Bangladesh's Macroeconomic Scenario
Group 06
23PGIB066 – Anasuya Pany
23PGIB076 – Harsh Tatiya
23PGIB086 – Yash Mulay
23PGIB096 – Sahil Bansal
23PGIB106 – Siddhartha Sharma
23PGIB116 – Yash Khandelwal
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Table of Contents
Introduction ........................................................................................................................................... 3
GDP ........................................................................................................................................................ 3
Inflation.................................................................................................................................................. 5
Interest Rate .......................................................................................................................................... 6
Government Debt .................................................................................................................................. 8
Exchange Rates ..................................................................................................................................... 9
Business Expectations ........................................................................................................................... 9
Economic Policies ................................................................................................................................ 10
Conclusion ........................................................................................................................................... 12
Investment Recommendations ........................................................................................................... 12
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Introduction
Bangladesh, a South Asian nation with a rich cultural heritage and a population exceeding 160 million,
has emerged as a dynamic player on the global economic stage. In recent years, this nation, located in
the Bay of Bengal, has been garnering increasing attention from investors and policymakers alike,
thanks to its robust economic growth, strategic geographical location, and a commitment to fostering a
favourable business environment.
Bangladesh is a rapidly developing country with a lower-middle-income economy. It has experienced
strong economic growth in recent years, with GDP growth averaging over 7% per year since 2016. This
growth has been driven by a number of factors, including a growing ready-made garment (RMG) sector,
remittances from Bangladeshis working abroad, and investments in infrastructure and energy.
The recent macroeconomic scenario in Bangladesh has been mixed. Strong economic growth has been
offset by rising inflation, a widening trade deficit, and high youth unemployment. The Russia-Ukraine
crisis has also had a negative impact on the economy, leading to higher energy prices and disruptions
to global supply chains.
Despite these challenges, Bangladesh remains an attractive destination for foreign investment. The
country has a number of advantages, including a young and growing population, a relatively low labor
cost, and a strategic location in South Asia. Bangladesh is also benefiting from increased trade and
investment with China and other emerging economies.
This comprehensive report delves into the multifaceted macroeconomic scenario of Bangladesh, aiming
to provide a detailed analysis of critical indicators that encapsulate its economic landscape. The report
encompasses a thorough examination of the country's Gross Domestic Product (GDP), inflation rates,
interest rates, government debt, exchange rates, business expectations, and the economic policies that
underpin its progress. Ultimately, the report seeks to answer a pivotal question: is Bangladesh a
promising destination for investors?
A Resilient Growth Trajectory
GDP (Gross Domestic Product)
Bangladesh's journey in terms of macroeconomics has been extraordinary. The nation's GDP growth
rate, which serves as a bellwether of economic health, has exhibited a rollercoaster ride in recent years.
In FY 2018-19, Bangladesh achieved an impressive GDP growth rate of 7.88 percent, a testament to its
vibrant economic landscape.
However, the global landscape took a dramatic turn in FY 2019-20 when the COVID-19 pandemic
unleashed unprecedented disruptions on economies worldwide. Bangladesh was not immune to this
turmoil, and its GDP growth rate plummeted to a modest 3.45 percent during this fiscal year. This sharp
contraction underscored the vulnerabilities inherent in a highly interconnected global economy.
Yet, what sets Bangladesh apart is its resilience. In the face of adversity, the nation rebounded
vigorously. FY 2020-21 witnessed a notable recovery, with the GDP growth rate surging to 6.94
percent. This resurgence continued into FY 2021-22, where Bangladesh recorded a commendable GDP
growth rate of 7.10 percent.
While these figures paint a picture of a nation on the path to recovery, it's important to acknowledge
that no economy exists in isolation. The fiscal year 2022-23 introduced new challenges with the RussiaUkraine crisis casting a shadow over global economic prospects. This geopolitical turmoil has
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necessitated a more cautious outlook, with an expected GDP growth rate of 6.03 percent. Nevertheless,
Bangladesh's ability to navigate through these fluctuations underscores its inherent strengths.
Following are some stats on the GDP of Bangladesh:

According to the World Bank, Bangladesh’s GDP was worth $460.20 billion in 2022, which
was an increase of 10.55% from $416.26 billion in 2021. The GDP of Bangladesh was 0.20
percent of the world economy in 2022.

