Thrust areas of Bangladesh economy

 Poverty alleviation and

 Private sector development
 • Poverty alleviation
• Bangladesh has made remarkable progress in
reducing poverty, supported by sustained
economic growth. Based on the
international poverty line of $1.90 per person per
day, poverty declined from 44.2 percent in 1991 to
13.8 percent in 2016/17.(Nov 15, 2018).
• In parallel, life expectancy, literacy rates and per
capita food production have increased significantly.
Progress was underpinned by 6 percent plus growth
over the decade and reaching to 7.3 percent in
2016/2017, according to official estimates.
• Rapid growth enabled Bangladesh to reach
the lower middle-income country status in
2015. In 2018, Bangladesh met the eligibility
criteria for graduation from the United
Nation’s Least Developed Countries (LDC) list,
and is on track to graduate in 2024.
• Sustained economic growth has increased the
demand for energy and transport, and spurred
urbanization. Insufficient planning and
investment have resulted in increasingly
severe infrastructure bottlenecks.
• To achieve its growth aspiration of becoming
an upper-middle income country by its 50th
anniversary in 2021, the country needs to
urgently implement structural reforms,
expand investments in human capital, increase
female labor force participation, and raise
productivity through increased global value
chain integration.
• Improving infrastructure as well as the
business climate would allow new productive
sectors to develop and generate jobs.
• Since early-2000s, rapid economic growth has
fueled a remarkable increase in per-capita
income. Bangladesh's per capita has increased
almost threefold between 2010 and 2020, from
under $700 to $2,068, moving Bangladesh into
the ranks of middle-income economy.
• At current growth, Bangladesh is projected to
enter upper-middle income status by 2041.
Based on the current rate of poverty reduction,
Bangladesh is projected to eliminate extreme
poverty by 2021, the first country in South Asia
to do so.
• General overview of Bangladesh
• Bangladesh's economic reform started With the
implementation of investment friendly economic
policies, privatization of public industries, budgetary
discipline, and liberalization of trade were among the key
elements behind acceleration of Bangladesh's economy.
• Since then, Bangladesh has been among the fastest
growing economies in the world, exceeding 6 percent
growth annually between 2004 and 2015. The GDP
growth further accelerated exceeding 7 percent mark
since then, and is projected to gradually exceed 10
percent growth until 2020
• c
• Bangladesh's economic reform started With the
implementation of investment friendly economic
policies, privatization of public industries, budgetary
discipline, and liberalization of trade were among the key
elements behind acceleration of Bangladesh's economy.
• Since then, Bangladesh has been among the fastest
growing economies in the world, exceeding 6 percent
growth annually between 2004 and 2015. The GDP
growth further accelerated exceeding 7 percent mark
since then, and is projected to gradually exceed 10
percent growth until 2020
• Among Bangladesh's many economic and social
achievements, dramatic reduction in poverty in often
considered a phenomenon among international
organizations such as IMF and The World Bank.
• Between 1972 and 2018, Bangladesh's population
living on less than $1.90/day is estimated to have
fallen from 90% to 9%. Between 2008 and 2018,
The per capita income in the country increased
149%.
• As of 2020, female labor force participation rate
stands at 45%, while net female school enrollment
rate stands at a staggering 98%. World Economic
Forum ranks Bangladesh as the most gender-equal
nation in South Asia (ranked 47th, followed by
Maldives 106th; India 108th).
• Rural poverty
• Many people live in remote areas that lack services such as
education, health clinics, and adequate roads, particularly road
links to markets. An estimated 35 percent of the population in
rural areas lives below the poverty line.They suffer from
persistent food insecurity, own no land and assets, are often
uneducated, and may also suffer serious illnesses or disabilities.
• Another 29 percent of the rural population is considered
moderately poor. Though they may own a small plot of land and
some livestock and generally have enough to eat, their diets
lack nutritional value.
• As a result of health problems or natural disasters, they are at
risk of sliding deeper into poverty. Women are among the
poorest of the rural poor, especially when they are the sole
heads of their households. They suffer from discrimination and
have few earning opportunities, and their nutritional intake is
often inadequate
• Urban poverty
• An estimated 21 percent of the population in urban
areas lives below the poverty line.People living in
urban areas, like Sylhet, Dhaka, Chittagong, Khulna,
and Rajshahi, enjoy a better standard of living, with
electricity, gas, and clean water supplies.
• Even in the major cities, however, "a significant
proportion of Bangladeshis live in squalor in
dwellings that fall apart during the monsoon
season and have no regular electricity. These
Bangladeshis have limited access to health care
and to clean drinking water.
• Causes of rural and urban poverty
