[🇧🇩] Monitoring Bangladesh's Economy

[Saif]

Will tight monetary stance alone deliver?

In an economy exposed to fast-changing global energy prices, exchange-rate pressures, inflation and uncertain growth, waiting six months to reassess monetary conditions could prove too long. So, the Bangladesh Bank (BB)'s new three-month review cycle should enable the central bank to respond

thefinancialexpress.com.bd

Will tight monetary stance alone deliver?

In an economy exposed to fast-changing global energy prices, exchange-rate pressures, inflation and uncertain growth, waiting six months to reassess monetary conditions could prove too long. So, the Bangladesh Bank (BB)'s new three-month review cycle should enable the central bank to respond quickly to emerging risks. Against this backdrop, its maiden quarterly Monetary Policy Statement (MPS) for October-December 2026 is a continuation of the contractionary monetary regime by retaining the policy rate at 9.50 per cent. The decision is understandable. Headline inflation, though easing to 8.26 per cent in August, is still high, while non-food inflation remained at 9.32 per cent. Worse still, the recent fuel-price hike and the new national pay scale threaten to add fuel to cost-push inflation. Evidently, the BB is walking a tightrope between combating stubborn inflation and preventing economic activity from slowing further.

But the question is whether reviewing the monetary stance more frequently would help the policy achieve its objectives. The central bank reduced the repo rate from 10 per cent to 9.50 per cent in July to support investment and private credit. Yet private-sector credit growth stood at 4.75 per cent in August, remaining below 5.0 per cent for six months and far short of BB's 6.80 per cent target for December. This suggests that changes in the policy rate transmit quickly to market lending rates, but do not necessarily translate into stronger credit demand and contribute to investment or production. High borrowing costs are one part of the problem. Energy shortage, weak business confidence, depressed demand and banks' reluctance to lend to risky borrowers are equally important. So, the central bank's cautious stance is defensible, but caution alone cannot revive the real economy. More important than frequent policy changes in monetary policy or otherwise can actually address inflation without depriving productive businesses of credit required for investment and employment.

There is a danger that fiscal pressures could work against the central bank's tight monetary stance. If revenue earnings fall short and the government relies on bank borrowing or creation of high-powered money to finance deficits, the tight stance would be defeated. Excess money chasing limited goods would further erode households' purchasing power, weaken the taka and fuel another round of inflation. At the same time, excessive public-sector borrowing could crowd out private businesses already suffering from anaemic credit growth. Notably, reserve-money growth has risen sharply in recent months, while the central bank has been providing liquidity support to stressed banks and undertaking refinance operations. In such a situation, monetary and fiscal policies cannot afford to move in opposite directions. The government will have to exercise fiscal discipline, improve revenue mobilisation and avoid treating the central bank as an easy source of financing. Otherwise, continuation of the tight monetary stance would amount to pressing the brake and accelerator simultaneously.

But the gravest obstruction to effective monetary policy lies in the impaired banking system itself. Non-performing loans reached 32.78 per cent of total bank loans, reportedly the highest ratio in the world. With nearly one taka in every three lent by banks classified as non-performing, capital eroded in many institutions and liquidity unevenly distributed, how can monetary policy work normally? The MPS acknowledges banking-sector stress, but appears to treat it as one among several problems rather than the central weakness limiting monetary policy. In truth, adjusting the price of money cannot produce desired outcome when the machinery distributing that money is itself dysfunctional. So, alongside quarterly monetary reviews, the BB needs to accelerate recovery of bad loans, restructure weak banks, enforce stricter supervision, curb lending under political influence and restore depositor and investor confidence. Quarterly reviews are welcome, but institutional frequency cannot substitute institutional effectiveness. Banking reform has to be at the heart of making monetary policy work.​

 

[Saif]

National savings fall as consumption spending rises: What does it mean for the economy?

