## TAMING INFLATION: POLICY OPTIONS AND TRADE-OFFS ## Source details **Canonical URL:** [TAMING INFLATION: POLICY OPTIONS AND TRADE-OFFS](https://www.imf.org/-/media/files/publications/cr/2023/english/1bgdea2023004.pdf) ## Other formats - [Markdown version](/-/media/files/publications/cr/2023/english/1bgdea2023004.pdf.md) - [Structured JSON version](/-/media/files/publications/cr/2023/english/1bgdea2023004.pdf.json) --- ### A. Drivers of Inflation in Bangladesh - Inflation accelerated to a decade high in FY23, peaking at 9.5 percent y/y in August 2022 and 9.9 percent y/y in May 2023. - Key cost-push drivers: - Russia’s war in Ukraine → higher global commodity prices, supply disruptions, slowing external demand for exports, widened current account deficit, and Taka depreciation. - Government fuel and energy price hikes and expanded food subsidies and a bumper harvest temporally moderated inflation in late 2022. - Exchange rate and pass-through: - The authorities allowed the Taka to depreciate by close to 20 percent cumulatively over FY23. - Exchange rate pass-through (ERPT) estimated at 0.25 → the 20 percent Taka depreciation in FY23 contributed about 5 percent increase in the overall price level. - Of the total CPI increase of close to 10 percent in FY23, about half is attributed (directly and indirectly) to exchange rate depreciation. - Real effective exchange rate (REER) depreciation has effectively loosened real monetary conditions. - Monetary and market frictions: - Real interest rates (RIRs) have remained negative. - In FY23, devolvement on Bangladesh Bank (BB) represented 44 percent of the total issued amount of government securities; in some auctions devolvement accounted for 70-80 percent of the entire issuance. - BB’s measure of core inflation peaked at 9.5 percent at end-2022; one-year-ahead inflation expectations reached 10.3 percent in December 2022. - Structural constraints: capped lending rates via SMART mechanism and subsidized BB credit schemes, keeping the yield curve and monetary transmission subdued. ### B. Monetary Policy Options and Tradeoffs - Overall conclusion: A concerted but carefully calibrated monetary tightening is needed to bring inflation down to BB’s target range. - Three QPM-based policy scenarios: - Scenario 1 — “active policy”: BB actively determines its policy rate every quarter to minimize expected inflation deviations from BB’s target over the monetary policy horizon (up to 2 years), keep demand pressures (output gap) checked, and ensure Call money rate remains closely aligned with the policy rate. - Scenario 2 — “hawkish policy”: BB brings inflation down to the target range by end-FY24, then pursues active policy as in Scenario 1. - Scenario 3 — “dovish policy”: BB keeps the stance unchanged until end-FY24, then pursues active policy as in Scenario 1. - Key simulation highlights: - Under the “dovish” scenario, inflation remains elevated throughout FY24 and decelerates only after monetary tightening begins; nominal exchange rate ends about 3 percent weaker compared to “active policy”. - Under the “hawkish” scenario, rapid disinflation is achieved but with cumulative output loss reaching around 3 percent compared to the “active policy” scenario; exchange rate is stronger by about 1 percent. - Optimal policy response lies between the dovish and hawkish extremes, weighing disinflation benefits against output costs. Orderly disinflation is expected to take several quarters to two years unless aided by favorable unexpected shocks. ### C. Role of Fiscal Policy in Disinflation - Fiscal consolidation can aid faster disinflation but may produce disproportionately high output costs given below-potential activity and external shocks. - Stylized fiscal consolidation analyzed: - A fiscal consolidation of 1 percent of GDP in FY24 is assumed. - This translates into a fiscal impulse of about -1.5 percent of GDP (given the economy is below potential and exchange rate broadly similar to the “active policy” case). - With fiscal multiplier of 0.3, results in 0.5 percent reduction in the output gap. - Simulation outcomes: - End-of-period inflation in FY24 declines by an additional 0.2 percentage point relative to “active policy”. - Permanent cumulative loss in output reaches 1 percent compared to the “active policy” scenario. - Monetary policy could be mildly looser alongside fiscal consolidation, with policy rates lower by some 15 basis points compared to the “active policy” scenario. ### D. Modernizing the Monetary Policy Framework - Rationale: A more credible and forward-looking, rule-based monetary policy framework anchored at a clear medium-term inflation objective can reduce economic volatility and the costs of exchange rate pressures and heightened inflation. - Benefits of forward-looking policy: proactive adjustments, better management of market expectations, credibility built through consistent policy actions and communication. - Recommended reform priorities for Bangladesh Bank (BB) under the IMF-supported program: - Strengthen central bank independence and governance. - Enhance analytical and forecasting capacity. - Streamline operational framework and monetary operations. - Develop money markets. - Improve policy communications. - Reform urgency heightened by Bangladesh’s graduation from LDC status in FY26 and increasing integration with the global financial system. ### Recent FX Market Pressures and Transition to Flexible Exchange Rate - FX pressures and key statistics: - BB scaled back non-monetary use of FX reserves, including foreign currency lending, by about US$2 billion in FY23. - Imports contracted by 16 percent y-o-y in FY23. - Financial account experienced an outflow of 0.5 percent of GDP (US$2.1 billion) in FY23, compared to inflows historically averaging about 2.5 percent of GDP. - Unrealized export proceeds increased to US$9.6 billion amounting to 2.1 percent of GDP in FY23. - Export shipments grew by 6.3 percent y-o-y in FY23; export proceeds increased marginally relative to FY22. - Policy rate gap between Bangladesh and the U.S. declined