Current account deficit narrows 85% in July-Mar on remittance

Infographics: TBS

Bangladesh's current account deficit has shrunk by a dramatic 85% in the first nine months of FY25 compared to the same period last year, despite a prolonged period of macroeconomic instability since the beginning of the current fiscal year. 

This turnaround is largely due to strong remittance inflows, reduced money laundering, and higher export growth relative to imports.

According to Bangladesh Bank data, the current account deficit stood at $659 million at the end of July-March in FY25, compared to a $4.4 billion during the same period in FY24. This marks an improvement of nearly $3.74 billion.

The current account balance is calculated by combining the trade balance — the difference between exports and imports — with net primary and secondary income.

Data analysis reveals that remittances totalled $21.78 billion in the first nine months of FY25, a 27.6% increase from $17.07 billion during the same period last year. This $4.7 billion growth in remittance significantly helped reduce the current account deficit.

Bangladesh Bank spokesperson Arif Hossain Khan told The Business Standard, "Alongside the rise in exports, we've also seen a strong jump in remittance inflows. These two elements have together contributed to a substantial decline in our current account deficit."

Despite deficits in trade, services, and the primary account, the surge in remittances is pushing the current account into a more favourable position. 

Zahid Hussain, former lead economist at the World Bank's Dhaka office, noted that forex demand has increased due to rising imports, but forex supply has grown even more, particularly with a record $3.29 billion in remittance received in March ahead of Eid. This alone halved the deficit from February to March.

Trade deficit sees marginal improvement

The trade deficit has also narrowed slightly as export growth outpaced import growth. At the end of July–March in FY25, the trade deficit stood at $15.43 billion, down marginally from $15.75 billion in the same period last year — a reduction of around 2%.

During this period, export earnings grew by 9.5%, while imports rose by 5.6%.

Zahid Hussain noted that although export performance improved significantly, import growth outpaced it. As a result, the decline in the trade deficit, while welcome, is modest.

Financial account surplus rises to $1.31 billion

The financial account, another major component of the balance of payments, posted a surplus of $1.31 billion in July–March of FY25 — an increase of $406 million from the $901 million surplus recorded in the same period last fiscal year. This rise was driven by aid inflows from development partners.

However, foreign direct investment (FDI) declined to $861 million from $1.16 billion. On the positive side, the trade credit deficit — reflecting export payments that had been stuck abroad — dropped sharply from $1.8 billion to $511 million. It was only $33 million at the end of February, suggesting some volatility.

Medium and long-term loan inflows also declined by 19% in the first nine months.

Senior officials from several banks pointed out that actual FDI remains quite low. Much of the reported FDI in the balance of payments is actually reinvested earnings — profits from earlier investments being reinvested. 

They also warned that the sharp rise in export receipts in March may have contributed to an increase in trade credit deficit, a development worth monitoring.

Overall balance still in deficit due to unexplained outflows

Bangladesh's overall balance of payments remained in deficit at $1.07 billion in July–February of FY25, although this is a significant improvement compared to last year's. 

Zahid Hussain welcomed the improvement but raised concerns over the unexplained $2 billion in the 'Errors and Omissions' category, which includes unrecorded or misrecorded transactions.

These could result from incomplete data, informal or illegal capital flows, trade misreporting, complex financial transactions, or reporting lags — especially in services and investment income.

He noted that many people are forced to use informal channels like hundi to pay for overseas medical or educational expenses, while policy restrictions are driving legitimate capital outflows underground. Unless such necessary outflows are officially allowed, reducing 'Errors and Omissions' will remain difficult.

As per the BPM6 calculation method, Bangladesh Bank reported that foreign exchange reserves were $19.91 billion at the end of March last year and rose slightly to $20.39 billion by March this year — indicating a broadly stable reserve position over the past year.