• One of the biggest cause of rural poverty is due to
the fast-growing population rate. It places huge
pressure on the environment, causing problems
such as erosion and flooding, which in turn leads to
low agricultural productivity.
• The causes of urban poverty are due to the limited
employment opportunities, degraded environment,
bad housing and sanitation. The urban poor hold
jobs that are labour demanding, thus affecting their
health conditions. Therefore, the urban poor are in
a difficult situation to escape poverty
• This impressive trend in poverty reduction has helped
Bangladesh achieve the
Millennium Development Goal (MDG) on poverty two years
ahead of schedule. The MDG stipulates that the proportion
of people living in poverty that prevailed in 1990 (57
percent) must be reduced by at least one-half by the year
2015.
• Under all realistic growth scenarios, the 2015 poverty
headcount for Bangladesh will fall well below the MDG
target of 28.5 percent.
• Even under a pessimistic scenario of 3.8 percent GDP
growth rate per annum, the poverty headcount projection
will still surpass the MDG target by two percentage points.
• The same poverty projections show that attaining the
Vision 2021 poverty target of 14 percent, however, requires
Bangladesh’s GDP to grow at least at 8 percent per annum.
• Sustained poverty reduction
• Sustained poverty reduction will require coordinated
actions in three areas that are also good for economic
growth.
• First, Bangladesh will need to maintain growth in
income, which continues to be one of the two key
drivers of poverty reduction. This will require public
investments to help increase agricultural productivity
and to promote growth in the demand for salaried work
in manufacturing and services.
• Critically important for this are immediate investments
in improving transport, power and gas, supporting
entrepreneurship by reducing the transaction costs of
doing business, and strengthening the transparency and
accountability of both the public and private sectors.
• Second, Bangladesh should cater more aggressively
to the skills development of its growing youth
population to fully harness the “demographic
opportunity” resulting from the falling fertility rates
— the other key driver of poverty reduction. Linking
this labor, the majority of which is in the informal
economy, to productive employment in both
domestic and global labor markets will help with
both poverty reduction and increase the flow of
remittances. Renewed focus on facilitating
remunerative, affordable and safe migration for
both semi-skilled and skilled workers in large
numbers is a pressing priority.
• Third, Bangladesh can make better use of its
vast social safety net expenditures through
improvements in program design so as to
emphasize human capital accumulation (such
as child nutrition and cognitive development,
education, and skills) and productive
employment. Targeting these benefits and
services to the poorest people, and improving
the timing of safety net responses to mitigate
the effects of various natural disasters and
global shocks, will ensure that growth remains
inclusive.
• Inclusive economic growth for poverty
eradication:
• Economic growth has to be inclusive to ensure
the wellbeing of the entire population.
Inclusive growth requires full respect for
human rights.
• Inclusive growth generates decent jobs, gives
opportunities for all segments of society,
especially the most disadvantaged, and
distributes the gains from prosperity more
equally.
• The first priority is to create opportunities for
good and decent jobs and secure livelihoods
for all.
• This will make growth inclusive and ensure
that it reduces poverty and inequality.
• A second priority is to strive constantly to add
value and raise productivity.
• Some fundamentals will accelerate growth
everywhere:
• Skills development
• Supportive policies towards micro, small, and
medium enterprises
• The capacity to innovate and absorb new
technologies.
• Third, countries must establish a stable
environment that enables business to flourish.
• Business wants a level playing field and to be
connected to major markets.
• It also wants a simple regulatory framework that
makes it easy to start, operate, and close a
business.
• Fourth,
• In order to bring new prosperity and new
opportunities, growth must also usher in new
ways to support sustainable consumption and
production.
• It must also enable sustainable development.
• The SDG Fund response
• The SDG Fund supports initiatives that tackle
inclusive growth from a multisectoral
perspective and address the following
dimensions:
• Create opportunities for good and decent jobs
and secure livelihoods
• Support inclusive and sustainable business
practices
• Promote better government policies and fair
and accountable public institutions
• For example:
• In Bangladesh and in Tanzania, the SDG Fund
will contribute to the construction of the social
protection systems and universal social safety
nets, with special attention to the poorest
women.
• In Honduras the SDG-F will support the
generation of income through the revitalization
of the Lenca culture and the development of
sustainable tourism micro businesses in the
area, led by youth and women.
• Poverty eradication programmes
• Current SDG Fund inclusive economic growth for
poverty eradication programmes:

• In Bangladesh Programme Title -

Strengthening Women’s Ability for Productive Ne
w Opportunities (SWAPNO)
, Participating UN Agencies -UNDP, ILO,
• Total Budget ($)-4,613,000($)
• from these programmes have been translated
into a broader perspective on inclusive growth as
a means of poverty reduction.
• Poverty Data: Bangladesh

• In Bangladesh, the population living below the nati

onal poverty line dropped to 21.8% in 2018 from 2
4.3% in 2016.

• In Bangladesh, the proportion of employed popul

ation below $1.90 purchasing power parity a day dr
opped from 14.8% in 2016 to 9.2% in 2019.

• For every 1,000 babies born in Bangladesh in 2018

, 30 die before their 5th birthday.
Social Protection Data: Bangladesh
• Private Sector Partnership:
• The Government of Prime Minister Sheikh Hasina is
keen to ensure private sector participation in SDGs
implementation.
• We are keen to engage them more than ever before
to ensure their sustained contribution to the SDGs.
• A large number of targets of SDGs are related to
growth, employment, and the delivery of key
services such as education, health and sanitation,
where participation of private sector is
indispensable.
• The private sector Agriculture continues to
make up the largest sector in terms of
employment.
• The results of the 2015-16 Quarterly Labour
Force Survey show that 42.7% of the
population is employed in the agriculture
sector, 20.5% in industry and 36.9% in services.
• The bulk of employment is in the informal
sector at 86.2% with the incidence of informal
sector employment highest in agriculture
(97.9%), followed by industry (90.0%) and
services (70.6%).
• Providing employment to 70-80% of workers
outside the agricultural labour force.
• The 2012 Survey of Manufacturing Industries
estimates that there are 5.02 million people
employed in nearly 43,000 manufacturing
establishments in Bangladesh.
• The bulk of establishments are micro (17,384)
and small (15,666) enterprises accounting for
more than 77% of total manufacturing
industries.
• Textile manufacturing, food products and
wearing apparel (ready-made garments)
account for 61% of establishments.

• The private sector is organized through

various business associations, including at city
and country levels such as the Dhaka Chamber
of Commerce and Industry and the
International Chamber of Commerce
Bangladesh.
• The Bangladesh Women Chamber of
Commerce and Industry is the first in the
country to exclusively work on women’s
economic empowerment with membership
largely from the SME sector.