As the country’s economy has expanded, both domestic and national savings in current-price terms have increased. However, savings as a proportion of gross domestic product (GDP) have not risen accordingly. Instead, both ratios have declined steadily. National savings as a share of GDP have...

en.prothomalo.com

National savings fall as consumption spending rises: What does it mean for the economy?

Shafiqul Islam
Dhaka

As the country’s economy has expanded, both domestic and national savings in current-price terms have increased. However, savings as a proportion of gross domestic product (GDP) have not risen accordingly. Instead, both ratios have declined steadily.

National savings as a share of GDP have fallen for three consecutive fiscal years. In other words, although the economy has grown in size, the savings rate has failed to keep pace.

The latest edition of the Bangladesh Bureau of Statistics’ (BBS) National Accounts Statistics report contains these findings. According to the report, alongside national savings, investment as a share of GDP has also declined steadily. In contrast, consumption spending has increased.

According to BBS data, national savings stood at 29.95 per cent of GDP in the 2022–23 fiscal year. In the provisional estimate for the latest 2025–26 fiscal year, the ratio had fallen to 26.93 per cent. This means national savings declined by nearly 3 percentage points over three fiscal years.

Meanwhile, domestic savings accounted for 25.76 per cent of GDP in 2022–23, falling to 21.38 per cent in 2025–26. By that measure, domestic savings declined by 4.38 percentage points over the three-year period.

Economists say that a decline in savings relative to GDP means less capital is available for investment. Lower investment, in turn, affects employment and people’s incomes. A decline in national savings may also increase dependence on foreign or domestic borrowing.

Therefore, maintaining relatively high levels of savings and investment in relation to GDP is essential for sustainable economic growth. However, these indicators have been moving in a negative direction over the past several years.

Asked about the issue, Mustafizur Rahman, distinguished fellow at the private research organisation Centre for Policy Dialogue (CPD), said rising prices of essential goods and services had increased the cost-of-living burden on ordinary people.

Economists say that a decline in savings relative to GDP means less capital is available for investment. Lower investment, in turn, affects employment and people’s incomes. A decline in national savings may also increase dependence on foreign or domestic borrowing.

According to him, as consumers try to balance their incomes with the cost of living, their capacity to save has fallen significantly.

He added that slower growth in remittances and losses incurred by various state-owned enterprises were also among the reasons for the decline in the national savings rate.

For context, domestic savings refer to what remains after total consumption expenditure by households and the government is deducted from the income generated from goods and services within Bangladesh’s borders.

National savings comprise domestic savings together with remittances sent by expatriate Bangladeshis and income from foreign sources.

Savings rate declining steadily

The savings rate began to decline during the Covid-19 pandemic, starting in the 2020–21 fiscal year. It increased slightly only in 2022–23, before declining steadily over the following three fiscal years.

Before the pandemic, in 2019–20, domestic savings accounted for 27 per cent of GDP, while national savings accounted for 31.42 per cent. In the provisional estimate for the latest fiscal year, domestic savings had fallen to 21 per cent of GDP, while national savings had declined to around 27 per cent.

However, savings in current-price terms have increased compared with previous years. BBS data show that national savings amounted to around Tk 1.345 trillion in 2022–23, rising to Tk 1.648 trillion in 2025–26.

Economists, however, place greater emphasis on savings as a proportion of GDP when assessing the actual savings trend and the economy’s capacity for capital formation.

A decline in national savings reduces investment because lower savings mean that banks and other financial institutions have fewer funds available. As a result, entrepreneurs have less access to loans to expand their businesses. This constrains overall investment and business expansion in the country--------MA Razzaque, RAPID Chairman.

That is because an increase in savings in nominal monetary terms does not necessarily mean that people’s real capacity to save has increased. Calculating savings as a share of GDP, on the other hand, provides an indication of how strong or weak the economy’s savings capacity is relative to its current size.

Inflation hits savings

MA Razzaque, chairman of the private research organisation Research and Policy Integration for Development (RAPID), said one of the main reasons for the decline in the national savings rate was persistently high inflation over an extended period.

