Working Paper 115 – Macroeconomic Policy, Price Stability and Inclusive Growth in Bangladesh

During the past two decades, the economy of Bangladesh experienced a fairly sustained macroeconomic stability and was able to achieve substantial growth in gross domestic product (GDP). However, there is evidence to suggest that this growth has neither been inclusive nor has it been able to bring about structural change needed to sustain higher growth. The paper contends that the macroeconomic policymaking would require a re-think in order to meet the above challenges. The present paper reviews the current macroeconomic policy framework and underscores the need for balancing its usual emphasis on stability with the need for structural change and social inclusion. This would in turn require an expansionary macroeconomic policy, albeit cautious, that focuses robustly on stepped-up investment, job growth and reduction of inequality and vulnerability. To this end, the paper explores the critical role of monetary, fiscal, external and financial inclusion policies and how far these could address the above challenges. Macroeconomic policies, focused simply on stability and a status quo budget, cannot deliver the desired employment and inclusion outcomes unless these also address and accommodate various associated sectoral, labour market, and social inclusion measures.