we tried our best to present

those in a neutral manner. We hope that our report will serve our purpose based irrespective of

some limitation.

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Chapter 2

Literature Review

Definitions of -

GDP

Inflation

Unemployment Rate

Interest rate

Exchange rate

Foreign exchange reserves

Money Supply

Capital market

Export and import

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GDP (Gross Domestic Product)

GDP is a measure of the overall economic output within a country’s borders over a particular time, typically a year. It is calculated by adding together the total value of annual output of all that country’s goods and services.GDP can also be measured by income by considering the factors producing the output. These factors include -

1. The capital 2. Labor 3. Expenditure by government, individuals, and business on that output.

We can write-

GDP = C + G + I + NX

Where, C = All private consumption G= All government spending I = Investment by businesses NX = Country’s net exports (total exports – total imports)

Classification of GDP GDP can be classified into two categories.

Real GDP is the gross domestic product adjusted for inflation Nominal GDP is the gross domestic product without taking into account inflation.

GDP growth rate The change in GDP from one period to the next period can be given as a percentage. This is called the GDP growth rate. The real GDP growth rate is a much more useful measure of economic growth than the nominal rate as it is adjusted with inflation. How we can find out the amount of GDP Measuring GDP is complicated. At its most basic, the calculation can be done in one of two ways. Two methods are-

1. Income approach. 2. Expenditure method.

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Under income approach GDP is calculated by adding up what everyone earned in a year while by adding up what everyone spent GDP is measured in expenditure method. Logically, both measures should arrive at roughly the same total.

Importance of GDP measurement

GDP is an important economic indicator of a country. It used to understand the economic health widely. It is also used to guess the economic performance which means how well a particular country is doing economically. Real GDP measures in physical output in the economy between different time periods by valuing all goods produced in the two periods in the two equal periods at the same prices or in constant amount of money. On the other hand nominal GDP measures the value of output in a given period in the prices of that period or sometimes in current money. From this we can easily understand how important GDP information is.

Economists and government use this for various purpose .Economists use this measurement to forecast about what would be the future economic condition. They suggest various policies to government to implement in case of necessary.

To government the importance of the GDP information is very high. They use this for many activities. It also shows the performance of the government in running the state and controlling the overall economy. They use the previous year’s GDP information in planning the current year budget.

For outside borrowing of government needs to provide this information. Getting help from abroad highly depends on the economic performance of that country which is reflected by GDP.Not only that, it also plays great roles to fix various policies to run the country. Except these utilities GDP has many other uses.

Limitations of GDP measurement

GDP is widely used by economists to judge the overall economic condition of a country. But GDP calculation has some problem. In many cases it cannot reflect the actual economic condition many times. Some problems related to GDP calculation is given below.

1 .Wealth distribution:GDP does not take disparity in incomes between the rich and poor into account. It just shows the total income of a country.

2 .Non-market transactions:Non-market transactions are not included in GDP.GDP excludes activities that are not provided through the market, such as household production and volunteer or unpaid services. These transactions also have economic value. As a result, GDP is understated.

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3. Underground economy:Official GDP estimates may not take into account the underground economy in which transactions contributing to production, such as illegal trade and tax-avoiding activities, are unreported, causing GDP to be underestimated

4.Quality improvements and inclusion of new products:By not adjusting for quality improvements and new products, GDP understates true economic growth. For instance, although computers today are less expensive and more powerful than computers from the past, GDP treats them as the same products by only accounting for the monetary value. The introduction of new products is also difficult to measure accurately and is not reflected in GDP despite the fact that it may increase the standard of living.

5. What is being produced: Total GDP of a country only represents the total production level of a country. It does not show what is actually produced in the country. That is also a great problem of GDP measurement.

6. Variability of purchasing power of money:One main problem in estimating GDP growth over time is that the purchasing power of money varies in different proportion for different goods, so when the GDP figure is deflated over time, GDP growth can vary greatly depending on the basket of goods used and the relative proportions used to deflate the GDP figure. For xample, in the past 80 years the GDP per capita of the United States if measured by purchasing power of potatoes, did not grow significantly. But if it is measured by the purchasing power of eggs, it grew several times. For this reason, economists comparing multiple countries usually use a varied basket of goods.

7. No effect of unknown transactions:One drawback of GDP however is that it can only measure what the government has measured. Anything traded without the Government knowing won’t be included in the GDP, which can be significant in some countries.

Inflation Inflation is a rise in the general level of prices of goods and services in an economy over a period of time. When the general price level rises; each unit of currency buys fewer goods and services. Consequently, inflation also reflects erosion in the purchasing power of money – a loss of real value in the internal medium of exchange and unit of account in the economy. A chief measure of price inflation is the inflation rate, the annualized percentage change in a general price index (normally the Consumer Price Index) over time.

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Unemployment Rate According to International Labor Organization, Unemployment occurs when people are without jobs and they have actively looked for work within the past four weeks. The unemployment rate is a measure of the prevalence of unemployment and it is calculated as a percentage by dividing the number of unemployed individuals by all individuals currently in the labor force.

Export and import The term export is derived from the conceptual meaning as to ship the goods and services out of the port of a country. The seller of such goods and services is referred to as an "exporter" who is based in the country of export whereas the overseas based buyer is referred to as an "importer". In International Trade, "exports" refers to selling goods and services produced in home country to other markets.

An Import is any good (e.g. a commodity) or service brought in from one country to another country in a legitimate fashion, typically for use in trade. It is a good that is brought in from another country for sale. Import goods or services are provided to domestic consumers by foreign producers. An import in the receiving country is an export to the sending country.

Imports, along with exports, form the basis of international trade. Import of goods normally requires involvement of the customs authorities in both the country’s import and export and is often subject to import quotas, tariffs and trade agreements. When the "imports" are the set of goods and services imported, "Imports" also means the economic value of all goods and services that are imported. The macroeconomic variable I usually stand for the value of these imports over a given period of time, usually one year.