• The Bangladesh Employers’ Federation

represents 136 affiliates with approximately
90% of established employers in the private
sector.
• According to several interviewees, business
associations in Bangladesh are well
established and have successfully lobbied
government for policy changes on key priority
issues .
• Nevertheless, key issues such as taxation
require further private sector engagement in
the policymaking process.
• It is mandatory for financial institutions to
make contributions to the Bangladesh Bank in
the form of “CSR Funds” – one time donations
for national events or disasters
• According to the Bangladesh Institute for
Labour Studies, though CSR activities appear
to be growing in Bangladesh.
• Rural development programmes
• As the economy of the country is predominantly
rural, the government of Bangladesh had been
undertaking and implementing rural development
and poverty alleviation activities since long.
• These activities include different sectoral and
programme components such as rural co-
operatives, CREDIT, irrigation, LIVESTOK and
fisheries development, rural industries, area
development, infrastructural development, input
distribution and training.
• Rural development programmes was given
importance in all five-year plans in varying degrees
to promote overall development of the rural poor.
• Bangladesh Rural Development Board (BRDB) as
the major government agency undertook a series of
rural development programmes with the objective
of reducing poverty through village-based co-
operatives, human resources development,
expanded irrigation schemes.
• Improvement of physical infrastructure, increase in
agricultural production, and creation of
employment opportunities for the rural poor.
• Government agencies such as the ministry of
health and family welfare, BSCIC, department of
social services, directorate of women affairs, local
government engineering department, directorate
of agriculture, directorate of livestock, and
department of fisheries also have a large number
of different poverty alleviation projects.
• Moreover, NON GOVERNMENT ORGANISATIONS
(NGOs) run a remarkable number of target-
oriented programmes and projects to improve
the socio-economic conditions of small and
marginal farmers, assetless poor and distressed
women.
• Notable among these programmes are the
group-based MICROCREDIT programmes of
GRAMEEN BANK, BRAC, ASA, PROSHIKA and
other local and foreign NGOs.
• The government initiated programmes like
Swanirvar Bangladesh and Small Farmers Credit
Project and donor funded special projects like
Rural Finance Experimental Project.
• Bangladesh Swiss Agricultural Project and
NORAD projects for small entrepreneurship
development.
• Also there are some traditional but less
focused programmes of poverty alleviation in
the country.
• These are FOOD FOR WORK programme, Food
for Education, Pension for Elderly People,
Vulnerable Group Development, Housing for
the Poor and Homeless and the programme of
providing insecticides and high yield variety of
seeds to rural farmers.
• The government has undertaken development
initiatives to expand the area of non-
agricultural activities in order to create more
employment opportunities.
• All these have to some extent increased the
entitlement of the poor, their social and
economic awareness and empowerment.
• These programmes, however, had contributed
little to improve the poverty situation in the
country.
• The average reduction rate per annum was
4.25% at the national level whereas it was
8.68% and 8.4% respectively in Rajshahi and
Khulna.
• But only 0.98% in Dhaka- this was revealed
from the latest Household Expenditures
Survey (HEI).
• Poverty alleviation, therefore, remains a
challenge requiring a proper planning to
combat it and a high level of commitment to
implement the plans with skill and integrity.
• Obstacles in industry of Bangladesh:
• There are many obstacles in industry of
Bangladesh. The sentence is analyze below:
• Industrial sector is gradually expanding in the
economy of Bangladesh. But, as there are not
basic industries even in this sector, industrial
sector is not being able to advance towards
development much rapidly.
• Heavy industries such as iron and steel industry,
heavy vehicle industry, electricity oriented
industry, etc. are very insufficient compared to the
need.
• Weakness in the financial infrastructure is also
a big obstacle to progress in the industry
sector.
• Lack of necessary number of land, river and
airports, higher price of fuel and gas,
insufficiency in the production and supply of
those, insufficiency of roads and bridges and
their underdeveloped state are big obstacles
to establishing new industry and enhancing
production.
• The Bank loan facility is essential for the
development of industrial sector. In
Bangladesh, credit facility is inadequate
compared to demand.
• Endeavour to provide loan facility to
encourage new entrepreneurs is little.
Moreover loan management is also not
proper.
• The socio-political situation, i.e. the political
instability of the country is not favourable for
the development of the industrial sector.
• The political programmes such as hartal,
agitation, blockade, etc. cast remarkable
negative impact on the productivity of
industrial sector.
• The income of the labourers reduces.
Production process is hampered and prices of
produced goods increase.
• As a result demand for goods in the market
reduces and income of the industry owners
reduces. Consequently, new initiative and
interest to invest decrease.
• Vicious circle of poverty:
• Vicious circle of poverty is the main hindrance
to the economic development of the
underdeveloped and developing countries.
• The circle is termed vicious circle of poverty
because this circle is the constellation of such
forces, which by acting and reacting on
themselves, keeps a country poor.
• In our country, the vicious circle based on low
capital and low production prevails.
• The low demand for goods and the low
investment are the result of low production
and low income. This condition again leads to
the shortage of capital and low production.
• In Bangladesh the vicious circle of poverty is
present. This circle is one of the main features
of the economy of Bangladesh.
• Here the demand for goods in the market is
less because of low income of the people and
consequently, the rate of investment is low.
• Employment opportunities are less due to low
investment. Professor has introduced this
concept.