from 4.9 percent at the start of the pandemic to 1.2 percent by end-June 2023. - Net short-term private loan inflows of US$3.1 billion in FY22 reversed to an outflow of US$1.9 billion in FY23. - To address repatriation delays, BB in March 2023 mandated that export receipts will be converted at the exchange rate prevailing on the market on the date when the proceeds should have been realized. - Rationale for greater exchange rate flexibility: - Stem losses of FX reserves and relieve ongoing depreciation pressures. - Enhance resilience and adaptability to external shocks, especially amid LDC graduation. - Support modernization of monetary policy framework and enhance BB independence. - Near-term policy priorities for transition: - Reduce reliance on the exchange rate as the primary nominal anchor and allow market forces to determine the exchange rate; establish an alternative forward-looking nominal anchor (e.g., a credible inflation target). - Report ex-post open-high-low-close exchange rates to enhance transparency and support price discovery. - Limit FX interventions to smooth volatility and not counter persistent trends. - Further tighten the monetary policy stance and liberalize market lending rates to improve monetary transmission; raise the policy rate and allow rate hikes to transmit more freely through the yield curve. - Maintain fiscal prudence; phase out and eliminate devolvement of government securities on BB at below market-clearing interest rates to increase central bank independence and enhance monetary transmission. - Medium-term measures: - Transitional arrangement: shift from a single reference currency peg to a basket of currencies with a narrow band corridor initially, with gradual widening of exchange rate bands thereafter. - In an exchange rate band arrangement, allow free fluctuation within an announced percentage deviation from a midpoint rate; central bank intervenes only to prevent crossing band barriers. - Adopt a credible inflation target as the nominal anchor to better anchor inflation expectations and allow the exchange rate to adjust more freely. - Develop infrastructure and deepen the interbank FX market and derivatives markets; BB should foster market development by removing obstacles and upgrading infrastructure. ### Managing Transition Risks — frictions, quantified impacts, and considerations - Three frictions that could induce adjustment costs even in well-managed transitions: - Net impact on the budget (higher external debt servicing costs and higher implied fiscal subsidies for imported essentials). - Unhedged private sector FX exposures (through banks and corporates). - Passthrough to inflation. - Quantified impacts and estimates: - External debt service stood at around 1 percent of GDP for FY23. - Fiscal subsidies for natural gas, electricity, fertilizers, and food amounted to 1.4 percent of GDP (or around 12 percent of total spending) in FY23. - Short-run exchange rate passthrough ratio for Bangladesh is estimated to be at 0.25. - Risks of disorderly transitions: - Disorderly transitions could result in sharp depreciations or exchange rate overshooting if not accompanied by appropriate monetary and fiscal policy stance (citing historical cases: Brazil (1999), Czech Republic (1996–97), Uruguay (2002)). - Lack of developed FX markets, appropriate intervention policy, technical capacity to adopt an alternate nominal anchor, and monetary policy independence have led to short-lived and unsustainable attempts to adopt flexible regimes in some countries. ### Exchange Rate Transition: lessons, near-term stance, and medium-term path - Lessons from other countries: development of a credible alternative nominal anchor is slow; an interim arrangement is often a crawling band while shifting to another nominal anchor. - Recommended near-term macro policy stance for Bangladesh: - Adopt a tight monetary stance. - Maintain fiscal discipline. - Transition path for BB: - Adopt a transitional exchange rate arrangement, reducing reliance on the exchange rate as the primary nominal anchor. - Gradually move to a credible inflation target as the sole nominal anchor for monetary policy. - Transitional arrangement could involve a gradual shift from a single reference currency peg to a basket of currencies with a narrow band corridor and gradually increase flexibility through wider exchange rate bands to develop better awareness of FX risks among market participants. - Market and institutional development priorities: - Establish necessary technical platforms for interbank foreign exchange transactions. - Deepen the interbank foreign exchange market over time to support price formation. - Develop derivatives markets to help manage foreign exchange risk. ### Supporting facts and numeric indicators cited - Private sector external debt was 5 percent of GDP in FY23, declining marginally from FY22. - The IMF-supported program covers 2023-2026 and encourages the government’s efforts to advance women’s empowerment by creating fiscal space for social programs and development infrastructure. - Maternal mortality rate declined from 441 in 2000 to 123 per 100,000 live births in 2020. - Life expectancy at birth: 46.6 years in 1971 and 72.9 years in 2020; female life expectancy has exceeded male life expectancy since 1990. - Educational attainment of women reached 93.6 percent of that of men; full parity in enrollment in secondary education has been achieved. - Female labor force participation (FLFP) in Bangladesh is 42.7 percent. - Child marriage prevalence: 51 percent of women between the ages of 20-24 married before their 18th birthday; 33 percent of girls aged 15-19 were already married as of 2019. - Women spend seven times more time on unpaid domestic and care work than men (BBS, 2022). - Women’s participation in Technical and Vocational Education and Training (TVET) in Bangladesh ranges from 9 percent to 13 percent in public institutions and is 33 percent in private institutions. - Bangladesh ranks 7th out of 146 countries and first in South Asia on political empowerment in the World