Capital market

A capital market is a market for securities (debt or equity), where business enterprises (companies) and governments can raise long-term funds. It is defined as a market in which money is provided for periods longer than a year, as the raising of short-term funds takes place on other markets (e.g., the money market). The capital market includes the stock market (equity securities) and the bond market (debt). Financial regulators, such as Securities and Exchange Commission (SEC), oversee the capital markets in their designated jurisdictions to ensure that investors are protected against fraud, among other duties.

Capital markets may be classified as primary markets and secondary markets. In primary markets, new stock or bond issues are sold to investors via a mechanism known as underwriting. In the secondary markets, existing securities are sold and bought among investors or traders, usually on a securities exchange, over-the-counter, or elsewhere.

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Money Supply Simply Money supply means the supply of money in a certain Fiscal year. It is totally dependent on Government. According to the policy of the Government money supply is controlled. There is mentionable impact of money supply in the economy of a country. So, keeping the supply of money at a desired level is the concern of the government of a country to sustain the healthy growth of the economy of a country.

Interest rate

An interest rate is the rate at which interest is paid by a borrower for the use of money that they borrow from a lender.

For example, a small company borrows capital from a bank to buy new assets for their business, and in return the lender receives interest at a predetermined interest rate for deferring the use of funds and instead lending it to the borrower. Interest rates are normally expressed as a percentage rate over the period of one year.

Interest rates targets are also a vital tool of monetary policy and are taken into account when dealing with variables like investment, inflation, and unemployment.

Exchange rate The exchange rates (also known as the foreign-exchange rate,) between two currencies specify how much one currency is worth in terms of the other. It is the value of a foreign nation’s currency in terms of the home nation’s currency. The foreign exchange market is one of the largest markets in the world. By some estimates, about 3.2 trillion USD worth of currency changes hands every day.

Foreign exchange reserves Foreign exchange reserves (also called Forex reserves or FX reserves) in a strict sense are only the foreign currency deposits and bonds held by central banks and monetary authorities. However, the term in popular usage commonly includes foreign exchange and gold, SDRs and IMF reserve positions. This broader figure is more readily available, but it is more accurately termed official international reserves or international reserves. These are assets of the central bank held in different reserve currencies, mostly the US dollar, and to a lesser extent the euro, the UK pound, and the Japanese yen, and used to back its liabilities, e.g. the local currency issued, and the various bank reservesdeposited with the central bank, by the government or financial institutions.

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GDP

Inflation

Unemployment Rate

Interest rate

Exchange rate

Money Supply

Capital market

Export and import

Chapter 3

Macroeconomic Indicators

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Gross Domestic Product

GDP is an important economic indicator of a country. It is used to understand the economic health widely. It is also used to guess the economic performance which means how well a particular country is doing economically. Economists and government use this for various purposes. Economists use this indicator to forecast about what would be the future economic condition. They suggest various policies to government to implement in case of necessary. It shows the performance of the government in running the state and controlling the overall economy. Government uses the previous year’s GDP information in planning the current year budget. GDP also plays a great role to fix various policies to run the country.

In the last 30years, there has been significant change in the GDP of Bangladesh. This information is given below in Table-1.

Table-1: GDP of Bangladesh in billion TK

Year Total GDP Year Total GDP 1981 341.938 1996 1735.13

1982 385.024 1997 1904.39

1983 449.048 1998 2099.37

1984 525.866 1999 2283.91

1985 597.318 2000 2453.16

1986 680.201 2001 2633.74

1987 763.82 2002 2868.91

1988 845.264 2003 3167.77

1989 946.943 2004 3518.4

1990 1054.24 2005 3932.18

1991 1150.3 2006 4441.02

1992 1224.56 2007 5091.5

1993 1303.91 2008 5806.85

1994 1439.65 2009 6511.39

1995 1594.21 2010 7282.61

Source: www.tradingeconomics.com

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Figure-1: GDP of Bangladesh for Last Three Decades

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Reasons of fluctuation in GDP growth rate Usually GDP always increases positively in any other country. Bangladesh is not different in this case. In the last decades GDP of Bangladesh increases rapidly with the chain of the economic development of the country after the liberation. Many reasons are working behind of this change.First of all we should mention the increasing presence of Private sector along with the government sector in almost all parts of the economy. It’s contributing highly in the positive GDP change of our country. Next we should mention the different steps taken by the government to maintain the sustainable growth in all economic sectors. In the last 30years Bangladesh has developed greatly in the export sector such as garments sector, fisheries etc. Now she is exporting versatile amount of goods to many countries around the globe. Bangladeshi People working outside of the country send huge amount of foreign remittances here. Local investors are also very much concerned today regarding the business decision they have to make. Many foreign multinational companies have involved to our market with their products and offers. Outside investments from different country and international organization has flown into the country. All these results in continues GDP growth of our country.

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Export and Import

Trade is an integral part of the total developmental effort and national growth of all economies including Bangladesh. It particularly plays a central role in the development plan of Bangladesh where foreign exchange scarcity constitutes a critical bottleneck. Export trade can largely meet ‘foreign exchange gap’, and export growth would increase the import capacity of the country that, in turn, would increase industrialization, as well as overall economic activities. Despite structural limitations in the Bangladesh economy, the export sector performed well throughout 1990s. The export growth rate of Bangladesh was higher than that of the world and the SAARC countries. However, the balance of trade of Bangladesh was always in deficit.

Bangladesh’s import needs are substantial; hence the need to rapidly increase exports is immediate. The global trade scenario has exposed structural limitations of the Bangladesh economy, posing a variety of challenges for the country that has underdeveloped technology and a low capital base.

