The Global Financial Crisis : Impact of Bangladesh

The Global Financial Crisis : Impact of Bangladesh


The world economy is currently experiencing the worst global financial crisis since the Great Depression. While major world economies have taken a massive hit resulting in negative growth rates in key countries or regions, including the US, EU and Japan, the contagion also spread to emerging developing countries like China, Brazil, India and South Africa, as well as to the countries of South East Asia and Latin America. The magnitude of impact seems to depend on the extent of integration with the rest of the world (or to use World Bank jargon, the extent of liberalization that has taken place). The impact on LDCs like Bangladesh has been muted in the first, and even the second round. However, there is growing evidence that third round impacts are making themselves felt, manifested in declining exports, declining migration of labour, growing number of sick industries, industrial unrest, and reduced growth. There are also fears that poverty and unemployment may be exacerbated and MDG targets could become jeopardized.

Countries like Bangladesh are interested in understanding the socio-economic impact of the global financial and economic crisis as well as policy options to cope with emerging challenges. This study addresses itself to the task of assessing the unfolding impact of the GFC on Bangladesh. There is a consensus that the chief transmission mechanisms relevant for Bangladesh are quite limited, operating through the impact on exports, remittances and labour exports, and imports. These could also lead to second order effects operating through lowering of growth, balance of payment and budgetary effects, as well as micro effects on employment and poverty. Flows of FDI and ODI (including food aid) have dwindled as well, leaving LDCs like Bangladesh to deal with the crisis on their own. A saving grace has been the lack of a liberalized capital account in Bangladesh, which prevented dramatic capital outflows, and have not contributed to increased vulnerability.

The possibility of an adverse impact on agriculture has not been raised in the current debate. However, low world and Indian food prices arising from a volatile international market, has caused agricultural prices to be depressed, especially since Bangladesh imports significant quantities of agricultural produce, including cereals, from time to time. The current rice price situation suggests that the problem of farm incentives is a serious concern.

Thus, the main focus of this paper is to review the following issues:

(a)        Impact of the global financial and economic crisis on the macro-economy, such as growth prospects, inflation, interest rate, level and composition of public expenditure, budget deficit, exports & imports, balance of payments, public debt, etc.

(b)        Impact of GFC on different sectors of the economy like agriculture, manufacturing, construction, SME, trade etc.

(c )       Micro level impact: on households, rural-urban poverty, inequality, gender issues

(d)       Mitigation and policy: policies adopted, recommendations

The above analysis is likely to involve an examination of a number of indicators, e.g.

– Foreign capital flows/FDI and ODA flows

– Availability of credit

– Exports

– Global commodity price behaviour

– GDP and investment

– Employment, unemployment, poverty

– School drop out (especially of girls)

– Basic health care

– Widening fiscal deficit/ fiscal space

– Balance of payments

– Monetary stance

– Social safety nets

It is widely recognized that in the case of Bangladesh, the direct transmission channels that are most relevant are exports, labour exports and remittances, and global commodity price changes and imports. The first task therefore is to assess what has been happening on these key fronts. However, it is useful to begin with a review of macro-economic performance in the backdrop of the GFC.



Economic Growth

The GDP growth rate has been consistently over 6 percent over the last few years despite a number of weather related shocks emanating from cyclones and floods. There is considerable speculation about what impact the GFC will have on GDP growth with widely different figures emanating from different institutions. The World Bank suggested that growth could decline to 4.5 percent while most other observers had put the figure at 5.5 to 5.8 percent. Preliminary estimates now available from the Bangladesh Bureau of Statistics (BBS) put the figure at 5.88 percent for FY 2008-09. This is the lowest GDP figure posted in the last five years, and is significantly less than the target (6.5 percent). Most observers however feel that this is a commendable performance in the backdrop of the GFC following on sharp fluctuations in world food and fuel prices, high inflation levels, and low investor confidence. To put it in context, the deceleration in GDP in Bangladesh was much slower, compared to e.g. India and Vietnam (CPD-IBRD 2008-09).

Tangible sectors of the economy (largely agriculture and manufacturing) posted a moderate growth of 5.38 percent while the intangible sectors (e.g. services) recorded a 6.2 percent growth. The contribution of industrial sector to GDP was around 29 percent, with agriculture accounting for around 16 percent. Services, on the other hand contributed close to 51 percent to the GDP. Overall, the performance of agriculture was striking at 4.7 percent growth, even higher than the official target, with the crop sector posting a growth of almost 6 percent – helping immensely to shore up a worsening food security problem.

While services overall performed well, three out of the nine sub-sectors experienced relatively poor performance (compared to 2008-08), in particular for wholesale and retail trade, transport and communication, and financial intermediation.


 Growth in gross capital formation increased by 5.72 percent, significantly above the rate achieved in the preceding year (1.8 percent) – however, this remains lower than the longer run trend of 8-9 percent. Investment as a percentage of GDP is just over 24.2 percent, marginally lower than the target set under the MTMF of the PRSP at 24.4 percent. It has tended to decline in recent years, mainly because of a decline in public investment. To put it in context, Bangladesh’s investment rate is low compared to regional standards (e.g. India invests 40 percent of GDP) and well below the savings rate of 32.3 percent, implying substantial potential to scale up investment if the right conditions are in place. The current climate however has dampened investor confidence, arising out of a number of bottlenecks relating to infrastructure, an uncertain world market, and most crucially, an acute energy crisis.

Public Finance/Budget

Total revenue collection in 2008-09 is estimated to fall short of target by around 2 percent (CPD-IRBD), mainly due to the shortfall experienced in tax revenue collection by the National Board of Revenue (NBR). In fact, non-NBR tax revenue is estimated to have exceeded the target set very comfortably, although non-tax revenues also dipped into the red. The revenue collection effort of the NBR has certainly been constrained by international forces, first stemming from the sharp rise in food and fuel prices (causing Bangladesh to reduce duties on many food items), and secondly, in the wake of the GFC, which led to a collapse in world commodity markets and reduction in import-based duties and taxes (which account for more than 40 percent of tax collection). Collection of import duty is estimated at 2.3 percent in 2008-09 against a target of 13.1 percent. Similarly, achievement by way of supplementary duties was very poor. However, these losses were compensated to an extent by growth in income tax collection (over 20 percent compared to a target of only 11 percent).

On the basis of projected revenue earnings and expenditures for 2008-09 and 2009-10, the size of the budget deficit is estimated to be 3.19 percent of GDP in 2008-09 (down significantly from 4.18 percent in the preceding year) rising to 4.5 percent in 2009-10.  This suggests that the government would need to be ready to deal with a significantly larger deficit in 2009-10, because of a large budget designed to meet the challenges of the global economic crisis. It would be important to carefully balance financing the budget from bank and non-bank sources and through foreign financing. While the government has generally opted to go for more non-bank financing, its ability to use foreign financing has tended to be poor.

Budget expenditures for 2008-09 have also been well below target. The major expenditure accounts are interest (19.8%), education (17.7%), public services ((14.6%), agriculture (11.5%), defense (8.8%) and public order and safety (8.6%). In the light of the GFC it will be important to scale up expenditures and improve utilization of the ADP during the next fiscal. A concerted effort is urgently needed to improve utilization rates.

Money and Inflation

The spiraling inflation that was observed over 2006-08, led mainly by volatile world markets especially for food and energy products, was tamed by bumper rice harvests in the country combined with a slump in world markets in the wake of the global recession. The current worry is not so much with high inflation rates (which has come down from 11 percent in July 2008 to 5-6 percent in July 2009) and containing the money supply but in fact with low prices for farm produce that is acting as a disincentive for future production. The response of the government has been to expand subsidies (for fertilizer, fuel, credit). However, the government also needs to be ready to deal with re-emerging inflationary pressures once the recession eases off and world commodity markets rebound, towards the end of fiscal 2009-10.


The demand for credit has remained sluggish in the economy, especially from the private sector. Credit to the government sector grew at a modest rate but private sector credit declined, leading to excess liquidity in the banking system. Indeed, the level of liquidity increased by over 60 percent in 2008-09 compared to the preceding period, due to several factors: (a) the demand for import credit declined in the face of lower import prices, (b) uncertainty in the world market has led the private sector to postpone investments, and generally to adopt a more conservative approach, and (c) government expenditure during 2008-09 has also been low.[1] However, the most important reason behind the reluctance of the private sector to invest is the energy crisis that has hit the country, which is a domestic issue and has little to do with the GFC. Indeed, one might argue that if energy did not act as a constraint, Bangladesh could have reaped significant gains from the GFC by reaching out to new markets and undertaking strategic investments in upgrading technology and equipment.

