October 2023

Bangladesh
Development
UpdateNew Frontiers in Poverty Reduction

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2

Table of Contents
Executive Summary ....................................................................................................................................................6
Recent Developments ................................................................................................................................................8
Context ...................................................................................................................................................................8
Real Sector ..............................................................................................................................................................8
Monetary and Financial Sector Development ..................................................................................................... 11External Sector .................................................................................................................................................... 14
Fiscal Trends and Debt Sustainability .................................................................................................................. 19
Outlook and Risks .................................................................................................................................................... 21
Near and Medium-Term Outlook ........................................................................................................................ 21
Policy Directions and Structural Reforms ............................................................................................................ 23
Special Focus: New Frontiers in Poverty Reduction ................................................................................................ 25
Annexes ............................................................................................................................................................... 37
References ........................................................................................................................................................... 40

Boxes
Box 1: Policy updates on interest rates and exchange rates.................................................................................... 12
Box 2: Stressed loans in the banking sector ............................................................................................................. 13
Box 3: The slowdown in official remittance inflows................................................................................................. 15
Box 4: Policies Adopted to Preserve FX Reserves..................................................................................................... 18
Box 5: Poverty Measurement in Bangladesh ........................................................................................................... 25
Box 6: The impact of displaced Rohingya population inflow since 2019 ................................................................. 32

TablesTable 1: Contributions to Growth............................................................................................................................... 8
Table 2: Global Growth and Commodity Prices ......................................................................................................... 9
Table 3: Monetary Program Performance ............................................................................................................... 11
Table 4: Stressed Loans in the Banking Sector ......................................................................................................... 13
Table 5: Balance of Payments................................................................................................................................... 14
Table 6: Selected Macroeconomic Indicators .......................................................................................................... 21
Table A.1: Characteristics of poor and non-poor households (average).................................................................. 37
Table A.2: Characteristics of rural poor and non-poor households (average) ........................................................ 38
Table A.3: Characteristics of urban poor and non-poor households (average) ....................................................... 393

Acknowledgements
This report was prepared by a team comprised of Nazmus Sadat Khan (Economist), Bernard Haven (Senior
Economist), Rangeet Ghosh (Senior Economist), Zahid Hussain (consultant), Sharmin Akter Jahan (Consultant),
and Bibhuti Chakma (Team Associate). Sergio Olivieri (Senior Economist) and Ayago Wambile (Senior Economist)
contributed to the analysis of the poverty trends and the special focus section. Sadia Afrin (Financial Sector
Specialist) contributed to the analysis of the financial sector. Souleymane Coulibaly (Lead Country Economist)
and Hoon Sahib Soh (Practice Manager) provided overall guidance under the leadership of Abdoulaye Seck(Country Director, Bangladesh and Bhutan) and Mathew Verghis (Regional Director, EFI).

4

Abbreviations
ADP
ADR
BB
BBS
BDT
BMET
BoP
BPM6
BSEC
CAD
CBN
CBPS
CY
DRP
DSA
DSE
EDF
EMDE
EPZ
FDI
FSR
FX
FY
GCC
GDP
HIES
IMF
IPO

Annual Development Program
Advance-to-Deposit Ratio
Bangladesh Bank
Bangladesh Bureau of Statistics
Bangladeshi Taka
Bureau of Manpower, Employment, and Training
Balance of Payment
Balance of Payments Manual 6
Bangladesh Securities and Exchange Commission
Current Account Deficit
Cost of Basic Needs
Cox’s Bazar Panel Survey
Calendar Year
Displaced Rohingya Population
Debt Sustainability Analysis
Dhaka Stock Exchange
Export Development Fund
Emerging Market and Developing Economies
Export Promotion Zone
Foreign Direct Investment
Financial Stability Report
Foreign Exchange
Fiscal Year
Gulf Cooperation Council
Gross Domestic ProductHousehold Income and Expenditure Survey
International Monetary Fund
Initial Public Offerings

5

IRC
LC
LDC
LLP
MLT
MPI
MPS
NDA
NFA
NPL
NSC
PPP
PTA
PSPR
QLFS
RMG
ROA
ROE
SMART
SME
SOE
TCB
VAT
WRI
WASH
WFP

Interest Rate Corridor
Letters of Credit
Least Developed Country
Loan Loss Provision
Medium and Long-Term
Multidimensional Poverty Index
Monetary Policy Statement
Net Domestic Assets
Net Foreign Assets
Non-Performing Loan
National Savings Certificate
Purchasing Power Parity
Preferential Trade Arrangement
Poverty and Shared Prosperity Report
Quarterly Labour Force Survey
Ready-made garments
Return on Asset
Return on Equity
Six Month Moving Average Rate ofTreasury Bills
Small and Medium Enterprises
State-owned Enterprises
Trading Corporation of Bangladesh
Value-added Tax
Wage Rate Index
Water, Sanitation, and Hygiene
World Food ProgrammeExecutive Summary
Bangladesh navigated the COVID-19 pandemic shock with prudent macroeconomic policies, but now faces asignificant balance of payments (BoP) deficit and rising inflationary pressure. Elevated commodity prices andsynchronous global monetary policy tightening in the aftermath of Russia’s invasion of Ukraine contributed to awidening BoP deficit and a sharp decline in foreign exchange (FX) reserves from the second half of FY22. Domestic
policies exacerbated the impacts of external pressure, including the introduction of multiple exchange rates, andde facto caps on deposit and lending rates.
Consequently, real GDP growth slowed to 6.0 percent in FY23 from 7.1 percent in FY22, based on Bangladesh
Bureau of Statistics (BBS) provisional estimates. On the supply side, industrial production slowed due todisruptions in the imports of raw materials, higher energy prices, and power and gas shortages. On the demandside, private consumption and investment growth slowed as a result of high inflation and rising uncertainty. The
trade deficit narrowed, supported by import compression and resilient export growth. Inflation accelerated
following an increase in administered energy prices and depreciation of the currency.
Bangladesh Bank (BB) adopted a contractionary monetary policy to reduce inflation. However, monetary policy
transmission was impaired by caps on lending interest rates. Private sector credit growth decelerated amid tighter
liquidity conditions, reduced demand for trade finance, and rising uncertainty. Public sector credit growth surged
due to the government's heightened borrowing from the banking sector, partially the result of a shift away from
National Savings Certificates (NSCs). Liquidity within the banking system remained constrained due to BB dollar
sales and declining deposit growth, driven by negative real interest rates and weak depositor confidence. Banking
sector vulnerabilities deepened, with a rise in stressed assets.
The external sector remained under pressure. The Current Account Deficit (CAD) narrowed in FY23 to US $3.3
billion from US$ 18.6 billion in FY22, supported by resilient export growth and import suppression measures.
However, the financial account moved into deficit, as trade credit and medium- and long-term borrowing
contracted sharply. As a result, the Balance of Payments (BoP) deficit widened to US$ 8.2 billion in FY23, up from
US$ 6.7 billion in FY22. Exchange rate flexibility was insufficient to clear the FX market, despite modest
depreciation. BB sold US dollars at an accelerated rate, depleting FX reserves by US$ 9.8 billion in FY23.
The estimated fiscal deficit widened to 5.3 percent of GDP in FY23 from 4.6 percent of GDP in FY22 as expenditure
growth outpaced revenue growth. Tax collection stagnated, primarily due to declining trade-related taxes
resulting from falling imports. Expenditure growth was driven by subsidies and incentive payments. Deficit
financing from domestic banks increased, as net sales of National Savings Certificates (NSCs) declined following a
reduction in NSC interest rates and stronger enforcement of purchase limits. Public debt as a share of GDP
increased but remained sustainable at 35.3 percent of GDP.
Global economic growth is set to slow to 2.1 percent in CY23, amid continued monetary policy tightening to reinin high inflation, before a tepid recovery to 2.4 percent in CY24. In Bangladesh, GDP growth is projected todecelerate to 5.6 percent in FY24, before reverting to a higher long-term trend. Absent policy tightening, inflation
is likely to remain elevated in the near term and gradually subside if import prices stabilize in the medium term.
External pressure is expected to persist in FY24, contingent on global economic conditions and additional
exchange rate flexibility. The fiscal deficit is expected to remain within the government's target of 5.5 percent ofGDP, with a moderate increase in revenues. Downside risks to the outlook are significant, including rising inflation,
slowing demand in major export markets, and further increases in financial sector vulnerabilities.
6

In the near term, monetary and exchange rate policy changes are needed to reverse the decline of reserves andcontain inflationary pressure. Measures to address growing financial sector vulnerabilities are needed, including
improving bank supervision, adopting international standards, and strengthening corporate governance andmanagement across the sector. Addressing longstanding structural reforms could accelerate the pace of therecovery and strengthen resilience to future shocks. Bangladesh’s expected graduation from the UN’s Least
Developed Country (LDC) status in 2026 will present new challenges. Bangladesh will need to strengthen its tradecompetitiveness, expand bilateral and multilateral free trade agreements, strengthen financial sector stability andsoundness, improve business climate to attract investment, improve domestic resource mobilization, address
climate change adaptation and mitigation, and improve the governance framework. Reforms in these priority
areas would promote Bangladesh’s development and accelerate poverty reduction.
The special focus section of this report discusses Bangladesh’s progress in poverty reduction based on the recent
Household Income and Expenditure Survey (HIES) data. Bangladesh’s recent economic growth has made asignificant impact on poverty reduction. Between 2016 and 2022, poverty and extreme poverty rates fell by 1.3
and 0.6 percentage points per annum to reach 30.0 percent and 5.0 percent, respectively. Poor households today
enjoy similar levels of physical capital as non-poor households did in 2010, particularly in terms of access toelectricity and water, sanitation levels, and improved housing. While this progress is encouraging, several
challenges remain. There were no significant changes in inequality from 2016-22, with the Gini coefficientincreasing marginally to 33.4. Consumption growth among the country’s urban population is growing faster for
better-off households than for poorer households. More poor have moved into urban areas, compounding the
stubborn inequality gap in urban consumption. Promoting a more equitable approach to issues such as educationand land ownership will help promote social mobility and close Bangladesh’s persistent inequality gaps.

7

Recent Developments
Context
Bangladesh navigated the COVID-19 pandemic shock with prudent macroeconomic policies, but now faces asignificant balance of payments (BoP) deficit and rising inflationary pressure. Elevated commodity prices andsynchronous global monetary policy tightening in the aftermath of Russia’s invasion of Ukraine contributed to awidening BoP deficit and a sharp decline in foreign exchange (FX) reserves from the second half of FY22. Domestic
policies exacerbated the impacts of external pressure, including the introduction of multiple exchange rates, andde facto caps on deposit and lending rates. To support key policy reforms, authorities requested additional WorldBank budget support, and an IMF program was approved in January 2023.
Real Sector
The post-pandemic recovery decelerated in FY23. On the supply side, industrial production slowed due todisruptions in the imports of raw materials, higher energy prices, and power and gas shortages. On the demandside, private consumption and investment growth slowed as a result of high inflation and rising uncertainty. The
trade deficit narrowed, supported by import compression and resilient export growth. Inflation accelerated
following an increase in administered energy prices and depreciation of the currency.
Table 1: Contributions to Growth
FY17
FY18
FY19
GDP Growth
6.6
7.3
7.9
Contribution of Production Sectors (%)
Industry
4.2
2.6
3.2
3.8
Services
3.6
3.3
3.3
3.5
Agriculture
-0.9
0.4
0.5
0.4
Import duty
0.3
0.3
0.3
0.2
Contribution of Expenditure Components (%)
Consumption
2.6
4.6
6.6
4.1
Private consumption
2.1
4.2
6.3
3.3
Government consumption
0.5
0.4
0.3
0.8
Investment
2.7
2.5
3.7
2.2
Private Investment
2.4
1.4
3.4
2.2
Government Investment
0.3
1.2
0.3
0.0
Resource Balance
1.7
-1.2
-3.3
1.4
Exports, goods & services
0.3
-0.3
0.8
1.5
Imports, goods & services
-1.4
0.9
4.1
0.1
Statistical discrepancy
0.1
0.6
0.3
0.2
Source: Bangladesh Bureau of Statistics (BBS), estimates for FY23 based on provisional data.
FY16
7.1