Bangladesh’s GDP per capita, which is the GDP divided by the population, was $2,470 in
2022, up from $2,230 in 2021. This means that the average income of each person in
Bangladesh was $2,470 in 2022.

Bangladesh’s GDP per capita PPP, which is the GDP adjusted for purchasing power parity
(PPP), was $8,679 in 2022, up from $7,930 in 2021. PPP is a method of comparing the cost of
living and the purchasing power of different countries by making a common basket of goods
and services. This means that the average income of each person in Bangladesh could buy
$8,679 worth of goods and services in 2022 at the same prices as in the United States.

According to the Bangladesh Bureau of Statistics (BBS) , Bangladesh’s GDP at current
market prices was Tk 39,76,462 crore (US$ 465 billion) in FY 2021-22, up by 12.64 percent
from Tk 35,30,000 crore (US$ 409 billion) in FY 2020-21. The BBS recently revised the base
year for calculating GDP from FY 2005-06 to FY 2015-16, which resulted in a higher GDP
estimate for Bangladesh.

The BBS also reported that Bangladesh’s GDP growth rate was 5.2 percent in FY 2020-21 and
projected to be 5.5 percent in FY 2021-22. The BBS attributed the growth to a rebound in
exports, remittances, and public investment amid the COVID-19 pandemic.

The World Bank also estimated that Bangladesh’s GDP growth rate was 5.2 percent in FY
2020-21 and forecasted to be 4.4 percent in FY 2021-22. The World Bank’s estimates are
slightly lower than the BBS’s estimates due to different methodologies and data sources. The
World Bank expected that Bangladesh’s growth would moderate due to import suppression
measures and inflationary pressures.

The main industries that contribute to Bangladesh’s GDP are textiles, pharmaceuticals,
electronics, shipbuilding, automotive, bicycle, leather, jute, glass, paper, plastic, food and
beverages, cement, tea, rice, natural gas and crude petroleum, iron, and steel.

The main export goods that generate foreign exchange earnings for Bangladesh are cotton
textiles and knitwear, jute and jute goods, fish and seafood, leather and leather goods, home
textiles, pharmaceuticals, processed food, plastics, bicycles.