Interest Rate

In the light of slackening demand, the supposedly ‘high’ interest rate charged by banks in Bangladesh has come in for a lot of harsh criticism. Recently, the Bangladesh Bank asked all commercial banks to limit the lending rate to 13 percent (from 15.5 percent previously). Some banks responded by lowering the interest rate on fixed deposits, leaving the average spread only slightly reduced, despite a significant drop in the inflation rate. The ‘high’ lending rates are blamed on inefficiency, market segmentation and lack of competition although no systematic analysis has been conducted to actually examine this issue. Preliminary analysis by BIDS actually does not suggest that the spread is too high although others consider it to be “one of the highest in the world” (CPD-IBRD, 2009 p.14). The matter will require further investigation but what can be said perhaps with greater confidence is that the interest rate is not a key determinant of the decision to invest in Bangladesh, given the other much more serious constraints that investors must overcome (including energy, and generally costs of doing business).

Exchange Rate

Bangladesh adopted a free-floating exchange rate in 2003, and is believed to be conducting a policy of managed float, keeping the BDT stable against its main trading currency – the BDT. The local currency has remained virtually unchanged against the USD since 2006, giving rise to concerns among a segment of exporters that Bangladesh is losing its competitiveness in the light of large losses experienced by the USD against all other currencies in the wake of the GFC. The Bangladesh Bank however feels that there are no grounds for depreciating the BDT since the effect on exports are unlikely to be large, and there may be adverse effects of higher import costs that could negate any gains made. Recent research by BIDS-PRP (Hossain and Ahmed, 2009) suggest that there may be some gains from small adjustments to the exchange rate – a view however that is not supported by all. It is generally felt (although this exercise does not appear to have been conducted) that the exchange rate is at equilibrium and needs little adjustment or intervention.

Foreign Direct Investment

The global flow of FDI fell by over 28 percent in 2008 and is expected to fall further in 2009. FDI to Bangladesh over July-April 2009 was around $900 million – a 91 percent increase over the preceding period. Net portfolio investment was negative. Bangladesh has not emerged as an important destination for FDI due to its poor image, inadequate infrastructure, and more recently, the energy crunch. There is considerable potential however, in terms of investments in infrastructure, energy and manufacturing, especially in the light of the very recently approved strategy of supporting public-private partnerships. Given Bangladesh’s excellent growth performance, rising incomes (GDP per capita is now around $700) and a more affluent middle class, there is a significant domestic market that would be attractive for many investors.

Foreign Aid

Foreign aid flows to Bangladesh in 2008-09 appear to have remained roughly at the 2007-08 level. However, food aid has declined dramatically. Thus over the period July-April (2008-09), food aid fell to $37.6 million compared to $83.3 million during the same period in the preceding year. The total amount has declined from historical levels of around a million tons to around 80,000 tons this year. Food security has been given the highest priority by the current government but given the large volatility often experienced in domestic food production, there is always a threat of crop losses and high domestic price levels. Given the recent volatility seen in world food markets, the government remains worried about food security, and would have welcomed an assurance of some food aid of at least 200,000 tons. There is a fear that low farm gate prices this summer, following on good harvests and low world market prices, will impact negatively on the next winter harvest, and could destabilize the crucial rice market.

Balance of Payments

Bangladesh’s balance of payments has improved in 2008-09, in sharp contrast to many other countries in the region, arising from excellent performance in exports and remittances, and a slow-down in imports. These aspects are treated in some detail in the next section.



Bangladesh’s export earnings have risen rapidly since the early 1990s. Exports have grown from around 7 percent of GDP in 1991 to around 18 percent in 2006. Two main sources of economic growth have been manufacturing and services, both crucially dependent on the RMG sector. Thus, any impact on the country’s export processing sector, and in particular on the large RMG sector, will adversely affect economic performance.

The main driver of the export sector is the ready-made garments industry (RMG) which accounts for almost four fifth of our total export earnings. Almost two and a half million people, ninety percent of them women, are employed in the RMG sector. While a large but undetermined number of people are involved in various ancillary and support services e.g. banking, insurance, transport etc. to this sector, the workers are largely drawn from the poorer sections of society. Any adverse effects on the RMG sector will thus have far-reaching implications for the entire economy and society.

The export sector is potentially vulnerable to the on-going financial crisis as it heavily depends on the EU and US markets which have been badly hit. Almost half of Bangladesh’s exports go to the EU, while another quarter goes to the US. High export concentration is a source of vulnerability for Bangladesh’s exports, especially in the context of the current recession.

There are at least two channels through which the crisis can hurt Bangladesh. Declining wealth and earnings in the USA and EU has reduced import demand and may reduce demand for Bangladeshi exports. Another impact could be through the banking system, reducing trade credit to buyers involved in imports from Bangladesh. This may in turn affect our exports.

Bangladesh’s export performance held up until July-December 2008-09, but decelerated quite rapidly thereafter. It will be observed from figure below that the export growth rate plunged in Jan-April 2009, clearly marking the impact of the GFC. In other words the second and third round effects of the crisis were beginning to be felt.


Although there has been deceleration in export growth, Bangladesh is one of the few countries in the world to achieve a positive growth rate. For example, its performance in the US market, contrasts sharply with that of many other countries in the region. Export growth has turned negative for India, Philippines and Sri Lanka although China and Vietnam have managed to post positive growth rates.

Bangladesh registered a 12.5 percent export growth in woven products and 25.9 percent export growth in knit products to the US market at a time when US imports of these items actually shrank by 3.6 and 1.6 percent. Overall exports to the US grew by 13.6 percent in the face of a mere 2 percent growth in total US imports over the July-December, 2008 period. This basically indicates that Bangladesh has been increasing its market share in the US apparel market at the expense of competing countries. Some Bangladeshi exports have been adversely affected in the US market, including frozen fish, headgear and jute products.

Even in the midst of severe recession, Bangladesh RMG products, especially woven, knit and home textile have continued to register positive growth during January-April’ 2009 unlike countries like China, India, Pakistan, Sri Lanka etc. Export growth of  jute, headgear, plastic to USA has remained negative.  

Table 1: Quarterly Growth of Exports of Major Items to USA

 Growth of Exports (Jan-Apr 2009 on Jan-Apr 2008) (Year-on-Year)


USA*ChinaIndiaPakistanPhilippinesSri LankaVietnam
Fish-14.24    110.8470.55107.78
Headgears-19.31     -10.76 
Home Textile35.01 -11.61-12.33-9.47 -42.10 
Plastics-23.25-24.22-6.65-19.76-39.48  -6.46

        Source: Calculated based on data accessed from USITC, June-2009.

By the end of 2009 (1st quarter) we see that except for Bangladesh, all other countries experienced negative growth in the US market (figure 3). Against all this adversity, total Bangladesh exports climbed to 11.38 per cent – further evidence of rising market share for Bangladesh. It may be noted that though Bangladesh experienced double digit export growth in the US market, this was 6.7 percent lower than the preceding quarter – indicating that the impact of the crisis was very real. Bangladesh’s performance even in the depressed EU market improved in more recent months.

Thus, in January-March’ 2009 Bangladesh’s export performance to EU market was better than in the US market, and far better than its own performance in the previous quartyer. Except Bangladesh and Pakistan, all other countries exhibit negative export growth to EU market, with the leading role played by woven, knit, headgears, and leather products (1.3).


Table 2  Growth of Exports to EU (Jan-Mar 2009 over Jan-Mar 2008)

 Bangladesh China India Pakistan Sri Lanka
Home Textile6.061.980.097.43-10.34
Rawhide-44.00-39.30-42.72 -46.33
Leather Products69.493.638.16 71.90

                                                        Source: Calculated based on data accessed from Eurostat, 2009

The main advantage of Bangladesh over its competitors is its price. Exporters from Bangladesh have been cutting back on prices further in trying to cope with the crisis. Indeed, unit prices, calculated by dividing value by quantity for the top ten RMG products exported by Bangladesh, reveal that with few exceptions, there is a downward price trend for most categories of products.

Exports of jute goods, leather and leather goods and frozen food have been hit hard by the recession. Export of jute goods, for example, declined by 18 percent in the first 10 months of 2008-09 while price and demand declined by 20-25 percent.

China: An important factor


Discussion with the key exporters and importers suggest that China has been an important factor due to which the global financial crisis has been an opportunity for Bangladesh to expand export to US and EU as well as diversify to new markets.  

Sourcing from China has become expensive as the Chinese currency appreciated and labour laws were being strictly implemented. Textile products are generally considered to be low price and low valued item in China and a major shift could occur to Bangladesh in the future. Hong Kong based buyers consider Bangladesh a more reliable, cheaper supplier compared to many other countries.  A small diversion from China can be a big gain for Bangladesh. Indeed, the high growth of knitwear in 2008 has been due to diversion from China.

Diversifying to new markets

RMG is a buyers market. Suppliers in Bangladesh have been trying to enter the high quality Japanese market but have not been able to do so. This is because of the fact that culturally, Japanese were more comfortable with China. About 80 percent of the clothing export to Japan is from China. The other major supplier to Japan is Vietnam. By the end of 2008, Japanese buyers were searching for sourcing from other low cost countries. A major Japanese buyer, “Uniqlo” has already expressed an interest in procuring $600 million worth of apparels from Bangladesh, indicating that Bangladesh is well poised to enter the Japanese market.

