Financial Code of Good

Practices on
Standards Transparency in
Report Monetary Policy

Bangladesh
June 2009

www.eStandardsForum.org

Code of Good Practices on Transparency in Monetary Policy
LEVEL OF COMPLIANCE: INSUFFICIENT INFORMATION
Summary
The principle legislation underpinning Bangladeshi monetary
policy is the Bangladesh Bank Order of 1972, which created the
Bangladesh Bank (BB) and conferred upon it limited monetary
and exchange-rate policy-making and implementation
authority. The BB's operational authority was further
strengthened with a 2003 amendment to that original Order.
In its 2007 Article IV Consultation report on Bangladesh, the
International Monetary Fund (IMF) noted that reforms aimed
at strengthening central bank operations achieved some
success, as did efforts to improve the exchange rate system.
The BB used IMF technical assistance to attain significant
improvements in its foreign exchange market function and raise
public confidence in the currency. However, the IMF’s 2008
Article IV Consultation stressed that the BB still needed to
take significant action to improve its financial system and better
comply with best practice standards. Overall, the publicly
available information does not directly address Bangladesh's
compliance with the IMF's Code of Good Practices on
Transparency in Monetary Policy.
General Overview
In its 2003 Report on the Observance of Standards and Codes
(ROSC) focusing on fiscal transparency, the International
Monetary Fund (IMF) made brief mention of issues relating to
the transparency of the central bank, the Bangladesh Bank (BB).
According to this report, the Bangladesh Bank Order of 1972
confers upon the BB only "limited autonomy" (p. 9) with regard
to monetary and exchange rate policies, both in their design
and implementation. However, a 2003 amendment to the
original legislation extended the Bangladesh Bank’s operational
autonomy to a greater degree.
A 2004 IMF report mentioned the Bangladeshi authorities’
recognition that monetary operations needed to be improved,
specifically in the way in which the interbank and securities
exchange markets function. Liquidity management by banks
was to be enhanced through "strengthening and deepening
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Financial Standards Report Bangladesh
June 2009
the primary dealer system" (p. 9). In its 2007 Article IV
Consultation report on Bangladesh, the IMF noted that reforms
aimed at strengthening central bank operations achieved some
success, as did efforts to improve the exchange rate system.
According to this report, the BB used IMF technical assistance
to attain significant improvements in its foreign exchange
market function and raise public confidence in the currency.
In addition, the BB improved its operations as central bank,
enhanced its liquidity management, and expanded its capacity
to oversee the banking sector as well as monitoring the
compliance of the nationalized commercial banks (NCBs) with
performance requirements. However, the IMF’s 2008 Article IV
Consultation noted that there were setbacks the following year.
The focal point of the government’s plan to reform the financial
sector, the divestment of state-owned Rupali Bank, collapsed
when the buyer withdrew from negotiations. This has halted
the government’s plans to privatize the remaining state-owned
banks, which currently comprise more than 30 percent of total
banking sector assets in Bangladesh, and remain in a “mainly
moribund” (p. 11) state.
The IMF’s 2008 Article IV Consultation noted that inflation
posed a threat to Bangladesh’s economy, and urged authorities
to react by raising interest rates. The Fund also favored a more
market-based approach to interest rates in order to better
develop a secondary market for government paper, which is
currently lacking and contributing to problems with monetary
policy implementation, according to the 2008 report. BB
authorities, however, disagreed with the IMF assessment, and
signaled their intention to maintain current interest rates so as
not to jeopardize credit to the private sector and economic
growth. Another area of disagreement, according to the 2008
report, lies in the maintenance of the exchange rate. IMF staff
counseled Bangladeshi authorities to allow greater exchange
rate flexibility, partly through the removal of the exchange
restrictions on the transferability of funds in non-resident local-
currency (taka) accounts. The BB, however, was fearful that
such a move would trigger capital outflows, and given the
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central bank’s low foreign reserves, was not prepared to loosen
the restriction.
Overall, while acknowledging success in “isolated areas,” (p.