FY20
3.4

FY21
6.9

FY22
7.1

FY23e
6.0

1.2
2.0
0.4
-0.2

3.5
2.9
0.4
0.2

3.4
3.1
0.4
0.2

2.9
2.9
0.3
-0.1

2.1
2.0
0.1
1.3
0.1
1.2
-0.2
-2.3
-2.1
0.3

5.7
5.3
0.4
2.6
1.9
0.7
-1.5
1.0
2.4
0.1

5.3
5.0
0.4
3.8
2.9
0.8
-2.2
3.1
5.3
0.2

2.5
2.3
0.2
0.6
0.4
0.2
2.8
2.0
-0.8
0.1

Real GDP growth slowed to 6.0 percent in FY23 from 7.1 percent in FY22, based on Bangladesh Bureau of
Statistics (BBS) provisional estimates. On the supply side, the slowdown was driven by the industrial and services
sectors. The industrial production index slowed from 11.9 percent in FY22 to 5.1 percent in FY23 as a result ofimport restrictions, rising raw material costs, increased energy prices, and electricity and gas disruptions. Though
the construction of large mega projects continued, private sector construction activity slowed due to elevated raw
material prices and the estimated industrial growth slowed from 9.9 percent in FY22 to 8.2 percent in FY23.
Agricultural growth slowed modestly from 3.2 in FY22 to 3.1 percent in FY23, but a robust public food stock
supported food security.
The global economy remains in a precarious state amid the protracted effects of the overlapping negative
shocks of the pandemic, the Russian invasion of Ukraine, and the sharp tightening of monetary policy to contain8

high inflation. 1 Growth in advanced economies in late 2022 and early 2023 slowed less than expected, as tightlabor markets supported robust wage growth and prevented a sharper slowdown in consumption. In many
emerging market and developing economies (EMDEs), external demand was supported by the pickup in growthin China and unexpected resilience in advanced economies. Indicators of domestic demand, such as consumer
confidence, have started to recover but remain weak in EMDEs. Tighter financial conditions have weighed on
activity in sectors more sensitive to interest rates, such as construction and industrial production, both of whichhave been subdued.
Table 2: Global Growth and Commodity Prices
Real GDP Growth (%)
2020
2021
2022e
2023f
World
-3.1
6.0
3.1
2.1
USA
-2.8
5.9
2.1
1.1
Euro Area
-6.1
5.4
3.5
0.4
Saudi Arabia
-4.3
3.9
8.7
2.2
Commodity Prices
Crude Oil, Brent ($/bbl)
42.3
70.4
99.8
84.0
Coal, Australia ($/mt)
60.8
138.1
344.9
200.0
Liquified Natural gas, Japan ($/mmbtu)
8.3
10.8
18.4
18.0
Fertilizer, TSP ($/mt)
265
538
716
560
Cotton ($/kg)
1.6
2.2
2.9
2.2
Iron ore ($/dmt)
108.9
161.7
121.3
115.0
Soybean oil ($/mt)
838
1,385
1,667
1,120
Source: Global Economic Prospects (June 2023); and Commodity Markets Outlook (April 2023)

2024f
2.4
0.8
1.3
3.3
86.0
155.0
16.0
510
2.2
110.0
1,105

On the demand side, private consumption and
Fig 1: Real Wages by Major Sector (Low Paid / Unskilled)investment growth slowed in Bangladesh. A surge inGeneralGeneral (12 month average)
inflation eroded consumer purchasing power, 110
Agriculture
Industry
Servicecontributing to a deceleration in estimated private 105
consumption from 7.5 percent to 3.5 percent. The
Wage Rate Index illustrates the pernicious effects of 100
inflation on purchasing power. The 12-month moving
95
average of the Wage Rate Index of lower-income
skilled and unskilled wages declined sharply in FY23,
90
indicating a decline in real wages. (Figure 1). Slowing
private consumption was also reflected in an 8.6
Source: BBS Wage Indices; WB Staff inflation adjustment
percent decline in consumer goods imports and weakdomestic VAT collection. Similarly, private investment growth declined by an estimated 10.4 percentage points to
1.4 percent in FY23. Import restrictions and FX constraints contributed to a 17.2 percent decline in capital goods.
Private sector credit growth slowed to 10.8 percent, remaining below the Bangladesh Bank’s 14.1 percent target.
Public investment slowed, as ongoing construction megaproject investments were offset by the deferral of lowerpriority development projects. Government consumption growth remained subdued, with modest public sector
wage gains and ongoing austerity measures.

1 World Bank, 2023. Global Economic Prospects, June 2023.

9

Export growth was resilient in FY23, as Bangladesh
Fig 2: Exports, RMG, and Non RMG Growth (y-o-y)Percent
continued to gain readymade garment (RMG) market
40
share. Merchandise exports earnings increased by 6.7
30
percent (y-o-y) in FY23, driven by a 10.3 percent
20
increase in RMG exports. Bangladesh gained RMG
10market share from China (WTO, 2023), while unit0
prices increased modestly, supported by taka
-10
depreciation. Exports remained highly concentrated,-20
with 84.6 percent of total exports from the RMG and
62.9 percent of total exports going to the USA and the
Total Exports
RMG
Non-RMG
EU. Non-RMG exports declined by 9.5 percent, led by
Source: Export Promotion Bureau
leather and leather products (declining by 1.7 percent),
jute and jute goods (declining by 19.1 percent), home-textile (declining by 32.5 percent) and agricultural products(declining by 27.5 percent). Increase in production costs due to expensive raw materials, rising freight costs, andfall in demand from certain markets (i.e., Turkey and Sudan for jute goods) led to this decline.
Import compression complemented the resilient export growth to reduce the trade deficit. Merchandise
imports contracted by 15.5 percent in FY23 as a result of widespread restrictions on issuance of letters of credit,
controls on non-essential and luxury items, and weaker demand. This decline was evident across all importcategories, including capital goods (17.2 percent decline), intermediate goods (19.9 percent), and consumer goods(8.6 percent). The decrease in capital goods imports can be attributed to diminished private investment, public
sector austerity measures, and project execution delays. As a result, trade deficit narrowed to US$ 17.1 billion at
the end of FY23 from US$ 33.3 billion one year earlier.
Inflation
Inflation accelerated, reaching 9.9 percent in August2023 (Figure 3). Food inflation accelerated to 12.5
percent in August 2023, while non-food inflation
reached 8 percent. Non-food inflation was led bydouble-digit increases in housing, energy, utility,
household equipment, and recreation related prices.
To help offset the impact of rising prices, the stateowned Trading Corporation of Bangladesh (TCB) has
started distributing subsidized essential food items to
10 million low-income families from July 2023.

Fig 3: Inflation (Base: 2021-22, y-o-y, %)Percent
14
12
10
8
6
4

GeneralFood

Non-food

Inflationary pressure accelerated as a result of Source: Bangladesh Bureau of Statistics
external and domestic factors. External factors include
supply chain disruptions following Russia’s invasion of Ukraine and higher international commodity prices.
Domestic factors include a 16 percent depreciation of the taka against the US dollar in FY23, and persistent FX
shortages that have led to import restrictions. A 179 percent increase in the administered gas for the industrial
sector, coupled with an increase in administered electricity prices led to higher prices for manufactured products.
Higher administered diesel prices affected irrigation and the prices of agricultural products. A more than 40
percent increase in the administered prices of petroleum products in the domestic market impacted
transportation costs, which, in turn, affected retail prices.
10

Poverty and welfare
Economic growth supported a continued reduction in poverty and improving living conditions. The estimatedincidence of poverty declined between CY16 and CY22. Moderate poverty (at $3.65 per person per day in 2017
PPP) declined by 1.6 percentage points annually over this period, while extreme poverty (at $2.15) declined by 0.6
percentage points annually. Non-monetary dimensions of well-being have also improved, including reductions ininfant mortality, stunting, and adolescent fertility. Access to electricity, improved sanitation facilities, andenhanced access to education have also increased. Labor force participation increased in the agricultural sector
between FY17 and FY22, but it declined in the industrial and service sectors. 2 Female labor force participation also
increased from 36.3 percent to 42.7 percent over this period.
Welfare challenges facing the displaced Rohingya population (DRP) persist. This group depends on assistancefor approximately 70 percent of consumption. Food insecurity and child malnutrition are expected to worsen
following recent cuts to World Food Programme (WFP) food assistance. Data from the Cox’s Bazar Panel Survey(CBPS) Round 2 (2023) suggest that after the first cuts in early 2023, over one-third of Rohingya households
resorted to eating less preferred food, with 15 percent restricting adult food consumption and 23 percent reducing
portion sizes.
Monetary and Financial Sector Developments
Bangladesh Bank (BB) adopted a contractionary monetary policy to reduce inflation. However, monetary policy
transmission was impaired by caps on lending interest rates. Private sector credit growth decelerated amid tighter
liquidity conditions, reduced demand for trade finance, and rising uncertainty. Public sector credit growth surged
due to the government's heightened borrowing from the banking sector, partially the result of a shift away from
National Savings Certificates (NSCs). Liquidity within the banking system remained constrained due to BB dollar
sales and a decrease in deposits, driven by negative real interest rates and dwindling depositor confidence. Banking
sector vulnerabilities has exacerbated with a rise in stressed assets.
Table 3: Monetary Program Performance
FY19
FY20
Net Foreign Assets
Net Domestic Assets
Domestic credit
Public Sector credit
Private Sector credit
Broad Money
Reserve Money
Inflation (end of period average)
GrowthSource: Bangladesh Bank and Bangladesh Bureau of Statistics.

FY21

FY22

ActualActualActualActual

2.1
12.3
12.4
21.7
11.3
9.9
5.3
5.5
7.9

10.2
13.4
13.7
53.4
8.6
12.7
15.7
5.6
3.4

27.7
9.3
10.4
21.7
8.3
13.6
22.4
5.6
6.9

-11.9
17.2
16.2
29.1
13.7
9.4
-0.3
6.1
7.1

FY 23
TargetActual(p)(Jun-23)(Jun-23)
-2.1
-13.0
16.0
16.9
18.2
15.1
36.0
35.0
14.1
10.6
12.1
10.5
9.0
10.5
7.5
9.6
6.5
-

BB announced a contractionary monetary policy on June 18, 2023 (Box 1). The new Monetary Policy Statement(MPS) for July to December 2023 aims to contain inflation while fostering greater flexibility in interest andexchange rates. The main policy rate (repo rate) was tightened by 50 basis points to 6.50 percent. This adjustment
marks a continuation of a tightening cycle that commenced in May 2022, with a cumulative increase of 175 basis
points. However, monetary policy transmission was impaired by an ongoing cap on lending rates, which

2

Based on a provisional BBS report on the 2022 Quarterly Labour Force Survey (QLFS).

11

transitioned from a fixed 9 percent cap to a new floating cap based on a reference rate. The real policy rate
remains deeply negative.
Box 1: Policy updates on interest rates and exchange rates•

Transition to interest rate targeting: BB will transition from monetary targeting to an interest rate targeting
framework. The framework focuses on the policy interest rate as the primary target. The objective will be tomaintain the interbank call money rate in close proximity to the policy rate. For that, the BB will implement a
symmetric Interest Rate Corridor (IRC) centered on the policy rate (repo rate) of 6.5 percent. The upper and lower
limit of the IRC is set within the 200 basis points limit of the policy rate, at 8.5 percent and 4.5 percent,respectively. This means that banks and non-bank financial institutions (NBFIs) can borrow from the BB at interest
rates ranging from 6.5 to 8.5 percent, depending on the tenor or other specific criteria determined by the BB. On
the other hand, these institutions can deposit surplus cash with BB at an interest of 4.5 percent. This IRC is
expected to ensure that the short-term interbank call money rate remains around the policy rate.