Economic Forum’s 2023 Global Gender Gap Index. - Bangladesh has been served by women as heads of the government for more than half of the years since its independence (over 29 years)—the longest duration globally. The current Prime Minister has served almost 20 years while a prior Prime Minister served for 10 years and 60 days. ### Gender, Climate Change, and Policy Synergies; GRB Reforms - Gender-climate nexus and policy synergies: - Climate change increases vulnerability for women due to fewer assets, lower education, less access to finance, lower land/property ownership, and disproportionate work in agriculture and informality. - Policy synergies include investments in safe water and hygiene, equitable access to finance, education, land ownership, transportation, affordable childcare, and diversified labor market opportunities. - Building a social safety net that protects women across their lifetimes, including against climate-related shocks, would improve women’s welfare and resilience. - Climate Change Gender Action Plan (ccGAP) and implementation: - ccGAP updated to align with Mujib Climate Prosperity Plan and the National Adaptation Plan (NAP); includes sector-specific and cross-cutting priority actions and assigns Ministry of Environment, Forest, and Climate Change to lead implementation. - Implementation gaps identified; success requires high-level support, clear benchmarks and timelines, adequate budgeting, and transparent reporting mechanisms. - Gender Responsive Budgeting (GRB) framework and status: - GRB practices began in FY06 and are integrated into the MTBF, which includes climate budget tagging. - Under MTBF, ministries must evaluate medium-term strategic objectives’ impacts on women’s advancement, poverty reduction, and climate change and calculate the share of total budget allocation relevant to each objective. - Gender-related allocations recorded in the Recurrent Capital Gender and Poverty (RCGP) database. - Gender-related budget allocations increased from 24.7 percent of the total budget in FY10 to 34.4 percent in FY24. - Identified GRB weaknesses: - GRB remains largely ex post; not sufficiently integrated into the strategic phase of budget formulation or project planning and execution. - RCGP model has measurement blind spots; execution of gender-relevant allocations is not tracked; the RCGP database is not publicly available. - GRB focuses on expenditure side; gendered impacts of the tax system largely unexplored; local governments not sensitized to GRB methods. - Data gaps and capacity needs persist across ministries and divisions. - Proposed GRB enhancements and recommendations: - Integrate GRB into strategic budget preparation, project design, monitoring and evaluation. - Update the RCGP model to improve simplicity, reduce measurement noise, track execution, and make the RCGP database publicly available. - Extend GRB to revenue policy formulation and local governments. - Implement automated data submission processes; conduct forward-looking assessment of GRB to identify capacity gaps. - Strengthen monitoring and evaluation to link budget allocations to tangible outcomes and anchor monitoring in the Implementation, Monitoring and Evaluation Division of the Ministry of Planning. - Align and integrate gender and climate budgeting; reform iBAS++ and RCGP coding to facilitate cross-tagging of expenditures benefiting both women’s development and climate goals. - Priority policy directions: - Expand women’s access to skills development and higher education. - Decrease women’s unpaid care burden by expanding affordable childcare and critical infrastructure. - Reduce informality and address gender norms discouraging women from formal and higher-paying jobs. - Tackle gender gaps in access to finance through increased financial literacy and strengthened property rights. - Address high rates of child marriage and violence against women. - Channel dedicated resources toward the intersection of climate change and women’s empowerment as identified in the updated ccGAP. - Design adaptive social safety nets that adequately cover women and expand existing social programs targeted to women (e.g., Mother and Child Benefit Programme and rural employment programs). *Source: IMF staff estimates and analysis presented in the document.* ### References ______________________________________________________________________________ 10 ### TAMING INFLATION: POLICY OPTIONS AND TRADE-OFFS ### A. Drivers of Inflation in Bangladesh - Inflation accelerated to a decade high in FY23, peaking at 9.5 percent y/y in August 2022 and 9.9 percent y/y in May 2023. - Key cost-push drivers: Russia’s war in Ukraine → higher global commodity prices, supply disruptions, slowing external demand for exports, widened current account deficit, and Taka depreciation. - Government fuel and energy price hikes and expanded food subsidies and a bumper harvest temporally moderated inflation in late 2022. - The authorities allowed the Taka to depreciate by close to 20 percent cumulatively over FY23. - Exchange rate pass-through (ERPT) estimated at 0.25 → the 20 percent Taka depreciation in FY23 contributed about 5 percent increase in the overall price level. - Of the total CPI increase of close to 10 percent in FY23, about half is attributed (directly and indirectly) to exchange rate depreciation. - Real interest rates (RIRs) have remained negative; real effective exchange rate (REER) depreciation has effectively loosened real monetary conditions. - In FY23, devolvement on Bangladesh Bank (BB) represented 44 percent of the total issued amount of government securities; in some auctions devolvement accounted for 70-80 percent of the entire issuance. - BB’s measure of core inflation peaked at 9.5 percent at end-2022; one-year-ahead inflation expectations reached 10.3 percent in December 2022. - Structural features constraining transmission: capped lending rates via SMART mechanism and subsidized BB credit schemes, keeping yield curve and monetary transmission subdued. ### B. Monetary Policy Options and Tradeoffs - Conclusion: A concerted but carefully calibrated monetary tightening is needed to bring inflation down to BB’s target range. - Three QPM-based policy scenarios considered: - Scenario 1 — “active policy”: BB actively determines its policy rate every quarter to minimize expected inflation deviations from BB’s target over the monetary policy horizon (up to 2 years), keep demand pressures (output gap) checked, and ensure Call money rate remains closely aligned with the policy rate. - Scenario 2 — “hawkish policy”: BB brings inflation down to the target range by end-FY24, then pursues active policy as in Scenario 1. - Scenario 3 — “dovish policy”: BB keeps the stance unchanged until end-FY24, then pursues active policy as in Scenario 1. - Simulation highlights: - Under the “dovish” scenario, inflation remains elevated throughout FY24 and decelerates only after monetary tightening begins; nominal exchange rate ends about 3 percent weaker compared to “active policy”. - Under the “hawkish” scenario, rapid disinflation is achieved but with cumulative output loss reaching around 3 percent compared to the “active policy” scenario; exchange rate is stronger by about 1 percent. - Optimal policy response lies between the dovish and hawkish extremes, weighing disinflation benefits against output costs. Orderly disinflation is expected to take several quarters to two years unless aided by favorable unexpected shocks. ### C. Role of Fiscal Policy in Disinflation - Concurrent fiscal consolidation can aid faster disinflation but may produce disproportionately high output costs given below-potential activity and external shocks. - Stylized fiscal consolidation analyzed: a fiscal consolidation of 1 percent of GDP in FY24 is assumed. - This translates into a fiscal impulse of about -1.5 percent of GDP (given the economy is below potential and exchange rate broadly similar to the “active policy” case). - With fiscal multiplier of 0.3, results in 0.5 percent reduction in the output gap. - Simulation outcomes: - End-of-period inflation in FY24 declines by an additional 0.2 percentage point relative to “active policy”. - Permanent cumulative loss in output reaches 1 percent compared to the “active policy” scenario. - Monetary policy could be mildly looser alongside fiscal consolidation, with policy rates lower by some 15 basis points compared to the “active policy” scenario. ### D. Modernizing the Monetary Policy Framework - A more credible and forward-looking, rule-based monetary policy framework anchored at a clear medium-term inflation objective can reduce economic volatility and the costs of exchange rate pressures and heightened inflation. - Forward-looking policy allows proactive adjustments and better management of market expectations; credibility is built over time through consistent policy actions and communication. - Recommended reform priorities for Bangladesh Bank (BB) under the IMF-supported program: - Strengthen central bank independence and governance. - Enhance analytical and forecasting capacity. - Streamline operational framework and monetary operations. - Develop money markets. - Improve policy communications. - Reform urgency heightened by Bangladesh’s graduation from LDC status in FY26 and increasing integration with the global financial system. *Source: IMF staff estimates and analysis presented in the document.* ### References ### 1bgdea2023004 - References ### References (listed in the source) - Adrian, Tobias, and Vitor Gaspar, 2022, “How Fiscal Restraint Can Help Fight Inflation”, IMF Blog. Available at: https://www.imf.org/en/Blogs/Articles/2022/11/21/how-fiscal-restraint-can-help-fight-inflation - Berg, Andrew, P. Karam, and D. Laxton, 2006, “A Practical Model-Based Approach to Monetary Policy Analysis – Overview”, IMF Working Paper 06/80. Available at: https://www.imf.org/external/pubs/ft/wp/2006/wp0680.pdf - Dennis, Richard, 1997, “A measure of monetary conditions”, Reserve Bank of New Zealand, Discussion Paper, (G97/1). Available at: https://www.rbnz.govt.nz/-/media/07e2dc6194ef42d69046ce237f3ecc09.ashx?sc_lang=en - International Monetary Fund, 2014, “Fiscal Multipliers: Size, Determinants, and Use in Macroeconomic Projections”, IMF Technical Note; September 2014. Available at: https://www.imf.org/en/Publications/TNM/Issues/2016/12/31/Fiscal-Multipliers-Size-Determinants-and-Use-in-Macroeconomic-Projections-41784 - International Monetary Fund, 2015, “Evolving Monetary Policy Frameworks in Low-Income and Other Developing Countries”, IMF Policy Paper; October 23, 2015. Available at: https://www.imf.org/external/np/pp/eng/2015/102315.pdf - International Monetary Fund, 2022, “Modernizing the Monetary Policy Framework in Bangladesh – Model-Based Insights”, Bangladesh: Selected Issues paper, IMF Country Report No. 22/72. Available at: https://www.imf.org/en/Publications/CR/Issues/2022/03/07/Bangladesh-Selected-Issues-514021 - International Monetary Fund, 2023, “Fiscal Monitor: On the Path to Policy Normalization. Chapter 2: Inflation and Disinflation: What Role for Fiscal Policy?”, Washington, DC: IMF, April 2023. Available at: https://www.imf.org/en/Publications/FM/Issues/2023/04/03/fiscal-monitor-april-2023 - Ha, Jongrim, M. Ayhan Kose, and F. Ohnsorge, 2019, “Inflation in Emerging and Developing Economies: Evolution, Drivers, and Policies—Chapter 5. Inflation and Exchange Rate Pass-Through”, Washington, DC: World Bank. Available at: https://www.worldbank.org/en/research/publication/inflation-in-emerging-and-developing-economies ### A. Recent Pressures in the FX Market — key findings and statistics - Multiple external shocks and suboptimal domestic policy responses led to sustained foreign exchange (FX) pressures in Bangladesh. - Bangladesh Bank (BB) scaled back non-monetary use of FX reserves, including foreign currency lending, by about US$2 billion in FY23. - Imports contracted by 16 percent y-o-y in FY23. - Financial account experienced an outflow of 0.5 percent of GDP (US$2.1 billion) in FY23, compared to inflows historically averaging about 2.5 percent of GDP. - Unrealized export