2025 brings calm to external balance sheet, not to businesses

In 2025, some macroeconomic indicators improved, but the mood on the ground did not.

On the external front, the year opened on a stronger note. The country ends the year with record remittance inflows, a steadier foreign exchange market and rising dollar stocks. Together, they brought a welcome sense of relief to the country's external sector.

Stopping large-scale loan scams in the banking sector and easing the dollar shortage were among the interim government's major successes, said Mohammad Hatem, president of the Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA).

There was also some bad news. While headline numbers showed improvement, the trade and business environment remained largely gloomy throughout the year.

Political uncertainty, weak law and order and high interest rates continued to weigh heavily on investor and business confidence.

According to the BKMEA leader, deteriorating law and order stood out as one of the major failures of the interim government, which was formed in August last year after the mass uprising toppled the Awami League regime.

REMITTANCES LEAD THE TURNAROUND

Following the uprising, remittance inflows started to rebound, with money sent home by expatriates emerging as the most decisive stabilising force of 2025.

Many attributed the surge to a renewed sense of patriotism among Bangladeshis abroad. A sharp decline in illegal money transfer channels such as hundi and hawala also played an important role.

Bangladeshis living overseas sent home a record $30.04 billion in the fiscal year 2024-25, the highest amount ever received in a single fiscal year. The figure marked a 25.50 percent increase from $23.74 billion in FY24, according to Bangladesh Bank data.

Monthly inflows reached a historic high in March, when remittance receipts climbed to $3.29 billion. The surge improved liquidity in the banking system and eased pressure on the foreign exchange market.

FOREX STABILITY, RESERVE REBUILDING

Although the central bank introduced a market-based exchange rate regime in May, the foreign exchange market remained largely stable throughout the year.

Strong remittance inflows, slower import payments and steady export earnings supported the shift, which was required to meet conditions tied to an ongoing $4.7 billion loan programme by the International Monetary Fund (IMF).

Many had feared the taka would weaken further and that volatility would intensify under the new system. Those concerns did not materialise.

For most of the year, the exchange rate of the US dollar hovered around Tk 122, with the Bangladesh Bank intervening when the rate moved sharply above or below that level.

In the year, the central bank shifted from selling dollars to purchasing them from the interbank market to stabilise the exchange rate and rebuild reserves. Dollar purchases crossed $3 billion in the ongoing fiscal year.

Between FY21 and FY25, the Bangladesh Bank sold more than $25 billion from reserves to cover imports of fuel, fertiliser and food. Since the beginning of the current fiscal year, it has focused on rebuilding reserves as dollar inflows improved.

As of December 24, gross foreign exchange reserves stood at $32.79 billion, while reserves calculated under the IMF's BPM6 method amounted to $28.11 billion.

A year earlier, gross reserves were $24.94 billion. The central bank has set a target of raising reserves to $35 billion.

Improved forex liquidity also strengthened the country's external position.

The balance of payments recorded a surplus of $1.08 billion during the July-October period of the current fiscal year, compared with a deficit of $2.19 billion in the same period a year earlier. The financial account also moved into surplus.

By the end of September this year, external debt stood at $112.12 billion, down from $113.56 billion at the end of June, reflecting improved repayment capacity.

STILL BUSINESSES UNDER STRAIN

Despite relief on the external front, trade and business activity remained weak throughout 2025.

Political changeover in August last year and uncertainty surrounding the election timeline dampened investor confidence.

Many businesses postponed expansion plans and fresh investments amid unclear policy signals.

High borrowing costs added to the pressure. The central bank kept the policy rate at 10 percent, the highest among neighbouring economies, while lending rates rose to 16 percent to 17 percent, discouraging borrowing and investment.

Hatem said banks delayed back-to-back letters of credit in 2025, preventing industries from operating on schedule. Manufacturing units also faced inconsistent energy supplies.

The slowdown was reflected in trade data. During the July-October period of the current fiscal year, letter of credit settlements for capital machinery fell 10 percent year-on-year to $627 million.

Settlements for intermediate goods declined 19 percent to $1.25 billion.

Meanwhile, private sector credit growth stood at 6.23 percent in October, the lowest level in more than a decade, and remained on a downward trajectory throughout the year.

Business leaders said banks stayed cautious due to past loan scams and anomalies, while firms hesitated to borrow amid high interest rates and subdued demand.

WEAK LAW & ORDER, HIGH INFLATION HURT CONFIDENCE

Industry insiders said weak law and order in parts of the country disrupted supply chains, logistics and retail activity this year. They cited extortion, vandalism and rising operational risks.

The situation remained fragile throughout the year.

Several garment factories and industrial units owned by the Beximco Group, S Alam Group and Nassa Group shut down after their owners were jailed over loan scams.

Around 100 ready-made garment factories in Ashulia and Gazipur were also closed following labour unrest.

"One group of businesspeople looted the banks during the previous regime, and now good businesses are being forced to pay the price for it," Hatem commented.

High inflation added to the strain. With consumer prices hovering around 8 percent throughout the year, purchasing power weakened and demand for non-essential goods remained subdued.

Sales growth suffered, especially among small and medium enterprises and retail businesses.

Still, business leaders expressed optimism that the announcement of an election schedule, with national polls slated for February next year, could help restore confidence and bring greater policy clarity next year.