The condition of export and import of Bangladesh for last three decades (1981 - 2010) has been shown below:

Table-2: Total Export, Import and Trade deficit of Bangladesh in ten million TK

Period Total Export Total Imports Trade Deficit 1980-81 1334 4266 -2932 1981-82 1454 5220 -3766 1982-83 1861 5513 -3652 1983-84 2051 5869 -3818 1984-85 2521 6874 -4353 1985-86 2717 7065 -4348 1986-87 3064 8026 -4962 1987-88 3705 9329 -5624 1988-89 4267 10896 -6629 1989-90 5004 12480 -7476 1990-91 6125 12521 -6396 1991-92 7522 13452 -5930 1992-93 8800 15934 -7134 1993-94 9799 16766 -6967 1994-95 13130 23455 -10325 1995-96 13857 28304 -14447 1996-97 16564 30540 -13976 1997-98 20393 34183 -13790

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1998-99 20851 38480 -17629 1999-00 24923 42131 -17208 2000-01 32419 50371 -17952 2001-02 30934 49049 -18115 2002-03 33242 55918 -22676 2003-04 40581 64257 -23676 2004-05 50835 80895 -30060 2005-06 62601 99130 -36529 2006-07 78931 118478 -39547 2007-08 86283 148370 -62087 2008-09 97445 154821 -57376 2009-10 102148 164241 -62093

Source: Bangladesh Bank Economic Trend

Figure-3: Total Export, Import and Trader Deficit of Bangladesh

From the above graph we can see that export and import both have increased over time continuously. But the gap between export and import is also increasing and that causes a continuous increase in trade deficit. This deviation between total export and import is a bad indicator for the country. This high trade deficit indicates that Bangladesh still depends on the foreign products. Government has to take effective decisions to minimize the ratio of export and import thus reducing trade deficit. The export-import ratio of Bangladesh has shown below in graph.

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Figure-4: Export-Import Ratio of Bangladesh

The performance of Bangladesh’s export sector in recent years is quite impressive especially in the 1990s. A healthy performance of Bangladesh’s import compared to the world and the SAARC countries is to be noted. Although Bangladesh’s import performance is behind that of the Asian developing countries, the average annual import growth rates of Bangladesh are much higher than those of the world. The growth of rate of export and import and the rate of change in trade deficit have shown below:

Table-3: Growth rate of Export, Import and Trade deficit of Bangladesh

Period Growth rate of Export

Growth rate of Import

Rate of Change in Trade Deficit

1981-82 8.996 22.36 28.44 1982-83 27.99 5.613 -3.03 1983-84 10.21 6.457 4.545 1984-85 22.92 17.12 14.01 1985-86 7.775 2.779 -0.11 1986-87 12.77 13.6 14.12 1987-88 20.92 16.23 13.34 1988-89 15.17 16.8 17.87 1989-90 17.27 14.54 12.78 1990-91 22.4 0.329 -14.4

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1991-92 22.81 7.436 -7.29 1992-93 16.99 18.45 20.3 1993-94 11.35 5.222 -2.34 1994-95 33.99 39.9 48.2 1995-96 5.537 20.67 39.92 1996-97 19.54 7.9 -3.26 1997-98 23.12 11.93 -1.33 1998-99 2.246 12.57 27.84 1999-00 19.53 9.488 -2.39 2000-01 30.08 19.56 4.324 2001-02 -4.58 -2.625 0.908 2002-03 7.461 14 25.18 2003-04 22.08 14.91 4.41 2004-05 25.27 25.89 26.96 2005-06 23.15 22.54 21.52 2006-07 26.09 19.52 8.262 2007-08 9.314 25.23 57 2008-09 12.94 4.348 -7.59 2009-10 4.826 6.084 8.221

Source: Bangladesh Bank Economic Trend

Figure-5: Growth rate of Export, Import and Rate of change in Trade deficit

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Bangladesh experienced negative export growth (--4.58%) only in Fiscal Year (FY) 2001-2002. The terrorist incident of September 11, 2001 in USA and subsequent events may be blamed for this unexpected suffering of the export sector in the particular fiscal year. Import had also decrease for that fiscal year for the same reason. Import payments significantly decreased in FY 1999-2000 compared to FY 1998-99, which implies that the country is making progress in food production. The trade balance of Bangladesh is of great concern. It has always been in deficit over the decades. Recent statistics show that the trade deficit of the country was TK. 22676 million in FY 2002-03, while it was Tk. 3818 million in FY 1983-84.

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Remittance

Remittance is the funds transferred to a country by its citizens those who are living and working abroad. More specifically remittance refers to the transfer of funds, usually from a buyer to a distance seller. As a major labor surplus country Bangladesh participates in the supply side of labor market since early 1970s.

Remittance has emerged as a key driver of economic growth and poverty reduction in Bangladesh. There are a estimated 6.5 million Bangladeshis are living and working in different foreign countries mainly in the middle east, south east Asia, Europe and the united states and the amount of remittance is increasing at an average rate of 19 percent in the last 30 years(1981-2011). Bangladesh shows the greatest reliance on remittances as a form of income growing from approximately 6% of export income in 1976 to more recent times where remittances have hovered close to 50% of export income since 2011. Increases in remittance flows have greatly assisted this country to minimize the problem. Remittance flow has helped Bangladesh to cut poverty by 6%. So, remittance has a great deal of impact for the nourishment of the impoverished and developing countries like Bangladesh.

Remittance Income of Bangladesh over last three decades has shown below in Table-4 and in Figure-5.