The main trading partners that buy and sell goods and services with Bangladesh are Germany
(+) 16%, United States (+) 15.2%, United Kingdom (+) 7.41%, Spain (+) 7.17%, Poland (+)
5.552%, France (+) 4.2%, Netherlands (+) 3.55%, Italy (+) 3.36% for exports; China (+) 21.5%,
India (+) 12.2%, Singapore (+) 9.2%, European Union (+) 6.2%, Hong Kong (+) 5.5%
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Inflation
Inflation is one of the major macroeconomic challenges that Bangladesh faces, as it affects the living
standards, income distribution, and economic growth of the country. Inflation is measured by the
inflation rate, which is the percentage change in the consumer price index (CPI) from one period to
another. The CPI is a basket of goods and services that represents the average consumption pattern of a
household in a country.
According to the Bangladesh Bank, the central bank of Bangladesh, reports that the country's current
inflation rate (as determined by the CPI, with April 2023 as the base year and 2021-22) was 9.92% in
August 2023, up from 9.69 percent in July 2023 and 9.52 percent in August 2022. The monthly average
inflation rate (twelve month) was 9.24 percent in August 2023, up from 9.20 percent in July 2023 and
6.66 percent in August 2022.
The main causes of inflation in Bangladesh are high food prices, rising global commodity prices,
supply chain disruptions, import suppression measures, domestic demand pressures, currency
depreciation, fiscal deficit and money supply growth .
The main effects of inflation in Bangladesh are erosion of purchasing power, increase in poverty and
inequality, reduction in real income and savings, distortion of relative prices and resource allocation,
loss of competitiveness and export earnings, increase in debt burden and interest payments, uncertainty
and speculation.
The Bangladesh Bank has reduced the policy rate from 6.0 percent to 4.75 percent and the reverse repo
rate from 4.75 percent to 4.0 percent in order to preserve macroeconomic stability and manage inflation
from March 2020. The government has implemented fiscal stimulus packages worth about Tk 2 trillion
(US$23 billion), equivalent to about 7 percent of GDP, to support the economic recovery from the
pandemic. The government has also taken measures to improve food security, enhance social protection
programs, subsidize utility bills for low-income households, and regulate essential commodity prices.
However, these policy responses have also contributed to inflationary pressures by increasing aggregate
demand and money supply growth. Therefore, there is a need for a careful balance between supporting
the economic recovery and containing inflation expectations. The Bangladesh Bank has indicated that
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it will monitor the inflation situation closely and adjust its monetary policy stance accordingly. The
government has also expressed its commitment to reduce the fiscal deficit and public debt gradually as
the economy recovers.
In conclusion, inflation is a serious macroeconomic problem that affects the welfare and development
of Bangladesh. Inflation has increased significantly in recent years due to various factors related to the
COVID-19 pandemic and its aftermath. The authorities have taken different policy measures to reduce
the impact of the pandemic and support the economic recovery while trying to keep inflation under
control. However, there are still challenges and risks involved in achieving a sustainable and inclusive
growth path with low and stable inflation.
Interest Rates
Interest rates are the prices of borrowing and lending money in the financial market. They affect the
cost of capital, investment, saving, consumption, and economic growth of a country. Interest rates are
determined by various factors, such as monetary policy, inflation, exchange rate, fiscal policy, supply
and demand of money, and market expectations.
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In Bangladesh, interest rates are influenced by the Bangladesh Bank, the central bank of Bangladesh,
which sets the policy rate and the reverse repo rate. The policy rate, also known as the repo rate, is the
rate at which the Bangladesh Bank lends money to commercial banks. The reverse repo rate is the rate
at which the Bangladesh Bank borrows money from commercial banks. The Bangladesh Bank uses
these rates to inject or withdraw money from the banking system and influence the money market
interest rates.
According to the Bangladesh Bank, the policy rate was reduced from 6.0 percent to 4.75 percent in
March 2020 and remained unchanged throughout 2021 and 2022. The reverse repo rate was also
reduced from 4.75 percent to 4.0 percent in March 2020 and stayed at that level in 2021 and 2022. The
Bangladesh Bank adopted an accommodative monetary policy stance to support the economic recovery
from the COVID-19 pandemic and mitigate its impact on various sectors.
The average lending rate of commercial banks declined from 9.5 percent in June 2020 to 8.7 percent in
June 2021. The average deposit rate of commercial banks fell from 5.3 percent to 4.6 percent over the
same period. The lending interest rate is the average interest rate charged by commercial banks to
borrowers.
The main factors that affected interest rates in Bangladesh in recent years were the COVID-19 pandemic
and its aftermath, inflationary pressures, exchange rate movements, fiscal deficit and public debt, and
global financial conditions.
The COVID-19 pandemic and its aftermath had a negative impact on economic activity, employment,
income, and demand in Bangladesh. The Bangladesh Bank responded by lowering its policy rate and
reverse repo rate to provide liquidity and credit support to the banking system and various sectors of
the economy. The government also implemented fiscal stimulus packages worth about Tk2 trillion
(US$23 billion), equivalent to about 7 percent of GDP, to support the economic recovery from the
pandemic.
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Government Debt
Government debt is the total amount of money that the government owes to its creditors, both domestic
and foreign. It is usually expressed as a percentage of gross domestic product (GDP), which gives the
total value of all final goods and services produced within a country in a specified period of time.
Government debt reflects the fiscal position and borrowing capacity of the government, and affects its
credit rating, interest payments, and economic growth prospects.
According to the World Bank, Bangladesh’s public debt-to-GDP ratio increased from 34.3 percent in
FY 2019 to 36.3 percent in FY 2020, as the government increased its borrowing to finance its stimulus
