GDP Growth over time

GDP Growth( 2010-2024)

source: World bank
0.12
0.10
0.08
0.06
0.04
0.02
0.00
2008 2010 2012 2014 2016 2018 2020 2022 2024 2026
-0.02
-0.04
-0.06
-0.08

Bangladesh India Pakistan Sri Lanka

Figure 1 : GDP Growth

Bangladesh has demonstrated a commendable trajectory of economic growth from 2010 to 2024.
Between 2010 and 2019, the country experienced consistent GDP growth, peaking at 8.2% in
2019. This period of robust growth was primarily driven by the expansion of the ready-made
garment (RMG) sector, substantial remittance inflows, and steady agricultural productivity.

The onset of the COVID-19 pandemic in 2020 posed significant challenges globally, and
Bangladesh was no exception. The GDP growth rate decelerated to 3.4% in 2020, reflecting the
adverse impacts of the pandemic on economic activities. However, the economy exhibited
resilience, rebounding to a growth rate of 6.9% in 2021. This recovery can be attributed to the
gradual resumption of economic activities, a rebound in the RMG sector, and sustained
remittance inflows.

In 2022, Bangladesh achieved a GDP growth rate of 7.1%, indicating a return to its pre-
pandemic growth trajectory. Nonetheless, the global economic slowdown, exacerbated by
geopolitical tensions such as the Russia-Ukraine conflict, began to influence the economy
adversely. The World Bank projected a GDP growth rate of 5.6% for Bangladesh in the fiscal
year 2023-24, marking a slowdown attributed to factors like import restrictions, elevated material
and energy costs, and external financial pressures.
Despite these challenges, provisional data from the Bangladesh Bureau of Statistics (BBS)
indicated a GDP growth rate of 6.12% in the third quarter of FY2023-24, suggesting a potential
for the economy to outperform earlier projections.

However, the economy faced headwinds, including a widening current account deficit, currency
depreciation, and declining foreign exchange reserves. The RMG sector, a cornerstone of the
economy, encountered strain due to rising living costs.

Inflation rate

Inflation Rate (2010-2024)

source: world bank
50.00%
45.00%
40.00%
35.00%
30.00%
25.00%
20.00%
15.00%
10.00%
5.00%
0.00%
2008 2010 2012 2014 2016 2018 2020 2022 2024 2026

Bangladesh India Pakistan Sri Lanka

Figure 2 : Inflation Rate

Between 2010 and 2019, Bangladesh maintained a stable inflation rate, averaging around 6%.
This period of moderate inflation was supported by prudent fiscal policies and favorable
agricultural outputs, which helped stabilize food prices, a significant component of the Consumer
Price Index (CPI).

The COVID-19 pandemic in 2020 disrupted global supply chains and economic activities,
leading to a slight uptick in Bangladesh's inflation rate to 5.69%. As the economy began to
recover in 2021, inflation moderated to 5.55%. However, in 2022, inflation surged to 7.65%,
influenced by global supply chain disruptions and rising commodity prices. This upward trend
continued into 2023, with inflation reaching 9.02%, and further escalated in 2024, peaking at
10.89% in December.

The escalating inflation from 2022 to 2024 had profound implications for Bangladesh's economy.
The rising cost of living eroded household purchasing power, leading to decreased consumer
spending, and heightened public dissatisfaction. The garment industry, a cornerstone of
Bangladesh's economy, faced increased production costs due to higher raw materials and energy
prices. This sector also grappled with labor unrest, as workers demanded higher wages to cope
with the surging cost of living. Concurrently, the country has experienced a widening current
account deficit, currency depreciation, and declining foreign exchange reserves, exacerbating
economic instability.

In response to these challenges, the Bangladeshi government implemented several measures to

curb inflation. The central bank raised interest rates twice in early 2024, maintaining a rate of
8.5% as of July, aiming to control inflationary pressures. Additionally, the government sought a
$4.7 billion bailout from the International Monetary Fund (IMF) to bolster economic stability.
Despite these efforts, inflation remained elevated, indicating the need for more comprehensive
structural reforms to address underlying economic vulnerabilities.
 Foreign Reserves

Foreign Reserve ( 2010-2014)

Source : World Bank
50
45
40
35
in billions

30
25
20
15
10
5
0
2008 2010 2012 2014 2016 2018 2020 2022 2024 2026
Axis Title

Bangladesh Pakistan Sri Lanka Nepal

Figure 3 : Foreign Reserves

Between 2010 and 2019, Bangladesh's foreign exchange reserves exhibited a consistent upward
trajectory, increasing from $10.75 billion in 2010 to $32.72 billion in 2019. This growth was
primarily attributed to steady export earnings, robust remittance inflows, and prudent fiscal
management.