Table-4: Remittance Income of Bangladesh in million TK

Year Remittance 1980-81 381.0522 1981-82 526.4637 1982-83 642.4085 1983-84 500.7474 1984-85 502.4714 1985-86 576.2825 1986-87 747.8089 1987-88 763.6221 1988-89 757.9795 1989-90 778.8656 1990-91 769.3657 1991-92 911.76 1992-93 1007.375 1993-94 1150.881 1994-95 1201.664 1995-96 1344.661 1996-97 1526.5

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1997-98 1606.077 1998-99 1806.794 1999-00 1967.529 2000-01 2104.552 2001-02 2858.058 2002-03 3191.665 2003-04 3583.817 2004-05 4314.502 2005-06 5427.516 2006-07 6562.316 2007-08 8994.997 2008-09 10523.1 2009-10 7508.04

Source:www.tradingeconomics.com

Figure-6: Remittance Income of Bangladesh

Trend of remittance inflow in Bangladesh for last 30 years International labor migration has become an increasingly important feature in a globalizing world in which not only more people are on move, but also the frequency and the different modes, channels and directions of mobility have expanded and extended into every corner of the world. This trend is not only set to continue but to increase. The migration of workers across international boundaries in search of economic opportunity has enormous implications for development. It can have significant positive impacts on household well-being and economic

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growth through improved income opportunities, knowledge transfers and increased integration in the global economy. There has been an enormous increase in the amount of remittance that Bangladesh received in last thirty years. Remittance financed on an average about 17% of imported goods and services and has gone up almost twice in between 1980 and 2011. Remittance contributed in the debt payment of the country increased from 49.45% in the year 1981 to 83.19% in 2011. Though, in the decade of 80’s the amount of remittance was relatively low, in the latter decades it started to grow up. From the year 1981 to the year 1985 average amount of remittance was about 21244.50 million taka. For the next five year it was about 26323.47 million taka. In the year between 1985 and 1990 the growth rate was the highest for the decade of 80’s. During that period import grew 18% to 61% and investment grew from 5% to 18%. During the period between 1991 and 1995 remittance contributed almost 53.34% to overall balance of payment of Bangladesh. This continued to increase as the year passed. In 1998 remittance contributed the highest 62.12% for the overall balance of payment. The central Bank of Bangladesh had undertaken major policy changes after 9/11 stagnation period resulted in increased inflow of remittance through formal channels. The great stagnation period in between 2001 and 2006 in the world economy did not affect much on the remittance inflow in Bangladesh as a result of continuous effort of Bangladesh Bank and Bangladesh government. In 2009 about 475278 Bangladeshis found overseas jobs. Bangladesh received the highest amount of remittance totaled 10.75 billion us dollar during 2009-2010 fiscal year.

Causes of fluctuation in remittance inflow The increase or decrease in remittance inflow is influenced by many economical and political catalysts. The scope of exporting skilled manpower to the developed countries, political relationship among the countries, channels of remitting money from country to another etc. influence the amount of remittance. Statistics show that after the late 90s , 40% of the remittances came through formal channels, 46% through hundi, 8% were hand carried 4% carried by friends and relatives and 2% others.The immense increase in remittance payments over the previous 30 years may be attributed to two significant factors:

First, immigration between developing and developed countries has increased dramatically in the past 30 years.

Second, transaction costs have declined as technological improvements have allowed for faster, lower cost mechanisms for the international transfer of payments between individuals.

There are also some other micro and macro economical variables which are greatly responsible for the fluctuation in the amount of remittance.

As indicated above, our results establish that remittances play a significant role in the promotion of economic growth in Bangladesh. Unfortunately this important source of income and the expatriates who earn this income did not receive due attention from the policy makers. There are a number of important areas where improvements can be made and contributions from remittances to promote economic growth could be enhanced.

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Exchange Rate

This page includes a chart with historical data for Official exchange rate (LCU per US dollar; period average) in Bangladesh. The Official exchange rate (LCU per US dollar; period average) in Bangladesh was reported at 68.60 in 2008, according to the World Bank. In 2009, the Bangladesh Official exchange rate (LCU per US dollar; period average) was 69.04. Official exchange rate refers to the exchange rate determined by national authorities or to the rate determined in the legally sanctioned exchange market. It is calculated as an annual average based on monthly averages (local currency units relative to the U.S. dollar). Bangladesh is considered as a developing economy which has recorded GDP growth above 5% during the last few years. Microcredit has been a major driver of economic development in Bangladesh and although three fifths of Bangladeshis are employed in the agriculture sector, three quarters of exports revenues come from garment industry. The biggest obstacles to sustainable development in Bangladesh are overpopulation, poor infrastructure, corruption, political instability and a slow implementation of economic reforms.

Exchange rate for last three decades in Bangladesh has been shown below in Table-5 and in Figure-6.

Table-5: Exchange rate for last three decades in Bangladesh

YEAR RATE YEAR RATE 1980-81 17.99 1995-96 41.79 1981-82 22.12 1996-97 43.89 1982-83 24.62 1997-98 46.91 1983-84 25.35 1998-99 49.09 1984-85 27.99 1999-00 52.14 1985-86 30.41 2000-01 55.81 1986-87 30.95 2001-02 57.89 1987-88 31.73 2002-03 58.15 1988-89 32.27 2003-04 59.51 1989-90 34.57 2004-05 64.33 1990-91 36.6 2005-06 68.93 1991-92 38.95 2006-07 68.87 1992-93 39.57 2007-08 68.6 1993-94 40.21 2008-09 69.04 1994-95 40.28 2009-10 70.59

Source:www.tradingeconomics.com

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Figure-7: Exchange rate of Bangladesh

Change occurred in exchange rate over last three decades in yearly basis has been shown below in Figure-7.

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Figure-8: percentage change in exchange rate

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Reasons of changes in exchange rates

The choice of the regime and its success depend on individual countries and their owneconomic considerations and environment.

To determine exchange rate two methods are used.

1. Fixed method 2. Floating method

Till 2003 in Bangladesh fixed method had been used. Later on floating method was introduced. In the fixed method exchange rate is determined by the central bank of a country while in the floating method the exchange rate is determined by supply-demand process.

In Bangladesh from 1981 to 2010 the exchange rates have increased almost every year. Only in 2008 the exchange rate has decreased relate to previous year.

In 2003 as floating rate has been introduced so, the govt. devaluated our currency hence the exchange rate increased.

If the govt. of a country wants to induce export then it can devaluate its currency.

