1.1 Introduction
Bangladesh will celebrate her 50 years of independence in 2021. Once termed as a development ābasket caseā, the country has now emerged as a ādevelopment surpriseā with particular progress in social and development indicators (Asadullah et al. 2014). The economic growth of Bangladesh over the last two decades remains stable, and has been rising at an average rate of over 6 percent. In the last few years, the growth was over 7 percent. Poverty has halved from around 50 percent in 2000 to around 25 percent in 2016. Bangladesh has also made remarkable progress in attaining several Millennium Development Goal (MDG) targets, especially in social indicators in which the country has done markedly better than neighboring countries. Nonetheless, macroeconomic stability is thought to have played a strong role in achieving impressive economic performances. This chapter, thus, attempts to provide an overview of how macroeconomic policies contribute to impressive economic performances and poverty reduction in Bangladesh.
Achieving macroeconomic stability is at the center point of macroeconomic policy making that prompts to better economic performances. Various combinations of levels of key macroeconomic variables, such as growth, inflation, fiscal deficit, current account deficit, and international reserves together could determine macroeconomic stability. As for example, while a large current account deficit, high and rising level of public debt, double-digit inflation rate and stagnant or declining GDP are the sources of instability, current account and fiscal balances consistent with low and declining debt levels, low single digits inflation and rising per capita GDP are the common indicators of macroeconomic stability. Therefore, it is important to analyze the trends and determinants, and to some extent the impact of several macroeconomic indicators on broader economic outcomes to assess the extent of macroeconomic stability a country has achieved over time.
Maintaining macroeconomic stability is crucial for facilitating private sector development that could promote higher economic growth.1 The absence of macroeconomic stability makes the domestic macroeconomic environment less predictable, and such unpredictability affects resource allocation decisions, investment and, ultimately growth. In that situation, domestic and foreign investors are discouraged and resources are diverted elsewhere (e.g. see Ramey and Ramey 1994). Various cross-country studies confirm that growth, investment and productivity are positively correlated with macroeconomic stability (Easterly and Kraay 2000). From this perspective, analysis of the role of Bangladeshās macroeconomic policy in achieving higher economic growth and poverty reduction is ve...