Diversification to higher-end products

By the end of 2008, the buyers started to search for new, lower cost suppliers for outerwear including jackets and men’s suits, in a bid to relocate away from China. For sweater, polo shirt, trousers (especially denim) and home textiles Bangladesh has a strong comparative advantage. Bangladesh is considered better than India in T-shirts and polo shirts. On the other hand, Vietnam and Cambodia do not have backward linkages for knitwear. Thus, Bangladesh has emerged as a strong contender based on its good quality yarn and a short lead time for export, in addition to its low cost advantage and good quality workmanship.

Labour costs

China’s production costs is rising in yuan and in US$ terms. The table shows that seven Asian countries are now offering lower labour costs than China. Labour costs are still the lowest in Bangladesh, at 22 US cents per hour or 2.5 times of that in China (Inland). Other low wage exporters are Cambodia, Pakistan and Vietnam, where labour costs are at 33 cents, 37 cents and 38 cents respectively.


Incentive package of competing countries

Bangladesh has one of the highest costs of finance. The entrepreneurs opined that the interest rate is over 14 percent, and this is increasing cost of production. On the other hand the competitors in other countries have access to various incentive packages. China has been increasing the tax rebate for textile and clothing industry, from 11 percent to 14 percent. Interest rates have been reduced from 6.93 percent to 6.66 percent. Pakistan has also proposed a package for its textile industry: devaluation of currency by 30 percent, a fund for research and development , withdrawal of 15 percent sale tax on ginned cotton, reduced  interest rates ( from 17.14 percent to 3.5 percent), provision of 1.5 percent subsidy for export, and total withdrawal of VAT and Tax for imports of some machineries and dice chemicals. India has devalued its currency by 25 percent, provided 50,000 crore (Indian Rupee) under the Technology Upgradation Fund, reduced interest rates from 17 percent to 6 percent, provided 60000 crore rupees for increasing cotton production,  and added 10% capital subsidy for extra grant, and had not withdraw 5% interest subsidy under the TTUF, and withdrew import Tax for some machineries and chemicals used in clothing sector

The exporters opined that the L/C is in favour of the buyers. After the goods have been shipped, some buyers negotiate to pay 30 percent and only if the goods are sold the rest of the payment would be made or else they would return the goods.


Request to delay shipment

Even after orders have been confirmed, buyers are requesting for delaying shipments. Importers are shifting delivery by up to two months, causing warehousing problems, problems with timely repayment to banks and eben payment of wages to workers. Even reputed buyers like H&M had placed orders and confirmed and then asked to wait. Industry insiders estimated that up to 3 percent of orders will be cancelled.

Short-term Outlook and Opportunities for RMG

Survival of some firms at stake

·         Those firms who have good reputation will survive and expand.

·         Manufacturing firms will face problems related to storage, disrupted project planning due to delayed orders, declining production, and cash flow

·         Banks will have problems as (a) goods already exported, but payment not received; (b) goods produced but not shipped (c) goods produced but payment renegotiated

·         Impact on wage payment: Firms will find it difficult to pay salary to workers


Industrial unrest has increased in the RMG sector as many smaller firms find it difficult to cope. In its headline news on July 1, 2009, The Daily Star squarely blames the recent industrial unrest in the RMG sector on the “spillover effects” of the GFC. It reports: “The low-paid workers have been demanding regular payment and re-opening of the closed factories soon. But the sick and sub-contracting factories can hardly pay their workers because of a huge shortfall in orders from big factories and international buyers in the wake of the global recession”. Margins are thin and sub-contracts are difficult to obtain, forcing many units to shut down. The larger, more diversified units are managing to survive with some difficulty, and are expected to be able to ride out the storm.

Media reports have painted quite an optimistic picture for the prospects of the RMG sector. Thus The Daily Star states in its business page (Jul 12 , 2009): “ With the signs of economic recovery in the western world, foreign buyers now lean towards Bangladesh’s ready made products, placing orders at an enhanced rate”. Industry chiefs think if current trends in the world market continue, it will fetch a boon for Bangladesh. For the first time, and very signifivcantly, there is keen interest from Japanese buyers as well.




Remittance flows to Bangladesh have grown rapidly over the last ten years from around 3 percent of GDP in 1995 to around 9.5 percent today, despite concerns that outflow of migrants is in decline. From January 1 to May 30 last year, 3.78 lakh workers went abroad. The figure this year for the same period is 2.12 lakh. Last year 9 lakh workers went abroad while this year this figure is likely to come down substantially, to around 5 lakh. According to a Daily Star report (July 2, 2009): “ Labour outflow is falling as Saudi Arabia, Dubai and Malaysia, three main job destinations for Bangladeshis, are not hiring workers from the country now”. It further notes, “remittance inflow is still showing an upward trend but the situation may change at the end of the year..”.

A total of some five million Bangladeshis are estimated to be resident overseas. While initially most of the migrant labour went to the Middle East, mainly to Saudi Arabia, there has been considerable diversification of destination countries in more recent years. Today, migrants are found in significant concentration all over the Far East and Europe, including Malaysia, South Korea and Japan and in Germany and Italy. Other traditional destinations (USA and UK) also remain very important both as a source of remittance and as a favoured destination.

Remittances play a crucial role in the Bangladesh economy today. At the macro level, it has helped to ease our foreign exchange constraint, stabilizing the exchange rate and allowing Bangladesh to import much needed raw materials, intermediate goods and capital equipment. Comfortable reserves of foreign exchange have also contributed to overall macro stability and have reduced aid dependency, along with rapid growth of our export sector.

At the micro level, remittances have had a beneficial impact on household consumption, reducing poverty and creating jobs. The local economy has also benefited indirectly as large out-migration, especially from some parts of the country led to localized labour scarcity, causing wages to rise. Inevitably, there are costs as well, which unfortunately have not been adequately assessed. These relate to the hardships and deprivations that migrants face both during the risky process of migration and while staying in the host country. Both social and economic costs are faced by families of migrants, especially when heavy debts have to be incurred and remain unpaid for long periods of time. Another well-known impact has been on land and real estate demand both in urban and rural areas, especially from where migration has been particularly large. Thus, migration and remittances are not unmixed blessings although the popular view tends to highlight the positive aspects only.

Given the GFC, there is every reason to be worried about the demand for migrant labour in host countries and the possible impact on remittance flows back to Bangladesh. There have been well-publicized incidents of migrants being sent back home or visas being cancelled even before visa-recipients were able to leave for their destinations. In many cases, these incidents were not directly related to the GFC but were rooted in domestic problems in the host countries. Nevertheless, there is a sense that the situation could worsen further. The media has quoted official agencies to report that the number of migrants leaving Bangladesh has halved over the past one year. It is reported that the number of migrants declined by over 36 percent in July-March 2008-09 compared to the same period in the preceding year. At the same time around 30,000 workers returned home during the first quarter of 2009. There is no immediate reflection of these figures in the remittance data although it is likely that such an effect will take place with a lag of 1-2 years.


Recent Trends and Patterns


From 2003 to 2008, worldwide flow of remittances (i.e. the global remittance market) almost doubled (from USD 206 billion to USD 375 billion). Bangladesh experienced a dramatic rise in remittance growth even in 2008-09, rising by 22.4 percent over the preceding year.

There has been a gradual change in the share of remittance flows by regions. From 1980 to 2006, the inflow of remittances from the Middle-East remained above 70 percent. However, since 2006, there has been a shift towards new sources, like USA, Canada, UK, Germany, Italy, Malaysia, and Japan reflecting considerable diversification of labour flows.

The Kingdom of Saudi Arabia (K.S.A.) is the most important source of remittances for Bangladesh, followed by the U.A.E, U.S.A and U.K.  The USA, KSA and UK account for almost 60 percent of total remittances (table 3.4). Germany, Italy and Malaysia have also become important labour destination countries for Bangladesh.

Likely Future Trend

Uncertainty in remittance flows to Bangladesh stems from several sources:

  • The economic slowdown (as mainly indicated by poor GDP growth rates and high unemployment levels), in two of the major remittance source countries, namely the U.S.A and U.K (which account for almost 28 percent of remittance flows to   Bangladesh);
  • The fall in oil prices and the magnitude of impact on the economy of GCC countries (which accounts for 63 percent of our total remittance earnings)
  • Uncertainty about exchange rates
  • Declining number of migrants

The brunt of the world recession is being felt in the USA and EU, including UK, so that any adverse effects on remittances are likely to originate in those countries or regions. The Middle East is also likely to be affected by declining oil prices, and more importantly, by an expectation of slowing external demand. This has already led to some major investments to be put on hold, e.g. major construction works in UAE catering largely to foreign demand.

