Shifting the momentum: Actions taken by the BB governor for economic recovery

When Dr. Ahsan H Mansur took office as the 13th Governor of Bangladesh Bank in August of the previous year, the government had to amend the Bangladesh Bank Act to remove the age limit for the position to facilitate his appointment. At that time, the country's economy was in a fragile state. The dollar crisis was worsening, foreign exchange reserves had sharply declined, and there was a rush for bank withdrawals, leading to a severe liquidity crisis in the banking sector. Commodity prices were soaring, and inflation was out of control.

Upon assuming office, Ahsan introduced a series of reforms to tackle these issues. He took immediate action to address the banking sector's liquidity crisis, including providing financial support to struggling banks by printing new money. He also took steps to manage the dollar crisis, stabilize foreign exchange reserves, and ensure loan discipline. Under his leadership, the decline in reserves was halted, and stability was restored. 

In addition, Ahsan announced that Bangladesh had repaid nearly $1.75 billion in foreign debt without dipping into its reserves. The government also paid over $1.25 billion in interest and project-related loans. Overall, under his guidance, Bangladesh Bank implemented measures to address the liquidity crisis, enhance transparency, accountability, and protect customer interests.

Since taking office, Ahsan has worked diligently to restore confidence in the banking sector. These efforts have resulted in positive changes, such as a market-based exchange rate that has improved the supply of dollars and helped stabilize reserves. Controlling high inflation has been a top priority for him. Ahsan's initiatives have also led to an increase in bank deposits, with public confidence in banks on the rise. Moreover, he has taken steps to improve governance, including restructuring the boards of 12 banks and reclaiming control from politically influential groups.

The trend of bank withdrawals appears to be reversing. In December, approximately Tk1,085 crore was deposited back into banks, signaling a positive shift. Additionally, the amount of cash circulating outside banks decreased slightly from Tk2,77,000 crore in November to Tk2,76,000 crore in December.

Ahsan has also prioritized good governance in the banking sector, restructuring the boards of at least 12 banks and taking control of banks from politically connected individuals, strengthening efforts to restore order. To address the high rate of non-performing loans (NPLs), which remains a concern, Bangladesh Bank plans to align its loan classification and recovery processes with international standards.

To combat high inflation, Ahsan gradually increased the policy interest rate (repo rate), raising it from 9% to 9.5% in September, and again to 10% in October. The upper limit for the interbank lending rate was increased from 11% to 11.5%, while the lower limit was raised from 8% to 8.5%. The central bank aims to bring inflation down to 7-8% by June, supported by a new monetary policy for the second half of the 2024-25 fiscal year. Controlling inflation has become the central bank’s top priority, even above GDP growth.

Ahsan has also taken a firm stance against financial mismanagement and money laundering, vowing to track down individuals who have siphoned off bank funds and transferred assets abroad. To support these efforts, international firms have been engaged to assess these assets.

Under his leadership, Bangladesh Bank has moved towards a market-driven exchange rate system. The exchange rate has shifted from approximately Tk120 to around Tk122, and increased remittance inflows have positively impacted foreign currency reserves, helping stabilize the exchange rate. In January, Bangladesh received $2.18 billion in remittances, marking the sixth consecutive month of inflows exceeding $2 billion.

Furthermore, Bangladesh Bank has introduced new regulations to regulate the foreign exchange market. These guidelines require that all import payments and remittance or export-related dollar transactions be conducted at a uniform exchange rate. The difference between buying and selling rates cannot exceed Tk1, and banks are now required to display exchange rates digitally at their branches.

Since Ahsan's appointment, the decline in foreign reserves has been stopped, and stability has been achieved. Current reserves are approximately $20 billion, with gross reserves at $25.87 billion as of February 13. Adjustments in the exchange rate have encouraged expatriates to remit funds through banking channels, further boosting reserves. Measures have also been taken to control import costs and increase export earnings, leading to a 26.7% increase in remittance inflows and an 11% rise in export earnings for the first half of the 2024-25 fiscal year.

Ahsan has also taken on the role of chairperson of the Saarc Finance Network, fostering cooperation among South Asian central banks. His initiatives aim to enhance financial stability and governance in the banking sector.

However, some of his policies have sparked debate. For instance, the increase in the policy interest rate has raised business costs, leading to concerns from businesses about potential negative impacts on investment and production. Furthermore, despite initially vowing not to print money for liquidity support, Ahsan later approved Tk22,500 crore in assistance to restore confidence in struggling banks. Critics argue this move could exacerbate inflation and have long-term negative consequences for the economy.