Trade deficit hits $13.8b as export growth stalls and imports climb

The country's trade deficit widened in the first seven months of the current fiscal year as exports declined while imports continued to rise, according to the latest balance of payments data released by the central bank.

Figures published by the Bangladesh Bank yesterday show that the trade deficit reached $13.80 billion during July-January of the fiscal 2025-26, up from $11.75 billion in the same period a year earlier – an increase of more than $2 billion.

However, the data does not yet reflect the impact of the US-Israel conflict with Iran, which began on 28 February.

Exports from Bangladesh declined during the first seven months of the fiscal year. Export earnings stood at $26.09 billion in July-January, compared with $26.37 billion in the same period of the previous fiscal year.

Infograph: TBS

At the same time, imports increased to $39.89 billion, up from $38.11 billion a year earlier.

Zahid Hussain, former lead economist of the World Bank Dhaka office, told The Business Standard that the shift in trade flows was the main factor behind the rising deficit. "Trade deficit increased mainly due to higher imports and lower exports," he said.

Remittances help narrow current account deficit

Despite the widening trade deficit, the country's current account deficit narrowed significantly during the same period.

In the first seven months of FY26, the current account recorded a deficit of $381 million, compared with a deficit of $1.35 billion in the same period of the previous fiscal year.

Economists say the improvement is mainly the result of higher remittance inflows.

Bangladesh Bank data shows that remittances reached $19.43 billion during July-January, up from $15.96 billion in the corresponding period last year.

"Despite the rise in the trade deficit, strong remittance inflows helped reduce the current account deficit," Zahid Hussain said.

The current account is one of the key components of a country's balance of payments, covering net trade in goods and services, income from abroad, and current transfers such as remittances.

Analysts note that strong remittance inflows often help cushion the current account, although a large trade deficit can still put pressure on the overall external balance.

Financial account records surplus

Bangladesh also recorded a $2 billion surplus in the financial account during the first seven months of FY26, a sharp increase from $331 million in the same period of the previous fiscal year.

Economists attribute this improvement largely to a turnaround in trade credit and an increase in net foreign aid inflows.

On this, economist Zahid said, "Financial account surplus has risen despite a large decline in MLT loan disbursements, thanks to a major turnaround in trade credit."

Bangladesh Bank data shows that trade credit posted a surplus of $1.05 billion during July-January, compared with a deficit of $1.29 billion in the same period of the previous fiscal year.

Trade credit refers to goods or services received with payment deferred to a later date. In balance of payments accounting, it is treated as a short-term capital flow under the financial account because it finances imports.

Overall balance improves

The country's overall balance of payments position also improved during the period.

Bangladesh recorded an overall balance of payments surplus of $2.28 billion in the first seven months of FY26, compared with a deficit of $1.22 billion in the same period last year.

"The first seven months show comfort in the overall balance of payments. Thanks to strong remittances, current account deficit declined noticeably relative to the same period last year despite a decline in exports and a pick-up in imports," Zahid said.

However, the ongoing Iran-Israel war could begin to affect Bangladesh's external sector in the coming months.

The exchange rate has already shown signs of pressure. Within a week, the dollar rose by more than Tk0.70, reaching around Tk123, up from Tk122.30 the previous week.

"The BoP situation may deteriorate going forward as the impact of the ongoing war starts showing from March onwards," Zahid said. "This will challenge exchange rate management. Bangladesh Bank will have to tread carefully in smoothing exchange rate volatility and preserving foreign exchange reserves."