In our country there exists trade deficit almost in every year (shown previously in Table-2 and in Figure-2), so to balance trade account the govt. needs to increase export. In order to increase its foreign currency reserve it has devaluated its currency in every year at early stage at a large scale. The govt. can also increase its people export so as to increase its remittance through which it can increase its foreign reserve.

As a developing country we need to import much of our needs. To induce businesses not to import much govt. also devaluates its currency so that the cost of imports rises. Therefore it induces them to export. In our country, there exists a large scale demand for dollar on the other hand supply by the central bank is less because of trade deficit. So, the value of dollar increases and the value of taka decreases in order to induce foreigner to import as here exists low cost goods. And inner traders are induced not to import much by high price of dollar to very much devaluation of taka.

In the early stages the devaluation of our currency was much more. It is because of much more import existed and to decrease the trade deficit “by export much” the govt. has devaluated its currency much more. When govt. acquires much of foreign reserve through export of goods and peoples its currency gets strength against dollar and the exchange rate changes by a smaller fraction. And again if its remittances decrease for any reason then it devaluates its currency so as to reduce trade deficit. But in recent years as the foreign reserves are satisfactory so the govt. tends to change its exchange rate less frequently and by a smaller amount.

Our country is always in trade deficit so to reduce it we must increase our foreign reserve through export. The most effective way to increase export is to devaluate the local currency so that foreign countries tend to import much from us as here exists less costly products.

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Money Supply

Money supply is an important indicator for the economic condition of any country. Generally it is regulated by Bangladesh Bank according to the economic policy of the government Bangladesh. Usually Bangladesh Bank regulates money supply by GDP targeting, inflation targeting etc. Of course government can take any other measure to control money supply if it has enough justification or requirement.

Normally the form of money supply by BB can be classified in three major type M1 or narrow money supply, M2 or quasi money supply and M3. In this report we have shown only the information about M1 and M2.

The condition of money supply in Bangladesh over last three decades has been shown below in Table-6 and in Figure-8 and 9.

Table-6: M1 and M2 over last three decades in ten million TK

Year M1 M2 1981 2012.1 4548.7 1982 2634.3 5898.2 1983 3549.9 8385.8 1984 4231.8 10534.2 1985 4927.9 12338.1 1986 5262.8 14353.1 1987 5047.7 16408 1988 5460.7 19078.1 1989 6368.7 22297.6 1990 7203.7 25004.4 1991 8257.2 28525.9 1992 9062.6 31535.6 1993 11167.1 36403 1994 13179.4 42267.9 1995 14459.4 45760.1 1996 15167 50711 1997 15888.5 55869 1998 17249.3 63026.2 1999 19881.3 74762.4 2000 22347.4 87174.1 2001 24161.1 98616.3 2002 26743.3 113994.4 2003 30448 129721.7

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2004 35404.2 151446.6 2005 42652.3 180674.2 2006 50168 211504.4 2007 59849.9 248795 2008 66426.9 296499.9 2009 71389.9 312056.8 2010 87998.3 363031.1

Source: Bangladesh Bank

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Figure-9: Narrow money supply (M1) in last three decades

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Analysis

In Bangladesh we can see that the supply of money (both M1 and M2) has increased over the years and it shows a positive trend. There are definitely some reasons behind this. Those reasons are described below:

When money supplies increases the money becomes more available and that’s why interest rate decreases.

When interest rate decreases the opportunity cost of holding money also decreases. For this consumption increases in the form of increased demand.

On the other hand, when interest rate decreases investment is increased.

Finally, we can say that as Bangladesh is a developing country, increasing investment is very necessary for us. Besides, to increase investment increased demand is helpful. And all these necessaries are fulfilled by increasing the supply of money. So, it can be said that most probably the government of Bangladesh has increased money supply over the years.

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Interest Rate

The interest rate states the rate of payment on a loan or other investment, over and above principal repayment, in terms of an annual percentage. If you have dollar 1,000 in the bank and the bank pays you dollar 50 in interest at the end of each year, then the annual interest rate is 5 percent.

There is only one interest rate in the economy.

The only distinction will make is between the nominal interest rate and the real interest rate.

Two types of interest rate:

1. Nominal interest rate.

2. Real interest rate.

Nominal interest rate: The nominal interest rate is the interest rate as usually reported: it is the rate of interest that investors pay to borrow money.

Real interest rate: The real interest rate is the nominal interest rate corrected for the effects of inflation.

The real interest rate measure the true cost of borrowing and thus determines the quantity of investment.

If the nominal interest rate is 8 percent and the inflation rate is 3 percent, then the real interest is 5 percent.

The difference between real and nominal returns, the nominal bond rate 30 year bond paid an annual interest rate of 5048 percent while the real rate 30 year bond paid 3053 percent plus an inflation adjustment. If inflation ran higher than 1.95 percent (at an annual rate) the real rate bonds would pay more than the nominal rate bonds. Because the real rate bonds guarantee your purchasing power, they are a safer investment than nominal rate bonds.

The various interest rates differ in three ways:

1. Term

2. Credit Risk

3. Tax Treatment

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1. Term: Some loans in the economy are for short periods of time, even as short as overnight. Other loans are for thirty years or even longer. The interest rate on a loan depends on its term. Long term interest rates are usually but not always, higher than short term interest rates.

2. Credit Risk: The higher the perceived probability of default, the higher the interest rate .because the safest credit risk is the government bonds tend to pay a low interest rate. By issuing junk bonds, which pay a high interest rate to compensate for the high risk of default?

3. Tax Treatment: The interest on different types of bonds is taxed differently.

There are many interest rates in the economy. The various interest rates tend to move up and down together. The interest is an exogenous variable.

In our report we show only the lending interest rate to discussion. Interest rate over 1981-2010 has been presented in the following Table-7 and in Figure-10.