Inflation has caused a large portion of people’s incomes to be spent on consumption — goods and services — leaving them with less capacity to save after meeting their living expenses.

According to BBS data, total consumption expenditure as a share of GDP rose from 74.24 per cent to 78.62 per cent over the past three fiscal years. The main factor behind the increase in consumption spending has been the high inflation that has persisted for several years.

Inflation rose in India, Sri Lanka, Pakistan and several other countries after the Russia–Ukraine war began. Bangladesh, too, has experienced high inflation for four consecutive years. Overall inflation stood at 8.26 per cent in August, while inflation was above 10 per cent in the 2024–25 fiscal year.

Negative impact on investment

According to BBS data, total investment as a share of GDP was above 31 per cent six years ago. It has now fallen below 28 per cent. During this period, both private and public investment have declined.

RAPID Chairman MA Razzaque said a decline in national savings reduces investment because lower savings mean that banks and other financial institutions have fewer funds available. As a result, entrepreneurs have less access to loans to expand their businesses. This constrains overall investment and business expansion in the country.

CPD Distinguished Fellow Mustafizur Rahman said a decline in the savings-to-GDP ratio means it is becoming increasingly difficult to meet domestic investment needs using capital accumulated within the country. In such a situation, dependence on domestic and foreign borrowing increases in order to sustain investment. This, in turn, increases the pressure associated with securing loans, managing them and repaying the borrowed funds.

What needs to be done?

To overcome the existing challenges and restore a positive trend in the economy, CPD Distinguished Fellow Mustafizur Rahman recommended increasing productivity, attracting foreign direct investment (FDI), and reducing losses incurred by state-owned enterprises.

He said that, alongside these measures, unnecessary spending should be reduced at both the public and private levels, while efforts should be made to restore public confidence in the financial sector.​

 

[Saif]

https://www.newagebd.net/post/economy/316450/fresh-remittance-investment-plan-follows-stalled-diaspora-initiative

Fresh remittance investment plan follows stalled diaspora initiative
Staff Correspondent . Dhaka 04 October, 2026, 00:00

The Wage Earners’ Welfare Board plans huge investment to channel remittances into productive investment and reduce transfer costs, years after an earlier government initiative to attract expatriate investment stalled.

The preliminary proposal, sent to the planning ministry by the Ministry of Expatriates’ Welfare and Overseas Employment, seeks substantial spending on financial services and training without specifying measurable investment targets.

The proposed ‘Leveraging Remittance in Bangladesh’ project would be implemented by June 2031 with an estimated cost of Tk 1,013 crore, reveals the proposal.

It allocates Tk 300 crore to facilitating transfers, Tk 250 crore to reducing sending costs and Tk 440.82 crore to training on capital-market investment and income-generating activities.

The Bangladesh Bureau of Statistics’ Survey on the Use of Remittance 2013 found that 25.32 per cent of recipient households invested a portion of the money, while 74.68 per cent reported no investment.

A World Bank analysis found that 72 per cent of households making direct investments put money into dwelling-house construction, followed by flat purchases, highlighting the concentration of investment in housing.

Responding to those reports, the Economic Relations Division in 2018 recommended a national steering committee, a specialised diaspora engagement wing and separate units for investment, philanthropy and expert engagement.

ERD subsequently established an NRB Cell and an online portal and undertook overseas outreach in 2019, but the broader coordination framework made little progress.

The study identified customs delays, inadequate utility connections, demands for unofficial payments, land acquisition complications and fund-transfer difficulties as investment barriers.

The new proposal emphasises financial literacy and digital services. It also proposes improving access to formal transfer channels and informing migrants about cheaper options.

The project plans reducing the average transfer costs of remittances below 3 per cent by 2030 and eliminating corridors charging above 5 per cent. It also proposes linking remittances with pensions and long-term savings without detailing the arrangement.

ERD officials said that the division is seeking external financing to implement the project and sent the Asian Development Bank has expressed initial consent.​