11) the IMF stressed that Bangladesh “was still behind its
comparators,” (ibid.) and urged the BB to take bolder action
on the entire system. The BB agreed to “reinvigorate their
efforts to improve their surveillance of the financial sector,”
(ibid.) especially in the form of better scrutiny of credit quality.
Bangladesh is not a subscriber to the IMF's Special Data
Dissemination Standard, but participates in the less stringent
General Data Dissemination System (GDDS).
Principle: Clarity of roles,
responsibilities and objectives of
central banks.
[Insufficient Information]
According to the Bangladesh Bank's website, the BB was first
established in 1972 with the passage of President’s Order
No. 127. This Order established a 9-member BB Board of
Directors, charged with oversight and direction of the bank.
The BB's governor chairs the board with the assistance of the
bank's deputy governor. There are three senior government
officials, and four additional persons who are selected for
their experience in relevant fields. All board members are
nominated by the government. The board is required to meet
six times annually, at a minimum, with at least one meeting held
every quarter. The BB's primary objectives are the regulation
of currency supply and maintenance of reserves; management
of the monetary and credit system to maintain stable currency
valuations; and promotion of growth, production, employment,
and real income.
In its vision statement on its website, the BB declares its
commitment to ensure "the quality of services and the
competence of its staff," and to "operate as a modern, dynamic,
effective, and forward-looking central bank to manage the
country's monetary and financial system." To achieve these
goals, the BB formulates and implements monetary policy,
pursues policies that maintain a stable currency, and sets policy
priorities that are consistent with the government's fiscal and
other macroeconomic policies. In addition, the BB may
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Financial Standards Report Bangladesh
June 2009
propose laws or amendments to further its objectives and
improve its performance. According to the BB's mission
statement, the bank's operations are guided by a philosophy
that places a high value on "a sound regulatory framework
conducive to the operation of efficient market mechanism,
along with transparency and accountability, professionalism,
ethical standards, adoption of modern technology in
operational and decision making processes, and trust and
respect in all relations." In sum, according to the BB website,
the aim of the BB's monetary policy is to contain inflation
while fostering sustained economic growth, along with its other
responsibility of offering the government policy advice on
deficit financing and the management of the public debt. The
BB also affirms its commitment to compile the necessary
statistics to achieve its mission and to carry out economic
research to support its decision-making and government
advisory functions.
While there is no publicly available third-party assessment that
directly addresses Bangladesh's compliance with this principle,
the IMF's 2003 ROSC on fiscal policy pointed out that the
Bangladesh Bank Order of 1972 conferred “limited autonomy
with respect to the design and implementation of monetary
and exchange rate policies” (p. 9) on the BB. However, the
same report noted that a 2003 amendment to that order
provided the BB with greater operational autonomy.
Principle: Open process for
formulating and reporting monetary
policy decisions.
[Insufficient Information]
Although there is no publicly available third-party assessment
that directly addresses Bangladesh's compliance with this
principle, the BB website specifies that both the formulation
and implementation of monetary policy is the responsibility of
the BB's 9-member Board of Directors. All members of the
board are government appointees. The board is chaired by a
governor, who is assisted by a deputy governor, three senior
government officials, and four additional members selected for
their experience in relevant fields. The board is required to
meet at least six times annually, with at least one meeting held
every quarter. Monetary policy formulation is assisted by the
input of the BB's research department.
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The BB website also discloses that the bank has a Monetary
Management and Technical Unit which is responsible for
preparing a range of reports. These include annual and
quarterly reports on monetary, credit, and reserves programs,
as well as fortnightly and monthly reports on the current
economic situation. These latter reports are submitted to the
Prime Minister and Minister of Finance. In addition, the unit
provides a variety of analytical reports and a report called
the Current Economic Trend, which covers major economic
developments and is used in the regular meetings of the Board
of Directors. The unit also compiles data, prepares reports, and
responds to queries raised by the IMF, World Bank, and other
international bodies, as well as such domestic entities as the
various ministries and the parliament. The BB website also lists
an archive of forward-looking Monetary Policy Statements that
explain the central bank’s policy decisions, along with analysis
of the consequences of previous monetary policy decisions.
