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Macroeconomic variables to determine the Macroeconomic Performance of Bangladesh. BY Manhattan An Assignment On: Macroeconomic variables to determine the Macroeconomic Performance of Bangladesh. Prepared By: Md. Mishap Duding. Roll no: 09122452 2nd year 2nd semester Department of Economics. Introduction: Macro economics deals with the aggregate economy. It deals with not only level, not only individual output, but also national output. The world economy was close to a collapse due to the present global economic crisis. However, the global economy has turned around and recovered from recession faster than expected.
Now we are going to explain the role of the following variables to determine the macroeconomic performances of Bangladesh. Investment: In fiscal year 2008-09, the level of investment was 24. 37% of total GAP will be reduced to 24. 35% of GAP in fiscal year 2009-10. We know that for decreasing rate of investment, Gross domestic product (GAP) will be reduced 690571 take to 690572 take. Investment is a part of GAP. GAP or total output consist of C+l+G+(X_M). Where (l) indicates county’s investment. If level of investment increase or decrease than total output will be increased or decreased.
Investment is financed from three sources: 1 . Privet savings. 2. Government budget surplus 3. Borrowing from the rest of the world. Household consumption is spent on consumption, saved, or paid in tax. We know that I=S+(T-G) + (M-X). In this Equation, (T-G) is the government budget surplus and (M-X) borrowing from the rest of the world. If net taxes (T) exceed government expenditure (G) the government budget surplus contributes toward paying for investment. But if net taxes are less then government expenditure, the government budget deficit must e financed with funds that could otherwise have financed investment.
If import (M) exceed export (X) government borrow an amount equal to (M-X) from the rest of the world. Bangladesh is a developing country, the unemployment rate is 24. Percent and country’s total output is not satisfactory to fulfill the domestic demand. So Bangladesh has to import very much both industrial and capital goods. The present government has taken different steps to reduce unemployment rate 24. 03% to 10. 03% by increasing level of investment, without this it is not possible to be occurred. Fiscal Year Total Investment Public Investment Private Investment 2008-09 24. 37% 4. 70% 19. 67% 2009-10 24. 5% 4. 62% 19. 74% Source: Bangladesh Bureau of Statistics. Savings: According to temporary estimation the rate of savings has reduced 20. 09% of GAP to 20th. 65% of GAP in fiscal year 2009-10. For decreasing rate of savings 20. 09% to 19. 78% (0. 31%), the rate of investment has reduced 24. 37% to 24. 35% (0. 2%) of GAP during Fiscal year 2009-10. We know that the sum of private savings (S) and government savings (T-G) is called National Saving. National Saving and foreign rowing finance investment. Savings is the important Macroeconomic variable, which significantly determine the Macroeconomic performances.
In Bangladesh people save only 20% of income from their disposable income. We know that Level of investment depends on savings. In Bangladesh the level of investment is not remarkable due to low savings rate. Year Domestic Savings National Savings 20. 09% 29. 57% 19. 78% 29. 65% Inflation: Gradually, to meet up world depression the domestic demand of different countries has been increasing. As a result increasing demand increases price level which rates pressure on countries rate of inflation. In Bangladesh the rate of inflation is 8. 78% in March 2010, which was 5. 08 percent in year 2009 %.
It may be mentioned that over the same period, inflation was 9. 9% in India and 12. 9% in Pakistan. But in current Fiscal year the rate of total inflation has become 6. 88 percent. We know the first victim of inflation is the poor people. To reduce the rate of inflation the Present Government has taken some initiatives such as inconsistent of domestic output by increasing level of investment, inconsistent of necessary goods supply and starting MOMS. We have, therefore widened the ambit of food security program. Agriculture and Rural Development program will be strengthened.
For increasing the level of domestic investment, total inflation can be reduced to 6. 5% in current Fiscal year 2009-10. The revenue collection situation: The revenue collection situation up to March 2010 remains satisfactory against total revenue target for the budget of Fiscal year 2009-10. For this reason the estimate for collection of N.B. 0 tax in the revised budget remains unchanged at take 61000 core ( 8. 8% of GAP). Apart from that, revised estimates for collection of Non-N.B. tax and non tax revenue has been fixed at take 18484 core ( 2. % of GAP) after having a slight up ward adjustment. We said that we would like to enhance the economic necessary for attaining these targets and a major portion should come from direct increase of revenue. We have been able to increase governments revenue collection as per target (almost 0. 7% of GAP) set this year. The present government s efforts will continue to maintain the momentum of revenue collection activities. Tax is an instrument of government’s revenue collection. Taxes are two types: Direct Tax Indirect Tax Direct tax basically means income tax.
In Bangladesh the percentage of income tax of total tax revenue is 25. 89% (FYI 2009-10) and remaining 74. 11% of tax revenue comes from indirect tax (VAT). We know that direct tax insure social Justice and increase political consciousness. In case of indirect tax all classes (payable and non payable individuals) have to pay indirect tax which reduces social Justice also bear a higher welfare cost. So the government of Bangladesh should increase the direct tax overage that is direct tax revenue instate of higher indirect tax revenue.
Government Expenditure: In current Fiscal year 2009-10, estimated total expenditure is 113819. 00 core take which is 16. 6 percent of GAP. Among this, development expenditure may be 83319. 00 core take and annual development expenditure is 30500. 00 core take. We know that Government expenditure is a part of GAP. Government expenditure are occurred by indirectly buying factors of production, For this reason the spending amount are divided among factors of production which increase household’s level of income. If shoulder level of income increase than consumptions and savings increase.
We know that consumption is the important component of GAP. On the other hand, if savings increase than investment increase and increased investment means total production increase. Total production increase means the volume of GAP increase. External Sectors ( Export & import) Export and Import are the important component of GAP. In Bangladesh the volume of net export is negative. But the importing goods are mainly capital and machinery. Now we are showing below Export and Import condition of Bangladesh. Export: Recently, Bangladesh managed to achieve a 10. Percent growth in Export. This is obviously a commendable achievement for Bangladesh. Due to the global recession, export earnings have increased by only one percent during July-April of FYI 2009. It is to be noted that export earnings are on the rise since March 2010 and in April this has increased by 19 percent. Import: Import growth of Bangladesh was 4. 1 percent in 2008-09. In the first 10 months that is up to April of FYI 2009-10, import expenditure has increased by 0. 8 percent compared to the corresponding period of the previous financial year.
Import has, however, increased by 24. 9 percent on the basis of L/CSS opened during July-April period. The good news is that the import of capital machineries and raw materials has increased by 54 percent and 12. 5 percent respectively on the basis of L/C opened during this period which will have a positive impact on the economy in the From the above discussion we can say that the macroeconomic variable such as the level of investment, Savings, Inflation, Government revenue collection and expenditure are not full employment level of GAP. To reach full employment level of
GAP Investment, Savings, Government Revenue collection and Expenditure should be higher. In Bangladesh, Investment should be occurred under agro-based, Savings rate should be higher and Government revenue collection should be increased by direct tax revenue. Government Expenditure should be increased under education, technology and positive externally based sectors. Government Expenditure must be occurred in right way and corruption free. By following above recommendation, Bangladesh will get a sustainable economic growth and reach a full employment level of GAP.