Remittances are shaped by complex factors present in both host countries and sending countries. In addition, it is also determined by individual characteristics like gender, skill, and socio-economic circumstances of the family back home. The main determinants of remittances are thought to be the bilateral exchange rate, economic conditions or GDP of the host country, the total stock of migrants[4].

The economy of the Middle East is heavily dependent on oil export earnings. Oil exporting countries in the Gulf region are expected to grow at an average rate of 6.1 percent in 2009, lower than in 2008, On the other hand, consumer price inflation (CPI) in oil exporting countries is projected to rise to 15.7 percent in 2008 from 10.0 percent in 2007 and ease to 13.6 percent in 2009. Though the recent global financial crisis will lower the growth of oil exporting countries, growth rates will remain moderately good at over 5 percent for the region as a whole. The two countries that are of particular importance to Bangladesh are Saudi Arabia and U.A.E where GDP growth rates are expected to be 4.3 and 6.0 percent respectively, in 2009.

Remittance inflows from Saudi Arab are unlikely to be seriously affected because of the huge budget surplus that it has managed to build up in the face of high oil prices. It is using these resources now to undertake counter-cyclical policies, intended to off-set any adverse effects of the world recession. Other oil-exporting countries in the region also appear to have adopted similar policies. These developments bode well for remittance flows to Bangladesh in the short to medium term.

There are a number of factors that tend to provide some grounds for cautious optimism. These include amongst others, the following:

  • A rising share of skilled labor in total overseas employment of Bangladeshi workers  in 2008-09;
  • A stable exchange rate;
  • Remittance flows do not seem to be influenced by GDP growth rates of host countries;
  • A large accumulated stock of migrants already in place;
  • The rising trend of remittance inflows in most developing countries and increasing share of Bangladesh in the world remittance market.



Bangladesh’s imports as a share of GDP have been rising steadily over the past three decades. A valuable portion – about 27 percent of GDP was spent on import payments in 2007-08. Around 76 percent of export earnings originate in the RMG sector, of which 54 percent goes into imports of inputs needed for the RMG industry. Given the importance of imports for Bangladesh’s economic growth and development, the implications for the balance of trade and payments, it is important to assess the likely impact of the world recession on the volume, structure and of imports, and the terms of trade. Import based revenues also comprise of a significant part of the national budget and could be cause for concern.

The sharp fall in energy and food prices in the world market has benefited Bangladesh immensely. The country is dependent on POL imports from the world market and is also a significant importer of food. The domestic economy is therefore quite sensitive to movements in the world price of these key commodities.

Before the onset of the recession, Bangladesh was reeling under the price pressures in the world market, leading to a high (double-digit) domestic inflation rate and fears of an impending food crisis. The advent of the recession brought prices down drastically, and as an importer, Bangladesh benefited greatly with domestic price pressures falling quickly, and the government making large savings from reduced subsidies, especially on diesel.

Bangladesh has also benefited from the terms of trade effect as the import prices faced fell more sharply than export prices.

Overall imports and its composition


The total import payments in 2008 (January-November) amounted to US$ 22260.7 million, which is 31 percent higher than import payments in the previous year. Total merchandise imports showed a robust 35 percent growth (on adjusted fob basis) during July-October 2008 despite a sharp decline in imports of food grains over the corresponding period of the previous fiscal year (table 3.1). In case of L/C settlements, except for food grains all other categories of import show positive growth in the face of falling prices in international markets (table 4.2 & 4.3).

In order to understand the nature of impact of increased imports in the economy, it is important to take a more disaggregated view. From the composition of imports it is clear that capital machinery, crude petroleum products, cotton, yarn and fertilizer, textiles and articles, were the key commodities whose imports increased significantly. In other words, the nature of imports suggests that these were meant either to increase production or raise productivity in manufacturing industry and agriculture.

In July-November, 2008 food grain imports declined by around 25 percent compared to the same period of the previous year. In November ’08 the wheat price per metric ton was US $227 compared to $321 in the same month in 2007. Rice price also declined significantly from $1015 to $563 per metric ton from March’08 to November’08. In terms of volume, foodgrain imports stood at 11.7 lakh metric tons during July-December, 2008 compared to 20.7 lakh metric tons in the same period in 2007. The slide in food imports was due to good domestic production and a respectable public stock level. Public food stocks stood at 13.2 lakh metric tons at the end of December, 2008 compared to 7.1 lakh metric tons at the end of December, 2007.

Total import payments in FY 2008-09 (July-April) were 8.86 per cent higher than import payments in the same period of the previous year. The month to month import payments show a downward trend in the last couple of months however, mainly through declining imports of food grains and capital machinery. The decline of food grains import is largely because of the significant increase in agricultural production. The decline in capital machinery is due to lower investor confidence, slowdown of export growth, and the raging energy crisis in the country.  In case of L/C settlements, except for food grains all other categories of import show positive growth in the face of falling prices in international markets; LC opening data however clearly reveals the negative import trends for capital goods and industrial raw materials (tables below).

Composition of imports

(In million US dollar)

% Changes
4 over 2
 A. Food Grains1317.7720.3831.1-36.93
Edible oil822695.5726.1-11.67
  C. Consumer & Intermediate Goods7784.88191.18936.714.8
 Crude petroleum535.4433.4466.1-12.94
 Dyeing and tanning materials174.2198.4217.624.91
  Raw cotton10301006.71104.47.22
   Textile and articles thereof1570.21603.7179414.25
  D. Capital Goods & Others4438.94728.45229.317.81
   Capital machinery14011100.41184.8-15.43
  Grand Total (A+B+C+D+E+F)17645.617431.819209.18.86

                                                                                                  Source: Statistics Department, Bangladesh Bank.

Table 4.2 Statement of import L/C settlement and import LCs opened & settled

  July-May 2007-08July-May 2008-09
Sectors/commoditiesL/C Opening and Settlement (million US$)OpeningSettlementOpeningSettlement
Food grains (Rice & Wheat)Value2016.131358.64792.89861.3
% change198.57179.27-60.67-36.61
 Capital MachineryValue1612.581287.351122.521290.24
% change17.25-10.38-30.390.22
% change5.38-1.96-22.241.86
Industrial Raw MaterialsValue8211.346997.687850.427925.72
% change38.7528.33-4.4013.26
% change39.7126.222.9617.28
% change39.5224.80-10.498.94


Implication for Inflation

The commodity price boom of 2006-08 was due to strong growth in global demand. In agriculture, higher oil and fertilizer prices, along with increased demand for bio-fuels and feed leading to a reduction in grain stocks, have been more important than fast growth per se (Global Economic Prospects – 2008, World Bank).  This happened even as agricultural production increased, stimulated by large subsidies given to agriculture by the USA and EU.

There are other factors that can affect commodity prices. One such crucial factor is the price of crude oil. On the demand side, crude oil prices affect the price of other commodities by entering into the aggregate production function of primary commodities through the use of various energy-intensive inputs and, through transportation over long distances – an energy-demanding process. Further, some commodities compete directly with synthetic products, which are produced from crude oil (cotton with man-made fibers, natural rubber with synthetic rubber)[7].

It is in the nature of commodities for their prices to show pronounced cyclical behavior. Indeed, some of the most influential early insights about the role of expectations in pricing behavior derived from observations of how the interaction between prices and quantities in agricultural markets tended to generate price cycles (Kaldor 1934). It would seem that just as high demand levels for food, feed, and bio-fuels led to high world prices of commodities, the sharp fall in demand in the wake of the global recession has had a dramatic effect in the opposite direction, leading to rock bottom prices. Much of the emerging trend will depend crucially on the nature of expectations that are being formed.

The benefits of lower world prices have been reaped by Bangladesh, especially through lower inflation, including lower food and energy prices. Another channel that can help lower the inflation rate of Bangladesh is the declining trend of inflation in major trading partners. The headline inflation rate of Bangladesh already started to decline from 10.82 percent in July’08 to 6.03 percent in December’08, currently hovering at around 5 percent (in July 2009). The inflation rate of the major trading partners like India, China, and Hong Kong has declined significantly in recent months as well (See CEIC database & ADB website).

World commodity prices

 % Change% Change
 Mar/Feb Apr/Mar May/Apr May 09/May 08
Soybean Oil-
Industrial Metals2.88.44.3-38.2

                     Sources: IMF; Estimations based on data provided by the IMF.

                        * World Bank Index

                          na Not available



Low world prices combined with successive bumper harvests in 2008-09, especially of foodgrains, has led to a price slump. While consumers have found respite from the sky rocketing inflation of 2008, farmers are in distress. The newly elected government has given very high priority to agriculture, including scaling up of fertilizer and fuel subsidies. Out of a total  The government also announced ambitious plans to support farm prices through a procurement drive but met with little success due to inadequate storage space in godowns and procurement efforts aimed at rice (from millers) rather than directly in paddy from the farm gate. There are now concerns that these low prices could operate as a disincentive for the next crop in the winter, at a time when price pressures in the world market could once again exert themselves.