proceeds increased to US$9.6 billion amounting to 2.1 percent of GDP in FY23. - Export shipments grew by 6.3 percent y-o-y in FY23; export proceeds increased marginally relative to FY22. - Policy rate gap between Bangladesh and the U.S. declined from 4.9 percent at the start of the pandemic to 1.2 percent by end-June 2023. - Net short-term private loan inflows of US$3.1 billion in FY22 reversed to an outflow of US$1.9 billion in FY23. - To address repatriation delays, BB in March 2023 mandated that export receipts will be converted at the exchange rate prevailing on the market on the date when the proceeds should have been realized. ### B. Transitioning to a More Flexible Exchange Rate — rationale, near-term priorities, and medium-term measures - Rationale for greater flexibility: - Stem losses of FX reserves and relieve ongoing depreciation pressures. - Enhance resilience and adaptability to external shocks, especially amid LDC graduation. - Support modernization of monetary policy framework and enhance BB independence. - Near-term policy priorities (enumerated): - Reduce reliance on the exchange rate as the primary nominal anchor and allow market forces to determine the exchange rate; establish an alternative forward-looking nominal anchor (e.g., a credible inflation target). - Report ex-post open-high-low-close exchange rates to enhance transparency and support price discovery. - Limit FX interventions to smooth volatility and not counter persistent trends. - Further tighten the monetary policy stance and liberalize market lending rates to improve monetary transmission; raise the policy rate and allow rate hikes to transmit more freely through the yield curve. - Maintain fiscal prudence; phase out and eliminate devolvement of government securities on BB at below market-clearing interest rates to increase central bank independence and enhance monetary transmission. - Medium-term reform measures: - Transitional arrangement could shift from a single reference currency peg to a basket of currencies with a narrow band corridor initially, with gradual widening of exchange rate bands thereafter. - In an exchange rate band arrangement, allow free fluctuation within an announced percentage deviation from a midpoint rate; central bank intervenes only to prevent crossing band barriers. - Width of the band should balance costs of exchange rate volatility and benefits of monetary policy independence; adjust midpoint if persistent trends emerge. - Adopt a credible inflation target as the nominal anchor to better anchor inflation expectations and allow the exchange rate to adjust more freely. - Develop infrastructure and deepen the interbank FX market and derivatives markets to support price formation and risk management; BB should foster market development by removing obstacles and upgrading infrastructure. ### C. Managing Transition Risks — frictions, quantified impacts, and considerations - Three specific frictions that could induce adjustment costs even in well-managed transitions: - Net impact on the budget (higher external debt servicing costs and higher implied fiscal subsidies for imported essentials). - Unhedged private sector FX exposures (through banks and corporates). - Passthrough to inflation. - Quantified potential impacts and estimates: - External debt service stood at around 1 percent of GDP for FY23. - Fiscal subsidies for natural gas, electricity, fertilizers, and food amounted to 1.4 percent of GDP (or around 12 percent of total spending) in FY23. - Short-run exchange rate passthrough ratio for Bangladesh is estimated to be at 0.25. - Risks of disorderly transitions: - Disorderly transitions could result in sharp depreciations or exchange rate overshooting if not accompanied by appropriate monetary and fiscal policy stance (citing historical cases: Brazil (1999), Czech Republic (1996–97), Uruguay (2002)). - Lack of developed FX markets, appropriate intervention policy, technical capacity to adopt an alternate nominal anchor, and monetary policy independence have led to short-lived and unsustainable attempts to adopt flexible regimes in some countries. *Source: 1bgdea2023004 - References* ### 13. A gradual transition, supported by appropriate macroeconomic policies, could mitigate ### 1bgdea2023004 - 13. A gradual transition, supported by appropriate macroeconomic policies, could mitigate ### Exchange rate transition: lessons and context - Country experiences suggest developing a credible alternative nominal anchor is a slow process; an interim arrangement is often a crawling band while policymakers shift to another nominal anchor. - Chile, Hungary, Israel, and Poland transitioned successfully using crawling bands that were widened over time in response to increases in capital inflows (Duttagupta, Karacadag, & Fernandez, 2006). - Countries that adopted flexible exchange rates under market pressure, with little preparation, and lacking supporting institutions and policies, faced higher upfront macroeconomic costs. - Persistent FX market pressures and prevailing macroeconomic imbalances, together with current financial and institutional conditions, might require an expedited transition schedule in Bangladesh. ### Conclusions and recommended near-term macroeconomic policy stance for Bangladesh - A more flexible exchange rate regime is essential for Bangladesh to rebuild external resilience and successfully integrate into the global financial system post LDC graduation. - Near-term policy actions: - Adopt a tight monetary stance. - Maintain fiscal discipline. - Transition path for Bangladesh Bank (BB): - Adopt a transitional exchange rate arrangement, reducing reliance on the exchange rate as the primary nominal anchor. - Gradually move to a credible inflation target as the sole nominal anchor for monetary policy. - Transitional arrangement could involve a gradual shift from a single reference currency peg to a basket of currencies with a narrow band corridor. - Gradually increase flexibility through wider exchange rate bands to develop better awareness of FX risks among market