packages and mitigate the impact of the COVID-19 pandemic. The public debt-to-GDP ratio is
estimated to have risen further to 37.9 percent in FY 2021, as the government continued to run a fiscal
deficit of around 6 percent of GDP. The World Bank projects that the public debt-to-GDP ratio will
peak at 39.2 percent in FY 2022 and then gradually decline to 36.8 percent by FY 2025, as the fiscal
deficit narrows and GDP growth accelerates.
The main components of Bangladesh’s public debt are external debt and domestic debt. External debt
is the amount of money that the government owes to foreign creditors, such as multilateral institutions,
bilateral partners, commercial banks, and bondholders. Domestic debt is the amount of money that the
government owes to domestic creditors, such as banks, non-bank financial institutions, insurance
companies, pension funds, and individuals.
According to the World Bank, Bangladesh’s external debt stock was $62.64 billion in 2020, which was
an increase of $7.73 billion from $54.91 billion in 2019. The external debt stock represented 18.8
percent of GDP and 48.5 percent of public debt in 2020.
The main sources of Bangladesh’s external debt are multilateral creditors, such as the World Bank, the
Asian Development Bank, the Islamic Development Bank, and other international organizations;
bilateral creditors, such as China, Japan, India, France, Germany, and other countries; commercial
creditors, such as banks and bondholders; and other creditors, such as suppliers and short-term loans.
The main instruments of Bangladesh’s domestic debt are treasury bills and bonds, which are short-term
and long-term securities issued by the government to raise funds from the domestic market; national
savings certificates, which are savings instruments issued by the government to mobilize funds from
small savers; and other instruments, such as prize bonds and debentures.
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Exchange Rates
Exchange rates are the prices of one currency in terms of another currency. They affect the
competitiveness, trade balance, inflation, and economic growth of a country. Exchange rates are
determined by various factors, such as supply and demand, interest rates, inflation, fiscal policy,
monetary policy, and market expectations.
In Bangladesh, exchange rates are influenced by the Bangladesh Bank, the central bank of Bangladesh,
which intervenes in the foreign exchange market to smooth out excessive volatility and maintain
external competitiveness of the Bangladeshi taka (BDT). The BDT is a managed floating currency,
which means that its value is determined by market forces but also subject to occasional adjustments
by the central bank.
According to the Bangladesh Bank, the exchange rate of BDT against the US dollar (USD), which is
the most widely used foreign currency in Bangladesh, was 110.0000 BDT per USD in September 2023,
unchanged from August 2023 and September 2022. The exchange rate of BDT against the USD
remained stable throughout 2021 and 2022, as the central bank maintained a tight grip on the foreign
exchange market.
The main factors that affected exchange rates in Bangladesh in recent years were the COVID-19
pandemic and its aftermath, inflationary pressures, trade balance, remittance inflows, foreign exchange
reserves, and global financial conditions.
The COVID-19 pandemic and its aftermath had a mixed impact on exchange rates in Bangladesh. On
one hand, the pandemic reduced export earnings, especially from ready-made garments (RMG), which
account for about 80 percent of total exports. This reduced the supply of foreign currency and put
downward pressure on the BDT. On the other hand, the pandemic increased remittance inflows, as
migrant workers sent more money back home to support their families amid the crisis. This increased
the demand for foreign currency and supported the BDT.
Business Expectations
Business expectations are the opinions and forecasts of business owners and managers about the future
prospects of their firms and the economy. They affect the decisions and behaviors of businesses, such
as investment, production, employment, pricing, and innovation. Business expectations are measured
by various indicators, such as business confidence index (BCI), business tendency survey (BTS),
consumer confidence index (CCI), and harmonized expectation indicator (HEI).
According to the South Asian Network on Economic Modeling (SANEM), a research organization that
conducts economic modeling and analysis, the BCI for Bangladesh increased from 51.06 percent in the
July-September quarter of 2020 to 57.90 percent in the January-March quarter of 2021. The BCI is a
composite indicator that reflects the overall business sentiment and outlook of the firms based on a
survey of 500 firms from different sectors and regions. The BCI ranges from 0 to 100, with higher
values indicating higher confidence and optimism.
The main factors that affected business expectations in Bangladesh in recent years were the COVID-19
pandemic and its aftermath, economic recovery and growth, inflationary pressures, exchange rate
stability, trade balance improvement, remittance inflows, public investment and stimulus packages,
governance and policy reforms, and global financial conditions.
The COVID-19 pandemic and its aftermath had a negative impact on business expectations in
Bangladesh, as it disrupted economic activity, reduced demand, increased uncertainty, and posed health
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risks. However, business expectations improved slightly in recent quarters as economic activity
resumed after the lockdowns and vaccination campaigns progressed.
Economic recovery and growth boosted business expectations in Bangladesh, as GDP growth
rebounded from 2.4 percent in FY 2020 to 5.2 percent in FY 2021. The growth was driven by a rebound
in exports, especially ready-made garments (RMG), strong remittance inflows, and public investment.
The World Bank projects that Bangladesh’s GDP growth will moderate to 4.4 percent in FY 2022.
Economic policies
Economic policies are the actions and strategies taken by the government and the central bank to
achieve certain objectives, such as economic growth, stability, equity, and development. Economic
policies include fiscal policy, monetary policy, exchange rate policy, trade policy, industrial policy,
and social policy.
According to the World Bank, Bangladesh’s economic policies in recent years have been focused on
supporting the economic recovery from the COVID-19 pandemic and maintaining macroeconomic
stability amid global and domestic uncertainties. The main economic policy measures taken by the
authorities are as follows:

Fiscal policy: The government implemented fiscal stimulus packages worth about Tk2 trillion
(US$23 billion), equivalent to about 7 percent of GDP, to support the economic recovery
from the pandemic. The stimulus packages included cash transfers, food assistance, utility bill
subsidies, tax relief, credit guarantees, low-cost loans, and wage support for various sectors
and groups affected by the crisis. The government also increased public investment in
infrastructure, health, education, and social protection to boost growth and create jobs. The
fiscal deficit widened from 5 percent of GDP in FY 2019 to 6 percent of GDP in FY 2020
and FY 2021. The public debt-to-GDP ratio increased from 34.3 percent in FY 2019 to 36.3
percent in FY 2020 and is estimated to have risen further to 37.9 percent in FY 2021. The
government expressed its commitment to reduce the fiscal deficit and public debt gradually as
the economy recovers.

Monetary policy: The Bangladesh Bank, the central bank of Bangladesh, adopted an
accommodative monetary policy stance since March 2020 by reducing the policy rate from
6.0 percent to 4.75 percent and the reverse repo rate from 4.75 percent to 4.0 percent. The
central bank also provided liquidity and credit support to the banking system and various
sectors of the economy through various instruments, such as repo operations, refinancing
schemes, regulatory forbearance, and bond purchases. The money supply growth accelerated
from 12.6 percent in June 2019 to 18.9 percent in June 2020 and 21.2 percent in June 2021.
The central bank indicated that it will monitor the inflation situation closely and adjust its
monetary policy stance accordingly.

Trade policy: The government pursued a trade policy that aimed at diversifying exports
beyond the ready-made garments (RMG) sector, which accounts for about 80 percent of total
exports. The government provided various incentives and support measures for exportoriented industries, such as cash subsidies, tax exemptions, duty drawbacks, bonded
warehouse facilities, export processing zones, and special economic zones. The government
also reduced import tariffs on raw materials and intermediate goods to lower production costs
and enhance competitiveness. The government signed free trade agreements (FTAs) with
several countries, such as Bhutan, Nepal, Sri Lanka, and Indonesia, to expand market access
and promote regional integration.
The government of Bangladesh has implemented a number of economic policies in recent years to
promote economic growth and development. These policies include:
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
Investing in infrastructure: The government is investing heavily in infrastructure
development, such as roads, bridges, and power plants. This is helping to improve the
business environment and attract foreign investment.