The onset of the COVID-19 pandemic in 2020 posed significant challenges globally. However,
Bangladesh managed to bolster its reserves to $43.17 billion by the end of 2020, benefiting from
a contraction in imports and sustained remittance inflows. This trend continued into 2021, with
reserves peaking at $46.39 billion.

The geopolitical tensions arising from the Russia-Ukraine war in February 2022 had profound
implications for the global economy, including Bangladesh. The conflict led to elevated global
commodity prices, notably in the energy and food sectors, increasing import costs for
Bangladesh. Consequently, the country's foreign exchange reserves began to deplete, declining to
$33.49 billion by the end of 2022.
The downward trend persisted in 2023, with reserves further decreasing to $24.00 billion. By
October 2024, reserves had fallen below $20 billion, significantly reducing from their peak in
2021.

The depletion of foreign exchange reserves posed substantial risks to Bangladesh's economic
stability. A diminished reserve buffer limited the country's ability to manage external shocks,
maintain currency stability, and meet international payment obligations. The depreciation of the
Bangladeshi Taka against the US dollar exacerbated inflationary pressures, increasing the cost of
essential imports, and contributing to domestic price instability.

In response to the reserve depletion, the Bangladeshi government implemented several measures.
Hardened policies were adopted to curb non-essential imports and conserve foreign currency.
Additionally, the government sought financial assistance from international organizations (e.g.,
IMF) to bolster reserves and restore economic stability.

Despite these efforts, rebuilding reserves proved challenging. By late 2024, reserves had declined
to approximately $19 billion, underscoring the difficulties in reversing the downward trend.

In comparison to other South Asian nations, Bangladesh's experience was not unique. Pakistan
and Sri Lanka also faced declining reserves during this period, grappling with similar challenges
of rising import costs and external economic pressures. Conversely, India managed to increase its
reserves, reaching $646 billion by 2024, reflecting a more resilient external sector. The period
from 2020 to 2024 was marked by significant volatility in Bangladesh's foreign exchange
reserves. External shocks, particularly the Russia-Ukraine war, coupled with internal economic
challenges, necessitated comprehensive policy responses to safeguard economic stability and
rebuild reserve buffers.
 Currency Price Volatility

Currency prices in dollar (210-2024)

Source: Oanda
400

350

300

250

200

150

100

50

0
2008 2010 2012 2014 2016 2018 2020 2022 2024 2026

Bangladesh (BDT) India (INR) Pakistan (PKR) Sri Lanka (LKR)

Figure 4 : Currency Price

Between 2010 and 2019, the Bangladeshi Taka (BDT) experienced a gradual depreciation against
the US dollar, moving from 69.18 BDT/USD in 2010 to 84.50 BDT/USD in 2019. This steady
decline was manageable and reflected typical market adjustments.

The onset of the COVID-19 pandemic in 2020 introduced unprecedented challenges. Despite
global economic disruptions, the BDT remained stable at 84.80 BDT/USD in 2020 and 85.00
BDT/USD in 2021. This stability was due to the Bangladesh Bank's interventions and a
reduction in import expenditures.

However, the geopolitical tensions arising from the Russia-Ukraine conflict in early 2022 had
significant repercussions. Global commodity prices surged, leading to increased import costs for
Bangladesh. Consequently, the BDT depreciated to 95.00 BDT/USD by the end of 2022.

The depreciation accelerated in 2023, with the exchange rate reaching 105.00 BDT/USD. By
2024, the BDT further weakened to 118.50 BDT/USD, marking a substantial devaluation over a
fleeting period. This rapid depreciation was influenced by several factors, including a
strengthening US dollar, rising import costs, and declining foreign exchange reserves.
The devaluation of the BDT had profound implications for Bangladesh's economy. A weaker
currency made imports more expensive, contributing to domestic inflationary pressures.
Essential commodities, such as fuel and food, saw price hikes, adversely affecting consumers
and increasing the cost of living.

Moreover, the rapid depreciation eroded business confidence, as exchange rate volatility
introduced uncertainty in trade and investment decisions. The private sector faced challenges in
financial planning, with fluctuating costs impacting profitability and investment strategies.

In response to the escalating situation, the Bangladesh Bank implemented several measures. In
2024, the central bank increased the US dollar exchange rate by 12 Taka, resulting in a 12.72%
depreciation of the local currency. This adjustment aimed at aligning the official exchange rate
with market realities and curb speculative activities.

Additionally, the central bank raised policy rates to combat inflation and stabilize the currency.
Despite these efforts, the effectiveness of monetary policy was limited by external factors,
including global economic conditions and commodity price volatility.

The depreciation of the BDT also exacerbated the foreign reserve crisis. As the currency
weakened, the cost of servicing external debt increased, placing additional strain on foreign
exchange reserves. The declining reserves limited the central bank's capacity to intervene in the
foreign exchange market, creating a feedback loop that further pressured BDT.

