Bangladesh

Bangladesh initially fixed its exchange rate to sterling, but soon moved to more flexible and less constrained arrangements, with a long period of gradual and incomplete financial reforms but no formal targets.

Years

Targets and attainment

Classification

1974

exchange rate pegged to GBP (intervention currency) within narrow bands; preferential rate for emigrant workers’ remittances; main monetary policy instruments are selective credit controls and moral suasion (on dominant public sector banks); economy still affected by post-independence turmoil and reorganisation.

augmented exchange rate fix AERF

1975-2017

devaluation 1975, followed by varying but relatively small, frequent adjustments; emigrants’ remittances auctioned in secondary forex market, with fluctuating premium; recurring efforts to stabilise and develop economy, not always helped by periodic natural disasters (floods and droughts), by domestic political conflicts, by external developments (commodity prices, terms of trade) or by use of price, import and other controls; central bank financing of fiscal deficits and large public sector varies but remains significant; main monetary policy instruments are selective credit controls, refinancing quantities and moral suasion, while refinancing and other interest rates are regulated and rarely varied; 1979 peg to currency basket with margins of +/-2.5%, continuing frequent small depreciations, with rate more stable vs USD than vs GBP, depreciations become more clearly aimed at improving and preserving competitiveness (with occasional appreciations); intervention currency becomes USD 1983, basket weights revised 1985; secondary forex market extended to other receipts 1985 and especially 1986; mid-1980s growing problem of non-performing bank loans; inflation varying mostly between 10 and 20% in 1970s, around 10% in 1980s, and from 1990s around 6-7%; quantitative credit controls ended 1987; late 1980s and first half of 1990s programme of financial reform covering interest rate liberalisation, rationalisation of credit subsidies, loan recovery and bank recapitalisation, introduction of central bank securities issued by auction, improved bank supervision, exchange rate unification in 1992, and forex market liberalisation 1993; by mid-1990s main monetary instruments are OMOs (via auctions,  bi-weekly from 1995), Bank rate, and reserve and liquidity requirements; renewed reforms in early/mid-2000s include more exchange rate flexibility from 2003, moves towards development of securities market and reform of inefficient state-owned commercial banks (which dominate forex market); late 2000s exchange rate more closely managed; capital market development still low, partly due to prevalence of National Savings Certificates with interest rate subsidy which limits interest rate flexibility; CPI and other statistical data initially weak but gradually improved.

loosely structured discretion LSD

Selected IMF references: RED 1974 pp27, 43-6, 66; SR 1975 pp3-4, 6-7, 10-11; SR 1976 pp1-2, 4-5, 8-9; RED 1978 pp41-3; RED 1979 p44; RED 1982 pp39-44, 55-6; RED 1983 pp56-7; SR 1983 pp13-14; RED 1985 pp35-6, 47-50; RED 1987 pp42-3, 55-8; SR 1990 p12; RED 1991 pp18-21; SR 1991 p11; RED 1993 pp25-6, 31-2, 36-7; RED 1996 pp32-3, 48-50; RED 1997 pp20-1; SISA 2002 pp18-24; SR 2002 pp8-9; 2nd Review under Three Year Arrangement 2004 pp10-11; SR 2007 p12; SI 2008 pp8-12; SR 2008 pp9-12; SR 2011 pp11, 17-18; SR 2013 pp15-16; SR 2017 pp8-9, 12-15; SI 2018 pp13-14, 16-25; SR 2018 pp8-9; SR 2019 pp12-13.

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