participants. - Market and institutional development priorities: - Establish necessary technical platforms for interbank foreign exchange transactions. - Deepen the interbank foreign exchange market over time to support price formation. - Develop derivatives markets to help manage foreign exchange risk. ### Supporting facts and numeric indicators cited - Private sector external debt was 5 percent of GDP in FY23, declining marginally from FY22. - The IMF-supported program covers 2023-2026 and encourages the government’s efforts to advance women’s empowerment by creating fiscal space for social programs and development infrastructure. - Maternal mortality rate declined from 441 in 2000 to 123 per 100,000 live births in 2020. - Life expectancy at birth: 46.6 years in 1971 and 72.9 years in 2020; female life expectancy has exceeded male life expectancy since 1990. - Educational attainment of women reached 93.6 percent of that of men; full parity in enrollment in secondary education has been achieved. - Female labor force participation (FLFP) in Bangladesh is 42.7 percent. - Child marriage prevalence: 51 percent of women between the ages of 20-24 married before their 18th birthday; 33 percent of girls aged 15-19 were already married as of 2019. - Women spend seven times more time on unpaid domestic and care work than men (BBS, 2022). - Women’s participation in Technical and Vocational Education and Training (TVET) in Bangladesh ranges from 9 percent to 13 percent in public institutions and is 33 percent in private institutions (Draft National Strategy for Promotion of Gender Equality in TVET in Bangladesh). - Bangladesh ranks 7th out of 146 countries and first in South Asia on political empowerment in the World Economic Forum’s 2023 Global Gender Gap Index. - Bangladesh has been served by women as heads of the government for more than half of the years since its independence (over 29 years)—the longest duration globally. The current Prime Minister has served almost 20 years while a prior Prime Minister served for 10 years and 60 days. ### Gender, climate change, and policy synergies - Climate change increases vulnerability for women in Bangladesh because women tend to have fewer assets, lower education, less access to finance, are less likely to own land or property, and disproportionately work in agriculture and informality. - Existing gender roles heighten exposure to climate hazards: women primarily collect drinking water and biofuels, contributing to time poverty and increasing risk during floods and droughts; women’s caregiving responsibilities limit mobility and evacuation options. - Policy synergies: investments in safe water and hygiene, equitable access to finance, education, land ownership, transportation, affordable childcare, and diversified labor market opportunities simultaneously advance women’s empowerment and increase resilience to climate change. - Building a social safety net that protects women across their lifetimes, including against climate-related shocks, would improve women’s welfare and resilience. ### Role of Gender Responsive Budgeting (GRB) and IMF program linkages - GRB is a core tool used by the Government of Bangladesh to channel public resources toward gender equality and women’s empowerment; GRB practices began in FY06 and are integrated into the MTBF, which includes climate budget tagging. - Shortcomings of current GRB: its ex-post nature, methodological limitations, and absence of effective impact evaluation mechanisms limit its relevance. - The IMF-supported program aims to: - Support a sustainable increase in revenue collection. - Rationalize untargeted and environmentally harmful subsidies to create fiscal space for social programs. - Support Resilience and Sustainability Fund (RSF) reforms to bolster resilience to climate change, benefiting women who are on average more exposed to climate effects. - Encourage policies facilitating skill development, trade and FDI to upskill female workers and create higher quality jobs. *Prepared by IMF staff as part of the Bangladesh report chapter excerpt.* ### 16. The Government of Bangladesh officially recognized the need to integrate a gender ### 1bgdea2023004 - 16. The Government of Bangladesh officially recognized the need to integrate a gender ### Climate policy and gender: background and institutional developments - The Government of Bangladesh first recognized the need to integrate a gender perspective in climate strategy in 2008 with the Bangladesh Climate Change Strategy and Action Plan (BCCSAP), which recommended a “comprehensive study of the impact of climate change on women and gender relations and the development of recommendations to address these in all actions under the BCCSAP.” - A Climate Change Gender Action Plan (ccGAP) was published in 2013 and is being updated to align with the Mujib Climate Prosperity Plan, the National Adaptation Plan (NAP), and the updating of the BCCSAP. - The updated draft ccGAP: - Includes sector-specific and cross-cutting priority actions. - Designates the Ministry of Environment, Forest, and Climate Change to lead ccGAP implementation and aligns with the NAP to facilitate integration of interventions in ministry-level action plans. - Establishes time-bound immediate, mid-term, and long-term priorities. ### Updated ccGAP: sector-specific and cross-cutting priority actions - Sector-specific priority actions aim to: - Improve women’s access to and control over land, water and forest resources. - Promote climate-smart agricultural, fishing and livestock rearing technologies among women. - Provide women training to enable livelihood diversification. - Enhance women’s access to early-warning systems. - Give women a stronger role in infrastructure development. - Improve access to safely managed water and sanitation facilities as well as to affordable health care. - Cross-cutting priority actions focus on: - Encouraging participation of women at all levels of climate policy design and implementation. - Raising stakeholder awareness of the gender-climate nexus. - Mobilizing