Current account deficit shrinks by $5.68b in 11 months of FY25

Infographic: TBS

Highlights:

• Remittance surge narrows Bangladesh's current account deficit sharply
• Current deficit drops from $6.12B to $432 million
• Remittance inflow rose 28.7%, reaching $27.5 billion
• Trade deficit eased slightly as exports grew 9.4%
• Overall balance deficit rose by $500 million in May
• Foreign reserves increased to $24.54 billion by 10 July

A surge in remittance inflows and stronger export performance have helped narrow Bangladesh's current account deficit by $5.68 billion in the first 11 months of FY25.

According to Bangladesh Bank data, the current account deficit stood at $432 million during July-May of FY25, down sharply from a $6.12 billion deficit in the same period of FY24.

The deficit dropped by nearly $1 billion in just one month in May. In the July-April period of FY25, the current account deficit was recorded at $1.34 billion.

The current account balance is calculated by adding primary and secondary net income to the trade balance – the difference between exports and imports.

According to central bank data, remittance inflow rose by 28.7% year-on-year – a $6.13 billion increase – in the July-May period, reaching a remarkable $27.50 billion compared to $21.37 billion a year earlier.

Speaking to The Business Standard, Professor Mustafizur Rahman, distinguished fellow at the Centre for Policy Dialogue (CPD), said, "The growth in remittance and exports has significantly improved our current account deficit. This is very positive news for us."

"The inflows in the current account are debt-free, meaning they do not create future liabilities for the country. We need to ensure that the current robust flow of remittances and exports continues," he added.

Trade deficit eases slightly

According to the central bank, the trade deficit – the gap between exports and imports – declined slightly at the end of the last fiscal year, mainly due to improved export performance compared to the same period (July to May) of the previous year.

The deficit stood at $19.38 billion in July-May of FY25, down 4.17% from $20.22 billion in the same period of the previous fiscal year.

During the 11-month period, exports grew by 9.4%, while imports rose by 4.7%.

Professor Mustafizur Rahman noted that while export performance remains strong, import activities have yet to gain momentum.

"In particular, the import of capital machinery has dropped significantly compared to earlier periods," he said.

"If imports rise in the future, the trade deficit may widen. We need to start preparing now so that we can manage the situation effectively when that time comes," he added.

Overall balance deficit widens by $500m in a month

Despite significant improvement in trade balance and current account, the country's overall balance deficit widened by nearly $500 million within a single month, according to the latest data from the Bangladesh Bank.

The overall balance deficit reached $1.11 billion in the July-May period of FY25, up from $656 million recorded in April.

However, the deficit remains far lower than the $5.88 billion reported during the same period in the previous fiscal year.

Speaking to TBS, Dr Zahid Hussain, former lead economist at the World Bank's Dhaka office, said the sharp monthly increase in the overall deficit was mainly driven by a nearly $1 billion surge in trade credit shortfall.

"A $1 billion negative trade credit means that export earnings worth that amount have not yet returned to the country, despite goods being shipped," he explained.

"One possible reason is that exporters expected the dollar rate to rise following the IMF's meeting with Bangladesh Bank in May."

He added that another reason for the overall balance deficit in May was that multinational companies paid more on existing debts than they received in new loans.

"However, this should reverse in June, as Bangladesh received over $3 billion in loans during that month. Exporters are also likely to bring back their earnings as the dollar rate has started to decline," Zahid Hussain noted.

Financial account surplus drops by over $1 billion in May

While Bangladesh saw notable improvements in its trade and current account deficits, the surplus in the financial account declined by more than $1 billion in May, according to Bangladesh Bank data.

During the July-May period of FY25, the financial account posted a surplus of $266 million – a sharp drop from the $1.49 billion surplus recorded up to April.

Meanwhile, buoyed by rising remittance and export earnings, the country's foreign exchange reserves have been growing significantly.

In May 2024, gross official reserves (as per BPM6) stood at $18.64 billion. By May 2025, they had risen to $20.53 billion.

As of 10 July, reserves further increased to $24.54 billion, marking a strong recovery in the country's external position.