The two challenges Bangladesh faces as she enters the twenty first century are: (a) rapid transition to a market oriented private enterprise economy and (b) integration in the world economy. This article deals with a few selected issues in respect of each of these challenges. The principal issues in the first category are: the reform of the financial institutions; progress and prospects of privatization and public expenditure review illustrated by case of defense expenditure. These three measures are interrelated and significantly affect the mobilization of resources for development and therefore, the rate of growth in savings and investment.

The important challenges in the field of external economic policy relate to: (a) The process of liberalization of trade and foreign exchange regime, (b) Sustained growth of exports and implications of membership of WTO and (c) Regional/ sub regional economic cooperation. The short-term adjustment problems of the highly protected domestic industry are real and should be dealt with. Preconditions of supply in the cost effective import competing and export sectors are to be created expeditiously.