National Income Accounts

and Balance of Payment -

Bangladesh
Lecture 2
 National Income Accounting
▪ National income accounting is a set of principles and methods used to measure the
income and production of a country.
▪ National income accounting has a direct relationship to the circular flow of income.
▪ The level of GDP is an indicator of the strength of the circular flow of income.
▪ Due to the circular flow, the three methods of calculating GDP should all produce same
measure.

Lecture 2 -- 2
 Outlays and Components of Demand
▪ Y = C + I + G + NX
▪ Y = GDP
▪ C = Consumption spending by households
▪ I = Investment by firms and households
▪ G = Government purchases
▪ NX = Net export (Export – Import)

Lecture 2 -- 3
 What is the difference between GNP and GDP?
▪ GNP=GDP+ Net Factor Payments from rest of world (ROW)
▪ i.e. money value of spending = money value input

▪ Can be divided into several parts:

▪ Consumption (C), Investment (I), Government Spending (G) and the Current Account
▪ (CA=EX-IM)
▪ When:
▪ EX < IM  CA<0  deficit
▪ EX > IM  CA>0  surplus

Lecture 2 -- 4
 Balance of Payments Accounting
▪ The balance of payments accounts are a detailed record of transactions with the rest of
the world. Nations buy and sell goods, services, and assets of various types. The BOP
accounts keep track of both payments to foreigners and receipts from foreigners.
▪ Trade (goods and Services)
▪ Some of the country’s production is exported to other countries, while some goods
that are consumed or invested at home are produced abroad and imported
▪ Finance
▪ People or firms hold financial resources of other countries.

Lecture 2 -- 5
 Trade
▪ Import increase consumption/investment but outflows money
▪ Export inflows money but some goods produced in the country goes
outside
▪ Trade in services include freight, royalty payments, interest payments,
investment income, interest earning
▪ Transfer payments include remittances, gifts and grants

Lecture 2 -- 6
 Balance of Payment
▪ Balance of payment accounts record its international trading and its
borrowing and lending. There are three balance of payment accounts:
1. Current Account
2. Capital Account
3. Balance for official financing
▪ Deficit – any payment to other countries
▪ Surplus – any receipt from other countries

Lecture 2 -- 7
 Balance of Payment Accounts

▪ Current Account ▪ Country’s investment in foreign

▪ Import of goods and services (-)
▪ Export of good and services (+)
▪ Net investment income ( +/-)
countries (-)
▪ Capital account balance
▪ Balance for official financing

▪ Net transfers (+/-) ▪ Country’s official reserves

▪ Current account balance (+/-) ▪ Balancing items

▪ Capital Account
▪ Foreign investment in the country (+)

Lecture 2 -- 8
 Current Account
▪ Records trade in goods and services, as well as transfer payments.
▪ Trade balance only records trade in goods.
▪ Adding trade in services and transfer payments we reach current account balance
▪ The current account is in surplus if receipts exceed payments
▪ The current account in deficit if receipts are less than payments

Lecture 2 -- 9
 Capital Account
▪ The capital account records purchases and sales of assets, such as stocks, bonds, lands
etc.
▪ Capital account is surplus (net capital inflow) when receipt from sale of capital assets is
higher than payment for sale of capital assets in foreign countries.
▪ Deficit is opposite situation.
▪ Capital account may be divided in two separate parts
▪ The transaction of country’s private sector
▪ Official reserve transactions are central bank activities

Lecture 2 -- 10
 External Accounts Must Balance

▪ Individual and firms must pay for what they buy

abroad.
▪ It may need borrowing or selling assets.
▪ Any current account deficit is of necessity financed by
an offsetting capital inflow.
▪Current Account + Capital Account = 0

Lecture 2 -- 11
 Official Reserves
▪ The increase in official reserve is also called the overall balance-of-payments surplus.
▪ BOP surplus
= increase in official exchange reserve
= current account surplus + net private capital inflows
▪ If both current account and private capital account are in deficit, then the overall BOP is
in deficit; central bank is losing reserves.

Lecture 2 -- 12
Lecture 2 -- 13
General government final consumption expenditure (formerly general
government consumption) includes all government current expenditures for
purchases of goods and services (including compensation of employees). It
also includes most expenditures on national defense and security, but excludes
government military expenditures that are part of government capital
formation. Data are in constant 2000 U.S. dollars.