•

Transition from fixed to variable lending rate cap: A 9 percent lending rate cap on most categories of commercial
lending has been replaced with a variable rate cap. BB introduced a ‘six month moving average rate of treasury
bills’ (SMART) reference rate, which will be announced on the first working day of each month. Major categories
of bank lending rates will be limited to 3 percent above SMART. However, SMART shows no obvious relationshipwith the policy rate, limiting its utility in improving monetary policy transmission. Furthermore, extensive BB
interventions in treasury auctions limits the role of the six-month treasury bill as a market proxy.

•

Exchange rate consolidation: The MPS announced adoption of a “unified and market-driven single exchange rate
regime.” Under the new policy, BB dollar sales will be made at the prevailing interbank market rates rather thana lower BB dollar selling rate. However, the interbank rate remains capped by BB and has been so far insufficient
to clear the FX market.

Source: Bangladesh Bank MPS, June 2023

Private sector credit growth declined gradually, while
Fig 4: Credit Growth (y-o-y)Percent
public sector credit growth rose in FY23 (Figure 4).
80
Demand for private sector credit rose gradually in FY2270
as pandemic-related disruptions moderated. However,60
50
credit growth decelerated to 10.6 percent by the end
40
of FY23 amidst tighter liquidity conditions, a decline in
30
20
demand for imports, a volatile FX market, and rising
10
uncertainty from unpredictable exchange rate policies
0and inflation. By contrast, public sector credit growthincreased to 35 percent, as the government continued
Private Sector
Total Domestic
Public Sector
to borrow from the banking sector to finance its deficit,
Source: Bangladesh Bankand high-cost NSC issuance was reduced to control
interest expenditures. The overall advance-to-deposit ratio (ADR) stood at 79.4 percent in March 2023, well below
the regulatory limit of 87 percent. This largely reflects the impact of interest rate caps on lending, which haveconstrained banks’ ability to adequately price credit risks.

12

Monetary growth accelerated marginally but
remained below BB target. BB net FX sales of US$ 13.4
billion in FY23 led to a 13.0 percent decline in Net
Foreign Assets (NFA). However, a 16.9 percent increase
Net Domestic Assets (NDA) resulting frommonetization of a widening fiscal deficit resulted inbroad money growth of 10.5 percent. Yet, it remained
below BB's target of 12.1 percent set in the previous
MPS for June. Broad money growth target was reduced
to 9.5 percent for December 2023.

Fig 5: Broad Money and Net Foreign Assets Growth (y-o-y)Percent
40
30
20
10
0
-10
-20

Net Foreign Assets

Broad Money

Stressed assets in the financial sector are on the rise. Source: Bangladesh Bank
Newly published BB statistics revealed that the total of rescheduled loans, non-performing loans and net written
off loans outstanding reached BDT 3,779.2 billion (approximately US$ 34.4 billion) or 9.5 percent of FY22 GDP (seebox 2). Rescheduled loans surged following the introduction of an accommodative BB rescheduling policies in July
2022. The gross non-performing loan (NPLs) ratio increased to 8.8 percent in March 2023 compared to 8.5 percent
in the previous year. Loan loss provisioning deteriorated, covering only 58 percent of NPLs at the of March 2023.
The capital adequacy ratio modestly declined to 11.2 percent in March 2023 from 11.4 percent in the previous
year. However, these financial soundness indicators understate banking sector vulnerabilities due to lax regulatory
definitions and reporting standards, forbearance measures, and weak regulatory enforcement.
Box 2: Stressed loans in the banking sector
The Financial Stability Report (FSR) 2022 discloses new data on a growing stock of rescheduled loans. BB issued new
rescheduling policy in July 2023, allowing banks to adopt their own rescheduling policies within BB parameters. BDT 637.2
billion of loans (US$ 5.8 billion) were rescheduled in 2022 and the stock of outstanding rescheduled loans reached BDT
2,127.8 billion (US$ 19.3 billion). The ratio of stressed loans to total loans stood at 22.8 percent in 2022, almost three times
higher than the NPL ratio. 3 The ratio of rescheduled loans to total outstanding loans increased to 14.4 percent in 2022
from 12.9 percent in 2021. Over 80 percent of outstanding rescheduled loans remained unclassified (i.e., not recorded as
NPLs). The largest share of rescheduled loans is in the RMG and textile sectors (20.4 percent), and large and medium
industries together account for 74 percent of rescheduled loans.
Table 4. Stressed loans in the banking sector (in billion BDT)

Unclassified
Total
Net
Total
Rescheduled
Rescheduled
rescheduled
outstanding
Stressed
outstandingloans (yearloans
loans
written-off
assets ratio*
Gross NPL
Year
loans
outstanding
wise)
outstanding
outstandingloans[(3+5+7)/2]
1
2
3
4
5
6
7
8
2018
9,115.1
939.1
232.1
401.0
0.205
2019
10,116.2
942.5
523.7
1,063.5
1,362.4
443.0
0.242
2020
10,954.8
882.4
198.1
1,257.0
1,556.3
441.5
0.236
2021
12,188.5
1,019.4
268.1
1,354.3
1,684.0
440.8
0.231
2022
14,776.9
1,206.5
637.2
1,719.2
2,127.8
444.9
0.228
Source: Financial Stability Reports (FSR) 2018-2022, BB.
* For 2019-2022, the ratio is an approximation. This is an under-estimation as data on restructured loans is not available. The
ratio for 2018 is from BB FSR.

The NPL ratio increased, and the provisioning shortfall widened. Outstanding NPLs increased to BDT 1,206.5 billion (US$11.0 billion) in 2022 from BDT 1,019.6 billion (US$ 9.3 billion) in 2021. The top five banks held 45.9 percent of total NPLs.
3

Stressed loan is the sum of NPL, rescheduled loans, and written-off loans.

13

The overall loan loss provision (LLP) to NPL ratio decreased to 60.6 percent at end-December 2022 from 64.5 percent in
2021. The share of bad/loss category of NPLs shows an increasing trend since 2012 and constitutes 88.7 percent of total
NPLs in 2022. This indicates that the majority of NPLs were have remained non-performing for a long period of time. The
net outstanding written-off loans stood at BDT 444.9 billion (US$ 4.0 billion). Total non-performing loans, rescheduledloans, and outstanding written-off loans reached BDT 3,779.2 billion (US$ 34.4 billion, or 9.5 percent of FY22 GDP) by theend of 2022, compared to BDT 3,144.2 billion (US$ 28.6 billion) in 2021.
Profitability indicators were enhanced by loan rescheduling. In 2022, profits after provision and tax increased by 183.3
percent to BDT 142.3 billion (US$ 1.3 billion) from BDT 50.2 billion (US$ 456 million) last year. Loan rescheduling enabledbanks to avoid recognizing impaired assets, artificially boosting profitability. Return on asset (ROA) and return on equity(ROE) were 0.6 percent and 10.7 percent, respectively, compared to 0.25 and 4.37 percent in preceding year. The netinterest margin of the banking sector decreased to 1.2 percent from 1.3 percent in 2021.

Liquidity in the banking system remained tight. Net FX sales by the central bank, slow deposit growth, limited
growth of official remittance inflows, and weak loan recovery put pressure on the liquidity of many banks.
Following public allegations of fraud, several private banks, including shariah compliant banks, have faced adecline in deposits and subsequent liquidity challenges, requiring BB liquidity intervention. 4 Across the banking
sector, liquid assets to total assets stood at 15.1 percent in March 2023, down from 18 percent one year before.
Total liquid assets declined by 4.6 percent between June 2022 and June 2023. The advance-to-deposit ratio
increased to 79.4 percent in March 2023 compared to 74.1 percent previous year, mainly due to a slowdown ofdeposit growth. Overnight and two-week interbank interest rates increased as a result of tighter liquidity
conditions, rising from 6.0 and 8.75 percent in August 2022 to 8.0 and 9.0 percent in August 2023.
Investor confidence in capital markets remained subdued. The reinstatement of price floor on stocks by the
Bangladesh Securities and Exchange Commission (BSEC) resulted in reduced trade volumes. Foreign participationin stock market reached the lowest level in a decade, with substantial withdrawals. The DSE broad index declined
by 2.5 percent (y-o-y) in August 2023. The market for Initial Public Offerings (IPOs) contracted in 2023. As of August
2023, two new IPOs were introduced to the broader market as well as one IPO on the Small and Medium
Enterprises (SME) board. Over past 12 months only six IPOs were listed.
External Sector
The Current Account Deficit (CAD) narrowed in FY23, supported by resilient export growth and import suppression
measures. However, the financial account moved into deficit, as trade credit and medium- and long-termborrowing contracted sharply. As a result, the Balance of Payments (BoP) deficit widened to US$ 8.2 billion in FY23,
up from US$ 6.7 billion in FY22. Exchange rate flexibility was insufficient to clear the FX market, despite modest
depreciation. BB sold US dollars at an accelerated rate. Gross FX reserves declined by US$9.8 billion in one year toreach US$23.1 billion in August 2023.

Overall Balance
Current account balance
Trade balance
Merchandise export f.o.b. (inc. EPZ)
Merchandise import f.o.b. (inc. EPZ)
Services
IncomeCurrent transfers

Table 5: Balance of Payments
US$ millions
FY16
FY17
FY18
FY19
5,050
3,169
-857
179
4,262
-1,331-9,567-4,490-6,460-9,472-18,178-15,835
33,44134,01936,28539,604-39,901-43,491-54,463-55,439-2,708-3,288-4,201-3,176-1,915-1,870-2,641-2,382
15,345
13,29915,453
16,9034 Outstanding liquidity support to banks and NBFIs stood at BDT 201.1 billion at end May 2023.

14

FY20
2,925
-4,723-17,858
32,832-50,690-2,541-3,106
18,782

FY21
9,274-4,575-23,778
36,903-60,681-3,020-3,17225,395FY22-6,656-18,639-33,250
49,245-82,495-3,955-3,152
21,718

FY23 (p)-8,222-3,334-17,155
52,340-69,495-4,256-4,23322,310Official
Privateo/w Workers' remittance
Capital accountFinancial accountForeign direct investment (net)
Portfolio investment (net)
MLT loans (excludes suppliers’ credit)
MLT amortization payments
Other long-term loans (net)Other short-term loans (net)Trade Credit (net)
Change in Commercial Bank Assets (net)Errors and omissions
Source: Bangladesh Bank.

67
15,27814,717
478
944
1,285
139
3,033
-849
-110
-435
-2,101-18-634

59
13,24012,769
400
4,247
1,653
457
3,218
-895
-153
1,030
-1,185122-147

51
15,402
14,982
331
9,011
1,778
349
5,987
-1,113141
1,508-1,270
1,631
-632

41
16,862
16,420
239
5,130
2,628
171
6,263
-1,202302
272-3,493189-700

1918,763
18,205
256
7,537
1,271
44
6,222
-1,257
438
931
-616
-270
-145

51
25,344
24,778458
14,067
1,355
-269
7,449
-1,417
1,684
2,064
3,749
-548
-676

16
21,702
21,032
181
15,458
1,827
-158
9,811
-1,527
1,443
3,315
-438
1,185
-3,656

88
22,222
21,611473-2,142
1,611
-18
8,689
-1,745-533-1,910-6,530-2,772-3,220

The CAD narrowed in FY23, supported by import compression. Imports declined sharply as BB implemented tightcontrols on issuance of letters of credit (LCs) to slow the outflow of foreign exchange reserves. LCs openings
plummeted by 26.8 percent, and total merchandise imports fell by 15.8 percent. Merchandise export growth
remained resilient, rising by 6.7 percent, contributing to a 48.8 percent contraction in the trade deficit. Official
remittance inflows remained subdued despite a significant increase in the number of immigrant workers abroad(Box 3). Resilient exports and import compression resulted in the CAD narrowing to US$ 3.3 billion at the end of
FY23, compared to US$ 18.6 billion in FY22.
Fig 6: Current Account (Monthly)
US$ Millions
3,000

3,000

2,000

2,000

Fig 7: Balance of Payments (Monthly)
US$ Millions

1,000

1,000

0

0

-1,000-1,000-2,000-2,000-3,000-3,000Source: Bangladesh Bank

Source: Bangladesh Bank

Box 3: The slowdown in official remittance inflows
Fig 8: Remittance inflows
US$ billions
25

Official remittance inflows remained muted in FY22 andFY23. Remittance inflows increased steadily from FY17 to
FY21, nearly doubling over this period. However, inflows
declined by 15.1 percent in FY22, with only modest growthof 2.8 percent in FY23 despite taka depreciation and a 2.5
percent government incentive.