financial resources for gender-responsive climate action. - Collecting and disseminating relevant data. - Innovative element: - Fostering women leadership in renewable energy development and recognizing women as “change agents” in the green transition. - Recognition of women’s priority role in achieving widespread adoption of clean cooking solutions and sustainable forest management. ### Implementation gaps and requirements for ccGAP success - A joint review by UN Women, ICCCAD, and Action Aid in 2018 identified significant implementation gaps in the 2013 ccGAP and pointed to the need to enhance government ownership. - Key requirements for effective implementation of the updated ccGAP: - Secure high-level support and buy-in from concerned ministries and stakeholders. - Set clear benchmarks and timelines. - Budget adequate resources. - Establish transparent reporting mechanisms. ### Gender Responsive Budgeting (GRB): framework and evolution - Definition and objectives: - GRB (also called “gender-sensitive budgeting” or “gender budgeting”) is a strategic approach to incorporate gender considerations in budget planning, allocation, and monitoring to support equitable distribution of public resources. - Bangladesh’s adoption and scope: - Gender considerations were formally introduced into the budget process under the Medium-Term Budgetary Framework (MTBF), starting with four ministries in FY06 and covering 44 (out of 62) ministries and divisions in FY24. - Under MTBF guidelines, each ministry/division must evaluate the impact of its medium-term strategic objectives on women’s advancement, poverty reduction, and climate change and calculate the share of total budget allocation relevant to each of these three objectives. - Gender-related allocations are recorded in the Recurrent Capital Gender and Poverty (RCGP) database, broken down into recurrent vs. development spending. ### Transparency, reporting, and historical outputs - Since 2009 Bangladesh has published an annual ‘Gender Budget Report’ prepared by the Finance Division and presented in parliament with the budget each June. The report: - Summarizes ministry/division activities to promote women’s development. - Evaluates KPIs related to women’s advancement. - Analyzes trends in gender-related budget allocations. - Assesses progress against national objectives (Five-Year Plan, ‘Vision 2041’, Perspective Plan) and offers policy recommendations. - A Climate Budget Report has also been produced annually since FY19. ### Key statistics on gender-related budget allocations - According to the RCGP database: - Gender-related budget allocations increased from 24.7 percent of the total budget in FY10 to 34.4 percent in FY24. - Ministry-level observations for FY24: - Four highest nominal allocations (in billions of Taka) were in: Local Government Division; Ministry of Primary and Mass Education; Secondary and Higher Education Division; and Road Transport and Highways Division. - The largest share of the budget benefiting women (shares above 60 percent) was found in: Ministry of Women and Children Affairs (MoWCA); Ministry of Disaster Management and Relief; Medical Education and Family Welfare Division; and Ministry of Railways. ### Strengths of Bangladesh’s GRB practice - GRB is integrated into core budget processes via the MTBF and is government-owned. - All major ministries and divisions undertake GRB. - Tagging of gender-relevant allocations is supported by a formal framework (the RCGP model) and line ministries receive official instructions from the MoF. ### Identified weaknesses and priority reforms for GRB - GRB remains largely ex post and is not sufficiently integrated into the strategic phase of budget formulation or project planning and execution. - The Gender Budget Report analyzes KPIs but stops short of providing in-depth analysis of the effectiveness of government spending in reaching women’s development goals. - The RCGP model has blind spots that can lead to potentially significant mismeasurement of gender-relevant allocations: - Assigning a percentage share of development projects’ benefits to women (across 16 criteria) can be difficult and noisy. - Some sectors (e.g., infrastructure) are often coded as having “neutral” gender impact due to difficulty identifying direct beneficiaries. - Execution of gender-relevant allocations is not tracked, leaving the gender content of actual spending unknown given historically significant under-execution of budgeted spending. - The RCGP database is not publicly available, undermining transparency and external scrutiny. - GRB currently focuses on the expenditure side; gendered impacts of the tax system have largely been unexplored. - Local governments have not been sensitized to GRB methods despite their role in service delivery that impacts women’s lives. - Data gaps and capacity needs persist across ministries and divisions, including Finance Division, for identifying critical gender inequalities, developing budget plans, and designing and tracking performance measures. ### Proposed enhancements and policy recommendations - Integrate GRB into the strategic phase of budget preparation, project design, monitoring and evaluation to strengthen links between objectives and budget execution. - Update the RCGP model to: - Improve simplicity and reduce measurement noise. - Track execution of gender-related allocations. - Make the RCGP database publicly available to enhance transparency and enable civil society scrutiny. - Extend GRB to: - Revenue policy formulation to assess gendered impacts of taxation. - Local governments to mainstream gender across service delivery levels. - Address data and capacity development needs: - Implement automated data submission processes among ministries and divisions to facilitate timely Gender Budget Report production. - Conduct a forward-looking assessment of GRB (planned by MoWCA with UN Women) to identify priority training and capacity gaps. - Improve impact evaluation: - Strengthen monitoring and evaluation to link budget allocations to tangible outcomes (e.g., gender