Final consumption expenditure (formerly total consumption) is the sum of household

final consumption expenditure (private consumption) and general government final
consumption expenditure (general government consumption). Data are in current
U.S. dollars.
Lecture 2 -- 14
 Bangladesh - General government final consumption
expenditure (% of GDP)

Lecture 2 -- 15
 Bangladesh Balance of Trade
Bangladesh recorded a trade deficit of 150.30 BDT Billion in February of 2018. Balance of Trade in Bangladesh
averaged -25.49 BDT Billion from 1976 until 2018, reaching an all time high of 0 BDT Billion in April of 1977 and
a record low of -174.90 BDT Billion in January of 2018.

Lecture 2 -- 16
 Bangladesh Current Account
Bangladesh recorded a Current Account deficit of 1791 USD Million in the third quarter of 2017. Current Account in Bangladesh
averaged 383.49 USD Million from 2005 until 2017, reaching an all time high of 1852 USD Million in the third quarter of 2015 and
a record low of -1791 USD Million in the third quarter of 2017.

Lecture 2 -- 17
 Bangladesh Remittances
Remittances in Bangladesh increased to 1300.46 USD Million in March from 1149.08 USD Million in February of
2018. Remittances in Bangladesh averaged 1189.28 USD Million from 2012 until 2018, reaching an all time high
of 1491.36 USD Million in July of 2014 and a record low of 856.87 USD Million in September of 2017.

Lecture 2 -- 18
Period 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13* 2013-14 2014-15p
Export
Goods (f.o.b) 1 18835.6 23466.9 25546.4 28869.6 34599.6 34037.7 37587.2 45534.7 53961.4 69900.8 83205.1 97110.1 107195 112345.1 164159.2 193375.5 211643 230946.3 215561
Import
(f.o.b) 2 27436.3 30783.6 34708.1 38091 45484.9 44206.2 51172.7 58847.7 72945.2 89321.2 107234.3 133765.3 139579.5 147983 216341.1 253042.2 272427.1 286835.7 298129.4
Trade
Balance 3 = (1-2) -8600.7 -7316.7 -9161.7 -9221.4 -10885.3 -10168.5 -13585.5 -13313 -18983.8 -19420.4 -24029.2 -36655.2 -32384.5 -35637.9 -52181.9 -59666.7 -60784.1 -55889.4 -82568.4
Services Receipts 4 2803.2 3214 3439.7 4275 4095.5 4964.4 5136.7 5959.1 7506.7 8978 10235.2 12910.3 12245.1 15453.4 18292.9 19370.4 22601.1 24212.9 22304.9
Payments 5 5265.1 5803.7 6283.2 7494.2 9027.4 7830.5 9149.4 10455.4 12487.1 15627.9 18964.9 23166.7 23663.4 25710.8 35500.6 41880.3 48387.1 56129.4 50988.8
Net 6 = (4-5) -2461.9 -2589.7 -2843.5 -3219.2 -4931.9 -2866.1 -4012.7 -4496.3 -4980.4 -6649.9 -8729.7 -10256.4 -11418.3 -10257.4 -17207.7 -22509.9 -25786 -31916.5 -28683.9
Income / Primary
Receipts Income 7 378.9 413.3 437.8 485.4 523.4 287.4 367.7 406.5 729.4 950.4 1687.6 1515.1 653.1 551.7 871.7 1523.3 965 1011.5 553.9
Payments 8 837.4 868.5 1090.8 2003.1 2378 2598.1 2458.3 2723.5 5671.3 5953.8 7788.9 7422.5 10312.6 10566.4 11267.1 13242.2 19198 21168.1 18554.5
Net 9 = (7-8) -458.5 -455.2 -653 -1517.7 -1854.6 -2310.7 -2090.6 -2317 -4941.9 -5003.4 -6101.3 -5907.4 -9659.5 -10014.7 -10395.4 -11718.9 -18233 -20156.6 -18000.6
Current Transfers
Official(Net)/ Secondary10 Income
1605.7
(Net) 1213.8 2560 3653.2 1448.4 1890.2 2158.3 2143.6 2706.8 3668.2 4004.2 4017.9 251.8 864.8 1047.1 829.2 516.6 615.2 423.5
Private 11 7562.5 7973.4 8205.6 9813.6 10266.1 14377.1 17728.8 19847 23843.9 32195.6 41269.8 54296.9 67715.8 78001.3 84013.2 101982.6 119520.4 115425 111011
12 =
Total (10+11) 9168.2 9187.2 10765.6 13466.8 11714.5 16267.3 19887.1 21990.6 26550.7 35863.8 45274 58314.8 67967.6 78866.1 85060.3 102811.8 120037 116040.2 111434.5
13=(3+6+
Current Account 9+12) Balance -2352.9 -1174.4 -1892.6 -491.5 -5957.3 922 198.3 1864.3 -2355.4 4790.1 6413.8 5495.8 14505.3 22956.1 5275.3 8916.3 15233.9 8077.7 -17818.4
Capital Account (Net) 14 1547.1 1379.8 1671.6 1422.2 2331 2353.5 2480.5 1374.3 1001.1 1622.7 3381.4 3952.5 3345.4 3373.6 4138.1 3678.5 4690.8 5009.5 3394.9
Direct
Financial Investment
Account (Net) 15 71.2 1133.3 952.3 1927.4 2967.2 2243.4 2177.6 2269 4758 4527.9 5246.6 4459 6980.3 6316.4 5585.6 9088.2 -11537.9 -11562.9 -9785.7
Portfolio
Investment 16 -564.8 13.8 -27 0.2 -2 -31.8 5.6 31.6 0.3 240.7 727.7 325.1 -702.1 -2029.5 -6109.2 4142.6 742.9 -3019.9 -2446.9
Other
Investment 17 -825.1 -869.1 -3473.7 -2970.6 598.1 -687.8 318.1 -3430.6 1488.6 -3708.3 -369.3 -6802.5 -11420.2 -820.7 -9589.8 -17391 -15951.5 -17019.4 -26367
Reserve
Assets 18 1432.7 -109.5 972.9 -363.6 1588.6 -1552.5 -5117.8 -1339.9 -1900.8 -3579.6 -10893.1 -7137.1 -12960 -24814.3 5351 -2324.5 41316 45942.1 32810.6
19=(15+1
Total
Lecture 2
6+17+18) 114 168.5 -1575.5 -1406.6 5151.9 -28.7 -2616.5 -2469.9 4346.1 -2519.3 -5288.1 -9155.5 -18102 -21348.1 -4762.4 ---6484.7 14569.5 14339.9 19
-5789
Net Errors and Ommissions 691.8 -373.9 1796.5 475.9 -1525.6 -3246.8 -62.3 -768.7 -2991.8 -3893.5 -4507.1 -292.8 251.3 -4981.6 -4651 -6110.1 -5355.2 1252.7 -825
Period 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13* 2013-14 2014-15p
 Current Account