20
15
10
5
0

FY17

FY18

FY19

Source: Bangladesh Bank

15

FY20

FY21

FY22

FY23

Although remittance inflows remain stagnant, theFig 9: Monthly Outflows of Overseas Workers
outflow of workers has accelerated following the COVID150,000
19 pandemic. According to data from the Bureau of
Manpower, Employment, and Training (BMET), more than
100,000
2.1 million workers went abroad for work in FY22 andFY23, surpassing pre-COVID levels. This increase was
50,000driven by rising demand for labor in Gulf Cooperation0
Council (GCC) countries and the reopening of other major
labor markets such as Malaysia. However, this sharp
increase in migrant workers has not contributed to a
Source: Bureau of Manpower Employment and Training (BMET)
proportionate increase in official remittance inflows. A
bivariate granger causality test indicates that although historically migrant outflow has caused remittance inflow with alag in the past in Bangladesh, the relationship weakened during the post-COVID period.
Weak inflows from GCC countries have weighed on
overall remittance growth. Official remittance inflows
from Saudi Arabia, traditionally Bangladesh’s largest
overseas labor market, declined in FY22 and FY23 despitea steady increase in the outflow of migrant workers. 5
Growth in remittances from other major GCC countries
such as Kuwait and the United Arab Emirates (UAE) has
also slowed. Conversely, remittances from non-GCC
countries like the United States (US) and the United
Kingdom have risen. The US overtook the UAE as thesecond-largest source of remittances for Bangladesh in
FY21 and nearly matched Saudi Arabia in FY23.

Fig 10: Remittance inflows from major countries
US$ billions
6
4
2
0

FY18

FY19
KSA

Source: Bangladesh Bank

FY20
U.A.E.

FY21
UK

FY22
KuwaitFY23
USAThe diversion of remittances to informal channels driven by a widening informal exchange rate premium may accountfor weak official inflows from the GCC region. Over the past two years, the gap between formal and informal exchange
rates has widened. An econometric analysis of South Asia countries shows that the gap between the official and informal
exchange rates has a statistically significant negative correlation with official remittance inflows. At the same time, there
is no statistically significant relationship between the official interbank exchange rate and official remittance inflows. Thissuggests that depreciation of the official exchange rate alone would not have a positive effect on remittance if the informal
rate gap does not narrow (World Bank, 2023).
Fig 11: Financial Account
The financial account moved into deficit as financing
US$ millions
flows contracted sharply. Net trade credit declined as
3,000
a result of a decline in imports and a contraction in the
2,000
supply of trade credit, amidst tighter global credit
1,000
conditions. Credit to the private sector contracted,
0
reflecting lower demand for higher-cost external loans-1,000and eroding creditor confidence following ratings
downgrades. External public borrowing increased, as-2,000
the government sought additional external financing tofinance the deficit. Net Foreign Direct Investment (FDI)
Source: Bangladesh Bank
declined amidst uncertainties in the external sector.
The financial account balance moved into a US$ 2.1 billion deficit at the end of FY23, compared to a surplus of

5 The data of pre-COVID (FY18-FY19) and post-COVID (FY22-23) period indicate that the outflow of migrant workers were 58.7 percent

higher in the latter period.

16

US$ 15.5 billion in FY22. Given the continued deterioration, credit rating agency S&P Global lowered Bangladesh’s
outlook to negative from stable, and Moody's Investors Service downgraded Bangladesh's long-term ratings to B1
from Ba3.
The BoP deficit widened in FY23, with rising errors and
Fig 12: Errors and Omissions
US$ millions
omissions. Led by the financial account deficit, the BoP
2,500
deficit widened to US$ 8.2 billion at the end of FY23
1,500
compared to deficit of US$ 6.7 billion a year ago. Net
500
errors and omissions contributed materially to the BoP-500
deficit (39.2 percent of total BoP deficit), exceeding US$-1,5003 billion.6 Errors and omissions may partially reflect a-2,500growing gap between export shipments and export
receipts, as firms defer repatriation of export proceeds
Source: Bangladesh Bank
amidst ongoing exchange rate adjustments. Moreover,academic literature points to errors and omissions as a proxy for illicit capital flows along with estimates based on
mis-invoicing practices (Siranova et.al. (2021); Cobham and Jansky (2017); GFI (2017)).
Exchange rate depreciation was insufficient to clear
Fig 13: Bangladesh - BDT/US$ Exchange Rates
the FX market. A complex multiple exchange rate120
BB US$ selling rate
Interbank (BB)regime introduced in September 2022 remained inRemittance rate
place with modifications introduced in FY23. The
110
Export rate
Kerb Market (WB Est.)
spread between administered exchange rate caps for100
remittances, exports, and interbank transactions was
narrowed (Fig 13), and BB eliminated a separate official
90
exchange rate for the sale of FX reserves. Administered
rates were depreciated through monthly adjustments.
80
BB enforcement of exchange rate caps in the banking
sector led to persistent shortages of foreign exchange
Source: Bangladesh Bank, Staff estimates of kerb market rates
in the interbank market, with a largely illiquid interbank
spot FX market. Consequently, BB intermediated FX transactions with net dollar sales equivalent to US$ 13.4
billion in FY23, the highest ever in a single fiscal year. In early FY24, BB began enforcing exchange rate caps in the
cash-based money exchange market. The gap between the interbank and kerb market exchange rates narrowed
as a result. However, dollar liquidity in the kerb market is now severely constrained, further reducing access toforeign exchange.

6 Provisional data for FY22 indicated net errors and omissions of US$ -530 million, which was revised to US$ -3.7 billion the following year.

17Gross FX reserves continue to decline. Gross FX
reserves fell by US$ 9.8 billion in FY23, to US$ 23.1
billion in August 2023, measured using BPM6
standards. 7 Gross reserves declined from 4.8 months ofprospective imports to 3.5 months over this period. 8
Policies to preserve foreign exchange reserves have so
far been insufficient (Box 4). Without a market clearing
exchange rate, BB FX sales are the primary source ofinterbank dollar liquidity.

Fig 14: Monthly Gross Foreign Exchange Reserves
US$ Billions
50
40
30
20
10
0

Gross Reserves (non-BPM6)

Gross Reserve BPM6

Source: Bangladesh Bank

Box 4: Policies Adopted to Preserve FX Reserves
In addition to import restrictions, the BB has taken several steps to stem the depletion of the FX reserves. They include:•

Reducing the size of the Export Development Fund (EDF) and implementing stringent eligibility criteria: The EDF
uses foreign exchange reserves to provide trade finance. Newly adopted BPM6 standards exclude the EDF fromgross reserves. BB has reduced the EDF by US$ 2.6 billion to US$ 4.6 billion as of July 2023. 9 The ceiling for loans
from EDF for individual exporters has been reduced to US$ 10 million from US$ 15 million. To accelerate
repayments to the facility, a 4 percent interest penalty will be charged to banks on overdue EDF loans and may
be debited from foreign currency clearing accounts that the banks maintain with BB.

•

Alternative currency arrangements for trade transactions: Bangladesh and India have agreed to allow traderelated transactions in Indian Rupees in addition to US dollars. Bangladesh and Russia have agreed to settle partof the loan repayment for the Rooppur Nuclear Power Plant, one of largest ongoing development projects, inChinese Yuan instead of US dollars.

•

Ensuring timely receipt of export earnings: Rules have been tightened to prevent delayed repatriation of export
earnings by exporters anticipating further depreciation in administered exchange rates. According to BB rules,
exporters are required to repatriate export proceeds within 120 days of shipment. BB announced a new policythat would require banks to provide exporters with the exchange rate applicable on the day when export
proceeds should have been realized to discourage deferral of repatriation for more favorable exchange rates.

•

Providing flexibility to banks for transferring capital between their offshore and domestic units: Banks are now
permitted to transfer up to 40 percent of their total regulatory capital from their offshore banking units (OBS) to
their domestic units for settling import payments, an increase from the previous limit of 25 percent.

7 BB adopted the BPM6 definition of reserve assets in July 2023. Non-BPM6 gross reserves include non-monetary uses of reserve assets.

NIR is defined as gross reserves minus the reserve liabilities (i.e., SDR allocation, Asian Clearing Unit payments, FC clearing
account, among others) and currently it covers about 2.5 months of imports.
9 The EDF is intended to facilitate financing in foreign currency for input procurements by manufacturer-exporters. The central bankdisburses the fund from FX reserves through authorized dealer banks. The size of the EDF was increased to US$ 7 billion during the
COVID-19 pandemic.
8

18

Fiscal Trends and Debt Sustainability
The estimated fiscal deficit widened in FY23 to 5.3 percent of GDP from 4.6 percent of GDP in FY22 as expenditure
growth outpaced revenue growth. Tax collection stagnated, primarily due to declining trade-related taxes resulting
from falling imports, and remains among the lowest in the world as percentage of GDP. Expenditure growth was
driven by subsidies and incentive payments. The reliance on the domestic banking sector to finance the deficit
increased, given the decline in net sales of National Savings Certificates (NSCs) following a reduction in NSC interest
rates and the enforcement of stringent regulations. Public debt as a share of GDP increased but remains
sustainable.
Revenue collection stagnated in FY23. Revenue-to-GDP declined to an estimated 7.9 percent in FY23 compared
to 8.5 percent in FY22, remaining among the lowest in the world. Trade-related taxes (which accounted for almost
one-third of total taxes) declined due to a sharp fall in imports. Income tax collection also slowed as a result of
muted profits by firms. A new Income Tax Act was approved by Parliament in June 2023, which replaced theIncome Tax Ordinance of 1984. The new Act aims to increase revenue and simplify the tax submission process. It
consolidates tax exemptions on salary, introduces environmental surcharges for owning multiple vehicles, reduces
the documentation needed to file a corporate tax return, imposes taxes on interest paid by mobile financial
services providers, and abolishes the provision for mandatory submission of wealth statements for travellingabroad.

Total revenue 1/
Tax revenue
Total expenditure
Current expenditure
Capital expenditures
Deficit 1/
Net external financing
Net domestic financing
General government debt stock
External
Domestic
Source: Ministry of Finance.
1/Excluding grants

Table 5: Fiscal Outcomes (% of GDP)
FY17
FY18
FY19
FY20
8.7
8.2
8.6
8.5
7.7
7.4
7.7
7.0
11.6
12.2
13.3
13.3
7.1
6.8
7.4
7.4
3.7
4.7
5.2
5.1
-2.9
-4.0
-4.7
-4.8
0.5
1.0
1.1
1.3
2.4
3.0
3.6
3.4
26.2
27.2
28.5
31.7
9.6
10.4
10.4
11.8
16.6
16.8
18.1
19.9

