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Growth Policies Of Bangladesh Essay

1340 words - 6 pages

Bangladesh began implementing structural policy reforms to increase the market orientation of its economy in the late 1970s. The authorities adopted significant reforms in agriculture, industry, and trade, and also pursued reforms in the financial and infrastructure sectors. These reforms helped accelerate growth from an annual average of 3 percent in the 1970s to 4 percent in the 1980s and to 5 percent in the 1990s. Sound and sustained macroeconomic management ensured macroeconomic stability, contributing to Bangladesh’s ability to maintain one of the lowest growth volatilities in the world.

Major Policy Reforms Contributed to Growth Acceleration:
* Agricultural policy
* ...view middle of the document...

As an integral part of the national macroeconomic stabilization policy, monetary and fiscal policies are designed to fine-tune the fluctuations of the economy—in particular, fluctuations in economic growth, inflation and unemployment rates. In line with the national macroeconomic policy framework, the monetary policy is conducted with a view to achieing multiple objectives, such as maintaining price stability with a low inflation rate and fostering higher economic growth. Monetary policy is seen as a central government policy with respect to the quantity of money, interest and exchange rates which has a dominant role on aggregate demand, inflation and output. This owes much to the rise of the doctrine of monetarism and to the defeat of the popular interpretation of Keynesian fiscal policy. The fiscal policy deals with the revenue and expenditure of the government. The government is responsible for providing all the major public goods and services through its administrative, development and welfare oriented programs which is not feasible for private sector to supply. An excess of expenditure over revenue creates fiscal deficit while excess of revenue over expenditure creates fiscal surplus. The equality between expenditure and revenue produces a balanced budget situation. The income-expenditure management of the government is very crucial in that it has far reaching impact on various macroeconomic activities. To achieve a certain policy objective, such as stable and low inflation or higher output growth, do we need to depend heavily on monetary policy or on fiscal policy or on a coordinated combination of both is a compelling question to ask. Answer to this question definitely requires an in-depth investigation on relative effectiveness of monetary and fiscal policies. This paper makes an attempt to answer this question by investigating the issue of relative effectiveness of monetary and fiscal policies on output growth in Bangladesh.

Monetary Policy Stance in Bangladesh
Monetary policy in Bangladesh aims at achieving a multitude of objectives, such as economic growth, price and exchange rate stability, equilibrium in the balance of payments, and the development of money and capital markets. With ongoing economic reforms in Bangladesh since the early-1980s, monetary policy has gained some independence in achieving and maintaining price stability. The Bangladesh Bank conducts monetary policy by targeting the growth rate of the broad money supply (M2) and uses credit control and supports measures to contain the growth rate of the money supply within a predetermined target level. The Bangladesh Bank is responsible for formulation and implementation of monetary policy. According to the Bangladesh Bank Order of 1972, the main functions of monetary policy in Bangladesh are: (1) to maintain reasonable price stability, (2) to ensure a stable balance of payment position and maintained an external competitiveness of the Bangladesh Taka, and (3)...

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