In fact much of the stimulus package announced by the government in April, 2009 is aimed at the agricultural sector. Out of an additional allocation of BDT 34.2 billion almost BDT 30 billion is related to agriculture or food, and the remaining for subsidies to exports.





Despite fears of markets drying up, factories closing down and large-scale bankruptcies in the wake of the global recession, Bangladesh has coped well, especially in the US market. Market share in the EU however has taken a hit in the face of stiff competition from China on the back of withdrawal of quotas on the Chinese and a sharp depreciation of the Euro against the Taka.

On the positive side, the reputation of Bangladesh as a low-cost, reliable source in the RMG market has been established and a foothold has been gained in the huge Chinese market. Local firms also seem poised to break into the $12 billion Japanese market. China and India have become increasingly expensive, especially for lower end products, prompting buyers to search out lower cost sources that are reliable and can meet their stringent quality standards. It is in this context that buyers have been looking closely at Bangladesh.

During the initial phase of the recession, Bangladesh has coped very well. Local firms have also been engaged in chalking out a more competitive strategy: larger firms have tended to increasingly tie up directly with retailers, and have thereby reaped a huge advantage. Smaller operators find this difficult and continue to rely on buying houses, placing them at a much greater risk. The other strategy has been to diversify products where some gains have been made, as producers moved up to the higher end of the low-end spectrum. There is a long way to go in this direction as well as distinct opportunities that seem to be opening up. An example is the increasing demand for outer-wear garments like jackets and sweaters that low-cost sources like Bangladesh could target. Low import prices for capital goods, intermediate goods, and raw materials provide an excellent opportunity to rebuild inventories and stocks, expand the productive base and upgrade technology.

However, as the recession deepened further, export growth slumped, affecting the RMG sector as well, leading to closures and even industrial unrest. The situation was made worse by an on going energy crisis and worsening investor confidence. Thus, the opportunities afforded by low import prices could not be fully utilized with imports now declining quickly, especially for raw materials and capital goods. This has led to a surplus in the current account of the balance of payments, which in this case cannot be considered a positive development.

The primary textile industry or backward-linked industries that have grown on the back of the RMG success, adds distinct strength and competitiveness to the RMG sector, serving to reduce lead time. It also acts as a check against Indian textile prices, which in its absence, would certainly use its quasi-monopoly status to raise import prices to a much higher level. If really needed, this sector should be given assistance to remain afloat in the wake of the deepening recession.

Specific sectors have already been hit by the recession, including leather, frozen fish and jute. In the case of frozen fish, dwindling demand has been compounded by questionable phyto-sanitary standards that have hurt our reputation. Given the current market situation, it is imperative that Bangladesh competes in terms of price and quality, including bio-security considerations, if markets are to be retained.


There is little doubt that the recession has affected labour market prospects abroad adversely. However, a greater problem lies in the corruption and malpractices that have plagued the sector for years. The two are of course inter-related. No one wants to see the plight of labourers languishing in their airports or open spaces. There are also reports of increasing involvement in crime engaged in by migrant workers. The recession provides us with an opportunity to address urgent concerns of the sector to rid it off corruption and develop a strategy to deal with labour issues both in their home and destination countries. There is an urgent need for pre-departure orientation of workers along with detailed briefing about rights and obligations.

As far as the immediate short run problems are concerned, remittances are unlikely to be seriously affected over 2009-10. There was an unprecedented wave of migration over 2007 and 2008 so that the full impact of that on remittances is yet to be felt. The current decline in the number of migrants is unlikely to cause a fundamental shift in the remittance flow pattern any time soon.

For the longer term, a concerted effort is required to build up a skilled labour force for export including skilled manpower in security and related services, under a strict institutional framework, perhaps somewhat along the lines of the peace keeping forces sent out under the UN.


We have benefited enormously from cheap food, fuel and other crucial imports due to the recession. As recovery starts, this situation will also be slowly reversed so that we need to make the most of this situation. We should reduce import taxes and encourage a massive build up of inventories, spares, capital so that we can take full advantage of the recovery when it occurs. Given the fact that we have been barely hit by the recession, we are in a perfect position to be able to do so. However, more recent trends suggest that we are unlikely to be able to utilize this opportunity due to confounding factors.

Finally, we should aggressively pursue an expansionary monetary and fiscal policy, encourage consumption of domestically produced goods, inject purchasing power in the farm sector and reduce the cost of retailing credit. An expansionary policy will lead to some inflationary pressures which however, would not pose any serious threat.



Bangladesh has been spared from the worst effects of the Global Financial Crisis although in the last few months, exports have decelerated at an alarming rate. Thus, in addition to non-RMG export sectors like leather, sea-food and jute products, smaller RMG units have turned “sick”, resulting in loan default, delayed or irregular payment of wages to workers, industrial unrest, and even shutdown of some units. It is difficult to establish the extent or magnitude of this problem but it is thought to be significant. This suggests that micro-level impacts (on individuals and households) could be important.

While we have noted that remittances have continued to perform well, it is also correct that the rate of labour exports have fallen sharply in the last few months. It is difficult to know whether this is a short-term phenomenon or a precursor to longer-term change. This, along with the suspicion that large numbers of labourers are likely to be sent home, suggests that the domestic labour market will come under pressure. According to official sources 28,000 workers returned home during the first quarter of 2009, a figure that appears unexceptional.

One way to assess the impact on poverty is to use the growth elasticity of poverty used by PRSP II, which suggests that with a GDP growth of 5.88 percent, 1.76 million people would emerge out of poverty. Using an alternative methodology (ILO), the employment impact of this growth would be around 2 million. It should be borne in mind that food price volatility in 2008 may have aggravated the poverty situation while growth, and low food prices in late 2008 to 2009, especially stemming from excellent agricultural performance, is likely to have had a very positive impact.

An attempt was made to obtain a grassroots view of the GFC through focus group discussions with workers in selected sectors. Given the time constraint, three FGD were conducted in and around the city of Dhaka, with (a) RMG workers belonging to smaller units, (b) workers employed by the leather industry, a sector that has been hard hit by the GFC, and (c) returned and would-be migrants.


IV.1     Garments Workers Focus Group Discussion, June 2009


The following Focus Group Discussion on garments workers, conducted on the issue “Garment Worker’s Situation in Bangladesh-Impact of Globalization”, was primarily aimed at understanding the consequences of global financial crisis on garments industry workers’ daily lives. Of the ten garments workers in the FGD, seven were female and three were male.

A brief review of the findings from the discussion is presented here. The following themes were addressed in order to gauge the implications of the global financial crisis on employment, consumption expenditure, education, health, social security and gender aspect of garments workers.

Employment and earning: The respondents work in different garments industries. Most of them have several years of work experience in the garments sector. Some have directly entered the RMG industry from school while others have changed profession to get involved in the RMG industry. Employment opportunities seem quite limited. Sometimes higher paying jobs are found but distance from home imposes a constraint.

Wage earning of the respondents is found to be very low. Only four of the ten respondents reported an income in the range of Taka 3000-5000 ($ 43 – $71).  Helpers in the training period earn the minimum amount Taka 1200 ($17). In addition to wage income, only helpers, operators, and quality control personnel earn overtime, and all workers earn bonuses during the two EID festivals.  All reported that their current earnings have fallen compared to the previous year. Moreover, their earnings are insufficient to meet daily minimum expenditure including cost of  children’s education. Only one out of ten had an additional earning member in the family. Interestingly, most of the female workers were found to be single, having separated from their husbands. Only two respondents reported sending back money to their extended family in the villages. This seems to be a source of anxiety.

Income shortfall and coping strategies: During periods of income shortfall or emergency need, garments workers borrow money. Almost everyone has some form of personal loan, and they think that average loan is increasing overtime. The major source of borrowing is the nearby grocery shop, from where they buy necessities in credit and repay the loan when salary is received. Occasionally they also borrow money from comparatively high paid co-workers on short term basis. Everyone said that they tended to feel insecure due to continuing financial crisis.

Consumption: Food consumption is mainly characterized by a preponderance of carbohydrates. Usually they take three meals a day but remain dissatisfied with the quality of meal. One reported that “because of the high price last year, the situation was so bad that sometimes we had to go without food to be able to feed the kids”. Generally, they consume cheap/ low quality rice. They eat fish twice a week. Vegetable intake is also irregular due to high prices and lack of time to cook. The respondents thoughtreveal that current consumption of vegetables was lower compared to last year.


Most of them reside near their work places. Privacy issue is totally neglected as a number of people share a single room. Whenever landlords fix the roofs made of CI sheet, the rent is raised.  Electricity supply is highly irregular.