FY21
9.4
7.6
13.0
7.5
4.7
-3.7
1.3
2.3
32.4
11.9
20.5

FY22
8.5
7.5
13.0
7.7
4.6
-4.6
1.6
2.9
33.7
12.4
21.3

FY23e
7.9
7.4
13.2
8.1
4.4
-5.3
1.9
3.4
35.3
12.9
22.4

Expenditure is estimated to have grown by 14.1 percent in FY23, driven by a rise in current expenditure. Thoughexpenditure growth in goods and services was constrained by ongoing austerity measures, expenditure on subsidy
and transfer payments rose significantly, led by energy subsidies and social security program providing food tolower income group people at subsidized rate. 10 Implementation of infrastructure mega-projects continued,
although overall capital expenditure remained muted due to reprioritization of other projects. The Annual
Development Program (ADP) implementation rate declined to 84.6 percent, 7.7 percentage points lower than theprevious year.
Several large infrastructure projects are expected to become operational, albeit partially. The Uttara-Farmgate
portion of the Dhaka Elevated Expressway opened for public use in September 2023. After the opening of the
Padma Bridge in June 2022, the rail component of the bridge is expected to begin partial operations soon.
Austerity measures include delay or cancellation of public procurement of vehicles, ships, and aircraft, restrictions on
government officials’ foreign travel, deferral of non-essential imported goods, among others. Actual outturn of government
expenditure for FY23 is not available.
1019Likewise, the second phase of the Dhaka Metro Rail, connecting Agargaon to Motijhil, and the Bangabandhu
Sheikh Mujibur Rahman Tunnel under the Karnaphuli River, which will enhance connectivity between Dhaka,
Chattogram, and Cox's Bazar, are set to be inaugurated soon. However, the implementation of the Rooppur
Nuclear Power Plant has experienced additional delays.
The fiscal deficit is estimated to have widened in FY23, financed predominantly through the borrowing fromthe banking sector. A higher growth in expenditure compared to revenue widened the estimated fiscal deficit to
5.2 percent of GDP in FY23. As in previous years, deficit financing relied primarily on domestic borrowing (59.5
percent of total borrowing). However, there was a major shift within domestic borrowing sources. Net
government borrowing from banking sector rose by 64.9 percent, but borrowing from the non-bank sources
including the NSCs declined by 71.6 percent (Bangladesh Bank, 2023). In line with the Medium-Term Debt Strategy
which aims to reduce dependency on NSCs, the government discouraged NSC sales by reducing NSC interest rates
and imposing additional purchase regulations, including a requirement to submit tax return confirmations to buy
new bonds. Net foreign financing rose marginally by 1.9 percent.
The stock of public debt continued to grow, but the risk of debt distress remains low. Estimated public debt
(excluding guarantees) rose to 35.3 percent of GDP in FY23, from 33.7 percent in FY22. External debt amounted
to 12.9 percent of GDP, or just over a third of the total debt stock. External debt is mostly owed to multilateralcreditors (53.8 percent of total external debt), although their share in overall external debt has been declining inrecent years with increased borrowing from bilateral creditors to finance large infrastructure projects. About halfof the external debt is denominated in US dollars, and Japanese Yen (21 percent) and Euro (17 percent) remain
the other two major currencies (Ministry of Finance, 2023). The January 2023 joint World Bank-IMF Debt
Sustainability Analysis (DSA) assessed that Bangladesh remained at low risk of debt distress.
Explicit and implicit contingent liabilities from state-owned enterprises (SOEs) remained elevated. As of the endof June 2022, the total liabilities of SOEs in Bangladesh stood at BDT 4,313 billion (about 10 percent of GDP, or
US$ 39.2 billion), increasing by 14 percent (y-o-y). Outstanding balance of government on-lending to SOEs alsorose by 18.2 percent (y-o-y) in FY22. The government provides guarantees and counter-guarantees against loan
negotiated by various SOEs. As of June 2023, these guarantees amounted to BDT 985.1 billion (US$ 9.0 billion),provided mostly to the state airline Bangladesh Biman, power sector, fertilizer production plants, and Trading
Corporation of Bangladesh (TCB).

20

Outlook and Risks
GDP growth is projected to decelerate to 5.6 percent in FY24, before reverting to its long-term trend. Absent policy
tightening, inflation is likely to remain elevated in the near term and gradually subside if import prices stabilize inthe medium term. Pressure on the external sector is expected to persist in FY24, easing later if global conditions
are favorable and the exchange rate policy improves. The fiscal deficit is expected to remain within thegovernment's target of 5.5 percent of GDP, with a moderate increase in revenues. There are significant downside
risks. Failure to address distortions in the FX market, rising inflation, slowing demand in Bangladesh's major export
markets, and financial sector vulnerabilities could jeopardize economic progress.
Near and Medium-Term Outlook
The global economic growth is set to slow in 2023 to 2.1 percent, amid continued monetary policy tightening torein in high inflation, before a tepid recovery in 2024, to 2.4 percent.11 Tight global financial conditions, new forms
of protectionism aimed at de-risking, and subdued global trade are expected to weigh on growth across emerging
market and developing economies (EMDEs). Although persistent, inflation is projected to decline gradually as
demand weakens and commodity prices moderate, provided longer-term inflation expectations remain anchored.
The Bangladesh economy is expected to remain stressed in FY24 and improve gradually in the medium term.
Real GDP growth is projected to decelerate to 5.6 percent in FY24 due to persistent inflationary pressures andexternal sector challenges. Elevated inflation will continue to limit real wage growth, reducing private
consumption growth. Investments are expected to remain constrained by foreign exchange, import suppression
measures, growing financial sector vulnerabilities, and energy shortages. Government investment is likely to stayresilient due to mega project implementation. Industrial and services growth is expected to remain below
historical averages. Growth in agriculture is expected to recover, unless disrupted by floods and other natural
disasters. GDP growth is projected to gradually rise to 5.8 percent in FY25, driven by easing inflationary pressures,
alleviation of complementary input shortages, gradual external sector normalization, and reduced uncertainty.
Table 6: Selected Macroeconomic Indicators(annual percentage change, unless indicated otherwise)
FY20
FY21
FY22
Real GDP growth, at constant market prices
3.4
6.9
7.1
Private Consumption
3.0
8.0
7.5
Government Consumption
2.0
6.9
6.2
Gross Fixed Capital Investment
3.9
8.1
11.7
Exports, Goods, and Services
-17.5
9.2
29.4
Imports, Goods, and Services
-11.4
15.3
31.2
Real GDP growth, at constant factor prices
3.8
7.0
7.2
Agriculture
3.4
3.2
3.1
Industry
3.6
10.3
9.9
Services
3.9
5.7
6.3
Inflation (Consumer Price Index)
5.6
5.6
6.1
Current Account Balance (% of GDP)
-1.5
-1.1
-4.1
Financial Account Balance (% of GDP)
-2.3
-3.4
-3.4
Fiscal Balance (% of GDP) 1/
-4.8
-3.7
-4.6
Primary Balance (% of GDP) 1/
-2.9
-1.7
-2.6
Debt (% of GDP)
31.7
32.4
33.7
Source: Bangladesh Bureau of Statistics; Ministry of Finance; Staff Estimates.
1/ including grants

11 World Bank, 2023. Global Economic Prospects, June 2023

21

FY23f
6.0
3.5
3.1
1.7
15.7
-3.9
6.3
2.4
5.5
5.9
9.0
-0.8
0.5
-5.3
-3.1
35.3

FY24f
5.6
5.3
4.7
4.9
9.4
6.0
5.7
3.2
7.3
5.2
8.5
-0.3
-0.2
-5.0
-2.6
36.0

FY25f
5.8
5.6
6.3
7.9
8.9
11.4
5.8
3.8
8.5
5.2
7.7
-0.6
-1.4
-4.6
-2.3
36.4

Inflation is expected to decline gradually in the medium term. High administered energy prices and their spillover
effects on other sectors, the continued depreciation of the taka, continued restrictions on imports, insufficient US
dollars in the banks, and sluggish monetary tightening are expected to keep inflation at an elevated level in FY24.
Despite the government's efforts to provide essential food items to low-income groups at subsidized rates,
inflation is anticipated to disproportionately affect the poor. Improved transmission of monetary policy throughthe relaxation of interest rate caps, easing of foreign exchange shortage through exchange rate flexibility and theconsequent normalization of imports are likely to help ease inflationary pressure gradually in the medium term.
Monetary policy needs to be contractionary until inflation recedes to the target. Monetary policy transmission
would be improved by greater interest rate flexibility and reduced use of non-market NSC instruments forgovernment borrowing. However, the continued reliance on bank borrowing to finance the government budget
deficit as envisioned in the FY24 budget would continue to pressure banking sector liquidity, potentially crowdingout of the private sector. BB has lowered its private sector credit growth target and increased the public sector
credit growth target for FY24.
The CAD is expected to rise again in the medium term after moderating further in FY24. Imports are likely toremain subdued compared to FY22 levels due to the continuation of import restriction measures and the
difficulties businesses face in opening LCs due to FX shortages. Moderate exports growth could be sustained but
there remains a risk of a potential slowdown in the major export markets, particularly the European Union. As aresult, the CAD is expected to decline to 0.3 percent of GDP before rising again in the medium term. Though
remittance inflows are expected to rise, a large fraction of the remittances could continue to flow through informal
channels if the informal exchange rate premium is not reduced through greater exchange rate flexibility.
The BOP deficit is expected to narrow but the pressure on the external sector is expected to remain. The
financial account is expected to moderately improve with a decline in trade credit outflows and a higher volume
of external financing, although it is expected to remain low compared to historical levels. Improvements in boththe current and financial accounts will narrow the balance of payments (BoP) deficit in FY24. This in turn will stem
the erosion of FX reserves in FY24 before beginning to improve again. In the medium term, the BoP is expected tofurther improve, with a return of financial account surplus offsetting the increase in CAD, supporting the rebuildingof FX reserves.
The fiscal deficit is projected to remain below 5.0 percent of GDP over the medium term. In the near-term,
revenue growth is likely to remain tepid as a result of muted imports. Over the medium term, revenues will risewith increasing trade, improving domestic economic activity, higher incomes, and ongoing efforts to strengthen
tax administration. However, without major structural changes, the revenue to GDP ratio for Bangladesh is likely
to remain one of the lowest in the world at below 10 percent of GDP. Current expenditure growth in the nearterm may be subdued if the austerity measures are effective. These include pause in the purchase of new vehicles
and foreign travels of government officials, and stricter rules on expenditures related to land acquisition. Over the
medium term, the government is likely to exit austerity and the growth in subsidy expenditures would becontained by pricing reforms. Capital expenditure on infrastructure megaprojects is expected to remain robust.
Over the longer term, rising public expenditure requirements to meet infrastructure needs, mitigation of climate
vulnerabilities, and enhancement of human capital will require additional domestic revenues. Declining relianceon NSCs for deficit financing would need to continue in the medium term. The resulting increase in government’sbank borrowing could increase deposits in the commercial banks due to reduced investment in NSCs. However,close monitoring of the liquidity of the banking system will be required to minimize crowding out of private credit
by government borrowing. As a result of declining fiscal deficit, the debt-to-GDP ratio is expected to remain at a22

sustainable level. However, adequate foreign exchange liquidity will be critical to meeting debt service and otherexternal payment obligations.
There are significant downside risks. The stabilization of the external sector will depend crucially on the removalof the distortions in the exchange rates, which in turn is dependent on the lifting of exchange rate ceilings tominimize the gap between the formal and informal exchange rate. Delay in adjustments could lead to arbitrage
opportunities and fewer foreign currency inflows through the formal channels, exacerbating the existing
challenges and maintaining incentives for illegal capital outflows. High inflation may persist longer than expected
if domestic energy prices are not adjusted in line with global slowdown in energy prices or if the global inflationarypressure rises. Unexpected floods and other natural calamities can disrupt food production and increase foodinflation. Financial sector vulnerabilities may worsen with increase in bad loans and create further pressure on
the liquidity in the banking system. Increased uncertainties and political violence in the run up to the national
election can depress the investment climate and lead to reduction in exports orders, adding further pressure to
the BoP.
Policy Directions and Structural Reforms
Both the monetary and fiscal policy need to address inflation. The FY24 Monetary Policy Statement (MPS)
introduced greater, albeit still limited, flexibility in the interest rate on lending, which would help facilitate
monetary policy transition. It is important to ensure that the treasury rate, which determines the final lending
rate, are market-driven. On the fiscal policy side, it would be necessary to reduce tariffs on essential imports andensure they are not hampered due to FX shortages. The new National Tariff Policy commits the government to
reduce tariffs. Domestic financing of the deficit was heavily monetized last year, which is incompatible with theobjective of reducing inflation. The retreat from such a stance through the first quarter of FY24 is a welcomechange that needs to be sustained. Bangladesh faces a significant policy trade-off between inflation and growth,and it may be necessary to risk some reduction in growth through contractionary monetary and fiscal policies tobring inflation closer to the target.
Further flexibility in the exchange rate would be crucial to remove the existing distortions in the FX market andattract foreign currency through the formal channels. Though the recent depreciation of the currency and theconvergence of the multiple administered exchange rates in the first quarter of the current fiscal year helped,
further corrections are necessary in the wake of rising gap between the formal and informal exchange rates. A
market-determined exchange rate is critical to attract more remittance through the formal channel, reduce thedifference between export shipment and export receipts, and make illegal capital outflows less attractive. This
would support BoP and reserve accumulation and restore market confidence. Forcing the market to trade at an
exchange rate significantly different from the market clearing rate may only support the further use of theinformal foreign exchange markets such as the kerb and hundi markets. 12
Addressing financial sector vulnerabilities is fundamental to supporting economic growth. Increased stressed
assets in the banking system and existence of chronic under-capitalized banks necessitate immediate measures
to strengthen weak bank management and the financial sector safety nets, including the deposit insurance andother crisis preparedness measures. In addition to recognizing NPLs in line with international standards, a viable
NPL resolution mechanism, improvement of corporate governance and modernization and restructuring of stateowned banks remain critical.
Hundi is an informal way of transferring money from one country to another. It is illegal in Bangladesh and works outside
the conventional banking system.

