Issues of Preparation and Implementation of ADP

Issues of Preparation and Implementation of ADP

As per the poverty reduction strategy of government of Bangladesh the main issues of preparation and implementation of ADP (Annual Development Program) are accelerating economic growth, lowering inflation, generating employment and reduction of poverty. Do you agree with this statement? Justify your opinion.

Yes I agree with this statement, because Bangladesh is a developing country where most of the people living below the poverty line. Government is planning to establish Bangladesh as a middle income country but the problem is poverty which must be resolved first to get the status of middle income. Another problem is imbalance income, here in Bangladesh 90% money is on the hand of 10% people and rest of the 10% money holding by 90% people, this ratio should be adjusted through economic distribution of income and wealth to ensure balance.

Issues of Preparation and Implementation of ADP

To ensure accelerating economic growth, creating employment and reduction of poverty line government took many strategic decisions like Annual Development Program. Every year huge amount of money is allocating for the purpose of annual development program and if requires then government revise the ADP year to year.

ADP is under the development budget approved by the parliament; basically the planning commission formulates the ADP of the Government of Bangladesh for period of more or less than five years to meet several goals and objectives. For financing of ADP both local sources (government or other financial institutions) and foreign (foreign aid, loan) are used.

Over the year allocation from the budget for ADP is increasing by a considerable amount, in 1972-73 ADP was 501 crore taka, 1979-80 it was 2123 crore taka, 1987-88 it was 5046 crore taka, 1995-1996 it was 12100 crore taka and for 2015-16 it is now 97000 crore taka.

Look at these above figures of ADP allocation over the year; you see huge amount of money is used for the purpose of annual development and for this reason our economy is now expanding, more local and foreign investment creating employment for the people of Bangladesh which is working as a driving force for the increase of income, consequently it is reducing the poverty of our country.

Another great challenge for the government of Bangladesh is to keep the inflation rate at a minimum level. Although we have seen that the inflation level was increased up to 9.09 percent in May 2014 and 5.86 percent is the lowest ever in December 2014. The rate of inflation of our country is normally on an average 6 to 7 percent. So in this perspective we can say that government of Bangladesh is quite successfully managing our inflation level which is one of the prerequisite to ensure a proper economic growth.

Now come to the point how economic growth is done through ADP over the years, economic growth is the increase in the value of all goods and services produced in a country for a period of time. GDP- Gross Domestic Product is the determinant by which we can say what going on with the economy; it is growing positively or negatively. Here for Bangladesh you can see that although there was economic recession in many countries but we had maintained our positive economic growth which is one of the main indicators that we are doing well.

Under the annual development program several sectors are getting priorities like infrastructural development, ensuring quality education for the people, adequate health service, developing information technology to ensure digital Bangladesh, agricultural development and supporting women to become entrepreneur. An economic growth can be possible through properly using natural resource, capital, human resource and information technology. In addition to these there should also capacity to meet demand and efficiency in operation of business.

Through these annual development programs our economy is moving positively, more new local and international companies are showing their interest to invest here and it is government responsibilities to ensure a positive environment for investment. More investment will create more employment opportunities, as people are getting employed our employment rate will be high. Because of employment we will have more earnings to spend, hope this will help us to reduce our poverty.

The important thing is to keep the inflation rate at a lower level, although it is very much challenging job for the government to lower the inflation rate but it has to. Government should implement monetary policy to control the money supply and fiscal policy to minimize or maximize the government expenditures and revenues. Also it is required to monitor and control the exchange rate of our country as our country’s economy is highly dependent on the remittance and the import and export.

Example: As a vision of digital Bangladesh government spending lots of money from the ADB for Information Technological development. Now we are seeing that there is a positive impact of this IT development. Many people are getting employed, they are earning trough outsourcing and working here in Bangladesh for local firm. It is helping to generate the employment and earnings of the people which moving our economy positively.

If everything happens in a right way then we hope that the annual develop program of the government will create positive impact to ensure Bangladesh as a middle income country.

