Higher energy prices could erode reserve gains: GED

Bangladesh’s foreign exchange reserves strengthened in early 2026, though rising global energy prices could threaten the gains, according to a report by the General Economics Division (GED) of the Planning Commission.

Gross reserves stood at $35.11 billion in February 2026, up from $33.19 billion in December 2025, according to the Economic Update and Outlook (March 2026) released yesterday.

BPM6 reserves rose correspondingly, from $28.58 billion to $30.36 billion over the same period. The GED attributed the short-term buildup to strong inflows and improved external liquidity.

However, it warned that the global energy crisis is likely to accelerate the drawdown of reserves, as higher fuel import costs -- a major component of Bangladesh’s import basket -- require more foreign currency.

“This could place downward pressure on the exchange rate and potentially lead to currency depreciation if not carefully managed,” it stressed.

The GED noted that countries facing similar external pressures have responded with exchange rate flexibility, import rationalisation, and strategic reserve management.

For Bangladesh, a balanced approach combining measured exchange rate adjustment, demand management, and external financing support may be necessary to maintain reserve adequacy.

“Without such measures, the reserve position may weaken despite recent gains,” the report cautioned.

REMITTANCES PROVIDE CUSHION

Remittance inflows continue to play a crucial stabilising role in Bangladesh’s external sector, helping offset rising import payments amid the prolonged global energy crisis.

The GED noted a notable year-on-year increase in recent months, suggesting a possible structural improvement, though short-term volatility persists.

Inflows surged to $3.22 billion in December 2025, up from $2.64 billion a year earlier, and remained strong at $3.17 billion in January 2026, compared with $2.19 billion the previous January. February saw remittance reaching $3.02 billion, up from $2.53 billion received in the same period a year earlier.

“In the context of the energy crisis, remittances play a critical role in offsetting higher import payments and supporting reserve accumulation,” the report said.

The GED nonetheless cautioned against over-reliance on remittances.

A significant share of Bangladesh’s migrant workforce is employed in energy-exporting economies, particularly in the Middle East, leaving flows vulnerable to geopolitical tensions, oil price swings, and shifts in host-country labour demand.

“Any disruption in these economies could directly affect migrant employment and, consequently, remittance inflows,” it warned.

While seasonal factors and continued migration are expected to sustain inflows in the near term, GED said the medium-term outlook “will depend heavily on global economic conditions and the stability of overseas labour markets.”

The report also flagged a widening gap between inflation and wages. Wage growth remained stagnant at 8.06 percent in February, squeezing the real incomes of low-income households and threatening to dampen consumption as rising living costs erode purchasing power.

On the fiscal front, revenue collection by the National Board of Revenue (NBR) fell well short of targets.

Actual collection in February reached Tk 30,559 crore, against a revised target of Tk 42,051 crore, leaving a shortfall of over Tk 11,000 crore.

Implementation of the Annual Development Programme has also slowed compared with the previous fiscal year, hampered by bottlenecks in project approval, procurement, and fund disbursement.