PhD Seminar - The Effects of Macroeconomic Shocks and Uncertainty on Bangladesh’s Fiscal Sustainability

Bangladesh's economy is increasingly vulnerable to external shocks due to its global integration. An SVAR model with short-run restrictions analyzes the impacts of foreign interest rate hikes, commodity price inflation, and exchange rate appreciation shocks. The findings indicate that commodity price and exchange rate shocks deteriorate the fiscal balance, while foreign interest rate shocks elevate domestic rates. A subsequent VAR model projects the government's median debt to reach 37.1% of GDP by 2028, with a 30.1% probability of surpassing 40%. Notably, a 2% increase in interest rates and a 10% currency depreciation raise this probability to 38.7% and 56.2%, respectively.