Exports and remittance drive improvement in foreign transaction balance

Strong growth in exports and remittances has led to an improvement in balance of payments (BoP), a key indicator of the country’s economy.

According to the latest report from Bangladesh Bank, the BoP deficit for the first 10 months of the 2024-25 fiscal, that is, July through April, has decreased to USD 660 million.

Just a month earlier, the deficit stood at USD 1.07 billion, while at the end of April in the previous fiscal year, the deficit was USD 5.57 billion. In fact, the deficit was USD 8.22 billion in the 2022-23 fiscal year.

In the final two years of the ousted Awami League government, the BoP deficit had reached a critical level, putting significant pressure on the country’s foreign exchange reserves. Following the political transition, the interim government undertook several initiatives which gradually brought down the BoP deficit. As a result, the decline in reserves came to a halt.
According to the central bank's records, as of 29 May, the country’s foreign exchange reserves were at USD 25.80 billion. At the same time last year, the reserves stood at USD 24.22 billion.

On the other hand, under IMF’s BPM6 (Balance of Payments Manual, 6th edition) methodology, foreign exchange reserves on 29 May were USD 20.57 billion. A year earlier, under the same BPM6 method, reserves were USD 18.72 billion. This means that usable reserves have increased by USD1.85 billion over the past year.

According to Bangladesh Bank’s report, goods worth USD 36.57 billion were exported in the first 10 months of the current fiscal year. This is an 8.61 per cent increase compared to the corresponding period in the previous fiscal year.

Meanwhile, remittance inflows between July and April of the current fiscal year amounted to USD 24.54 billion, which is 28 per cent higher than the same period last year.

According to the central bank records, the 2023–24 fiscal ended with a significant current account deficit of USD 6.61 billion. In the previous fiscal year (2022-23), the deficit was even larger, USD 11.63 billion. However, in the first 10 months (July-April) of the 2024-25 fiscal, the current account deficit has narrowed to USD 1.39 billion.

The current account typically reflects the country’s regular foreign transactions. It includes imports, exports, and other recurring income and expenditures. A surplus here indicates that the country does not need to borrow to finance its day-to-day external transactions. Conversely, a deficit requires borrowing to cover the gap. Despite a slight increase in imports during the first 10 months of the current fiscal year, robust growth in exports and remittance inflows has helped reduce the current account deficit.

Meanwhile, at the end of the 2023-24 fiscal, the financial account posted a surplus of USD 4.54 billion, down from USD 6.89 billion in the previous year. However, the 2024-25 fiscal began with a financial account deficit, though by the end of the first 10 months, it had returned to a surplus of USD 1.96 billion.

The financial account measures changes in the ownership of the country's international assets. Typically, a deficit in this account puts pressure on foreign exchange reserves and the exchange rate. Due to a severe dollar shortage, a financial account deficit emerged for the first time in a decade and a half at the beginning of the 2022-23 fiscal.

Economists and officials at Bangladesh Bank note that exports have been showing positive growth, and remittances hit record levels in May as well, following April. Additionally, last month the exchange rate of the dollar was allowed to float, and due to healthy supply, it has remained stable.