Dhaka: A double-digit drop in capital machinery imports and falling export revenues have driven Bangladesh's trade deficit up by nearly 24 percent to $23.98 billion in FY 2025-26, leaving a historic $35.5 billion remittance surge to single-handedly cushion the external economy from severe distress.
According to United News of Bangladesh, the external trade is presenting a stark, two-way picture. On one hand, a slowdown in industrial raw material and capital machinery imports points to sluggish domestic manufacturing; on the other, export earnings have failed to meet expectations. Consequently, the country's trade imbalance has worsened, driving the foreign trade deficit up by nearly 24 percent. However, a record surge in foreign remittances has significantly cushioned the pressure on external transactions and played a pivotal role in boosting foreign exchange reserves.
Data from Bangladesh Bank's Economic Indicators and Balance of Payments (BoP) reports, combined with Export Promotion Bureau (EPB) statistics, paint a challenging macroeconomic landscape. Economists attribute this subdued trade momentum in FY 2025-26 to global uncertainties, high interest rates, financial distress among major industrial conglomerates, rising production costs, and a lingering deficit in business confidence.
The gap between Bangladesh's imports and exports widened sharply during the first 11 months (July-May) of the fiscal year 2025-26, according to Bangladesh Bank data. Total imports during this period amounted to $64.02 billion, while total exports reached $40.04 billion, resulting in a trade deficit of $23.98 billion. This represents a 23.73 percent increase compared to the $19.38 billion trade deficit recorded during the same period of the previous fiscal year. Economists warn that if export growth remains sluggish, maintaining this import burden could severely strain the external sector over the long term.
In FY 2025-26, import settlements via Letters of Credit (LCs) stood at $70.4 billion, reflecting a negligible growth of 0.09 percent compared to $70.3 billion in the preceding year. Because import settlements serve as a key barometer for industrial activity, this stagnation signals that the manufacturing sector has yet to regain full momentum. While fresh LC openings increased by 7 percent to $74.7 billion, hinting at potential future recovery, business owners remain cautious regarding major capital commitments.
The most concerning contraction occurred in essential production inputs. Industrial raw materials fell by 3.33 percent to $23.18 billion, while capital machinery dropped by 10.68 percent to just $1.80 billion, highlighting a sharp decline in long-term investment. Consumer and intermediate goods declined by approximately 7 percent each. However, petroleum imports bucked the trend, rising 6.42 percent to $10.68 billion.
Bankers and industrial leaders noted that following recent political shifts, several prominent business groups, including Beximco Group, Nassa Group, and Gazi Group, have had factory operations suspended or restricted to just 30 to 40 percent capacity. Coupled with high interest rates and rising debt costs, new investments have ground to a halt.
The domestic manufacturing slowdown directly spilled over into export performance. Total merchandise exports for FY 2025-26 reached approximately $48 billion, a 0.58 percent drop year-on-year, missing the government's target of $55 billion. The Ready-Made Garment (RMG) sector, which accounts for nearly 80 percent of total exports, generated around $38.7 billion. Exporters attributed the shortfall to US retaliatory tariffs, intense competition in European markets, softening global demand, and high domestic logistics costs.
Amid trade pressures, the remittance sector emerged as the economy's strongest pillar. Bangladesh received a record $35.5 billion in remittances in FY 2025-26, marking a 17.3 percent increase year-on-year. This robust inflow significantly narrowed the current account deficit and helped generate a $4.16 billion surplus in the financial account, preventing severe balance-of-payments distress.
In response to trade headwinds, the government has initiated steps to launch the country's first Free Trade Zone (FTZ). Bangladesh Bank has already issued comprehensive guidelines allowing duty-free import, storage, processing, repackaging, re-labeling, and re-exporting of raw materials on a consignment basis without needing conventional LCs. Business leaders anticipate this move will reduce lead times, optimize working capital, and enhance supply chain efficiency.
Commenting on the economic trajectory, Mohiuddin Rubel, Founder and CEO of Bangladesh Apparel Voice and former Director of BGMEA, emphasized the need for structural policy support. "Exporting is not solely dependent on foreign demand; it is directly tied to domestic production capacity, raw material supply, energy, logistics, and the investment climate. The decline in raw material and capital machinery imports is a clear warning sign for future production," he added.
Mohammad Hatem, President of Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA), highlighted the importance of reducing the cost of doing business and enhancing port efficiency. Professor Mustafizur Rahman, distinguished fellow of CPD, also stressed the need for reforms to increase competitiveness, including reducing business costs and improving logistics systems.
Masrur Reaz, Chairman and Founder, Policy Exchange Bangladesh, emphasized the importance of product diversification to enhance Bangladesh's export share in the global markets. He pointed out that Bangladesh is earning 83 percent of its export from the RMG sector, whereas competitor countries like Vietnam are exporting diversified products, leading to increased export volumes.