ratios in education, participation in programs, maternal mortality rates). - Consider tripartite budget planning meetings organized by Finance Division and MoWCA with all divisions and ministries. - Anchor a robust monitoring system in the Implementation, Monitoring and Evaluation Division of the Ministry of Planning to provide input to the Gender Budget Report. - Align and integrate gender and climate budgeting: - Use strategic objectives in MTBFs that simultaneously advance climate- and gender-related goals and adjust them annually based on Gender Budget Report and Climate Budget Report findings. - Reform iBAS++ and the RCGP coding to facilitate cross-tagging of expenditures (and ultimately revenues) benefiting both women’s development and climate goals. ### Climate budgeting linkages - The Climate Fiscal Framework (CFF) was adopted in 2014 to embed climate aspects in Public Financial Management systems. - Climate budget tagging has been carried out since 2018, producing an annual Climate Budget Report by Ministry/division. - Given similarities and overlapping goals, gender and climate budgeting efforts are complementary; aligning tools would realize synergies. ### Conclusions and priority policy directions - Bangladesh has made important strides in empowering women, but additional efforts are needed to: - Expand women’s access to skills development and higher education. - Decrease women’s unpaid care burden by expanding affordable childcare and critical infrastructure. - Reduce informality and address gender norms discouraging women from formal and higher-paying jobs. - Tackle gender gaps in access to finance through increased financial literacy and strengthened property rights. - Address high rates of child marriage and violence against women. - Climate policy should: - Recognize women’s special needs and capacity as change agents. - Channel dedicated resources toward the intersection of climate change and women’s empowerment as identified in the updated ccGAP. - Design adaptive social safety nets that adequately cover women. - Expand existing social programs targeted to women (e.g., Mother and Child Benefit Programme and rural employment programs) to raise resilience. - GRB should be strengthened by: - Giving gender-related policy goals greater attention during strategic budget formulation and project execution. - Updating the RCGP model, improving transparency and execution tracking, making data public, and extending GRB to revenue and local governments. - Considering synergies between gender- and climate-related goals in strategic planning documents such as the upcoming 9th Five Year Plan and in budget tagging and monitoring system design. *Source: IMF staff chapter content from the supplied PDF content unit.* ### References ### References ### Academic and working papers - Cuberes, David, and Marc Teignier, 2012, “Gender Gaps in the Labor Market and Aggregate Productivity.” Working Paper, Department of Economics, University of Sheffield. - Kabeer, Naila and Luisa Natali, 2013, “Gender Equality and Economic Growth: Is there a Win-Win?” Institute of Development Studies, Working Paper 417. - Ostry, Jonathan, Jorge A. Alvarez, Raphael A. Espinoza, and Chris Papageorgiou, 2018, “Economic Gains From Gender Inclusion: New Mechanisms, New Evidence,” IMF Staff Discussion Notes No. 2018/006, International Monetary Fund, Washington, DC. ### Bangladesh government publications and reports - Bangladesh Bureau of Statistics, 2016, “Preliminary Report on Time Use Survey (TUS) 2021.” Statistics and Informatics Division, Bangladesh Bureau of Statistics, Ministry of Planning, Government of the People’s Republic of Bangladesh. - ———, 2022, “Report on Violence Against Women Survey 2015.” Statistics and Informatics Division, Bangladesh Bureau of Statistics, Ministry of Planning, Government of the People’s Republic of Bangladesh. - Bangladesh Planning Commission, 2015, “7th Five Year Plan (FY2016- FY2020): Accelerating Growth, Empowering Citizens”. General Economics Division (GED), Bangladesh Planning Commission, Ministry of Planning, Government of the People’s Republic of Bangladesh. - ———, 2020, “Making Vision 2041 a Reality, Perspective Plan Of Bangladesh 2021-2041”. General Economics Division (GED), Bangladesh Planning Commission, Ministry of Planning, Government of the People’s Republic of Bangladesh. - ———, 2020, “8th Five Year Plan (July 2020-June 2025): Promoting Prosperity and Fostering Inclusiveness”. General Economics Division (GED), Bangladesh Planning Commission, Ministry of Planning, Government of the People’s Republic of Bangladesh. - Ministry of Finance, 2023, “Gender Budget Report FY2023-24”, Finance Division, Ministry of Finance, Government of the People's Republic of Bangladesh. ### IMF and multilateral publications on gender, work, and climate - Kochhar, Kalpana, Sonali Jain-Chandra, Monique Newiak, eds, 2016, “Women, Work, and Economic Growth: Leveling the Playing Field”, International Monetary Fund, Washington, DC. - Hallegatte, Stephane, Mook Bangalore, Laura Bonzanigo, Marianne Fay, Tamaro Kane, Ulf Narloch, Julie Rozenberg, David Treguer, and Adrien Vogt-Schilb, 2016, “Shock Waves: Managing the Impacts of Climate Change on Poverty”, Climate Change and Development Series. Washington, DC. ### UN and development organizations - UN Women, 2014, “Assessing the Effectiveness of Gender Responsive Budgeting in Bangladesh”, UN Women supported by Asian Development Bank. - ———, 2016, “Gender Responsive Budgeting in the Asia-Pacific Region, A Status Report”, UN Women. - ———, 2022, “Gender Equality Factsheet Bangladesh”, UN Women. - UN Women and IUCN, 2022, “State of Gender Equality and Climate Change in Bangladesh”, https://wedocs.unep.org/20.500.11822/40845 - United Nations Development Programme, 2021, “National Human Development Report 2021: Bangladesh : Advancing human development in Bangladesh: Looking Ahead”, New York. *Content derived from the References section of the supplied PDF.* --- _Source: https://www.imf.org/-/media/files/publications/cr/2023/english/1bgdea2023004.pdf_