For cooking, 12 to13 people have to share the same gas burner. Almost all drink tap water. Water supply is also irregular. Number of bathrooms in the housing complex is far less than required. Queuing to use cooking burner and bathroom is a daily ordeal.

The main mode of commuting to work is walking as most of them live very close to their work places. For traveling to distant places, when required, workers usually walk rather than commute,  as they cannot afford transportation costs with their meagre income. Mobile telephone in the nearby phone/Fax service center is the major way of distant communication. Average expenditure on phone call is Taka 15 to 20 ($ 0.21 to $ 0.28 ) per month, which is reported to be inadequate. Male workers, in general, spend more on phone bill compared to their female counterparts.

Health Condition

General health condition of garments workers is very bad. Gastric problem is a common complaint but no specific treatment has been reported; often the pharmacists at the local drugstore prescribe medicines. Situation in this regard is unchanged between current year and last year.


Education of Children

Higher tuition is a barrier for children’s education. Although most of them send their children to school, they are unable to purchase necessary books and stationeries to support kids’ education due to extremely limited income.   Moreover, these school going children suffer from different social status related problems in the school. Children coming from more affluent families look down on them and do not want to associate. This generates some form of inferiority complex among the children of the garment workers.

In spite of persistent financial hardship, most of the workers are very eager to continue their children’s education rather than drawing them into the workforce, for remunerated income. Very few are found to have shifted children from school to work with the purpose of augmenting income. In decisions related to continuing education, sex of their children does not matter. This implies that sons and daughters are treated equally. With regard to aspirations from their off-springs (regardless of gender), opinions vary. One wants to educate her daughter up to the tenth grade, and another one dreams of making her daughter a physician. Interestingly, one respondent said: “I want that my daughter completes 7th grade so that she can at least get a job in the garments industry”.


Gender Issue

Female workers pointed out the advantages and disadvantages they faced in the garment industries, where they work. Most of them started working with a dream of a better lifestyle. Female workers get 3-months of unpaid maternity leave. They also get medical benefit if they fall sick while working. General perception is that workers were better off last year, compared to this year. However, managing jobs in the garments industry is relatively difficult for female workers due to the distance factor. Female workers prefer to work in nearby places due to security concerns. So, option of working places is relatively narrow for female workers. In the past, education was not compulsory for a garment job, but now it is a requirement that contributes positively to upward mobility. Female workers reported about verbal abuse too. Moreover, female workers are paid less than male workers depicting a clear picture of gender discrimination. The problems reported did not change at all compared to last year. No family conflicts or clashes have been attributed to working in garments industry.


Security of Jobs and General Working Conditions

Jobs in the garments industry are not secure. Major issues of complaint against employers are timely salary, overtime payment, weekly holidays, and irregular adjustment in the pay scale. Workers[, in general, feel helpless and vulnerable. Although they have taken garment jobs with the dream of improving their family living conditions, in reality, very little has been achieved. Workers have experienced severe constraints in maintaining themselves, and no significant improvement in family welfare and progress has been discernable, from their engagement in the garment industry. The situation is in no way different from last year. They think that BGMEA-Workers’ bipartite discussion might help resolve disputes. But BGMEA is reluctant to solve workers’ problems. The general feeling about BGMEA’s inspection team is that they are unscrupulous and easily manipulated by the bosses to give a good report.

Information About Global Recession and its Impact On Workers’ Lives

The respondents know about global recession, as they mentioned that a recession has worsened people’s welfare globally. Due to the recession, the current situation throughout the world is worse than ever before. The reduced working hours in the months of October-December of last year was the direct consequence of this recession. They were in serious financial trouble at that time. Some reported that employers stopped paying overtime since then, which reduces their take-home pay. However, none of the respondents reported job loss due to shrinking export demand caused by the recession.

However, workers think that global recession has little relationship with many of their day to day economic hardships. Instead, most of them are due to national unrest and domestic factors.

The workers are not optimistic about a positive change in living standard in the next six months to one year, given their current socio-economic situation. They believe that consistent food price inflation and unadjusted pay scale will trap then into a lower standard of living.

IV.2     Leather Industry Workers Focus Group Discussion, June 2009

The following Focus Group Discussion on the leather industry workers, conducted on the issue “Leather Industry Worker’s Situation in Bangladesh-Impact of Globalization”, primarily aimed at understanding the consequences of the global financial crisis on leather industry workers’ daily lives. Of the eleven leather workers in the FGD, eight were male and three were female.[12]

Employment and earning: The respondents are working in different leather industries in the Hajaribag area of Dhaka where many processing units are located. None of them have worked in other industries so far. They have been working in different branches for a long time, and work experience varies from three to forty years.  Since the job is tough and demanding in nature, and restricts under 18 labour, getting a work in the leather industry is relatively easier.

Regular working hours are from six in the morning to two in the afternoon. At first, workers work on a daily basis and later on monthly basis. Wage is counted on calendar day basis while payment is made on weekly/bi-monthly/monthly structure. Among the respondents, six of the workers work on monthly, three on daily, and two work on irregular payment system. Wage per calendar day for new and old workers has been fixed at Tk80 ($1.15) and Tk60 ($0.86). Temporary male and female workers earn at the rate of Tk 14 ($0.2) and Tk 11 ($0.16) per hour. The male workers earnings variy from Tk3100-4000 ($45-$58) while that of female workers lie in the range of Tk 1500-2500 ($22-$36) per month. Minimum wages in the leather industry is  Tk 10-14 ($0.14-0.2) per hour. Contract basis work is uncommon in the small leather industries that mainly depend on subcontracts offered by large counterparts. So, payment in the former group of industries is generally on a weekly/monthly basis.

Overtime work opportunity depends on the number of orders available to the factory. So, overtime work hours and earnings vary. In particular, after the “Eid-ul-Azha” – when millions of animals are slaughtered as sacrifice raw leather supply shoots up and the workload becomes very heavy with a lot of opportunity of overtime work. Generally, overtime hour is from three in the afternoon to ten at night. However, in 2008, export of leather. Consequently, overtime work also declined as well.

Almost all the respondents said that their income is inadequate even to maintain themselves. The existing minimum wage level in the leather industry is very low. Many have to supplement their wages through additional work, e.g. rickshaw pulling, working in tea-stall or grocery shops. Payment does not compensate for the extremely demanding jobs in tanneries. If better

opportunity is given, most of the respondents said they would change their tannery job and switch to another industry or to some informal work like rickshaw or van pulling.


Taking Loans and developing coping strategies

Since wage earning from leather industry is even barely enough to maintain an individual, almost everyone has to take loans to some extent from neighbors, friends, and the local grocery stores. Some have also borrowed money from NGOs, associations and cooperatives. Permanent workers who are entitled to take loans from provident fund (once service age exceeds ten years), borrow money in advance from provident fund and repay it in installments.


Respondents take three meals a day but are highly dissatisfied with the quality and quantity of food items. They consume low priced, low quality rice. They can never eat meat/protein daily. In every one or two weeks, they buy small fish. They can hardly remember when they ate big fish the last time. Meat is so expensive that they buy it once in every two/three months. For some people, meat is only consumed during festivals or when guests visit them.

Compared to last year, prices of pulses have come down. Now, workers can consume low priced and low quality pulses like “Anchor” or “kheshari”. Similarly, vegetable intake is limited to low priced items. Most of the fruits are expensive, and therefore, relatively cheaper fruits, such as “Jackfruit”, are the only fruits consumed. In the past, male members of the family often used to take snacks outside their home. Now, the frequency of such practices have decreased. Interestingly women said they never eat outside.

Leather workers with children said that they are unable to buy milk powder for their kids, as they exhaust their limited incomes in managing their plain subsistence.

Most of the workers live close to the factory in which they work. Some of them live in a group, while others live in sublet housing with other families. They have to share toilets and even burner for cooking. Surrounding environment is not different from slums. Most of the houses have leaks in the roofs, and when it rains, the residents suffer more. The landlords fix the leaks but on condition of increased rents. Every year, rent is increased by a significant amount. The bills for utilities are paid with the rent. Electricity supply is irregular and gas burner for cooking requires queuing as many residents have to share the same burner. Water supply is inadequate as landlords provide only limited supply of water.


Children’s’ Education and Parenting

Mothers stay most of the time with their children as fathers do not get enough time due to their  jobs outside. However, some said that fathers give time after work. With a miniscule amount of income, workers in the leather industry cannot afford to buy toys or attend or arrange birthday functions for their kids.

Five of the respondents have school going kids. The other respondents either have toddlers or have no issue at all. None of them have reported taking children out of school to work in spite of financial hardships. They are unwilling to stop schooling of the children even if their monetary situation worsens. Five of the respondents have daughters. The schooling decision is gender unbiased. None have restrained his/her girl child from schooling – rather they are committed to educating their daughters and sons.  Interestingly, some expressed their views as follows: “Web would prefer to educate our daughters more than our sons as the girls are more attentive and more meritorious”.

