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Balance of Trade(BOT)

Bangladesh has had a negative trade balance since independence in 1971. In the mid-1980s, the
annual pattern was for exports to cover only around 30 percent of the cost of imports (see table
14, Appendix). Merchandise exports reached the value of US$1 billion in FY 1987 for the first
time, and in that year import payments were US$2.6 billion, leaving a trade deficit of over
US$1.5 billion, about average throughout the 1980s. The annual deficit was limited by
government controls to between US$600 and US$700 million on capital goods and US$500
million on nonagricultural industrial commodities. The largest component in the latter category
was crude oil and petroleum products. In addition, Bangladesh incurred a debt each year for
grain and other food needs, always higher than US$200 million, and sometimes going to double
or even more (at least US$607 million in FY 1985). The country had a positive balance on
nonfood agricultural production, because jute and ready-made garment exports eliminated the
deficit in fibers, textiles, and garments.
In FY 1986, the United States was the leading buyer of Bangladeshi exports, taking some 25
percent of the total. The American portion had increased from 16 percent the year before and 12
percent the year before that. The dynamic new element was readymade garments; the United
States purchased over 80 percent of this new industry's production, adding to Bangladesh's
traditional base of jute manufactures (mostly carpet backing) and seafood. The next biggest
customer for Bangladesh (but with only 28 percent of the American volume) was Japan, which
chiefly purchased frozen seafood. Other important customers in FY 1986 were Britain, Italy,
Pakistan, Singapore, and Belgium. Trade with communist countries was also significant. Almost
10 percent of exports were under barter terms with the Soviet Union, China, Bulgaria, Hungary,
and Czechoslovakia.
Balance of Payment(BOP)
The continuing trade deficit has been offset in small part by private transfers, mainly from
earnings of workers in the Middle East, but large amounts of foreign aid and heavy short-term
borrowing are needed to handle the balance-of-payments problem. In FY 1991/92, the infusion
of $1.59 billion in foreign aid and transfers helped lessen a negative balance of payments. In
1995, the trade deficit widened and there was a stagnation in the growth of remittances from

overseas workers. The rising trade deficit, coupled with a decline in international aid
disbursements due to political turmoil, caused foreign exchange reserves to drop from a peak of
$3.4 billion in April 1995 to $2.1 billion by the end of 1996, and $1.7 billion by 1999.
During the 1990s, the manufacturing sector revived, due to export growth led by garments and
knitwear. Bilateral quota systems with developed country markets, whose quota regimes limited
the exports of many competing Asian suppliers, were a factor in the growth of garment exports
starting from 1994. Other factors contributing to the success of the garment industry in
Bangladesh include few governmental regulations; the provision of customs-bonded warehouses
for imported cloth; and financial arrangements allowing foreign banks to finance raw materials
inventories. Nevertheless, Bangladesh must diversify its export base in order to improve its trade
imbalancegarments and knitwear continue to account for 75% of export earnings. Leather and
shrimp are potential growth sectors. The elimination of the quota system on textiles and clothing
under the WTO was due to expire in 2005, and Bangladesh will need to improve the performance
and quality of its garment export sector.

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