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.

Ahamed, F. & Chowdhury, A.R. (2025). Measuring the Macroeconomic and Financial Stability of Bangladesh. Applied Journal of Economics, Law and Governance, Volume I, Issue 1(1), 53-66. https://doi.org/10.57017/ajelg.v1.i1(1).03

Acknowledgments: The authors gratefully acknowledge the valuable support and data access provided by the Bangladesh Securities and Exchange Commission (BSEC), Dhaka Stock Exchange (DSE), Bangladesh Bank, and various banking institutions in Bangladesh. Their contributions were instrumental in facilitating the research and analysis conducted in this study. We extend our sincere thanks for their cooperation, transparency, and commitment to promoting financial research and policy development. Without their assistance, this work would not have been possible. 

Funding: The description and reporting of this research has not been supported by any unique grant raised by any funding institution, whether in the public, commercial, or non-profit-making sectors.

Conflict of Interest Statement: The authors declare that there is no conflict of interest regarding the publication of this research paper. No financial, personal, or institutional relationships have influenced the design, execution, or outcomes of this study. 

Data Availability Statement: The data that support the findings of this study were obtained from publicly available sources, including the Bangladesh Securities and Exchange Commission (BSEC), Dhaka Stock Exchange (DSE), Bangladesh Bank Library, and annual reports of various banking institutions in Bangladesh. These data are available in the public domain and can be accessed through the respective institutional websites or physical archives. Any additional information used in the analysis is available from the corresponding author upon reasonable request.