Measuring the Macroeconomic and Financial Stability of Bangladesh

Abstract

This study constructs an Aggregate Financial Stability Index (AFSI) for Bangladesh to evaluate the systemic health and resilience of the country’s financial system during the period 2016–2024. The index incorporates 19 macro-financial indicators across four key sectors: Real Sector, Financial and Monetary Sector, Fiscal Sector, and External Sector. Using a normalized scoring approach and equal weighting scheme, sub-indices were aggregated to form a comprehensive measure of financial stability. The findings indicate that while the Real and Fiscal sectors demonstrated modest improvements in FY2024, overall financial stability deteriorated, largely due to poor performance in the Financial and Monetary Sector and continued weakness in the External Sector. Key stress indicators include rising non-performing loans, declining capital adequacy ratios, weak capital market performance, growing external debt, and shrinking foreign exchange reserves. The study highlights the interconnectedness of macro-financial sectors and the urgent need for structural reforms, stronger regulatory oversight, and enhanced macroprudential policy coordination. The AFSI framework developed in this paper offers an early warning tool for policymakers and contributes to the literature on financial stability measurement in emerging economies.© The Author(s) 2025. Published by RITHA Publishing. This article is distributed under the terms of the license CC-BY 4.0., which permits any further distribution in any medium, provided the original work is properly cited maintaining attribution to the author(s) and the title of the work, journal citation and URL DOI.Article’s history: Received 4th of August, 2025; Revised 17th of August, 2025; Accepted for publication 29th of August, 2025; Available online: 1st of September, 2025. Published as article in Volume I, Issue 1(1), 2025.