Trade Balance Services Net

Primary Income Net Total Transfer
Current Account Balance

Lecture 2 -- 20
 Transfers
2 0 1 4 - 1 5 ( P )423.5 111011.0

2 0 1 3 - 1 4615.2 115425.0

2 0 1 2 - 1 3 *516.6 119520.4

2 0 1 1 - 1 2829.2 101982.6

2 0 1 0 - 1 11047.1 84013.2

2 0 0 9 - 1 0864.8 78001.3

2 0 0 8 - 0 9251.8 67715.8

2 0 0 7 - 0 8 4017.9 54296.9

2 0 0 6 - 0 7 4004.2 41269.8

2 0 0 5 - 0 6 3668.2 32195.6

2 0 0 4 - 0 5 2706.8 23843.9

2 0 0 3 - 0 42143.6 19847.0

2 0 0 2 - 0 32158.3 17728.8

2 0 0 1 - 0 21890.2 14377.1

2 0 0 0 - 0 1 1448.4
10266.1

1 9 9 9 - 0 0 3653.2 9813.6

1 9 9 8 - 9 9 2560.0
8205.6

Official Transfer Private Transfers

Lecture 2 -- 21
 Importance of Remittances
Currency Percent
Export Export
Period Total Current
(Merchandise Remittance (Merchandise and Remittance
Account Receipts
and Service) Service)
1998-99 40189.50 28986.10 8205.60 72.12 20.42
1999-00 47096.80 33144.60 9813.60 70.38 20.84
2000-01 50933.00 38695.10 10266.10 75.97 20.16
2001-02 55556.80 39002.10 14377.10 70.20 25.88
2002-03 62978.70 42723.90 17728.80 67.84 28.15
2003-04 73890.90 51493.80 19847.00 69.69 26.86
2004-05 88748.20 61468.10 23843.90 69.26 26.87
2005-06 115693.00 78878.80 32195.60 68.18 27.83
2006-07 140401.90 93440.30 41269.80 66.55 29.39
2007-08 169850.30 110020.40 54296.90 64.77 31.97
2008-09 188060.80 119440.10 67715.80 63.51 36.01
2009-10 207216.30 127798.50 78001.30 61.67 37.64
2010-11 268384.10 182452.10 84013.20 67.98 31.30
2011-12 317081.00 212745.90 101982.60 67.10 32.16
2012-13* 355246.10 234244.10 119520.40 65.94 33.64
2013-14 372210.90 255159.20 115425.00 68.55 31.01
2014-15(p) 349854.30 237865.90 111011.00 67.99 31.73