In summary, the period from 2020 to 2024 was marked by significant challenges for
Bangladesh's currency stability. External shocks, such as the COVID-19 pandemic and the
Russia-Ukraine conflict, coupled with internal economic vulnerabilities, led to rapid devaluation
and exchange rate volatility. The government's interventions, while necessary, faced limitations
in addressing the root causes of the instability. Moving forward, a comprehensive approach that
includes structural economic reforms, diversification of export markets, and prudent fiscal
management is essential to restore confidence and ensure long.
 Export-Import Trend

Export-Import ( 2020-2024)
Source: World bank
120

100

80
In Billions

60

40

20

0
2008 2010 2012 2014 2016 2018 2020 2022 2024 2026
Axis Title

Exports Imports

Between 2010 and 2019, Bangladesh experienced consistent growth in both exports and imports.
Exports increased from $18.5 billion in 2010 to $40.5 billion in 2019, while imports rose from
$25.0 billion to $64.0 billion during the same period. This growth was driven by the ready-made
garment (RMG) sector, which remained the cornerstone of Bangladesh's export economy.

The onset of the COVID-19 pandemic in 2020 disrupted global trade, leading to a decline in both
exports and imports. Exports decreased to $39.0 billion, and imports fell to $59.2 billion. The
pandemic caused a reduction in global demand, particularly affecting the RMG sector, as major
markets-imposed lockdowns, and reduced consumer spending.

In 2021, as global economies began to recover, Bangladesh's exports rebounded to $44.4 billion,
and imports surged to $71.0 billion. This recovery was supported by the government's initiatives
to stabilize the economy and promote trade. The Export Policy 2021-2024 aimed to diversify
export products and markets, providing incentives for sectors beyond RMG.

However, in 2022, the Russia-Ukraine conflict led to a sharp rise in global energy and food
prices, increasing Bangladesh's import costs to $96.2 billion. Despite exports reaching $59.3
billion, the trade deficit widened significantly. The government responded by reducing taxes on
diesel imports and suspending advance taxes to mitigate the impact of rising costs.
In 2023, exports slightly declined to $57.6 billion, while imports decreased to $78.0 billion. The
reduction in imports was partly due to government measures aimed at curbing non-essential
imports to preserve foreign exchange reserves. Additionally, political instability led global
fashion brands to divert orders from Bangladesh, impacting the RMG sector.

Projections for 2024 indicate a further decline in exports to $50.0 billion and imports to $70.0
billion. The government has introduced the New Export Policy 2024-2027, aiming to export
$110 billion worth of goods by FY27. This policy focuses on diversifying export products and
markets, enhancing competitiveness, and providing incentives for emerging sectors.

In summary, Bangladesh's export-import trends from 2010 to 2024 reflect resilience amid global
challenges. While the RMG sector remains dominant, recent events underscore the need for
diversification and strategic policy interventions to ensure sustainable economic growth.

Interest rate

Interest Rate(2014-2023)
Source: FRED
0.15

0.1

0.05

0
2012 2014 2016 2018 2020 2022 2024
-0.05

-0.1

-0.15

-0.2

Real Interest Lending Rate Deposit Rate

Between 2014 and 2023, Bangladesh's interest rates exhibited notable fluctuations, influenced by
both domestic economic conditions and global events. In 2014, the real interest rate stood at
0.07%, with lending and deposit rates at 0.13% and 0.10%, respectively. The following years
saw a gradual decline in real interest rates, reaching -0.14% in 2016, indicating a period of
negative real returns on savings. From 2017 to 2019, the real interest rate stabilized around
0.04% to 0.06%, with lending and deposit rates remaining constant. In 2020, amidst the COVID-
19 pandemic, the real interest rate decreased to 0.04%, accompanied by a reduction in both
lending and deposit rates to 0.08% and 0.06%, respectively. This trend continued into 2021 and
2022, with real interest rates at 0.03% and 0.02%, and lending and deposit rates at 0.07% and
0.05%. By 2023, the real interest rate had slightly increased to 0.01%, with lending and deposit
rates at 0.08% and 0.06%, respectively.

The COVID-19 pandemic significantly impacted Bangladesh's economy, prompting the

government and Bangladesh Bank to implement various measures to stabilize the financial
system. In 2020, the International Monetary Fund (IMF) approved an emergency assistance
package of approximately $732 million to address the urgent balance-of-payments and fiscal
needs arising from the pandemic. Additionally, the government introduced stimulus packages
aimed at supporting export-oriented industries, providing working capital loans to affected
sectors, and revitalizing the rural economy.

In 2024, Bangladesh Bank increased its policy interest rate to 10% to combat rising inflation and
stabilize the economy. This decision reflects a shift towards tightening monetary policy to
address economic challenges.