1223

Fiscal policy can support weathering the negative impacts of the external sector. Government revenue fromtrade related taxes is expected to remain low in the short term due to depressed imports and in the long term
due to Bangladesh’s graduation from the LDC and the reduction of trade tariff rates as outlined in the recently
approved National Tariff Policy. To compensate, the government will need to increase revenue collection fromdomestic activities. Unifying the different VAT rates to a single rate, improving digitalization to close the loopholes,
streaming tax expenditures, and making the tax submission process easier and efficient could be some of the steps
in the short run to improve revenue mobilization. Fiscal policy needs to complement monetary policy to address
the inflation and external sector challenges, including measures to raise revenues and constrain expenditure
growth. At the same time, it will be important to strengthen the support to the poor with proper social
expenditure targeting. Greater recourse to domestically financed development projects may contribute to thefinancial account deficit and put pressure on demand for dollars. In this context, there is an opportunity to adjust
current borrowing policies with a greater emphasis on external financing for the country’s development spendingneeds.
Addressing longstanding structural reforms could accelerate the pace of the recovery and strengthen resilience
to future shocks. Bangladesh’s expected graduation from the UN’s Least Developed Country (LDC) status in 2026
will present new challenges due the loss of preferential market access. To prepare for the LDC graduation,
Bangladesh could strengthen its trade competitiveness, expand bilateral and multi-lateral free trade agreements,
improve business climate, strengthen financial sector stability and soundness to promote investment, andincrease domestic resource mobilization.
Reforms in these priority areas would help maintain Bangladesh’s development progress and accelerate
poverty reduction. Bangladesh has made significant progress in poverty reduction in the last decade (see the next
section). However, accelerated inflation, weak employment and declining real wages in recent times has affected
the poor disproportionately. This could create social and economic disruptions that would require government
countermeasures. Targeted social assistance and labor market measures would be necessary to support the poor.

24

Special Focus: New Frontiers in Poverty Reduction
Preliminary analysis of the 2022 Household Income and Expenditure Survey (HIES) provides new data on poverty
and welfare in Bangladesh, updating the 2016 HIES. Between 2016 and 2022, year-on-year poverty and extreme
poverty rates fell by 1.3 and 0.6 percentage points per year, respectively. Poverty declined from 11.8 percent in2010 to 5.0 percent in 2022 based on the international poverty line of US$ 2.15 per day (using 2017 purchasing
power parity). At the same time, challenges remain. Bangladesh faces widening urban inequality. Urban
consumption growth is faster for better-off households than for the poor. A high urbanization rate compounds thisstubborn inequality gap. More equitable access to education and land ownership would help promote social
mobility and reduce persistent inequality gaps.
Economic growth has contributed to a significant decline in poverty over the past twelve years. Real GDP growth
averaged 6.5 percent from 2016 to 2022. Over this period, poverty and extreme poverty declined by 1.3 and 0.6
percentage points per year, lifting 11 million people out of poverty, and 5.4 million people out of extreme poverty.
Poverty declined from 11.8 percent in 2010 to 5.0 percent in 2022 based on the international poverty line of US$
2.15 per day (using 2017 purchasing power parity). By 2022, less than one in five Bangladeshis lived in poverty,
and less than six percent were in extreme poverty (see Figure 15.a). This poverty reduction is principally the resultof economic growth (Figure 16.d). The elasticity of poverty reduction to per capita GDP growth13 remained stable
at approximately 0.8 during both periods, but at the extreme poverty line, it increased notably from 0.7 to 1.1.
Box 5: Poverty Measurement in Bangladesh
Official poverty statistics in Bangladesh are estimated using the Cost of Basic Needs (CBN) method. This method calculates
the cost of a bundle of food and non-food items adequate to satisfy basic consumption needs. If a person cannot afford
this bundle, that person is considered poor. Extreme poverty is measured using a lower poverty line with a bundle primarily
comprised of food, with a small share of non-food items. The BBS updated poverty lines in 2022 due to significant changes
in consumption patterns and improvements in the 2022 HIES. These improvements included a rigorous process in selecting
quality enumerators, conducting residential training, introducing Computer Assisted Personal Interviewing (CAPI), and theClassification of Individual Consumption by Purpose (COICOP), which substantially increased the number of food and nonfood items, the use of weighing scales, strict diary data collection with continuous monitoring and intense supervision in
the field that improved the quality of data. To obtain comparability between the 2022 and previous rounds (2016 and2010) a survey-to-survey (S2S) imputation method was implemented. The poverty line was adjusted between survey
rounds using a food prices index that captures food inflation in each domain and the non-food CPI. For a complete
discussion on how comparability over time is restored, see Fernandez et al. (2023).

The elasticity of extreme poverty reduction to per capita GDP growth is slightly lower than the regional average.
Yet, when considering extreme poverty levels (defined as $2.15-a-day using 2017 PPP), Bangladesh's figures arelower and align with those of countries in Latin America and the Caribbean. This is a notable achievement,
especially considering that twelve years ago, the extreme poverty rate mirrored the levels of the South Asia region(Figure 15.b). Conversely, moderate poverty levels ($3.65-a-day 2017 PPP) are over twice as high as in moredeveloped regions. However, the rate at which moderate poverty has declined in Bangladesh over the past twelve
years has been slightly higher than in South Asia as a whole (decreasing by 1.6 and 1.4 percentage points per year

13 The percentage reduction in poverty divided by growth in GDP per capita. The values using the growth rate instead of growth per
capita are 0.6 for both periods. The average annual population growth rate in 2011 was almost 1.5 percent, falling to 1.2 percent in 2022
(BBS, Population and Housing Census 2022, Preliminary Report).

25

respectively) (Figure 15.b). The elasticity of poverty reduction to GDP per capita growth is similar (0.5) for
Bangladesh and South Asia.
Figure 15: Substantial poverty reduction, below the regional averagea.

National Poverty Lines

International Poverty Lines

Poverty and extreme poverty incidence (%)

b. Poverty incidence at $ 3.65 and $ 2.15 per day-2017 Purchasing Power Parity (%)
Poverty
Extreme Poverty

Poverty rates $ 3.655 (%)

70

37.1
26.5

18.7
12.2

South Asia 3.65
Bangladesh 3.65

9.2

60

59.1

50

49.6

50.6
42.7

40

42.2
30.0

30
20

2010

2016

2022

5.6

2010

2016

South Asia 2.15
Bangladesh 2.15

25

2022

19.7

Poverty rates $ 2.15 (%)

20

15.3

15
11.8

10

International comparison of poverty headcounts (%)
49.6

50

46.5

12

40

39.8

10

30

30.0

8
6

11.8

11.9

20

4
4.9

2
0

Bangladesh India 2021
2010

0

5.0

11.3
4.7

Pakistan Bangladesh LAC 2021
2018
2022

$ 2.15

2010

5.0

2016

2022

10

80

Poverty headcount circa 2010

Poverty rates $ 2.15 (%)

14

5d. Poverty to GDP per capita growth elasticity
circa 2010 vs. circa 2022 (USD 3.65 per day)Poverty rates $ 3.65 (%)

c.

10.0

9.0

0

India

70
60

Pakistan

50

Bangladesh

40
30

Sri Lanka

20
10
0

-2.0

-1.5

-1.0

-0.5

0.0

Poverty reduction to GDP per capita growth elasticity,
circa 2010 vs. circa 2022

$ 3.65

Source: Staff estimations based on 2010, 2016, and 2022 HIES
Note: National poverty line is based on BBS estimates (BBS, 2023). South Asia poverty estimates are based on FY23 estimates of growth. Bangladesh’s
international estimates are based on comparable consumption aggregates across rounds. For further information, see (Fernandez et al 2023). Poverty
growth elasticities for Sri Lanka and Pakistan are based on pre-pandemic poverty figures.

Economic growth contributed to a broad increase in welfare, though inequality persisted. Over the 2010-16
period, consumption growth was slightly higher among poorer households. Consumption growth among thebottom 40 percent of the welfare distribution grew at 1.3 percentage points per year, compared to 1.1
26percentage points for the top 60 percent of the welfare distribution. In contrast, from 2016 to 2022, wealthierhouseholds experienced higher consumption growth (3.0 percent annually) than poorer counterparts (2.6
percent yearly) (Figure 16.a). Over the same full period, from 2010 to 2022, Bangladesh’s Gini and Theilcoefficients dropped slightly by 0.1 and 1.1 percentage points, respectively (Figure 16.c). 14 These different
measures show that inequality is persistent; on the one hand, wealthier households saw a slightly higher
increase in their consumption, while on the other hand, the Gini remains largely unchanged.
Figure 16: Consumption growth accelerated and became pro-poor
Bottom 40 percent of households grew faster than average

c.

Total

2.9

3
3

2.0

2
2

1.1

1
1
0

2.6
1.9

1.3

2010-20162016-2022

Per capita household consumption
annualized growth rate (%)

Per capita household consumption
annualized growth rate (%)

Bottom 40

b. Growth incidence curve across periods

Inequality trends

2010-20168

2016-2022

6
4
2
0
-2
-4

2010-2022

0

10

20

30 40 50 60 70 80
Consumption percentiles

90d. Relative contribution of growth and redistribution to poverty
change

2010

2016

2022

33.5 33.0 33.4
21.8 21.4 20.6

Gini coefficient

GrowthChange (percentage points)a.

Redistribution

Total change

4
0
-4
-8
-12

Theil (alpha=1)

2010-2016 2016-2022 2010-2016 2016-2022
Extreme poverty rate

Poverty rate

Source: Staff estimations based on 2010, 2016, and 2022 HIES

Other dimensions of well-being improved over the same period, including infant mortality, stunting, access toelectricity, sanitary toilets, and education. Between 2017 and 2022, infant mortality declined from 36 to 25
deaths per 1,000 births. The proportion of children under 5 years of age who are stunted also fell from 31 to 24
percent. The adolescent fertility rate declined four percentage points from 27.7 to 23.7. 15 Access to electricity
was almost universal in 2022, with a 22-percentage point growth since 2016. The percentage of householdswith sanitary toilets increased from 25.6 percent in 2016 to 40.1 percent in 2022. Literacy rates increased bynearly 10 percentage points for adults, from 62.5 percent in 2016 to 72.3 percent in 2022.