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Factors are Important for Efficient Decision Making

Why the economics analysis and in depth understanding of economic factors are important for efficient decision making in capital market?

Investors always try to formulate best possible portfolio by investing in the capital market for the purpose of getting capital gain and dividend (cash or stock). It is not an easy task to choose best investment alternatives because proper analysis is required. Only a specialized person would be able to analyze the market and identify the potentials. Many people think that only financial analysis is enough to make investment but in real sense not only financial analysis but also economic analysis is required.

In case of financial analysis we only consider company and industrial outcome by fundamental and technical analysis. But whenever we go for analysis by considering economics we have to analyze the macroeconomic factors that may have impact on the capital market. An economist or any other professionals those have knowledge of economics can do this analysis on behalf of investors. But investors also have to have basic ideas of how economics factors can influence the price of the investment securities.

Factors are Important for Efficient Decision MakingFor efficient decision making in the capital market following economic factors should be considered

  • Inflation
  • Market Interest Rate
  • Economic Recession
  • Employment Rate

Effect of Inflation in the Capital Market

In an inflationary economy investors have less money to invest because investors have to spend more money for their consumption. As because there is a less demand of the stock in the capital market, the price should be lower; we know that lower the demand lower the price. In the other sense in case of company, for inflation the production cost of the company is higher than the previous. So company’s income will be lower that stimulate the price of the stock. We know that the stock which provides more dividends to the stock holders, that stock should price higher than the other company which provide lower dividends.

Effect of Market Interest Rate in the Capital Market

If the market interest rate increases then investor will prefer fixed income securities rather lower earning risky securities. Suppose government bond providing 10% of interest then this bond will get more preference compared with risky investment. On the other hand if the interest rate is lower in the market then investor will borrow the money at lower interest and invest in the capital market.

Economic Recession

Because of economic recession there may have positive impact on the capital market. Normally at the beginning of recession investor loose but there is always an expectation that in near future there will be positive movement in the stock price in the market, so investor prefer invest when there is recession. This will happened only if there is strong form of efficiency exists in the market.

On the other hand if there is an economic boom situation exists then there may have a possibility of declining market price movement.

Employment Rate

With the increase of number of employment of a country per capital income will also increase. For this people will have extra money after consumption. If people capital market is performing well then investor will interested to invest their surplus amount of money. So higher the employment higher the earning and it does increase the investment in the capital market.

Political Condition of a Country

Political condition is one of the main factors which have a huge impact on the overall economy and the capital market. People believe that a positive economic condition is required to maintain a stable capital market. Several financial decisions taken by the government over time to time, so it is also important know how much preference a capital market gets from the government.

In a capital market investors basically invest in a long term securities so investor must consider all probable aspects and economic factors before making investment. A choice of investment in capital market can lead to a huge capital loss, so proper analysis has to done by the professional and select best opportunities.

Finally one thing is that an investor should consider economic factors which have impact on the capital market and proper financial and economic analysis must be done before investing in the capital market.

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Overview and Growth of Financial Industry

Overview and Growth of Financial Industry of Bangladesh

The economy of Bangladesh is a mixed economy where both government and private sector control the economy by planning and mixture of market. In a broader sense we can divide our economy into several industries. Financial industry is one of the leading industries which have great potentiality. Every year this industry is contributing large amount of value to the GDP (Gross Domestic Product) of our country (Bangladesh).

With the expansion of the economy we require to ensure security of money and effective use of the money. Considering these needs financial institutions are formed. In our country both bank and non bank financial institutions are available. Bank provides pure banking services and other financial services provided by non-bank financial institutions. Non bank financial institution can be financial intermediaries, insurance companies and leasing companies.

Central Bank of Bangladesh (Bangladesh Bank) is the sole institution responsible for controlling the financial institution and financial industry. Under the control of Bangladesh bank there are 65 banking institution (private, public/ state owned, specialized, and foreign) and 32 non bank financial institutions (mainly private) provides leasing and investment facilities and 62 insurance companies (private, public, foreign) providing life insurance and non life insurance policies.