• This vicious circle of poverty is one of the causes

of low per capita income and low standard of
living in Bangladesh. This is shown in the following
circle.

• To get Bangladesh out of the vicious circle and to

transform it into a prosperous country, investment
must be made in the production of vast capital.
• For this, higher savings is necessary for bigger
investment, which will help in increasing
production and income.
• This will in turn boost savings, investment,
production and income.
• So, to increase savings, necessary steps need
to be taken at the private individual and
government level.
• Basic economic problems of Bangladesh:
• Bangladesh is a developing country. Like other
developing countries there are many basic
economic problems on the way of development of
Bangladesh. These basic economic problems are
briefly discussed below:
• Low per capita income and low standard of living:
• Bangladesh is one of the poor countries in the
world. Compared to other countries the per capita
income of the people of Bangladesh is very low.
Because of this low per capita income the standard
of living of most of the people of Bangladesh is also
low.
• Backwardness of Agriculture: In spite of being an agrarian
country, the agricultural system of Bangladesh is
underdeveloped. The old method of cultivation still
persists in the country. The land holdings are divided and
scattered. Modem methods of cultivation, modem inputs,
irrigation facility, good seed and the use of manure are
also very limited. Production is very low in Bangladesh
compared to that of other countries.
• Backwardness of Industry: Bangladesh is very backward in
industry. Scarcity of capital, lack of raw materials and
machinery, lack of technological knowledge,
underdeveloped transport and communication systems,
lack of skilled labour and above all, lack of skilled
entrepreneurs are the causes of the drawbacks of
industries in the country.
• Population Explosion: Bangladesh is the most densely
populated country of the world. The size of the population
is so high compared to the area of the country that it is
hindering our efforts for development. The growth rate of
population is 1.48% and according to 2001 census report
876 persons live per square kilometer. This enormous
pressure of population is one to the basic economic
problems of Bangladesh.
• Lack of skilled Manpower: Another basic economic
problem is the want of skilled manpower in the country. We
have adequate manpower but most of that is unskilled.
• Absence of skilled Entrepreneurs: The number of skilled
entrepreneurs for development of Bangladesh is very small
compared to the needs.
• Infrastructural problem: The growth of some
basic opportunities and the development of
institutional infrastructure are essential for
economic development. But in Bangladesh
infrastructure is not developed. The rate of
economic growth is slow because of under
developed infrastructure.
• Inflation: The price level of goods and services
in Bangladesh is rising at a very high rate in
the present. As a result, an abnormal rate of
inflation prevails in the country.
• Vicious circle of poverty: One of the basic
economic features of Bangladesh is the
existence of vicious circle of poverty.
• Here the demand for goods in the market is
less because of low income of the people and
consequently, the rate of investment is low.
Employment opportunities are less due to low
investment.
• Solving the economic problems of Bangladesh.
• Ways and means for the solution of Economic
problems of Bangladesh: Various basic
economic problems exist in Bangladesh. The
following measures can be undertaken for the
proper solution of those problems:
• Modernization of Agriculture: Bangladesh is
mainly an agricultural country. So, agriculture
system should be modernized. Increase in the
supply of better quality seeds and fertilizer,
pesticides, implements etc.
• Increase in the amount of agricultural credit,
development of the marketing system of
agricultural products and radical change in the
land tenure system will increase the
productivity in agriculture.
• Industrialization: Industries should be
developed side-by-side agriculture with a view
to increasing the volume of gross national
product. Economic development cannot be
thought of without industries.
• Capital formation: At present development of
industries and agriculture depends on the
supply of capital. So, we have to increase
investment. To this end, people should be