14 Inequality changes are not statistically significant.

15 Bangladesh, Demographic and Health Survey – Key Indicators Report 2022

27

Progress in monetary and nonmonetary dimensions of well-being has resulted in significantly lessmultidimensional poverty (Box 5). The proportion of Bangladeshis facing nonmonetary deprivation (i.e.,
education and infrastructure) decreased significantly from 2010 to 2022. Multidimensional poverty fell from54.3 percent to 30.6 percent of the total population, lifting almost 30 million people out of all deprivations.
More importantly, the number of people who live in households with two or more deprivations plummetedfrom 25 million to nearly two million in 12 years. This was driven by an impressive improvement ininfrastructure, principally through increased access to electricity and reductions in unsafe sanitation. However,
the highest deprivation is still monetary, indicating the importance of jobs and labor income as a path out ofpoverty in Bangladesh.
Figure 17: Monetary 16 and nonmonetary components of well-being reduced multidimensional poverty
60.0

54.3

49.6

50.0
40.0

30.6

30.0

30.0

29.1
16.8

20.0

9.5

6.7

10.0
0.0

MPI

48.3

43.6

Poverty($3.65/day)

At least one All adults withchild out ofless thanschoolcompleteprimary

Monetary

Education
2010
2016

2.4

Without
electricity

2022

3.8

7.7

2.4

Unsafedrinking water

Unsafesanitation

Infrastructure

Source: Staff estimations based on 2010, 2016, and 2022 HIES

Box 5: Multidimensional Poverty Index
The World Bank recently updated the 4th edition of the global Multidimensional Poverty Index (MPI), which
complements the international measurement of monetary poverty and highlights deprivations in three dimensions:education, infrastructure, and consumption.
A household is deprived of education if no members above 15 years of age have completed primary education or
above, or if the household includes school-age children who are not attending school. Similarly, a household isdeprived of the housing infrastructure dimension if it does not have access to any of the following three basic services:
electricity, drinking water, and sanitation. Finally, a household is deprived of the monetary poverty dimension if thehousehold expenditure per capita falls below the lower-middle-income poverty line of $3.65 per day per person (2017
PPP). The three dimensions are included with equal importance in the MPI. Within each dimension, the indicators areincluded with equal importance. A household is defined as multidimensionally poor if the index is below one-third.
The multidimensional poverty index was estimated globally in the 2018 Poverty and Shared Prosperity Report (PSPR)
and is updated following the same methodology every year. Methodological details are available in PSPR Chapter 4.
Dimension
Education

Weightdimension
1/3

Indicator
All adults with less than primary schooling. Deprived when all adults(household older than 15 yo) have less than primary education
Child out of school. Deprived when at least a child of school age is outof school

Weightindicator
1/6
1/6

16 The welfare aggregates utilized to compute monetary poverty in the MPI align with the official Global Municipal Database (GMD).
Conversely, the welfare aggregates referenced throughout the rest of the document are constructed using the survey-to-survey
imputation method outlined in Fernandez et al. (2023).

28

Infrastructure

1/3

Monetary

Access to electricity. Deprived when households have no access toelectricity
Unsafe drinking water. Deprived when households are without an
improved source of drinking water following the WHO/UNICEF Joint
Monitoring Program definition
Unsafe sanitation. Deprived when households were without improved
sanitation
Monetary poor. Deprived when per capita consumption per day is lessthan $3.65 a day (2017 PPP) international poverty line

1/3

1/9
1/9
1/9
1/3

Poverty has become more urbanized
There are contrasting narratives of progress between rural and urban Bangladesh. Consumption growth
supported an increase in overall welfare between 2016 and 2022. This progress was more evenly distributed
among rural households than urban households. In rural areas, consumption grew at the same rate for the bottom
40 percent of households as for the top 60 percent. However, in urban areas, the top 60 percent of households
registered an annualized growth rate that was 0.6 percentage points higher than the bottom 40 percent. The
opposing trends in inequality between urban and rural areas counterbalanced each other, leading to a nearly
unchanged level of national inequality in 2022.
Figure 18: Contrasting narratives for rural and urban areas
Neutral growth in rural areas

Annualized per capita consumption
growth rate (%)

2010-2016

c.

8
7
6
5
4
3
2
1
0
-1
-2
-3

0

10

20

b. Faster growth for high-income groups in urban areas
2016-2022

30 40 50 60 70 80
Consumption percentiles

Shared prosperity by areas (%)
Bottom 40

Annualized per capita consumption
growth rate (%)

a.

90

2010-2016

0

10

20

30

40

50

2016-2022

60

70

80

90

Consumption percentiles
d. Inequality was reduced only in rural areas

Total

Rural

Urban

2022

2010

50

3.0

40

2.5
2.0

30

1.5

20

1.0

10

0.5

0

0.0

8
7
6
5
4
3
2
1
0
-1
-2
-3

Rural

2010

2016
Gini

Urban

2016

2022

Theil, alpha = 1

Source: Staff estimation based on 2010, 2016, and 2022 HIES
Note: Growth incidence curves indicate the growth in consumption per capita at each level of consumption (from the poorest on the left to therichest on the right).

29

Faster consumption growth of the rural bottom 40 has explained nearly all poverty reduction in Bangladesh.
Poverty declined in urban and rural areas but at a lower pace than in the previous period (2010-2016). Poverty
reduction in rural areas (from 29.1 to 20.5 percent) continued to outpace urban areas (from 19.4 to 14.7 percent).
At the same time, urbanization has accelerated. In 2022, one in four Bangladeshis lived in urban areas, comparedto fewer than one in five in 2016. As a result of these factors, a higher proportion of poor people lived in urban
areas in 2022, although poverty in rural areas was still almost 6 percentage points higher. Extreme poverty
declined irrespective of place of residence, with a statistically significant reduction in rural areas (from 10.7 to
6.5).
Figure 19: Poverty is converging across areas and becoming more urbanized
Extreme poverty incidence by area (%)

b.
25

15

20

14.1

10.7

10
5
0

6.9

6.5
3.8

5.2

2010

2016

2022

10
5
0

Poverty headcount by area (%)
50
45
40 41.63530
25 24.4
20
15
10
5
0

30
25
29.1

20
20.5
14.7

19.4

2010

2016

2022

15
10
5
0

Urban poor (%)

15

Urban poor (%)

Poverty rates (%)

20

Poverty rates (%)

a.

Urban poor (share of total poor - %)Urban poor (share of total poor - %)

Rural

Rural

Urban

Urban

Source: Staff estimation based on 2010, 2016, and 2022 HIES.

The East-West Divide in Poverty Rates Narrowed Between 2016 and 2022
Poverty rates are significantly lower than 12 years ago, but poverty reduction has been uneven across divisions.
Poverty and extreme poverty incidence was halved in most divisions between 2010 and 2022, but spatial analysis
shows a heterogeneous incidence. While poverty levels in Khulna and Chittagong were considerably below thenational average, poverty levels in Barisal and Rangpur largely exceeded the national average. These results mirror
the consumption growth experienced in the East and the West regions over the last 12 years. Consumption growth
was lower in the West than in the East between 2010 and 2016, but the trend for most of the distribution switchedbetween 2016 and 2022.

30

Figure 20: Poverty reduction and consumption growth was uneven across space

2016

30

2010

2016

5
SylhetRangpur

Rajshahi

KhulnaDhaka

Chittagong

Barisal0c. Growth incidence curve, 2010-2016

d. Growth incidence curve, 2016-2022
Western
Per capita consumption
annualized growth rate (%)

Eastern

8
7
6
5
4
3
2
1
0
-1
-2
-3

0

10

20

30

40

50

Sylhet10

Rangpur

15

Chittagong

20

Barisal

50
45
40
35
30
25
20
15
10
5
0

25

Per capita consumption
annualized growth rate (%)

2022

Rajshahi

2010

Khulna2022

b. Poverty at the division level

Dhaka

a. Extreme poverty at the division level

60

70

80

90

Consumption percentile

8
7
6
5
4
3
2
1
0
-1
-2
-3

Eastern

0

10

20

30

Western

40

50

60

70

80

90

Consumption percentile

Source: Own estimation based on 2010, 2016, and 2022 HIES.
Note: ‘West’ includes the divisions of Rangpur, Rajshahi, and Khulna. ‘East’ includes the divisions of Barisal, Chittagong, Dhaka, and Sylhet.
Mymensingh was included as part of Dhaka as in previous studies. Growth incidence curves indicate the growth in consumption per capita at eachlevel of consumption (from the poorest on the left to the richest on the right).

Despite spatial disparities, there have been signs of convergence in poverty and extreme poverty acrossdivisions. Between 2010 and 2016, divisions in the Eastern region with lower poverty rates experienced higher
reductions in poverty. This widened the gap in poverty rates between Eastern and Western Bangladesh. However,this pattern changed between 2016 and 2022. Divisions in the Western region with higher poverty rates
experienced more considerable reductions in poverty. These patterns have significantly narrowed the East-Westdivide over the last six years.

31

Figure 21: Convergence across divisions
a. Poverty reduction at division levels and initial levels, 20102016

b. Poverty reduction at division levels andinitial levels, 2016-2022
2.5

1.5

Khulna0.5-0.5

Chittagong
Barisal-1.5

Rajshahi

-2.5

Dhaka

Sylhet-3.5-4.5

Rangpur

0

20

40

60

Poverty rate in 2010

Annual change 2016-2022

Annual change 2010-2016

2.5

1.5

Dhaka

Sylhet0.5-0.5

Barisal-1.5

Rajshahi-2.5

Chittagong

-3.5
-4.5

RangpurKhulna
0

20

40

60

Poverty rate in 2016
Source: Own estimation based on 2010, 2016, and 2022 HIES

Box 6: The impact of displaced Rohingya population inflow since 2019
The 2017 inflow of the displaced Rohingya population (DRP) in Cox’s Bazar District had an immediate impact on poverty
within the Chittagong Division, although the impact was highly localized. The Ukhia and Teknaf upazilas host almost one
million DRP (living in camps), which is more than double the Bangladeshi population living in the area. This increase in
the population of Cox’s Bazar District poses considerable welfare challenges for both the DRP and the host community.
The concentration of refugees in a small geographic area is putting pressure on service delivery, local wages, and pricesof commodities.
Results from the Cox’s Bazar Panel Survey (CBPS) Round 2 (2023) show that overall living conditions for both DRP and
host communities have improved since 2019, with households reporting improved access to electricity and water,
sanitation, and hygiene (WASH) services. However, literacy and educational attainment remain a major concern for the
DRP, especially for young adolescent women. Negative economic impacts on host communities are more linked to wages
than to price increases. While wages generally rose between 2019 and 2023, the increase is about 24 percent for thoseliving 15 km distance from camps (i.e., Low Exposure), which is over three times more than the observed increase forthose living within 15 km distance camps (i.e., High Exposure).
The DRP face ongoing welfare challenges, localized in the Cox’s Bazar district and Bhasan Char. The DRP are highly
vulnerable, with the majority unable to meet basic needs without aid. Over 70 percent of consumption comes fromassistance. With recent cuts to WFP food assistance, food insecurity and child malnutrition are expected to worsen. In
the absence of assistance, the median per-capita household consumption of the DRP would fall to 27 percent of the hostcommunity (517 kcal). Data from the CBPS Round 2 (2023) suggest that after the first reduction of food assistance inearly 2023, over one-third of Rohingya households resorted to eating less preferred food, with 15 percent restricting
adult food consumption and 23 percent reducing portion sizes. This implies that efforts to reduce vulnerability in
Bangladesh also need to enhance support to the DRP and the host communities.
In sum, the Rohingya inflow presents ongoing socio-economic challenges. Service delivery by the local sectors andadministration is stretched – a situation exacerbated by declining external humanitarian assistance. Given the protracted
nature of the crisis and the conditions associated with it, supporting the government in its response will require: (i)international responsibility-sharing of the costs of hosting; and (ii) a more inclusive and medium-term approach todevelopment interventions in Cox’s Bazar and the Bhasan Char Island for the benefit of the DRP and the hostcommunities.

32

Other dimensions of well-being have also converged between urban and rural areas. Even though deprivationlevels remain higher in rural areas, infrastructure, and education deprivations declined significantly. This
contributed to a narrowing gap between rural and urban areas (Figure 8.a). From 2010 to 2022, more than 90
percent of the 21 million people who left multidimensional poverty were from rural areas. The speed of poverty
reduction increased between 2016 and 2022. Unsafe sanitation declined, access to electricity rose, and thenumber of adults with completed primary education increased, particularly in rural areas. Eastern regions (i.e.,
Sylhet, Dhaka (including Mymensingh), Chittagong, and Barisal) contributed to almost 70 percent of the reduction
in multidimensional poverty between 2010 and 2016. However, western regions (i.e., Rangpur, Rajshahi, andKhulna) also progressed rapidly between 2016 and 2022, contributing more than half the reduction in
multidimensional poverty. As a result, 11.3 million Bangladeshis from the East and 9.7 million from the West werelifted from multidimensional poverty between 2010 and 2022.
Figure 22: Spatial deprivation gaps in education and infrastructure have been narrowing between 2010 and 2022.
Multidimensional poverty index by urban and rural areas

MPI Mon Education
MPI Mon Education

RURAL

Infrastructure

URBAN

Infrastructurea.