In response to the economic challenges, the government has sought assistance from international
partners. The European Investment Bank (EIB) has expressed its intention to double its funding
for Bangladesh, focusing on major infrastructure projects related to green energy, safe water,
communication, and climate change.
 Risk management and Policies.

Assessment of Forex Risk

ACI Ltd.’s reliance on bank-offered rates (fair price) rather than the official rates set by the
Bangladesh Bank or IMF demonstrates a strategic alignment with the realities of commercial
transactions in the country. To assess the risk, ACI relies more on the traditional approach than
on AI or forecasting tools. But they do take help from statistical tools to assess the risk and
support their assumptions. Bank-offered rates often incorporate real-time demand and supply
dynamics, making them a practical choice for assessing forex risk in an ever-changing market.
By choosing the fair market rate, ACI Ltd mitigates the risks of overpaying due to outdated or
less competitive official rates. However, this approach has inherent limitations. Discrepancies
between bank-offered and official rates may lead to regulatory reporting or compliance
challenges if the discrepancies are significant. Additionally, bank rates are influenced by their
internal policies, network reach, and access to insider information, which might occasionally
favor the banks rather than the clients. To improve this strategy, ACI Ltd uses a blended
approach, combining bank rates with market forecasting tools and industry benchmarks for better
assessment and managing their forex exposure.

Monitoring Currency Fluctuations

ACI Ltd has entrusted its treasury team with the responsibility of monitoring daily exchange
rates from both private and government banks. This team always maintain relationships with
various financial institutions to obtain better insider information and book the price of the
currency. They monitor all their price in dollar and looks on the currency movement of Europe,
USA, Japan, and India for importing raw materials. This initiative-taking approach ensures that
the company maintains a continuous pulse in the market, enabling it to make informed and
timely decisions. However, the effectiveness of this strategy is closely tied to the treasury team's
ability to interpret and act on this data quickly, which is critical in a market where currency
values can change abruptly due to economic events or geopolitical factors. The absence of
automated systems, such as forex analytics tools or AI-driven predictive models, limits the team's
ability to process large volumes of data and identify patterns that might indicate future market
movements. Simultaneously banks always inform essential information daily to maintain a good
relationship with them.

Forex Risk Management Before the Crisis

Before the crisis, ACI Ltd relied on a forex risk management policy that was functional but not
highly developed with advanced methods. There was no additional problem with opening a
Letter of Credit because of their goodwill in the market and the history. Its effectiveness was
attributable to the leverage provided by banks’ networks and their ability to access insider
information about currency fluctuations. Banks' daily rate declarations helped ACI Ltd navigate
short-term market changes effectively. They would set the limit for the forex within 2-3%
changes. They took offshore loans in dollars to mitigate the risk. Their approach reflects a
reactive approach, where the company adjusted to market conditions as they arose rather than
adopting a proactive stance to anticipate or mitigate risks beforehand. While this strategy worked
during the crisis, it exposed a key vulnerability. the company’s reliance on external entities for
managing a critical area of financial risk. Such a strategy lacks long-term planning and leads to
economic loss. A portion of the losses never recovered through any strategies. A forward-looking
approach, incorporating scenario planning and predictive analytics, would better prepare the
company for sustained stability in the face of currency risks.

Specific Forex Risk Management Policy

The lack of a detailed and specific forex risk management policy at ACI Ltd is a significant gap
in its financial risk management framework. While the company relies on practical tools such as
fair market rates and daily rate monitoring, these are reactive measures rather than part of a
cohesive, forward-looking strategy. Their only proactive measures were insight from banks and
their tailored services to ACI Ltd. Inconsistencies in decision-making can arise, especially during
periods of heightened volatility when rapid, clear, and coordinated actions are crucial. A
comprehensive policy would address these gaps by clearly defining the company’s risk tolerance,
establishing thresholds for action, and detailing procedures for various forex scenarios, including
sharp devaluations or unforeseen economic shocks. They used hedging, forward and offshore
loan contracts to deter such catastrophic volatility. After the crisis they did not use such policies
anymore and they bargained product prices at the business level with the suppliers.
Changes After the Crisis

In response to the crisis, ACI Ltd implemented changes such as business-level bargaining with
suppliers and they made strategies to negotiate with suppliers. This strategy helps them to control
the cost of goods sold and lower the overall cost of the imported goods. These adjustments
signify a positive shift toward a more structured approach to managing forex risks. However, the
company has faced challenges in effectively applying these strategies, which may stem from
factors such as the excessive cost of hedging instruments and offshore loans. They took more
strategy to deter such a surprise price rise in the foreign currency. Their good relationship with
banks also helped them to encounter and take more proactive steps for crisis moments.