The downward trend in Bangladesh’s trade deficit continues as rising export earnings and remittance inflows outpace the growth in imports.
In the first seven months of the 2024-25 fiscal year (July–January), the trade deficit contracted by 9% compared to the same period last year.
According to the latest balance of payments report released by Bangladesh Bank on 12 March, the trade deficit stood at $11.75 billion during this period, down from $12.91 billion a year earlier.
This marks a reduction of $1.16 billion, or 8.98%, year-on-year. The trade deficit represents the gap between import expenditure and export earnings.
The report shows that Bangladesh’s export earnings rose to $26.37 billion in the July–January period, reflecting a 10% increase from $23.98 billion in the previous fiscal year.
Conversely, import payments increased by 3.30%, reaching $38.11 billion, compared to $36.96 billion in the corresponding period last year.
The higher growth rate in exports compared to imports has contributed to the narrowing trade deficit.
Economic analysts attribute this improvement to the steady inflow of remittances and rising export performance.
Over the past few months, Bangladesh has been receiving approximately $2 billion in remittances each month, bolstering foreign exchange reserves and improving the balance of payments.
Zahid Hossain, former chief economist at the World Bank’s Dhaka office, remarked that the declining trade deficit is a positive indicator for the economy.
He noted that Bangladesh Bank has eased restrictions on opening import letters of credit (LCs) as the dollar shortage has subsided significantly. According to him, increased confidence in the economy and the stabilisation of the exchange rate have encouraged greater foreign exchange inflows through banking channels, positively impacting the trade balance.
However, he cautioned that the recent improvement should not be seen as a sudden turnaround, as import costs have increased slightly, causing a marginal rise in the deficit from December to January.
The decline in the trade deficit has also positively affected the country’s current account balance.
During the first seven months of the fiscal year, the current account deficit stood at $552 million, a sharp decline from $4.28 billion in the same period last year—an 87% improvement.
The current account reflects a nation’s routine external transactions, including trade, remittances, and other financial flows.
A surplus in this account reduces the need for external borrowing, while a deficit necessitates foreign loans to bridge the gap.
The improved balance has also increased the likelihood of higher foreign investment.
Analysts explain that when a country’s trade deficit is large and the current account balance remains negative, foreign investment prospects are often hindered due to concerns about capital repatriation risks.
The latest developments in Bangladesh suggest a more stable economic outlook, potentially attracting greater foreign direct investment.
Reduction in the current account deficit has further contributed to an overall improvement in Bangladesh’s balance of payments.
The total deficit in the overall balance has declined to $11.70 billion during the July–January period.
The overall balance encompasses all financial transactions between the country and the rest of the world, including government and private sector dealings.
Meanwhile, the financial account—which records capital inflows and outflows—has turned positive, posting an $85 million surplus during the first seven months of the fiscal year, up from $81 million in the corresponding period last year.
This suggests that financial inflows, including investments and external borrowing, have begun to stabilise, providing further relief to the country’s external accounts.
While challenges remain, the declining trade deficit, improving remittance flows, and stabilising financial accounts indicate a gradual improvement in Bangladesh’s economic fundamentals.