Security of Job

Jobs in the leather industry are generally uncertain. Workers on a daily basis can be verbally retrenched at any time, while permanent workers are laid off through advance notice. In the light of the contract with trade unions, thirty to fifty percent workers are made permanent every year. Workers involved with trade unions are made permanent first. Permanent workers have some sort of certainty in their jobs as they are supposed to be informed four months before being laid off and must be paid all dues.

Issues of Female workers

Female workers, under-represented in the industry, are facing a lot of problems in the industries where they work. Their job is made permanent less frequently compared to the male workers. One respondent expressed her experience this way: “I had been requesting for a long time to make me permanent but the owner did not pay any attention. Finally they agreed, but only after I got a prize in the International Womens’ Day”.

Being mostly temporary, female workers do not get any benefit in case they are laid off from work. Female workers thought that leather industry, in general, lacks equal rights for women. They are paid less than male workers for an equivalent amount of work. Since female workers are less in number and work under temporary basis, they cannot protest when injustice is done against them. The work environment is unfriendly for the women. They do not get pregnancy leave. Factories do not have separate toilets or prayer rooms for female workers. Sometimes they have to do heavy work for which they are not physically fit, but are paid less. Working besides high heat generating furnaces is also difficult for the women. There is no place for rest in case they fall sick while working in the factory. But no evidence is found regarding verbal abuses or physical assault in the factories.

Awareness about global recession and its impact on occupation and daily life

All of the respondents know about recession. They correctly identified that leather industry has been badly affected by global recession due to its high export dependency. The workers have attributed their reduced working hours in the factory to falling export orders due to this global recession. When export orders decline, factory owners substitute relatively older workers with  young workers since they have to pay the new groups of workers, comparatively lower wage. However, none of the eleven respondents have been laid off in spite of export order contraction. The direct impact of the recession is lower working hours which has reduced their income, and made family maintenance more difficult. They have also related the deteriorated law and order situation with increased unemployment due to recession. To combat the recessionary affects on leather industries, workers suggested initiating production of leather processing chemicals domestically as well as increased production of leather goods, locally. However, workers revealed that situation has improved at present compared to the previous eight months.

Expectation about the next six months to one year

Workers, in general, are pessimistic about the future. In the context of this FGD issues raised here, they believe that situation will not change in the coming days if leather processing chemicals are not produced locally, continuing price hike of necessities is not checked and law and order is not controlled.

IV.3     Migrant Workers Focus Group Discussion, June 2009

The following Focus Group Discussion on migrant workers, conducted on the issue “Migrant Worker’s Situation in Bangladesh – Impact of Globalization”, primarily aimed at understanding the consequences of the Global Financial Crisis on Migrant Workers’ daily lives. Of the nine migrant workers in the FGD, eight were male and one was a female. A brief review of the findings from the discussion is presented here. The following themes were addressed in order to gauge the implications of the global financial crisis on employment, consumption expenditure, education, health, social security and gender aspect of migrant workers.


Employment and earning: The respondents went abroad for work to achieve a better standard of life. All the migrants, except one female respondent, had migrated willingly and the decision for migration was taken at the family level. Before migrating, they earned approximately Tk 4000-5000 ($60-$70) per month, on an average, in Bangladesh.  So, they left for foreign destinations with the expectation of a much higher income. But their expectations and dreams were dampened from the very beginning as most of them could not find a job on arrival. They  had to wait quite long to get a job. Six of the respondents went to UAE, two to Singapore and one to Saudi Arabia. They worked in different places, such as, construction firm, shipyard, and hospitals.  Income earning was lowest in hospitals, an amount of Tk 8200 ($118). Monthly earnings of those who worked in shipyard and construction firms ranged from Tk 20000-22000 ($290-$319) and Tk 25000-30000 ($362-$435). Wage was determined on a daily basis although payment was made either in the middle or end of each month.

The respondents worked abroad for various durations during the period of September, 2008 to June, 2009. Six of them stayed for eight months, one for six months, and another one for five months. However, life in a foreign location was full of extreme misery and hardship. The job contract was flawed and violated in various ways. Employers forcefully kept their important paper and documents (passport, work permit, ID card, contract paper etc) at the very beginning. According to the contract the employer was supposed to pay for residence, food and medical allowance. But they provided only storage quality room for residence purpose, and nothing else. Payment was less than the said amount and very much irregular.  All of them had to overwork without any additional overtime payment.


Problems faced while abroad and its consequences: All the respondents had to come back home permanently at different periods within the current year, because of inadequate and irregular payment. Their employers kept all the papers and documents at the beginning. So, if they were fired from that company, they were bereft of their documents and consequently they became illegal. Other companies utilized this same strategy to exploit them. In the face of such terrible conditions, they tried to complain and seek help from the resident Bangladesh Embassies in those countries but could not get any response. They blamed the unscrupulous manpower agents in their home country for their immense suffering. Due to inhuman living experiences abroad, most of them are not interested to migrate for work anymore. Given a second opportunity, and better employment options, only a few are willing to migrate again, or to send their families or friends abroad for work.


Migrant workers’ current problems in Bangladesh

Being deceived and forced to return to Bangladesh, the migrant workers find life worse and socially awkward. They are in severe financial distress. Their misfortune and return have made them socially distressed. Again, family conflict rising from unsuccessful migration is making their life miserable.  Some have fled away from their village, avoiding people who had lent them money for migration. Most of them have no work at present and are not optimistic about obtaining any decent jobs. So, they are accumulating more loans, mortgaging land, selling real assets like cows and trees. Two of the migrants have reported to be working in subsistence farming, and other two are working temporarily on a salary of Tk 5000 ($72) per month.


Money sent from abroad

The migrant workers earned such poor amount of money, that they could not repay (recover) even a tiny portion of the loans they borrowed (spent) for going abroad. Only fifty six percent of the respondents have sent remittances amounting to Tk10,000 ($144) once or twice during the first few months. Most of these remittances have been spent for their families’ living expenses rather than being invested in any productive activities. Except one, all of them had to return empty handed. Only one managed to bring a little amount of money.



Food consumption and housing standards are very poor. Migrant workers are unable to purchase clothes, shoes or cosmetics according to their needs.  Even consumption of soap, washing powder and cosmetics has been drastically reduced compared to the previous year.

Migrant workers mostly reside in their village. On account of the huge debt burden, those who have fled away from their village homes, reside in sub-let rooms in the cities where they are temporarily employed. Housing condition is utterly poor. Surroundings are dirty and privacy issue is totally neglected as a number of people share a single room. House rent has increased compared to last year, and with the current unemployment, the increased rent is more burdensome. Respondents living in villages appear to enjoy better living conditions and better sanitation.

None of the respondents have personal cell phones. So, mobile telephone in the nearby phone/Fax service center is the main mode of distant communication. But mobile charges are not affordable on a sustained basis. They reported use of cell phones only in cases of emergencies.


Education of Children

Only three respondents have families with children and two families have school going kids. Both these families send their children to school. They intend to continue their education as much as possible in spite of all financial constraints. They are gender sensitive and progressive, and do not want to restrain their daughters from being educated.


Gender Issues: Women in Decision Making, Parenting, and Evidence of Gender Violence

Among the respondents, women take care of the children while males give one or two hours a day. Women in the respondents’ family do not spend much time outside their homes. Although males migrated after discussing with family members, the only female migrant worker in this FGD, reported that she went abroad due to pressure from her husband. She was unwilling to migrate and her family members or relatives were not consulted in this matter. However, for migrating abroad, she did not face any ill remark or criticism from anybody in the society. While travelling to the foreign country and staying abroad, the female respondent said that she did not face wage or gender discrimination, and did not suffer from any type of physical assaults.  Rather her problem was similar to those faced by male migrant workers i.e. no overtime, irregular payment, lack of official documentation and being illegal etc. However, like the male workers she also reported verbal abuse and mental torture at the hospital she had worked in Singapore.


Information about global recession and its influence on current problems

They have little knowledge about global recession and they do not see any clear association of their job loss, return and subsequent sufferings in their daily lives with the global crisis. Their struggle abroad was mainly because of deceitful manpower businessmen and middlemen. In the home country, they are not getting jobs because of a squeezed job market and reduced work opportunity. They reported incidents of forced return from abroad have decreased although they had witnessed an escalation in number of returned migrants at some point during the end of last year.