Promoting exports: The government is providing incentives to businesses to export their
products. This is helping to reduce the trade deficit and increase foreign exchange earnings.

Reducing poverty: The government is implementing a number of programs to reduce poverty
and inequality. These programs include providing social safety nets to the poor and
vulnerable, and investing in education and healthcare.

Creating jobs: The government is creating jobs through a number of initiatives, such as
investing in small and medium-sized enterprises (SMEs) and promoting tourism.
The government's economic policies have had a positive impact on the economy. Bangladesh has
experienced strong economic growth in recent years, with GDP growth averaging over 7% per year
since 2016. The poverty rate has also declined significantly, from 48.3% in 2000 to 20.5% in 2022.
However, there are still some challenges that the government needs to address. The economy is still
vulnerable to external shocks, such as changes in global commodity prices and the global economic
outlook. The government also needs to do more to address income inequality and create jobs for the
growing youth population.
Overall, the government of Bangladesh's economic policies have been successful in promoting
economic growth and development. The government has made significant investments in
infrastructure and social programs. The government has also taken steps to reduce the trade deficit
and create jobs. However, there are still some challenges that the government needs to address, such
as reducing income inequality and creating jobs for the growing youth population.
Here are some specific examples of economic policies that the government of Bangladesh has
implemented in recent years:

The Export Competitiveness for Jobs Project (ECJP): This project is funded by the World
Bank and provides financial and technical assistance to businesses to help them export their
products.

The Power System Expansion Project (PSEP): This project is funded by the Asian
Development Bank and is expanding the country's power generation and transmission
capacity.

The National Skills Development Policy (NSDP): This policy aims to improve the skills of
the workforce to meet the needs of the growing economy.

The Social Safety Net Program (SSNP): This program provides social safety nets to the poor
and vulnerable, such as food subsidies and cash transfers.
These are just a few examples of the many economic policies that the government of Bangladesh has
implemented in recent years. These policies are helping to promote economic growth and
development, and improve the lives of Bangladeshis.
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Conclusion
Challenges and Opportunities
While Bangladesh has displayed resilience and recovery from the COVID-19 pandemic, it is essential
to recognize that challenges persist. The Russia-Ukraine crisis, with its potential impacts on remittances,
trade, and energy prices, underscores the vulnerability of an interconnected global economy.
Bangladesh's response to external shocks will be a critical determinant of its economic trajectory.
Addressing income inequality remains an ongoing challenge. While GDP growth is promising, ensuring
that the benefits are widely distributed among the population is crucial for social cohesion and longterm stability.
Furthermore, infrastructure development, investment in human capital, technological innovation, and
improvements in governance and regulatory frameworks are vital for sustainable and inclusive
economic growth. Bangladesh's commitment to these areas will shape its economic prospects in the
coming years.
Investment Recommendations
In summary, Bangladesh's economy has displayed resilience and recovery from the COVID-19
pandemic, with impressive GDP growth rates and improvements in per capita income. However,
challenges such as the Russia-Ukraine crisis and potential inflation need to be monitored. Following
are some recommendations for investors considering Bangladesh:
1. Monitor Inflation: Keep a close eye on inflation trends as it can impact the real returns on
investments.
2. Assess Interest Rates: Evaluate the central bank's interest rate policy and its impact on
borrowing costs.
3. Consider Government Debt: Analyze the government's management of debt and its
potential impact on fiscal stability.
4. Exchange Rate Stability: Evaluate the stability of the exchange rate to mitigate currency
risk.
5. Business Confidence: Pay attention to the Business Confidence Index to gauge the optimism
of the business community.
6. Economic Policies: Review the government's economic policies, especially those related to
FDI and ease of doing business.
7. Diversify Investments: Consider diversifying investments across different sectors to reduce
risk.
Despite challenges, Bangladesh's growing economy and investor-friendly policies make it an
attractive destination for investment. However, due diligence and risk management are essential for
making informed investment decisions in any market.
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