Table-7: Lending Interest rate of Bangladesh from 1981 to 2010

Year Interest Rate 1981 12 1982 12 1983 12 1984 12 1985 12 1986 14 1987 16 1988 16 1989 16 1990 16 1991 15.92 1992 15 1993 15 1994 14.5 1995 14 1996 14 1997 14 1998 14 1999 14.13 2000 15.5 2001 15.83 2002 16 2003 16 2004 14.75 2005 14

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2006 15.33 2007 16 2008 16.38 2009 16 2010 16.35

Source: www.tradingeconomics.com

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Figure-10: Interest rate condition of Bangladesh

Why interest rates change for year to year? It shows that the nominal interest rate change for two reasons. Because the real interest rate changes or because inflation rate changes.

When inflation is high, nominal interest rates are typically high, and when inflation is low, nominal interest rate typically low as well.

It shows in 1987 the interest rate of increasing so the rate of 16 percent it’s very high because of inflation.

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Inflation and Unemployment

Inflation and Unemployment both is very powerful macro indicator for a country’s economic condition. A low rate of inflation is one of the cornerstones of macroeconomic stability of an economy. Bangladesh Bank has experienced a moderate rate of inflation under double digit throughout the 1990s. Whereas unemployment is also a leading indicator, when there is high unemployment the economy is in recession and if the unemployment rate results low then it indicates in the economy’s production is growing and it will causes an increase in the inflation by raising the wage rates.

The condition of Inflation and unemployment rate in Bangladesh over last three decades has been shown in the Table-8 and Figure-10.

Table-8: Inflation and unemployment from 1981 to 2010

Year Inflation Unemployment 1980 15.385 1.9

1981 14.545 2.39

1982 12.875 3.9

1983 9.531 1.7

1984 10.414 1.8

1985 10.465 1.8

1986 10.175 1.1

1987 10.828 5.8

1988 9.674 7.9

1989 8.734 1.2

1990 10.522 11.55

1991 8.285 15.8

1992 3.624 9.8

1993 2.979 7.9

1994 6.15 10.9

1995 10.117 12.64

1996 2.465 7.3

1997 4.959 12.01

1998 8.648 25.7

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1999 6.179 17.9

2000 2.483 35.2

2001 1.908 35.2

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2004 6.103 40

2005 7.04 40

2006 6.77 2.5

2007 9.109 2.5

2008 8.9 2.5

2009 5.426 2.5

2010 8.504 5.1

Source: Bangladesh Bank

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Figure-11: Inflation and unemployment of Bangladesh for last three decades

Philips curve The relation between inflation and unemployment is very important in studying the growth of macroeconomic factors. Economists use this model very frequently to solve.

The Phillip curve is an inverse relationship between the rate of unemployment and the rate of inflation. There is a tradeoff between inflation and unemployment.

In Figure-11 a Philips curve has been shown with the data of last 30 years about inflation and unemployment.

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From the picture we are seeing that the line is haphazard and from this trend line we cannot find any meaningful relationship between unemployment and inflation. The reason behind this is that there are many factors influencing the inflation other than the unemployment. Another problem is that there is no expected inflation. So it is difficult to derive a meaningful trend. Another reason behind this different base year of inflation calculation is also contributing to the problem. And finally through regression analysis we see that there is no significant relation between unemployment and inflation in Bangladesh.

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Capital Market

The capital market is market for securities where companies and government can raise long term funds. It is a market in which money is lent for period longer than a year. The capital market includes stock market and the bond market. Capital market is the group of interrelated markets in which capital in financial form is lent or borrowed for medium and long term and in cases such as equities for unspecified periods.

Capital market also may be classified as primary markets and secondary markets. In primary markets, new stock or bond issues are sold to investors via a mechanism known as underwriting. In the secondary markets, existing securities are sold and bought among investors of traders, usually on a securities exchange over the counter or elsewhere.

Role of Capital Market The primary role of the capital market is to raise long-term funds for governments, banks and corporations while providing a platform for the trading of securities. This fund rising is regulated by the performance of the stock and bond markets within the capital market.

Capital Market is considered as the Leading Economic Indicator. Leading economic indicators are indicators which are change before the economy changes. Stock market returns are a leading indicator as the stock market usually begins to decline before the economy declines and they improve before the economy begins to pull out if a recession. Leading economic indicators are the most important type for investors as they help predict what the economy will be like in future.

Capital Market of Bangladesh Bangladesh capital market is one of the smallest in Asia but the third largest in south Asia region. It has two full-fledged automated stock exchanges namely- Dhaka Stock Exchange (DSE) and Chittagong Stock Exchange (CSE). It also consists of a dedicated regulator, The Securities and Exchange Commission (SEC), since, it implements rules and regulations, monitors their implications to operate and develop the capital market.

Developments in the Capital Market The capital market in Bangladesh comprising two stock exchanges (Dhaka and Chittagong), 31 merchant banks (including 10 scheduled banks active in the capital market), and 28 mutual funds is regulated and supervised by the Securities and Exchanges Commission (SEC). Market capitalization stood around 44 percent of GDP as of end 2010, from 21.4 percent of GDP as of

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end FY 09. Issued capital and market capitalization in the main stock market (DSE) are on rapid rise from 2005 onward. Treasury Bonds contributed the bulk of this increase in issued capital; of the outstanding total capital issue of Taka 66436 billion as of end 2010, Treasury Bonds constituted 64.5 percent. There is yet to be any secondary trading in T-Bonds in the stock market however, the listed T-Bonds playing no role in swings in market price index or market capitalization. The number of the securities being listed in Dhaka Stock Exchange is increasing with the passage of time. Here is a chart and graph showing the listed securities of Dhaka stock exchange:

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Figure-13: Listed securities of Dhaka Stock Exchange

So with the graph it is clear that with the passage of time the enlisted issues for DSE is increases in a significant manner. It indicates that reliability on stock market for raising fund is increasing with the passage of time and firms and other organizations are now more interested in capital market for raising the fund. It also indicates that our capital market is going to be at its maturity stage with the passage of time.