Principle: Public availability of
information on monetary policy.
[Insufficient Information]
Bangladesh is not a subscriber to the IMF's Special Data
Dissemination Standard, but participates in the less stringent
General Data Dissemination System (GDDS). According to the
GDDS website, revisions to published data are identified in
footnotes, and changes in methodology are announced in the
monthly "Economic Trends," the quarterly "Bangladesh Bank
Bulletin" and quarterly "Scheduled Banks Bulletin."
Although there is no publicly available third-party assessment
that directly addresses Bangladesh's compliance with this
principle, the BB website discloses a variety of sources of
information on monetary policy that is available in electronic
form to the general public. The BB's Research Department
is responsible for preparing the Annual Report and Quarterly
Bulletins. Other reviews are produced that cover the monetary
and credit situation, balance-of-payments data, the exchange
rate, the price of gold, import and export data, information on
the government’s revenues and expenditures, and consumer
and commodity prices. Such reports may be issued on a
weekly, monthly, quarterly, or annual basis. There is as yet no
legislative mandate for simultaneous release of all data, and the
current policy is to provide access "on demand" prior to any
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Financial Standards Report Bangladesh
June 2009
general release, according to the GDDS website. The website
adds that there are, as yet, no advance release calendars, but
these are currently under consideration.
Principle: Accountability and
assurances of integrity by the central
bank.
[Insufficient Information]
Although there is no publicly available third-party review that
directly addresses Bangladesh's compliance with this principle,
the IMF conducted a "safeguard assessment" on the BB in 2005,
in which it determined that the BB needed to improve the
safeguards that were then in place. The IMF's 2008 Article
IV Consultation mentions this assessment and states in its
Informational Annex that the review “concluded that
substantial risks exist in the legal structure, financial reporting,
internal audit, and internal control systems” (p. 3). In the
2003 ROSC, the IMF suggested that authorities establish an
oversight committee that would ensure "the incorporation of
clear assurances of data quality, specifically, a statement of
reconciliation at the macroeconomic level between fiscal and
monetary and external data sets" (p. 24).
Sources of Assessment
International Monetary Fund, "Bangladesh: 2008 Article IV Consultation –
Staff Report; Staff Supplement; Staff Statement; Public Information Notice
on the Executive Board Discussion; and Statement by the Executive
Director for Bangladesh," Country Report No. 334, Washington, D.C.: IMF,
October 2008. Available from International Monetary Fund website.
Accessed on June 5, 2009. (IMF 2008)
http://www.imf.org/external/pubs/ft/scr/2008/cr08334.pdf
Relevant Organizations
Bangladesh Bank (BB)
http://www.bangladesh-bank.org
Bangladesh Bureau of Statistics (BBS)
http://www.bbs.gov.bd/
Ministry of Finance (MoF)
http://www.mof.gov.bd/index.php
Relevant Legislation/Regulation
Bangladesh Bank Order No. 127, 1972
http://www.bangladesh-bank.org/bankregulations/bbankorder...
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 Financial Standards Report Bangladesh
Bankers’ Books Evidence Act, 1891
http://bdlaws.gov.bd/pdf_part.php?id=67
Banking Companies Act, 1991
http://www.sai.uni-heidelberg.de/workgroups/bdlaw/1991-a1...
Banking Companies Ordinance, 1962
http://www.sbp.org.pk/publications/prudential/ordinance_6...
Bankruptcy Act, 1997
Companies Act, 1994
http://www.banglaembassy.com.bh/Companies%20Act%201994.pdf
Financial Institutions Act, 1993
http://www.commonlii.org/bd/legis/num_act/fia1993243/
Financial Loan Court Act, 1990
http://www.commonlii.org/bd/legis/num_act/flca1990191/
Foreign Exchange Regulation Act, 1947 (as updated through1986)
http://www.bangladesh-bank.org/regulationguideline/foreig...
Index of Laws of Bangladesh
http://bdlaws.gov.bd/chro_index_update.php
Insolvency Act, 1920
Supplementary Sources
Asiatic Society of Bangladesh, "Bangladesh Bank," in Banglapedia, n.d.