motivated and encouraged to save more.
• Proper utilization of Natural Resources: Proper
and maximum utilization of the existing natural
resources of Bangladesh should be ensured. If
the hydroelectric resources, natural gas and
other mineral resources can be fully utilized,
the rate of economic development will be
expedited.
• Building of economic Infrastructure: For the sake
of rapid development, economic infrastructure
should be developed. There is the necessity of
modernization and expansion of roads, bridges,
and power and communication system.
• Population control: The activities undertaken for
the control of population growth in our country
are the priority programs in national interest. It is
possible to check the growth rate of population
through family planning programs. Checking the
rate of population growth will increase the per
capita income of the people.
• Spread of Education: Extensive change is essential
in the education system of Bangladesh. The
universal primary education and the mass
education programs should be strengthened for
increasing the literacy rate in the country. Work
oriented education should be extended to speed
up economic development. At the same time,
technical education should be given priority.
• Increase Employment: The opportunities of
employment should be increased to solve the
increasing unemployment problem of the country.
Development of technology is needed for this
purpose.
• Bringing equilibrium in foreign trade: Effective
measure should be undertaken to reduce the
existing imbalance in the international trade of
Bangladesh.
• Proper planning: To solve various types of problems
of Bangladesh, it is necessary to formulate proper
and practical plans. The principal aim of our
planning should be to ensure efficient use of
resources, creation of employment avenues,
increase of production in different sectors so as to
increase the growth rate, best utilization of both
internal and external resources development of
human resources and attainment of self-sufficiency.
• Sources of income of the Government of
Bangladesh:
• The principal sources of revenue of the
government of Bangladesh are discussed below:
• Export and Import Duty: The main source of
revenue, of the Government of Bangladesh is
duties on exports and imports of the country.
Excise Duty: The taxes imposed on the goods that
are produced and consumed within the country are
called excise duties. Recently value added tax (VAT)
has been introduced- combining excise duty and
sales tax in Bangladesh.
• Income Tax and Corporation Tax: Another important
source of revenue of the government of Bangladesh
is Income Tax and Corporation Tax. It is to be
mentioned here that at present agricultural income
tax has been included in the income tax.
• Sales Tax: The tax imposed on the sale of goods in
domestic market is called sales tax. Although this tax
is imposed on the seller, it is the buyers who have to
bear the burden of this tax. This is an indirect tax.
• Value Added Tax: Like other developed and
developing countries Value Added Tax combining
excise duty and sales tax has been introduced in
Bangladesh from 1991-1992.
• Land revenue: One of the sources of revenue of .the
government of Bangladesh is the land revenue
imposed on the owners of land. The income from
this source has decreased much as government has
exempted tax on land up to 25 bighas.
• Nationalized Institutions: The Government earns
much revenue from the nationalized industries,
commercial banks and insurance companies that are
functioning in the country as nationalised;
institutions.
• Post, telegraph and Telephone: Like other countries
the post, telegraph and telephone are important
sources of revenue of the Government of
Bangladesh.
• Railway: One of the sources of revenue of the
government of Bangladesh is its Railways. In the
recent years Government has incurred losses in
railways.
• Stamp and registration: The stamps and court fees
are used for different purposes, such as:
documentation of cases and litigations, passport
etc. These are some of the sources of revenue of
the government of Bangladesh.
• Forest: Forests of the country are the property of
the Government. Our government earns enough
revenues from the sale of woods, bamboos, honey
and other forest resources.
• Motorcar and Other Vehicle Tax: The
Government also earns enough revenue by
imposing taxes on motorcars and other
vehicles.
• Coins and Mints: The government of
Bangladesh earns huge amount of revenue