Trend in Issued Capital As the number or securities listed in the DSE is increasing in a significant manner so do the issued capital. Here is a chart and graph that shows issued capital in DSE for the last ten years.

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Figure-14: Issued Capital

It is seen from the graph that the trend line for issued capital in DSE is a positively sloped line which indicates with the passage of time issued capital will be increased. It is increasing because the number of enlisted issues is increasing so the amount of issued capital must also be increased. The relation between enlisted issues and issued capital can be explained by the following graph:

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Enlisted Issues in DSE 249 260 267 256 286 310 350 412 415 445

Issued Capital 3325. 3520. 4605. 4953. 7031. 1184421447372165216366436

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Market Capitalization and DSE General Index

Market capitalization and DSE General Index are related in some manner as market capitalization is used for calculating DSE General Index. But for Index calculation another

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

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important factor is price fluctuation. Here is chart and graph for Market capitalization and DSE general index:

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Market Capitalization 6376.9 7126.2 9758.7 22335.9 22829 32336.8 75395.5 105953 188449. 347250.

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From the above graph it is seen that Market Capitalization is increasing with the passage of time. So there is a positive relationship between Time and Market Capitalization. The main reason for this increase in market capitalization is the increasing number of enlisted issues and Issued Capital. If we compare the Issued capital graph with Market capitalization graph it will be seen that market capitalization is increasing in the same manner as the Issued capital increasing. It indicates a positive relationship between Issued Capital and Market Capitalization.

Here is a Graph for the DSE general Index:

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By the graph it is clear that there is a fluctuation in the DSE general index. Though market capitalization increases over years there was a fluctuation in price that is why there was also a fluctuation in general index. From the graph it is seen that for 2001, 2002 and 2003 index was stable. But in 2004 it had a sharp increase and again in 2005-2006 there was a decrease. Finally from 2007 to 2010 Index was doubled. Here is a brief analysis for this fluctuation in index:

Sharp Rise in 2004

Declaration of lucrative incentives in the FY04 national budget, floatation of some quality IPOs along with several important reform measures initiated by the SEC helped to regain investor’s confidence back to the capital market. The national budget exempted purchasers of listed equities of any taxation queries as to the source of the funds so long as purchased shares were not sold or transferred within two years of purchase. This was effective for a limited time (FY04 to FY05). In addition, dividend-income tax was exempted and a new dividend distribution tax was imposed on the companies paying dividend.9 One important capital market development of the in 2004 was the initiation of electronic settlement through the Central Depository System (CDS) from 24 January ’04. In order to prevent market manipulation by in-house officials of listed companies, SEC banned purchasing or selling shares of a company by their beneficiary owners during the interim period (from the date ofthe financial year closure and the day of approval of accounts by company’s board), promulgated by a circular on 11 July 2004. De-listing of 13 companies in August 2004 by DSE due to their repeated failure in complying with the listing rules was also an important step toward bringing orderliness in the stock exchange. The DSE general index started rising significantly from November ’03, which stood at 1318.9 at the end of June ’04 thereby increasing by around 58 percent (or 50 percent in real terms). The sharp rising trend continued up to the end of December ’04, as the DSE-Gen index reached its peak at 1971.3. This development owed significantly to the banking sector performance, as indicated by market capitalization and total turnover. Decrease in 2005 & 2006

As a stepping stone towards an emerging secondary market in public debt, trading on BGTBs started on DSE from the 1st January ’05. However, in order to temper the rising trend of stock index and control excess liquidity in the capital market, SEC decided to suspend credit facility extended by brokers to their clients until further notification.10 At the same time, SEC also increased members’ trade margin requirements by reducing the free trading limit from BDT 10 million to BDT 5 million. In response to the above initiatives, secondary market activities became quiet during January-February ’05 and the daily average turnover reduced to BDT 245 million from BDT 402 million in November-December ’04. However, in March ’05 daily average turnover of DSE rapidly increased to BDT 447 million, which significantly surpassed the level of daily average transactions during the 2001-05 period11. Considering the interest of investors, on 12 February 2004 SEC amended the margin rule by increasing the free limit up to BDT 10 million; later on 18 April 2005, it withdrew the order related to the suspension of margin rule, 1999. At the end December ’05 the stock index stood at 1677.3, which was higher by 11 percent from the July ’05 figure. The market observed a downward trend during January-June ’06 and then turned to a positive mode from July ’06. In August ’06 daily average turnover at DSE reached BDT 561 million, thereby exceeding the previous record level of March ’05, where Dhaka Electric Supply Company (DESCO) and Rupali Bank respectively accounted for around

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13 and 4 percent of the total turnover. In the wake of political instability the market witnessed fluctuations during the last two quarters of 2006; however, the index increased to 1609.51 at the end of 2006.

Index getting doubled from 2007 to 2010

In 2007 the amount of market capitalization was doubled as opposed to 2006. For this huge increase in market capitalization DSE general index also got a sharp increase in 2007. In 2008 SEC took some initiative to curb the sharp increase for the betterment of the market and that is why DSE general index was reduced a bit 2008.

In 2009, DSE general index got another sharp rise. It was mainly due to the Introduction of trading if largest mobile phone company Grameen phone in DSE. After listing of Grameen phone Capital market turnover and market capitalization also increased significantly.

In 2010, Capital market activities of scheduled banks increased. Capital market assets in books of scheduled banks increased to Taka 68.0 billion as of end Setember10 from Taka 53.2 billion as of end June ‘09. Loans and advances of scheduled banks against shares and securities increased to Taka 35.4 billion as of end June 10, from Taka 18.9 billion as of end June 09. Volatility in share prices means considerable risk exposure of banks in their positions in capital market assets and collaterals, requiring capital backing in the Basel II capital regime with 100 percent risk weighting. BB has therefore recently strengthened its oversight on compliance of scheduled banks with legal and regulatory limitations on their capital market activities and on their lending to individuals or institutions for capital market activities. More over in 2010 there was a lack of securities as there was a huge increase in the number of traders and investors. So the supply-demand gap also fueled the price hike. So in brief there stand some basic reasons for the boom in DSE general index. They are:

Increased Market Capitalization Less securities than demand Increased participation of Scheduled banks in Capital Market Increased Margin loan Increased number of Mutual Funds

These are the basic reasons behind the price hike from 2007 to 2010.

