Bangladesh’s FY26 balance of payments: External stability amid weak investment and export dynamism

The latest Balance of Payments (BoP) data needs to be interpreted carefully. The trade deficit widened to about $27.3 billion in FY26, the highest since FY22, as merchandise imports increased by 10.5 percent while exports remained virtually stagnant. But I would not interpret the higher import bill as evidence of a strong recovery in investment or domestic economic activity. 

Bangladesh Bank's import data show that capital-machinery imports have remained weak, while imports of industrial raw materials have also been subdued. This suggests that the increase in aggregate imports has not yet been accompanied by a broad-based revival in productive investment.

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At the same time, some recovery in imports is not necessarily undesirable. Bangladesh has gone through several years of severe import compression at a time when inflation has remained persistently high. Greater availability of food, fuel, essential consumer goods and production inputs can help ease domestic supply constraints, improve competition and reduce price pressures. 

With point-to-point inflation still at around 9 percent, restoring a more normal supply of imported goods can therefore be part of the inflation-adjustment process. 

The problem is not that imports are recovering. The more important concern is what Bangladesh is importing and what is happening simultaneously to investment and exports. If imports recover while capital machinery remains depressed and exports stagnate, the wider trade deficit is generating less additional productive capacity than one would normally hope to see.

For a developing economy, a larger trade deficit can in fact be a healthy sign when it reflects imports of machinery, technology, intermediate inputs and other goods that expand future productive and export capacity. 

What is unusual in the present situation is the combination of a sizable increase in total imports with continued weakness in investment-oriented imports and virtually no export growth. This suggests that Bangladesh is experiencing some normalisation of domestic import demand, but not yet a strong investment-led recovery.

There is another indicator pointing in the same direction. Net foreign aid flows declined substantially, from about $6.46 billion in FY25 to $4.09 billion in FY26. Medium- and long-term loan inflows fell by around 20.5 percent, while amortisation payments increased by about 20.7 percent. 

Part of the reduction in net aid therefore reflects rising debt repayments, but weaker disbursement of long-term external financing is also consistent with subdued implementation of public investment and development projects. Taken together with weak capital-machinery imports, this reinforces the impression that investment activity has yet to regain strong momentum.

The widening trade deficit has not generated an immediate balance-of-payments crisis because remittances have provided an exceptionally large cushion. Remittance inflows reached about $35.6 billion in FY26, helping contain the current-account deficit to around $1.6 billion, while the overall BOP recorded a surplus of $6.6 billion. 

This creates an interesting asymmetry in the economy: external-sector stability has improved considerably, but the improvement has not yet been matched by a comparable recovery in investment, industrial activity and export dynamism. Remittances and stronger reserves are giving Bangladesh valuable macroeconomic space. The challenge now is to convert that stability into productive investment and export growth.

The writer is chairman of Research and Policy Integration for Development.