from coins and mini coins.
• Toll and levy: The government earns worth
mentioning amount of money in the toll and
levy head.
• Dividend and profit: The government gets dividend
and profit from various financial organizations such
as bank, insurance company and various
nonbanking financial organizations, park, zoo, etc.
at the end of the year.
• Interest: The government gives loan to various
financial and autonomous organizations. Some
income comes from the duties received in this
regard
• Fine, penalty and forfeiture: The government of
Bangladesh earns an amount every year through
fine, penalty and forfeiture.
•
• Bangladesh bank .
• Bangladesh Bank (BB) has been working as the
central bank since the country’s
independence. Its prime jobs include issuing
of currency, maintaining foreign exchange
reserve and providing transaction facilities of
all public monetary matters.
• BB is also responsible for planning the
government’s monetary policy and
implementing it thereby.
• The BB has a governing body comprising of nine
members with the Governor as its chief. Apart from
the head office in Dhaka, it has nine more branches,
of which two in Dhaka and one each in Chittagong,
Rajshahi, Khulna, Bogra, Sylhet, Rangpur and Barisal.
• The central bank and monetary authority of the
country. It came into existence under the
Bangladesh Bank Order 1972 (Presidential Order No.
127 of 1972) which took effect on 16 December
1971. Through this order, the entire operation of the
former State Bank of Pakistan in the eastern wing
was transferred to Bangladesh Bank.
• Important functions of BB
• Important functions, which BB performs, are discussed below:
• Issue of Notes: In modern times the central bank has the sole
authority of issuing paper note in a country. The central bank
issues the paper money and maintains stability of the monetary
system in the country. The money issued by the central bank is
called ‘legal tender’. The responsibility of keeping its internal
and external values stable has been given to the central bank.
• Government’s Bank: The central bank is a public institution.
This bank functions as the custodian of public funds and keeps
account of the internal and foreign debts of the government. It
gives loan to the government when needed and acts as the
financial advisor of the country. In our country Bangladesh Bank
performs the responsibility as the banker of the government.
• Banker’s Bank: The Central bank acts as a banker to other
commercial banks. The commercial banks are to keep a
certain percentage of their deposits with the central bank.
The central bank by raising or lowering this percentage can
control to a great extent to the capacity of commercial
banks to advancecredit.
• Credit Control: One of the major functions of the central
bank is credit control. The loans given by the commercial
banks increase the supply of money in the country. If the
total supply of money increases because of excessive
advance made by the commercial banks, there may be
inflation in the country. The central bank tries to maintain
stability as far as possible by maintaining a balance
between the total demand and supply of money. The
central bank adopts different credit control policies with a
view to controlling inflation and deflation.
• Lender of the last Resort: The central bank functions as
a lender of the last resort. When the commercial banks
face financial crisis and fail to obtain loans from other
soutce, they approach the central bank for loans. In this
situation, the central bank alone gives loans and saves
commercial banks from financial crisis. So, the central
bank is called the lender of the last resort.
• Clearing House: The central bank acts as a Clearing
house for the settlement of mutual debts and credits of
the commercial banks. In the day-to-day business
transactions, cheques are used. This creates debits and
credits among the commercial banks. The central bank
settles the inter bank debits and credits through
cheques.
• Maintenance of foreign exchange rate: The
central bank tries to maintain the stability of
exchange rate of the domestic currency in
terms of foreign currencies. For this purpose it
purchases and sells foreign currencies. V
• Development Activities: The central bank plays
an important role in the economic development
of a country. Collection of important data,
undertaking research for economic
development and giving assistance in making
budget are the functions of central bank.
THANK YOU VERY MUCH