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Restructuring of the Economy: A
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study on Bangladesh
Executive Summary
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This document reviews: the economy of Bangladesh with respect to its restructuring
process through the global financial crisis of 2007 to the present day; which includes various
policy measures adopted as emergency and short term responses as well as regulatory
proposals and long-term responses, the reasons for them and the reactions of the economy for
the same.
After an impressive growth performance for almost six years, the world economy has
entered a period of uncertainty due to a financial turmoil triggered by the subprime mortgage
crisis in the United States of America (USA). During 2002 to 2007, the world economic
growth averaged 4.5 percent per annum compared to 3 percent in the 1990s. The sudden
gloom in world economic prospects has come as a surprise in view of the persistent economic
growth and stability. The crisis initially affected advanced economies and then its contagion
spread over emerging markets and low-income countries, albeit, in varying degrees.
Advanced economies were first hit mainly by the systemic banking crisis in the USA and
Europe. Emerging markets with well-developed financial systems were initially affected, in
most cases, by cross-border financial linkages through capital flows, stock market investors,
and exchange rates. In less-developed countries, the growth and trade experienced major
setbacks.
The World Economic Outlook of April 2008 projected global growth to slow by 1.5
percent in 2008 and then to 3.9 percent in 2009 before recovering somewhat in 2010. A year
later, April 2009 issue of Outlook forecasted the global growth to contract by 1.3 percent in
2009, lowest ever in last 60 years. However the April 2010 issue of Outlook shows that there
was only a percent contraction in 2009 and projects growth in 2010 to rise by 4 percent .
Following the deepest global downturn in recent history, economic growth solidified and
broadened to advanced economies in the second half of 2009. The global recovery is off to a
stronger start than anticipated earlier but is proceeding at different speeds in the various
regions.
The economy of Bangladesh continues to demonstrate considerable resilience despite the
twin shocks arising from global recessions and the adverse effects of the consecutive floods
and the cyclone-Sidar of the fiscal year (FY2007-08). At the core of this has been the sound
policy framework and macroeconomic fundamentals of the country. The economy grew at a
rate of 5.9 percent, slightly below the growth rate (6.2 percent) of FY2007-08. A key feature
of the economic performance during FY2008-09 was the strong recovery in the agricultural
Smt. M.M.K. College of Commerce & Economics

sector coupled with moderate growth in the industry and service sector. Other contributing
factors have been the countrys relative insulation from international capital markets and the
negligible role played by foreign portfolio investors in the country. However, the investor
psychology seems to be much less insulated than the capital market itself, as demonstrated by
the increase in volatility in Dhaka and Chittagong Stock Exchanges.
Policy makers must ensure that markets do not panic by continuously providing evidence
on the economys resilience in various sectors. Other obstacles include the issue of inflation
which has become a macro policy challenge in Bangladesh after the food-price spike in late
2007 and early 2008 which had caused havoc to the lives of the poor and middle-income
groups, and the risk of export earnings beginning to slow down as also currencies of
Bangladeshs competitor countries depreciating which will put the exchange rate policy under
pressure to maintain export competitiveness.
As a preventive measure since the beginning of the global economic crisis, the
Government has been on high alert and has been monitoring its impact on the economy with
the help of a Task Force involving the concerned stakeholders from both the public and
private sector. Besides, a Technical Committee has also been formed by the Ministry of
Finance to monitor and analyze the macroeconomic impact of the crisis, and to identify
necessary short-term macroeconomic and fiscal management responses. After detailed
examination in line with the recommendations of the Task Force, the Government declared an
incentive package together with fiscal, monetary and policy support. Thus as Bangladesh
continues to implement these measures we find that there is no reason to panic.
The impact of the ongoing global financial crisis on the economy of Bangladesh has not
been as severe as it was anticipated, owing to its well-managed financial sector. However
certain areas were impacted adversely. Although growth in key areas of potential impactremittances and exports remained satisfactory, some weakening in remittance inflows and
export earnings had been observed in the months towards the end of the fiscal year.
Bangladesh is fairly well protected from the financial side, but vulnerable to potential global
economic slowdown, particularly in the US and EU. The foreign exchange reserves of the
Bangladesh Bank and commercial banks have limited exposure to the securities markets and
banking system risk in the US and EU.
Our study is an approach to understand the economy of Bangladesh and the changes
that have taken place in the wake of the global financial crisis so as to better envision
the future course of its economy.
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Smt. M.M.K. College of Commerce & Economics

Smt. M.M.K. College of Commerce & Economics