Available from Banglapedia website. Accessed on June 5, 2009. (ASB n.d.)
http://banglapedia.search.com.bd/HT/B_0153.htm
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June 2009
International Monetary Fund, "Bangladesh: Report on the Observance of
Standards and Codes – Fiscal Transparency," Country Report No. 03/185,
Washington D.C.: IMF, June 2003. Available from International Monetary
Fund website. Accessed on June 5, 2009. (IMF 2003)
http://www.imf.org/external/pubs/ft/scr/2003/cr03185.pdf
International Monetary Fund, "Bangladesh: Second Review Under Three-
Year Arrangement Under the Poverty Reduction and Growth Facility
(PRGF) and Requests for Waiver of Performance Criteria, Activation of the
Trade Integration Mechanism (TIM) and Augmentation of the Access
Under the PRGF Arrangement in Accordance with the TIM – Staff Report;
Staff Supplement; and Press Release on the Executive Board Discussion,"
Country Report No. 04/290, Washington D.C.: IMF, September 2004.
Available from International Monetary Fund website. Accessed on June 5,
2009. (IMF 2004)
http://www.imf.org/external/pubs/ft/scr/2004/cr04290.pdf
International Monetary Fund, "Bangladesh: 2007 Article IV Consultation--
Staff Report; Staff Statement; Public Information Notice on the Executive
Board Discussion; and Statement by the Executive Director for
Bangladesh," Country Report No. 07/234, Washington, D.C.: IMF, July
2007. Available from International Monetary Fund website. Accessed on
June 5, 2009. (IMF 2007)
http://www.imf.org/external/pubs/ft/scr/2007/cr07234.pdf
International Monetary Fund's General Data Dissemination System
website. Accessed on June 5, 2009. (IMF GDDS website)
http://dsbb.imf.org/Applications/web/gdds/gddscountrylist
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Methodology Note
For a more thorough discussion of our methodology, please
visit our website. Below you find an explanation of qualifying
criteria for information used in eStandardsForum's standard
reports as well as a definition of the Levels of Compliance.
Sources
Sources used in this report are information that is objective
and freely available to the public that pertain to a country's
compliance with the requirements of any given standard. The
defining characteristics of eStandardsForum's sources are
public availability and objectivity. For example, third-party
assessments of a country will take precedence over
selfassessments. Nevertheless, in the absence of third-party
assessments, self-assessments form an important source of
information.
Levels of Compliance
The compliance categories assess information on two levels.
On the first level, it measures the public availability of
information on a country's compliance with the 12 Key
Standards. If the level of information is unsatisfactory, a rating of
"Insufficient Information" is assigned. If the level of information
is deemed sufficient, a rating ranging from "No Compliance"
to "Full Compliance" is assigned, depending on how well the
publicly available sources have evaluated the country's
regulatory framework for the respective standard. These
particular categories have been selected because they mirror
the process a country follows when implementing standards
and codes.
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Financial Standards Report Bangladesh
June 2009
FULL COMPLIANCE: There is publicly available
information indicating that the country has incorporated the
principles of the relevant standard into laws or regulations, and
that these principles are currently being applied and followed
in an effective, consistent, and transparent manner.
COMPLIANCE IN PROGRESS: There is publicly available
information indicating that the country has incorporated the
principles of the relevant standard into laws or regulations and
that there has been significant progress made towards the
effective enforcement of the laws or regulations by regulators
and supervisors, albeit with minor shortcomings.
ENACTED: There is publicly available information indicating
that the country has incorporated most of the principles of
the relevant standard into laws or regulations. The Enacted
category does not address the actual enforcement of the laws
or regulations.
INTENT DECLARED: The country has made a formal,
public, and authoritative declaration that it will incorporate the
principles of the relevant standard into laws or regulations and
will adhere to the standard.
NO COMPLIANCE: There is publicly available information
indicating that the country has not incorporated the principles
of the relevant standard into laws or regulations or has taken
any steps to comply with the relevant standard.
INSUFFICIENT INFORMATION: There is not enough
information publicly available to make an assessment as to the
country's level of compliance with the relevant standard.
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