Import growth stalls in FY26 on subdued industrial demand

Highlights:

• Import settlements rose just 0.09% to $70.4 billion in FY26
• Industrial raw material and capital machinery imports declined significantly
• Import orders increased 7%, signalling cautious future demand recovery
• Weak business confidence dampened production, investment and export performance
• Merchandise exports fell 0.58% amid tariffs and global uncertainty
• Record remittances boosted reserves despite weak trade performance

Bangladesh's import settlement growth remained virtually stagnant in the just-concluded fiscal year, rising only 0.09% year-on-year to $70.4 billion, reflecting subdued demand for industrial raw materials and capital machinery amid economic uncertainty and financial distress among major business groups.

According to Bangladesh Bank's Economic Indicators report, import settlements through letters of credit reached $70.4 billion in FY26, up marginally from $70.3 billion in the previous fiscal year.

The muted growth in import payments came despite a sharp increase in import orders. The opening of letters of credit rose 7% year-on-year to $74.7 billion in FY26, suggesting that businesses remain cautious about expanding production even as future import demand shows signs of recovery.

Infograph: TBS

Economists attributed the weak import performance to a combination of domestic and external pressures, including geopolitical tensions, uncertainty surrounding the national election, high interest rates and the financial difficulties facing several large corporate groups.

Industrial imports continue to weaken

Imports of industrial raw materials, a key indicator of manufacturing activity, fell 3.33% year-on-year to $23.18 billion in FY26 from nearly $24 billion in the previous fiscal year.

Imports of capital machinery, often seen as a gauge of long-term investment, declined even more sharply, falling 10.68% to $1.80 billion from $2 billion a year earlier.

Consumer goods and intermediate goods imports also weakened during the fiscal year, declining by around 7% each to $6.31 billion and $4.17 billion, respectively.

Petroleum products were the only major category to record growth. Import settlements for petroleum rose 6.42% year-on-year to $10.68 billion in FY26.

What experts say

Bankers and economists said the slowdown in industrial imports reflected a broader deterioration in business confidence and production activity.

Mustafizur Rahman, distinguished fellow of the Centre for Policy Dialogue, told The Business Standard that both import and export growth remained largely stagnant during FY26 because of global conflicts and policy uncertainty linked to the country's election period.

"The new fiscal year will also be challenging. Alongside LDC graduation, geopolitical uncertainty, including the Iran conflict, continues to pose risks," he said.

According to Mustafizur, Bangladesh should focus on resolving domestic constraints within its control by reducing the cost of doing business, streamlining logistics and the single-window system, and improving trade facilitation.

"Our competitor countries are continuously diversifying and upgrading their exports. Bangladesh also needs to move in that direction, while accelerating free trade agreements," he said.

"Global conflicts and geopolitical tensions are beyond our control. What we can do is resolve our domestic constraints and strengthen the country's competitiveness."

A deputy managing director of a private bank said many businesses scaled back or shut down operations following the fall of the Awami League government, sharply reducing demand for bank credit.

The banker said factories owned by several major business groups, including Nassa Group, Beximco Group and Gazi Group, had closed, while many others were operating at only 30%–40% of capacity.

"When factories were operating normally, they imported capital machinery. Now even those that remain open have cut production by 60%-70%," he said.

A senior commercial banker said sustainable banking growth ultimately depends on private-sector credit expansion rather than investment in government securities.

While treasury bills and bonds currently offer attractive returns, declining yields in the future could reduce banks' investment income, making stronger private-sector borrowing essential for both the financial sector and the wider economy, he added.

Export growth also loses momentum

The slowdown in imports of production-related goods was reflected in Bangladesh's export performance.

Merchandise exports declined 0.58% year-on-year to $48 billion in FY26 from $48.28 billion in the previous fiscal year.

The ready-made garment sector, which accounts for more than 80% of the country's merchandise exports, earned $38.7 billion during the year.

Exporters attributed the weak performance to reciprocal tariffs imposed by the United States, intensifying competition in European markets, sluggish global demand and lower purchase orders ahead of the national election.

Mahmud Hasan Khan Babu, president of the Bangladesh Garment Manufacturers and Exporters Association, said high interest rates, energy shortages and logistics bottlenecks continued to undermine the country's export competitiveness.

He also warned that free trade agreements between the European Union and countries such as India and Vietnam would create additional pressure for Bangladeshi exporters, although he expressed optimism that exports would recover if domestic constraints were addressed.

Fazlee Shamim Ehsan, executive president of the Bangladesh Knitwear Manufacturers and Exporters Association and president of the Bangladesh Employers' Federation, echoed similar concerns, saying duty-free access to the European market for India and Vietnam from next year would intensify competition for Bangladesh's apparel exporters.

Remittances bolster external sector

Despite weak trade performance, robust remittance inflows helped strengthen Bangladesh's external position.

During the first 11 months of FY26, the financial account recorded a surplus of $4.16 billion, compared with a deficit of $214 million in the corresponding period of the previous fiscal year.

The trade deficit widened to $23.98 billion during July-May from $19.38 billion a year earlier. However, the current account deficit narrowed sharply to $301 million, supported by strong remittance inflows.

Bangladesh received a record $35.5 billion in remittances in FY26, up 17.3% from $30.3 billion in FY25.

Former Bangladesh Bank governor Ahsan H Mansur said remittances played a crucial role in improving the country's external balance, although he cautioned that inflows weakened in June after several months of strong growth.

The country's foreign exchange reserves also improved significantly. Under the BPM6 methodology, reserves stood at $32.9 billion at the end of June 2026, up from $26.7 billion a year earlier, an increase of more than $6 billion driven largely by stronger remittance inflows and restrained import growth.