Unsafe sanitation
Unsafe drinking waterWithout electricity
All adults with less than complete primary
At least one child out of school
Poverty ($3.65/day)Unsafe sanitation
Unsafe drinking waterWithout electricity
All adults with less than complete primary
At least one child out of school
Poverty ($3.65/day)

-

10
2022

20
2016

30

40

50

60

70

80

2010

Source: Staff estimation based on 2010, 2016, and 2022 HIES
Note: ‘West’ includes the divisions of Rangpur, Rajshahi, and Khulna. ‘East’ includes the divisions of Barisal, Chittagong, Dhaka and Sylhet. Mymensingh
was included as part of Dhaka as in previous studies.

33

The Characteristics of Poor Households
Poverty affects men and women differently over their life cycle, with significantly higher poverty rates amonghouseholds with children. Bangladeshi women face significantly higher poverty rates than men for young (20-24
years old) and adult (55-64 years old) cohorts, with and lower poverty among women in their forties. However,urban poverty similarly affects all adult populations (45+) regardless of gender. Households with children arealmost three times more likely to be poor than those without them (20.5 versus 7.2 percent). In 2022, almost 95
percent of poor households have children. Among them, there are no significant differences in their poverty status(20 percent), except in those households with one female adult, which are less than half as likely to be poor (9.3
percent) as their counterparts.
Figure 23: Poverty incidence by gender and household typea.

Young and adult women are poorer than their malecounterpartsb.

Households with children are significantly poorer than those without
them

35

20.5%

Poverty rates (%)

30
25

7.2%

20

22.0%

21.6%

20.2%

20.4%

One
male
adult

Adult
coupleAdultcouplewithother
adultsOthers

9.3%

15
10

One
female
adult

5
0-4
5-9
10-14
15-19
20-24
25-29
30-34
35-39
40-44
45-49
50-54
55-59
60-64
65-69
70 or more

0

Age ranges

FemaleMale

Without Withchildren children

With children

Source: Staff estimation based on 2022 HIES

The poor have fewer productive assets and lower access to water and sanitation than their non-poor
counterparts, but similar access to electricity, microcredit, and remittances. In 2022, poor households in
Bangladesh had lower human and physical capital than non-poor households (Figure 24.a). Among heads of poor
households, 49 percent were literate, and 25 percent had some secondary education. For non-poor households,
these proportions increase to 68 and 47 percent, respectively. Likewise, concerning physical capital, 17 and 25
percent of poor households have access to piped water and sanitary toilets, respectively, compared to 30 and 43
percent for non-poor households. Almost all households have access to electricity, with similar service quality forboth groups. Only 6 percent and 26 percent of the poor Bangladeshis’ dwellings have brick/cement in roofs andwalls, while a quarter and more than half of non-poor households have them. Regarding institutional capital, 26
percent of poor households own their land relative to 38 percent of non-poor households. However, poor
households have similar access to microcredits and benefit in the same way from domestic or international
remittances as their non-poor counterparts. More importantly, almost half of poor households have access tosocial protection programs, relative to less than 40 percent of non-poor households.

34

Figure 24: Characteristics of poor and non-poor Bangladeshi households
a. Poor Bangladeshis have lower productive assets and b. Poor households enjoy better human capital andaccess to water and sanitation
infrastructure in urban than rural areas
Dependenc
y ratio

Dependency
ratio
Adults who are
Social protection100%
earners
program80%
Head is literate
Microcredit
60%
40%
20%
0%

Domestic
remittancesInternational
remittances
Roof Brick/Cement
Wall Brick/Cement

Social 100%
protection… 80%

Microcredit

Head has somesecondary…

Domestic
remittances

Owns landInternation
al…

Electricity

40%

Sanitary toilet

Poor

Head has
some…

20%
0%

Owns land

Roof Brick/Cem…
Wall Brick/Cem…

Piped water

Non-poor60%

Adults whoare earners
Head isliterate

Electricity
Piped water
Sanitary
toilet
Rural

Urban

Source: Staff estimation based on 2010, 2016, and 2022 HIES

Urban poor households are better off in human capital and infrastructure than rural poor households. Poor
households in rural areas experience lower human and physical capital than their urban counterparts but higher
access to microcredits, land ownership, and social protection programs (Figure 24.b). For some other indicators,
such as access to electricity and international and domestic remittances, the differences are negligible.
Living conditions have improved substantially, despite persistent disparities between poor and non-poorhouseholds. In 2022, a poor household had similar Figure 25: A poor household in 2022 looks like a non-poor
facilities as a non-poor household in 2010 in terms of household more than decade ago
physical capital, such as access to water, sanitation
Dependency ratio
Adults who are
Social protection 100%levels, and improved quality of roofing and wall
earners
program80%
materials (Figure 25). Access to electricity andHead is literate
Microcredit
60%
microcredit among the poor in 2022 is higher than
40%
Head has some
Domestic
access among the non-poor in 2010. However,20%
secondary…
remittances0%
disparities in land ownership and human capitalInternational
Owns land
persist, posing a threat to future access to better
remittances
jobs, and incomes, and, consequently, hindering
Roof Electricity
Brick/Cement
improvements in intergenerational mobility.
These preliminary findings point to ongoing
improvements in living standards as Bangladesh’s
economic transformation continues. Bangladesh’s
economy has continued to transition from

Wall Brick/Cement

Piped water

Sanitary toilet

Nonpoor 2010

Poor 2022

Source: Staff estimation based on 2010, 2016, and 2022 HIES.

35

agriculture to services and industry. Households with higher shares of non-farm income have been less likely toremain in or fall into poverty (World Bank, 2019). The narrowing east-west divide in poverty is consistent with amore equal distribution of industrial activities, as infrastructure development has improved intra-regional
connectivity. While poverty rates declined in rural areas, a high rate of urbanization continues to put pressure on
cities where infrastructure gaps already impair service delivery. Going forward, policymakers need to continue
what worked to reduce poverty (i.e., providing greater access to water, electricity, better housing, and financing)
and at the same time focus on improving the factors that lagged behind (i.e., inclusive and sustainableurbanization, creating more jobs in rural areas, and reducing inequality).

36

Annexes
Table A.1: Characteristics of poor and non-poor households (average)
Non-poor
Poor
Demographics
Household lives in an urban area (%)
33.3%
24.9%
***
Household size
4.1
4.9
***
Household dependency ratio
0.59
0.83
***
Age of household head
46.8
45.6
***
Household head is female (%)
13.2%
9.1%
***
Household head is married (%)
90.7%
91.7%
Labor market
Share of adults who are earners
34.4%
30.5%
***
Share of adults in agriculture
12.7%
12.4%
Household head in agriculture (%)
32.8%
37.5%
**
Household head in industry (%)
22.6%
25.3%
*
Household head in services (%)
31.2%
25.8%
***
Household member has a chronic illness/disability
33.4%
23.7%
***
Human capitalHousehold head is literate (can write a letter, %)
67.9%
48.7%
***
Household head has no education (%)
28.4%
44.5%
***
Household head has some primary education (%)
10.5%
14.5%
***
Household head has completed primary education (%)
13.7%
15.9%
**
Household head has at least some secondary education (%)
47.0%
24.9%
***
AssetsHousehold owns land (%)
38.3%
25.5%
***
Household owns a mobile phone (%)
98.7%
97.6%
***
Household has electricity (%)
97.8%
96.8%
Household has piped water (%)
29.8%
16.5%
***
Household has sanitary toilet (%)
43.0%
24.8%
***
Transfers and credit
Household receives international remittances (%)
6.7%
3.8%
***
Household receives domestic remittances (%)
13.3%
17.0%
***
Household receives microcredit (%)
37.2%
36.2%
Household receives social protection program (%)
35.6%
48.3%
***
Source: Own estimations based on HIES 2022.
Note 1: Stars indicate whether the mean for non-poor and poor households is significantly different using a Wald test. Significanceat the *10%, **5%, and ***1% level. Note 2: Dependency ratio was calculated as the population age zero to 14 and over the age of65, to the total population age 15 to 65.

37

Table A.2: Characteristics of rural poor and non-poor households (average)
Non-poor
Poor
Demographics
Household size
4.2
4.9
***
Household dependency ratio
0.61
0.85
***
Age of household head
47.4
46.0
***
Household head is female (%)
13.4%
9.4%
***
Household head is married (%)
90.6%
91.6%
Labor market
Share of adults who are earners
33.8%
29.7%
***
Share of adults in agriculture
17.0%
15.0%
**
Household head in agriculture (%)
43.7%
45.1%
Household head in industry (%)
18.2%
21.2%
Household head in services (%)
25.8%
21.7%
**
Household member has a chronic illness/disability
34.9%
24.6%
***
Human capitalHousehold head is literate (can write a letter, %)
61.8%
45.3%
***
Household head has no education (%)
33.8%
47.7%
***
Household head has some primary education (%)
11.7%
14.4%
**
Household head has completed primary education (%)
15.0%
15.4%
Household head has at least some secondary education (%)
39.2%
22.4%
***
AssetsHousehold owns land (%)
44.5%
28.5%
***
Household owns a mobile phone (%)
98.4%
97.2%
**
Household has electricity (%)
97.0%
96.6%
Household has piped water (%)
15.3%
9.2%
***
Household has sanitary toilet (%)
31.2%
18.0%
***
Transfers and credit
Household receives international remittances (%)
6.7%
3.6%
***
Household receives domestic remittances (%)
13.6%
16.9%
**
Household receives microcredit (%)
39.9%
36.6%
*
Household receives social protection program (%)
41.9%
53.9%
***
Source: Own estimations based on HIES 2022.
Note 1: Stars indicate whether the mean for non-poor and poor households is significantly different using a Wald test. Significanceat the *10%, **5%, and ***1% level. Note 2: Dependency ratio was calculated as the population age zero to 14 and over the age of65, to the total population age 15 to 65.

38

Table A.3: Characteristics of urban poor and non-poor households (average)
Non-poor
Poor
Demographics
Household size
4.1
4.9
***
Household dependency ratio
0.55
0.78
***
Age of household head
45.7
44.5
*
Household head is female (%)
12.7%
8.4%
**
Household head is married (%)
91.0%
92.1%
Labor market
Share of adults who are earners
35.5%
32.8%
**
Share of adults in agriculture
4.1%
4.6%
Household head in agriculture (%)
10.8%
14.2%
Household head in industry (%)
31.4%
37.8%
**
Household head in services (%)
42.2%
38.2%
Household member has a chronic illness/disability
30.6%
20.7%
***
Human capitalHousehold head is literate (can write a letter, %)
80.1%
59.0%
***
Household head has no education (%)
17.4%
35.0%
***
Household head has some primary education (%)
8.1%
15.0%
***
Household head has completed primary education (%)
11.2%
17.4%
***
Household head has at least some secondary education (%)
62.7%
32.5%
***
AssetsHousehold owns land (%)
26.1%
16.5%
***
Household owns a mobile phone (%)
99.2%
98.7%
Household has electricity (%)
99.5%
97.3%
*
Household has piped water (%)
58.9%
38.7%
***
Household has sanitary toilet (%)
66.6%
45.3%
***
Transfers and credit
Household receives international remittances (%)
6.5%
4.3%
Household receives domestic remittances (%)
12.8%
17.4%
*
Household receives microcredit (%)
31.8%
34.8%
Household receives social protection program (%)
22.9%
31.4%
***
Source: Own estimations based on HIES 2022.
Note 1: Stars indicate whether the mean for non-poor and poor households is significantly different using a Wald test. Significanceat the *10%, **5%, and ***1% level. Note 2: Dependency ratio was calculated as the population age zero to 14 and over the age of65, to the total population age 15 to 65.

39

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