Macroeconomic Challenges and Policy Options in Bangladesh

January 30, 2024

By  Ahsan H. Mansur


Bangladesh economy is facing multiple challenges on the macroeconomic front: inflation is running high with negative impacts on the standard of living of most of the households; balance of payments imbalances are creating tensions in the exchange market; and government interventions to stabilise the exchange rate have contributed to a rapid loss of reserves. The balance of payments (BOP) imbalances resulting from supply disruptions in the aftermath of the Covid-19 pandemic, the commodity price shocks at the outbreak of the Ukraine-Russia war and inadequate domestic policy response. The difficult BOP situation has been manifested through 

rapidly declining foreign exchange reserves of Bangladesh Bank (Chart 1); 
a sharp depreciation of Bangladesh Taka against the US dollar and other major currencies; and
a surge in inflation as measured by the increase in the consumer price index (Chart 2)   
The decline in foreign exchange reserves is a major concern since it has contributed to a sharp depreciation of the exchange rate and also contributed to the surge in domestic inflation. After a long period of exchange rate stability, the exchange market has become unstable initially due to post-pandemic supply side disruptions and Ukraine-Russia war. But subsequently the problem continued due to domestic issues.

After remaining fairly stable in the 6%–7% range, inflation started to surge since 2022, and still remains high at close to 10% level. While the surge in inflation was broad-based, food inflation surged to 12% contributing to the price pressure.

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Ahsan H. Mansur

Ahsan H. Mansur is the Executive Director of the Policy Research Institute of Bangladesh. In his long career, he served the International Monetary Fund (IMF), working in important functional departments (Fiscal Affairs and Policy Review and Development departments) and area departments (Middle East and Central Asia and Asian departments) of the IMF. He also served as the IMF Senior Resident Representative to Pakistan during 1998-01 and as the Fiscal Advisor to the Minister of Finance, Government of Bangladesh (1989-91). He completed his PhD in Economics from University of Western Ontario. He has published extensively in various prestigious journals (including Econometrica, Journal of Economic Theory, and IMF Staff Papers), edited books on special economic topics and in the IMF Occasional Paper and Working Paper series.