Recommendations to improve the situation

After facing traumatic experiences while working abroad, respondents have suggested some ways to improve the current situation. Government should ensure that migration cost is not higher than what is stipulated – currently it is Tk 84000 ($1200). Unscrupulous activities of the middlemen and agents should be strictly checked. The job contract should be signed in the presence of recruiting agency and government representatives. Besides, the bilateral relationship with foreign countries, particularly those who take workers from Bangladesh, should be improved, and Bangladesh embassies in those countries need to be made more effective. After Bangladeshi citizens have migrated as workers, both the government of Bangladesh and the foreign country officials should monitor migrant workers right to ensure their welfare. All the respondents had to come back to Bangladesh permanently at different periods of the current year because of inadequate and irregular payment. Although at some point of time, while travelling to their foreign destinations, they were legal migrants, their situation became vulnerable when their employers or brokers confiscated their legal documents to gain control over them. Thus, many migrants who were bonafide workers subsequently found themselves stranded in a foreign country and helpless against the forces of the authority. The rigidity of the governmental machinery in a foreign country became oppressive due to the suspicion and stigma usually attached to migrants from poor countries. Thus, devoid of government of Bangladesh’s support and patronage, they were pushed back. In the face of such terrible conditions, they tried to complain and seek help from the corresponding Bangladesh Embassies in those countries but did not get any response. They blamed the unscrupulous manpower agents in Bangladesh for their terrible sufferings and unexpected return. Due to inhuman living experiences in the foreign countries, most of them are not at all interested to migrate for work anymore. Given a better opportunity, only a few are willing to migrate again, or to send their families or friends abroad for work.


Migrant Workers’ Current Problems in Bangladesh

 Being deceived and pushed back home, the migrant workers find life worse and socially awkward. They are in severe financial distress. Their abrupt return to Bangladesh has made them mentally and socially distressed. Again, family conflict rising from unsuccessful migration makes their life miserable.  Some have fled away from own village being afraid of people who lent them money for going abroad. Most of them have no work at present, and, are not getting any decent jobs.


Optimism about the future

The migrant workers are not optimistic about a positive change in living standard in the next six months to one year, given their current socio economic context. They are very afraid of the future as they do not see any signs of increased employment opportunity in Bangladesh in the near future.

The three FGDs reported in this section bring out in stark terms the very difficult livelihood options and strategies pursued by workers and migrants, both men and women. What comes out quite clearly is that there is a some impact of the current global crisis at the grassroots level, alluded to both by RMG and leather workers, but this is mainly in terms of reduced earnings due to declining overtime, irregular payment, reduced working hours rather than outright employment. The spectre of large scale redundancy in the industrial labour sector remains a distant possibility only. The brunt of the impact really is in terms of lost or foregone opportunities because of the slowdown of exports, and consequently a general slowing down of investments, imports, and the usual knock-on effects on allied services sectors, and ultimately on employment.


The government considers the threat to food security the most serious threat to the economy and has given the food, agricultural and related sectors the most attention. There was widespread concern that the GFC would have deep and profound impact on the economy, especially through the export and the remittance channels. These however, have held up very well, although in the last 2-3 months, the rate of export deceleration has increased. The export sector and export dependent industries have been adversely affected by the global downturn but other domestic factors have had a much greater impact, especially the energy crisis in the country, and a deteriorating law and order situation. These additional factors have increased costs while the GFC has led to squeezing of margins to its very core. The situation has become very difficult for small and even medium sized plants while even the larger ones are now wary of expanding investment in capacity or new units.

The mitigation strategy of the government to date consists of a number of measures that include a stimulus package that was launched in April, a much expanded budget with a focus on agriculture and social safety nets, extensive food and fertilizer subsidies, and scaled up agricultural credit. A relatively small part of the stimulus package has been allocated for direct support to the export sector.

The Stimulas Package

 A stimulus package was unveiled by the government in April 2009 to combat the effects of the global financial crisis. The additional allocation under this package in the budget was BDT 34.2 billion, of which agriculture claimed the lion’s share (BDT 15 billion) with another BDT 5 billion allocated for agricultural credit. Power got BDT 6 billion while food subsidies received BDT 3.7 billion. An amount of BDT 4.5 billion was retained for subsidies to exports. It should be noted that these were in addition to existing allocations under these heads. It is clear that the main thrust of the package was to promote agricultural production through credit, and subsidies on fuel and fertilizers, and to provide cheaper food to disadvantaged groups. The small allocation for export subsidies despite strong pressure from the private sector shows that the government was not very worried about the impact of the GFC on this sector.

Budget: 2009-10

The government has announced the new budget for 2009-10 which is large by historical standards at over 117,000 crore BDT (or 1170 billion) consisting of an ADP of BDT 30,000 crore. The size of the ADP is 19 percent higher than that of the preceding year and 33 percent higher than the revised ADP for 2008-09. By any count, this is an ambitious target, set in part because of the uncertainty surrounding economic trends, both domestic and international. On the domestic front, Bangladesh has in recent times been hit by two major cyclones. It has also been badly hit by the global commodity market volatility in 2008, and is wary of further shocks emanating from the global financial crisis or from fresh natural disasters or a poor harvest. It is these concerns that have been reflected in the budgetary allocations for 2009-10. Agriculture has received renewed interest attracting the largest allocation under the ADP at 19 percent, with transport at 15 percent, energy and power at 14 percent and education at 13 percent.

Apart from its agriculture focus, the new budget has also given duty relief for industry in the form of reduced taxes on imports of capital goods and machinery, thereby seeking to stimulate private investment. The interest rate has also been capped by the central bank at a maximum of 13.5 percent, down from the average of 15.5 percent earlier, again intended to encourage investment.

Large allocations have been made for food, fertilizer subsidy and for social safety nets, including new programmes like the Employment Generation Scheme, and the ‘one house one farm scheme’.

Agricultural Credit

The central bank has announced a liberal, multi-targeted and inclusive farm credit policy worth BDT 11500 crore (115 billion) which is 23 percent higher than the last fiscal period – a significant scaling up.  Loan sizes are also set to be raised. A special focus on backward areas and small/marginal farmers has been stipulated, along with new mechanisms for delivery including linking up with NGOs, replacement of collateral by community-based guarantees, and disbursement in the presence of local elite and officials, and extension into new commodities including fruit and vegetable. There will nevertheless be implementation challenges that will ultimately determine the efficiency and effectiveness of the approach. A pilot exercise is advisable to fine tune delivery if the program is to avoid degeneration into a pure patronage distribution mechanism. Another problem surrounds the whole question of the ‘missing middle’ – the problem of effectively and efficiently reaching the medium farmer. The medium farmer is the most productive component of the agricultural sector and any attempt to stimulate agricultural growth, bypassing them, is likely to be successful.

Social Safety Nets

This defined as all kinds of cash and kind transfers to the poor, including welfare activities, unemployment benefits for retrenched workers, subsidized healthcare, shelter for the homeless, subsidized diesel, pension benefits etc. – geared to reduce vulnerabilities of the poorest.

During the last two decades, the government of Bangladesh has been pursuing a number of safety net programmes. Currently, there are five types of programmes in place: cash support programmes, (b) food aid, (c) special programme for poverty reduction, (d) self-employment through microcredit, and (e) specific poverty reduction programmes.The safety net programmes received an allocation of 2.8 percent of the GDP in 2008-09. Over time, there has been a shift from the charity approach to the development approach. In the current budget, these types of programmes have been further expanded and there are proposals for scaling up. Traditionally, some groups have always been left out, including ethnic minorities, backward regions like the char, haorss and monga areas, and occupational minorities. There seems to be greater awareness of the need for better targeting along some of these categories, as borne out by the explicit references made in the agricultural credit policy recently announced. Problems that remain include low coverage, inappropriate targeting, leakages and weak implementation.

Need to Shift Gear?

  • Focus on food security and agriculture is correct, but need to move on to derive benefits from new/emerging opportunities: this calls for incentives for the private sector
  • Position ourselves in order to gain from the recovery: provide incentives to enter into new markets or diversify exports.
  • Incentives to expand manufacturing capacity
  • Assist in setting up captive power plants;
  • Activate PPP: focus on energy
  • Review interest rate policy: widely perceived to be too high and a constraint to growth
  • Reduce business costs and improve security and law-order
  • Small firms need special support: Nothing done for them so far but they are an important source of employment; also unrest hurts everyone
  • Fine tune safety nets: too many now, need to assess and focus on the most effective and most efficient.
  • Same is true for distribution of subsidies/credit: effective mechanisms missing
  • Need for flexibility: Uncertainty is large – world markets can turn volatile once more or we can be struck by another natural disaster so need to develop a large emergency fund.


  • The Daily Star, June 10 reported: Banks awash with cash as industrial lending plunges”.
  • These views were given in a seminar held at the Bangladesh Institute of Development Studies (BIDS) on 16 July, 2009 by the immediate past governor of the Bangladesh Bank, the Finance Minister, Government of Bangladesh as well a number of professional economists present.
  • Statement by Food Minister, reported in the Daily Star, July 10, 2009
  • The optimistic mood is captured by a report in the Daily Star (July 6, 2009): “ Remittance growth beats doomsayers” as forex reserves climb to a historic $7.42 billion.
  • World Bank has shown that the crude oil price affects significantly the price of primary commodities (Global economic prospects-2008, World Bank )

The Global Financial Crisis - Impact of Bangladesh