SINCE 2000, Bangladesh has achieved an impressive average economic growth rate of 5.47 per cent, outperforming many other developing countries. This growth trajectory remained stable until the global disruption caused by the pandemic Covid in 2020. However, questions persist regarding the sustainability of this growth. Will it continue at this pace, or face setbacks? If Bangladesh can maintain or slightly accelerate this rate, the economy could reach the trillion-dollar mark in GDP by 2037 or 2038. Monetary and fiscal policies will play a pivotal role in managing and sustaining such economic growth. These two policies, in particular, have a profound influence on inflation and overall economic stability, making them critical tools for future economic management.
Inflation acts as a destructive force for any economy, capable of erasing years of progress made by governments and institutions. Controlling inflation goes beyond simply regulating physical markets; it requires oversight of the capital market, financial institutions, and the implementation of sound fiscal and monetary policies. Unfortunately, governments often focus on controlling physical markets through law enforcement to combat cartels and syndicates 鈥� an approach that is both misguided and contrary to economic theory.
Human behaviour naturally seeks profit, and this cannot be effectively controlled through enforcement alone. Instead, a systemic approach is needed 鈥� one that emphasises the development of sound financial systems and the strengthening of institutions.
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Functional capital market
A 鈥楽YSTEM鈥� refers to a well-structured, principles-based capital market where every measure is taken under a framework of checks and balances. Consistent monitoring of these systematic processes, such as company registrations, financial statement disclosures, fraud detection, and equity issuance, helps to uphold the integrity of the market.
Such processes build investor confidence, enabling them to diversify their risks through the capital market. By facilitating risk diversification, pressure on financial institutions is reduced, allowing for more effective and targeted monetary policies. A well-regulated monetary policy can, in turn, better manage inflationary pressures. A systematic, measurable, and functional capital market can significantly reduce inflation, alleviate pressure on financial institutions (by decreasing reliance on debt markets), create opportunities for a wider range of investors, and contribute to overall economic development.
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Reducing money laundering听
ANOTHER critical advantage of a robust capital market is its ability to curb money laundering and prevent the harmful effects of excessive foreign capital inflows. Why does money laundering happen, both domestically and internationally, and why is under- or over-invoicing often the root cause? The answer lies in inflation. Investors are reluctant to repatriate their earnings if they fear that uncontrolled inflation will erode the value of their money. Moreover, the capital market lacks the necessary financial instruments to provide attractive returns or facilitate risk diversification (e.g., bond markets, swaps, warrants, currency markets, hedge funds, and options).
The absence of these instruments undermines investor confidence and discourages them from bringing their profits back into the market. This influx of unregulated foreign capital also inflates the physical market, causing bubbles and adding to inflationary pressures, as we have seen in the current economic scenario. Therefore, it is crucial to develop a financial market with diverse instruments that allow for portfolio diversification, enabling investors to reinvest their money confidently. Effective money management and a well-developed capital market are closely intertwined, which is why countries prioritise capital market development to enhance economic performance.
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The 鈥楧arwish baba鈥� effect
IN BANGLA literature, poetry, and folk culture, Darwish symbolise simplicity, humility, and inner peace. They often serve as characters representing moral or spiritual lessons, such as in the poetry of Lalon Fakir, a renowned mystic and spiritual figure in Bengal. However, in the capital market, we sometimes see the opposite 鈥� where 鈥楧arwish baba鈥� or undefined 鈥楤aba鈥� characters lead to financial chaos, promoting practices that harm the market.
These external agents, represented by the Darwish baba figures, know exactly which parts of the system to disrupt in order to bring down the entire economic structure. Their influence has systematically undermined our financial market and institutions, causing significant damage. The 鈥榖aba effect鈥� is vast, dynamic, and designed to reverse years of economic achievement. It is crucial to learn from these negative influences and take corrective measures to protect the integrity of our financial system.
By focusing our efforts on restructuring the capital market according to theoretical frameworks and empirical evidence, we can address a wide range of economic challenges 鈥� such as inflation, monetary policy, unemployment, and money laundering 鈥� with a single strategic move. Reforming and controlling these establishments will harmonise the economy. However, attempting to solve these issues through external or superficial means will lead to further complexity, as controlling human behaviour or market forces through enforcement alone is highly unlikely to succeed. So, 鈥榖ring back confidence鈥� is the fundamental to 鈥榯ake back Bangladesh鈥�.
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Dr Murad Ahmed is managing director of GRD Consultants Ltd, Dhaka.