Contribution of Financial Institutions to our (Bangladesh) GDP

Every year millions of taka is contributed by these financial institutions and is expanding exponentially. For this reason this industry considered as a base industry for our country. If we see the trends of contributions made by this industry then it will be clear that how much value added. From the last 5 years of data we can forecast that in the upcoming year our GDP will grow much more than these years.

contribution of financial institutions to our GDP

Contribution of Financial Institutions to our GDP

Percentage of Contribution to our GDP:

People can say that only 3% plus contribution is not much for an economy. But I am strongly saying that this percentage looks small but the amount of contribution is huge. In 2009-10 the contribution was 3.08% but with the passes of time this percentage is increasing. Last year that is 2013-2014 the contribution was 3.85%. Hope in the next year this will reach to 4%.

overview and growth of financial industry

Percentage of Contribution to our GDP

Growth of Financial Industry:

Although this industry is doing well but with the change in the economic condition the growth also changes. There is huge change in 2011-2012 in the financial sector according to the contribution to our GDP. Because of more foreign direct investment there is inflow of funds in the economy which circulate through financial institutions. Investment in long term asset and infrastructural development was done by the government and private sector. The positive sign is average growth is 15% plus. Near future hope this will reach at 20% plus with the expansion of total economy.

growth rate of financial institution

Growth Rate of Financial Institution over the Years

From the above identification we can assume that one day our economy will be much more efficient. Because we have financial institutions with modern technology which providing services as per required by the people at any time anywhere.

Written by

Md. Nahian Mahmud Shaikat

Student of MBA

Institute of Business Administration (IBA)

Jahangirnagar University

Email: [email protected]

Current Economic Condition of Bangladesh

Current Economic Condition of Bangladesh

Bangladesh is a developing country with population of 157,949,908 where economic is expanding day by day. After the independence our economy is reformed to manage it to our own way. Now ready made garment (RMG) sector is performing very well compared with other sector. With the expansion of information technology many new industries have emerged. The contribution of each and every industry is considerable although 10 to 15 years back the contribution of information technology & telecommunication sector to our economy was minor. But now these two sectors generating large amount of revenue for their own and make a good contribution to our economy. With the increase of educational status, the standard of living is improving. If these continue our economy will be a model for other developing countries. Although current economic condition of Bangladesh is good enough but government needs to monitor every economic activities closely.

Contribution to our GDP

The performance of economy can be measured with the help of GDP (gross domestic product) i.e. the value of all products and services produced within the boundary of our country. Our GDP for the year 2013-2014 was 6.12% where the growth is 12.68% from the previous year. GNI is 4.76% which is grown by 11.24% compared with previous year.

Industrial Contribution to our Economy

  • The contribution of agriculture to our economy is most. Once upon a time we cannot think about our economy without agriculture because 85% people of our country were involved with agriculture. But now situation has changed, with agriculture now ready made garments (RMG), bank and non-bank financial institutions, outsourcing, exporting man power adding extra value with our economy.
  • Our economic can be divided into 15 different industries in a broader sense. If you check the industrial contribution to our GDP for 2014 we will see that manufacturing industry is contribution larger portion to our GDP of 17% where as agricultural and wholesale retail trade contributing each 13% of total 26%.
  • Communication and service sector contribution total of 23%. Where community and service sector contributing 12% of our total GDP and communication (transportation, telecommunication) sector adding 11% value to the GDP of Bangladesh for 2014. Other ten industries also contributing a considerable amount each and every year.
Current Economic Condition of Bangladesh

Industrial Contribution to GDP of Bangladesh

For ensuring economic growth government should take following things seriously otherwise our economy down soon.