Lecture 2 -- 22
Period 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13* 2013-14 2014-15(p)

Current Account Receipt 40189.50 47096.80 50933.00 55556.80 62978.70 73890.90 88748.20 115693.00 140401.90 169850.30 188060.80 207216.30 268384.10 317081.00 355246.10 372210.90 349854.30

Import 40991.30 45585.20 54512.30 52036.70 60322.10 69303.10 85432.30 104949.10 126199.20 156932.00 163242.90 173693.80 251841.70 294922.50 320814.20 342965.10 349118.20

Export 28986.10 33144.60 38695.10 39002.10 42723.90 51493.80 61468.10 78878.80 93440.30 110020.40 119440.10 127798.50 182452.10 212745.90 234244.10 255159.20 237865.90

Remittance 8205.60 9813.60 10266.10 14377.10 17728.80 19847.00 23843.90 32195.60 41269.80 54296.90 67715.80 78001.30 84013.20 101982.60 119520.40 115425.00 111011.00

Import as Ratio of Current

Account Receipts 1.02 0.97 1.07 0.94 0.96 0.94 0.96 0.91 0.90 0.92 0.87 0.84 0.94 0.93 0.90 0.92 1.00

Import to Export 1.41 1.38 1.41 1.33 1.41 1.35 1.39 1.33 1.35 1.43 1.37 1.36 1.38 1.39 1.37 1.34 1.47

Import to Remittance 5.00 4.65 5.31 3.62 3.40 3.49 3.58 3.26 3.06 2.89 2.41 2.23 3.00 2.89 2.68 2.97 3.14

Import to Export and

Remittance 1.10 1.06 1.11 0.97 1.00 0.97 1.00 0.94 0.94 0.96 0.87 0.84 0.95 0.94 0.91 0.93 1.00

5% less remittance 1.11 1.07 1.13 0.99 1.01 0.99 1.02 0.96 0.95 0.97 0.89 0.86 0.96 0.95 0.92 0.94 1.02

10% less remittance 1.13 1.09 1.14 1.00 1.03 1.00 1.03 0.97 0.97 0.99 0.90 0.88 0.98 0.97 0.94 0.96 1.03
Lecture 2 -- 23

20% less remittance 1.15 1.11 1.16 1.03 1.06 1.03 1.06 1.00 1.00 1.02 0.94 0.91 1.01 1.00 0.97 0.99 1.07
 Capital Accounts
Capital Financial Account (Net)
Account Direct Portfolio Other Net Errors
Period (Net) Reserve Assets Total and
Investment Investment Investment
Omissions
14 15 16 17 18 19=(15+16+17+18)
1998-99 1671.6 952.3 -27.0 -3473.7 972.9 -1575.5 1796.5
1999-00 1422.2 1927.4 0.2 -2970.6 -363.6 -1406.6 475.9
2000-01 2331.0 2967.2 -2.0 598.1 1588.6 5151.9 -1525.6
2001-02 2353.5 2243.4 -31.8 -687.8 -1552.5 -28.7 -3246.8
2002-03 2480.5 2177.6 5.6 318.1 -5117.8 -2616.5 -62.3
2003-04 1374.3 2269.0 31.6 -3430.6 -1339.9 -2469.9 -768.7
2004-05 1001.1 4758.0 0.3 1488.6 -1900.8 4346.1 -2991.8
2005-06 1622.7 4527.9 240.7 -3708.3 -3579.6 -2519.3 -3893.5
2006-07 3381.4 5246.6 727.7 -369.3 -10893.1 -5288.1 -4507.1
2007-08 3952.5 4459.0 325.1 -6802.5 -7137.1 -9155.5 -292.8
2008-09 3345.4 6980.3 -702.1 -11420.2 -12960 -18102.0 251.3
2009-10 3373.6 6316.4 -2029.5 -820.7 -24814.3 -21348.1 -4981.6
2010-11 4138.1 5585.6 -6109.2 -9589.8 5351.0 -4762.4 -4651.0
2011-12 3678.5 9088.2 4142.6 -17391.0 -2324.5 -6484.7 -6110.1
2012-13* 4690.8 -13776.3 742.9 -15951.5 41316.0 12331.1 -7350.0
2013-14 5009.5 -11562.9 -3019.9 -17019.4 45942.1 14339.9 1252.7
2014-15(p) 3394.9 -9785.7 -2446.9 -26367.0 32810.6 -5789.0 -825.0

Lecture 2 -- 24
 Foreign Reserve and Import
8.00

Foreign Reserve As Import Coverage in Months 7.00

6.00

5.00

4.00

3.00

2.00

1.00

0.00

Period

Lecture 2 -- 25