Recent Crash in Capital Market

For the last three months there was crash in the capital market of the country. The following graph gives us a clear view about the crash:

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0100020003000400050006000700080009000

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Figure-18: Recent Crash in Capital Market

The main reasons behind the crash are:

SEC regulation regarding the margin loan stating to reduce the loan from 1:2 to 1:.3. After the fall it has again increased the ration.

The increase of CRR (Cash Reserve Ration) for the scheduled bank. Liquidity crisis. Sell of securities by the Scheduled bank to meet up the liquidity crisis. Sell of securities by the mutual funds.

These were the main reasons behind the recent market fall.

Relation between Market capitalization and DSE General Index

Market Capitalization is used for calculating the DSE general index and there exists a positive relationship between market capitalization and DSE general index. But still it is seen that sometimes DSE General Index falls though Market Capitalization increases. Here is a graph showing the relationship between DSE General Index and Market Capitalization:

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Figure-19: Relationship between Market capitalization and DSE General Index

Capitalization but at three points it is negatively sloped with the market capitalization. The reason behind is that besides market capitalization, another factor that influences DSE general index is Price. If changes this in price falls significantly then the market capitalization may be increased by issuance of new securities but index will be decreased as the price decreased significantly. That is why we sometime see negative relationship between Market capitalization and DSE general index.

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Analysis & Conclusion

Chapter 4

Remittance & GDP Regression

Export & Exchange rate regression

Net Export & GDP regression

DSE General Index Regression

Findings Conclusion

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Regression Analysis

Remittance & GDP Regression It is seen from the regression analysis that there is a much strong relationship between GDP and Remittance. It is seen that if there were no remittance GDP would be 933.82 billion taka. From the graph it is seen that there exist a positive relationship between remittance and GDP. The slope of the line is 9.271 which indicate that if remittance is increased by 1 billion taka GDP will be increased by almost 9 billion taka.

From the Coefficient of Determination we have seen that it is .9166 which indicates that the variability of GDP can be explained by 91.66% by Remittance. So it can be said that the change of GDP is due to Remittance by 91.66%.

Figure-19 shows the analysis in graphical form.

y = 9.271x + 933.8R² = 0.916

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Figure-20: Change in GDP relative to Remittance

Export & Exchange rate regression It is seen from the regression analysis that there is a much strong relationship between Exchange Rate and Export. From the graph it is seen that there exist a positive relationship between Exchange Rate and Export. The slope of the line is 17.09 which indicate that if exchange rate is increased by 1 taka Export will be increased by almost 17 billion taka.

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From the Coefficient of Determination we have seen that it is .8113 which indicates that the variability of GDP can be explained by 81.13% by Remittance. So it can be said that the change of Export is due to Exchange Rate by 91.66%.

Figure-20 shows the analysis in graphical form.

y = 17.09x - 506.7R² = 0.811

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Figure-21: Change in Export relative to Exchange rate

Net Export & GDP regression It is seen from the regression analysis that there is a much strong relationship between GDP and Remittance. It is seen that if there were no Net Export, GDP would be 402.83 billion taka. From the graph it is seen that there exist a negative relationship between net export and GDP. The slope of the line is - 107.15 which indicate that if Net export is increased by 1 billion taka GDP will be decreased by almost 107.15 billion taka.

From the Coefficient of Determination we have seen that it is .9643 which indicates that the variability of GDP can be explained by 96.43% by Net Export. So it can be said that the change of GDP is due to Net Export by 96.43%.

Figure-21 shows the analysis in graphical form.

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y = -107.1x + 402.8R² = 0.964

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Figure-22: Change in GDP relative to Net Export

DSE General Index Regression It is seen from the regression analysis that there is a much strong relationship between GDP and DSE General Index. From the graph it is seen that there exist a positive relationship between DSE General Index and GDP. The slope of the line is 1.2937 which indicates that if GDP is increased by 1 billion taka DSE General Index will be increased by almost 1.2937 point.

From the Coefficient of Determination we have seen that it is .8113 which indicates that the variability of DSE General Index can be explained by 81.13% by GDP. So it can be said that the change of DSE General Index is due to GDP by 81.13%.

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Finding & Conclusion

Findings After doing all the above analysis and performance review we understand that as a developing country Bangladesh has still a very weak economy indeed. It is very much dependent on the foreign aid and most of the time faces a trade deficit. Still it does not have a strong capital market. Inflation rate is growing high and making the life of the people much worse day by day. Unemployment still is not in a potential or even near to the potential level. It earns lots from the abroad as remittance and the rate of growth in remittance is highly satisfactory. As inflation is increasing continuously, interest rate specially for lending has increased a lot. BB and Bangladesh government work together and take different policies to control inflation, unemployment, import and the money supply. But most of the time these policies do not work satisfactorily and economy faces hardship. Though macro indicators discussed throughout the report is not enough or may be not discussed in detail, it can be easily said that the information shows Bangladesh as a developing country is doing well but not better at all and thus it needs to develop much more effective policies to become an economically strong and prosper country.

Conclusion At the end of our report it is clear that macroeconomic indicators truly provide very effective and important preview of the overall economy of a country. Throughout our report we show different indicators and their condition over last thirty years in Bangladesh economy and analyze the performance of the economy. And we have come to this conclusion that Bangladesh is still a developing country and it has to develop its policies to improve its economic condition. Bangladesh Bank has to be more active in its role to control the money market with strong and effective monetary policy. On the other hand Government of Bangladesh has to take suitable fiscal policy that helps the economy to become prosperous in all sector.