Condition of Stock Market of Bangladesh

In our capital market there are two stock exchanges. One is DSE-Dhaka Stock Exchange and other is Chittagong Stock Exchange-CSE. Dhaka stock exchange has total 549 listed companies and Chittagong stock has total 250 listed companies. Although stock market doing well over the years but few years back stock market (capital market of Bangladesh) crashed. Stock market accelerating unpredictably, at that time many investors acquires much capital gain. The capital market rises 62% in 2009 and 83% in 2010 but then went down 10% in January 2011, and a further 30% fall in Feb 2011. This falls continues for this reason many investors lost their all investment. Government tried to make correction and still trying but it will take time to stable. In 2015 if we check the index of stock market then we can see that market still not doing well. So investor must be cautious before making any investment decision in the stock market.

Flow of Remittances of Bangladesh

People working outside Bangladesh are contributing to our economy indirectly by sending remittance each month. This large amount of remittance is helping us to improve our economy. Foreign currency reserve also increasing by the remittances and export of ready made garments. Here is the scenario of remittances for year 2014 and 2015. Remittances flows looks like stable but in this year remittances is decreased compared with previous year.

flow of remittances of bangladesh

Flow of Remittances of Bangladesh

Reserves of Foreign Currencies of Bangladesh

There is a considerable change in the reserve of foreign currencies. If we look the reserves of each year we will see there is a positive movement each year. In 2004-2005 our foreign currency reserve was only 2930 million dollars where as in 2013-2014 our reserve is 21558 millions. Within these 10 years the rate of increase of reserve is 635% which is a great achievement for our economy. If we can utilize this large amount of foreign currency reserves by importing capital goods and invest in productive sources then our economy will be much more efficient. This ultimately helps our economy to grow faster than previous.

reserve of foreign currencies of bangladesh

Reserves of Foreign Currencies of Bangladesh

Scenario of Import

Every year we import large amount of goods from different countries around the world but larger portion come from China and India. Last year we imported from china 20.70%, 16.60% from India, 6.30% from Singapore, 5.60% from Malaysia and 3.50% from Japan. Electronic product mainly imported from China. Reserved foreign currencies are used to import.

China 20.70%
India 16.60%
Singapore 6.30%
Malaysia 5.60%
Japan 3.50%

Potentiality of the Economy of Bangladesh

  • RMG sector is the highly growing sector which contributing huge amount of money each year. It is government’s responsibility to ensure a positive environment so that this sector can grow fluently. One of the main reasons of success of RMG sector is the cheapest labor available in our country, which ensures low cost of production.
  • We have large number of young people those have the ability to world. If we can ensure proper use of the human resource then we will be a develop country soon.
  • Availability of natural resources and low cost of factors of production foreign buyers are interested to invest here. If there is large amount of foreign direct investment then it will create employment of many peoples.
  • Outsourcing and tourism are two potential industry which will bring millions dollar’s foreign currency, which will increase our reserve of foreign currencies. We required foreign currencies to import capital goods.

Major Problems for Economy of Bangladesh

  • Political instability is one of the main problems which we can see recent years. At the end of the 2013 political condition started to deteriorate now 2015 looks like our economy is stuck.
  • Export is decreasing for the reason of delayed in delivery of goods. Exporters cannot send the goods timely because of lockout of internal route transportation. Burning and breaking of vehicles etc.
  • Decision taken by the economic policy maker are most of the cases wrong and in some cased are not effective one.
  • There is an absence of proper monitoring system for the potential sector, so government failed to deliver the subsidiary and ensure positive environment.

Although our economy is doing well but there are many problems that we must overcome. We need a good leader who will lead us toward our goal and take every decision by giving priority to our national benefit not their personal benefit. Things also required are:

  • Ensuring political stability to attract foreign buyers and investors.
  • Forming proper monitoring and controlling cell.
  • Taking effective economic decisions to ensure proper use of resources both natural and technical.
  • Keeping inflation rate at normal level so that buying power of money not reduce significantly.

If we can ensure above mentioned things then our economy will be perfect for investment. And one day this economy will be stable and more growth potentials.

Written by

Md. Nahian Mahmud Shaikat

Student of MBA

Institute of Business Administration (IBA)

Jahangirnagar University

Email: [email protected]