A risky moment to liberalise capital exi

The Bangladesh Bank’s recent decision to raise the threshold for approval-free repatriation of foreign investment—from Tk 10 crore to Tk 100 crore—marks a significant step towards liberalising capital flows. This initiative is intended to improve the country’s investment climate by reducing bureaucratic delays and assuring foreign investors that they can exit the market more easily. Yet, the policy comes at a delicate moment. With the Bangladeshi taka depreciating sharply, foreign exchange reserves under pressure, and the global economic uncertainty rising, the decision raises an important question: is Bangladesh easing capital exit just when investor confidence is becoming fragile?

At first glance, the policy appears sensible. Foreign investors consistently cite difficulties in repatriating profits and disinvestment proceeds as a major concern when investing in emerging markets. Allowing banks to process larger repatriation transactions without prior central bank approval could reduce regulatory bottlenecks and send a positive signal that Bangladesh welcomes foreign capital. But the broader macroeconomic context makes the timing of this initiative particularly sensitive.

Over the past few years, the taka has weakened significantly against the US dollar. In 2021, the exchange rate hovered around Tk 84-86 per dollar. By 2024-2025, it depreciated to roughly Tk 110-120 per dollar in the formal market—a decline of nearly 35 percent within just a few years. While a weaker currency can sometimes enhance export competitiveness, it also creates uncertainty for foreign investors whose returns are ultimately measured in dollars or euros.

For foreign investors, exchange rate movements directly affect the real value of their investments. Consider a simple example. Suppose a foreign investor brings $10 million into Bangladesh when the exchange rate is Tk85 per dollar. The investment is therefore worth Tk 850 million in local currency. If the project performs well and its value rises to Tk 1 billion, the investment appears profitable in taka terms. But if the exchange rate depreciates to Tk120 per dollar by the time the investor exits, the repatriated value becomes approximately $8.33 million. Despite the company’s growth in local currency terms, the investor effectively loses about $1.67 million once the funds are converted back into dollars.

This simple arithmetic explains why currency depreciation often creates anxiety among foreign investors. If investors expect the taka to weaken further, they may prefer to repatriate funds earlier rather than risk larger losses later. In such circumstances, policies that make capital repatriation easier could unintentionally accelerate capital outflows.

These concerns become more pronounced when considered in the context of Bangladesh’s broader external position. The country’s forex reserves have declined significantly from their peak during the Covid pandemic. In 2021, reserves exceeded $44 billion, providing comfortable coverage for imports. Currently, reserves stand at around $29 billion, covering approximately five months of imports (Bangladesh Bank, Monetary Policy Statement, January 2026). At the same time, Bangladesh’s external debt has increased to more than $112 billion, according to CEIC data. This increase largely reflects expanded borrowing to finance major infrastructure projects and development initiatives. Although the overall debt remains manageable by international standards, the growing burden of debt servicing obligations is placing additional pressure on the country’s balance of payments.

Bangladesh also continues to struggle in attracting large volumes of foreign direct investment (FDI). Annual FDI inflows typically range between $1 billion and $2 billion, far below the levels seen in regional competitors. Vietnam, for instance, attracts more than $20 billion annually, while the Philippines receives around $10 billion, according to World Bank data. Structural challenges, including regulatory complexity, infrastructure constraints, land acquisition difficulties, and governance concerns, continue to limit Bangladesh’s appeal to global investors.

From this perspective, the Bangladesh Bank’s decision to raise the repatriation limit can be seen as an effort to improve the investment environment. Investors are more willing to enter a market when they know they can exit without excessive restrictions. Yet, the same policy designed to reassure investors could make it easier for them to leave if confidence weakens.

Recent developments in South Asia illustrate how quickly investor sentiment can shift when macroeconomic vulnerabilities emerge. Before Sri Lanka’s economy collapsed in 2022, years of fiscal imbalances, rising external debt, and declining forex reserves had eroded investor confidence. As reserves fell below $3 billion, capital began leaving the country and the Sri Lankan rupee depreciated sharply. Within months, the country faced severe shortages of foreign currency and eventually defaulted on its sovereign debt. Pakistan experienced a similar pattern. Persistent balance of payment pressures and declining reserves forced repeated IMF interventions. Between 2021 and 2023, the Pakistani rupee lost more than half its value, largely driven by external financing shortages and investor uncertainty.

Bangladesh is not like Sri Lanka or Pakistan. Its export-oriented RMG industry remains strong, and remittance inflows continue to provide an important source of foreign currency. The country is also implementing reforms under an IMF-supported programme aimed at stabilising the macroeconomy and strengthening financial governance.

Nevertheless, the recent depreciation of the taka and the decline in reserves highlight emerging vulnerabilities. In such an environment, investor perceptions can become just as important as economic fundamentals. If foreign investors begin to fear further currency depreciation, the ease of repatriating capital could accelerate outflows rather than attracting new investment.

Ultimately, the success of Bangladesh Bank’s repatriation initiative will depend not only on the policy itself but also on the credibility of broader economic management. Foreign investors rarely panic simply because of regulation change. They panic when they lose confidence in a country’s macroeconomic stability: when currencies weaken rapidly, reserves decline, and policy direction becomes uncertain. For Bangladesh’s new government and central bank leadership, the task ahead is clear: stabilise the exchange rate, rebuild forex reserves, and maintain consistent economic policies. Only by restoring confidence in the stability of the taka can the country ensure that liberalising capital flows strengthens its investment climate rather than exposing new vulnerabilities.

Bangladesh has long been regarded as one of South Asia’s most promising emerging economies. Whether it continues on that trajectory or drifts towards the instability seen elsewhere in the region will depend on how carefully policymakers manage this delicate moment. Without stabilising the taka and rebuilding forex buffers, easing capital exit rules may not attract new investment; instead, it could accelerate the departure of existing capital. In the end, the success of liberalisation will depend not on how quickly the doors to capital are opened, but on how firmly the foundations of stability are secured.

Dr Sharif Mazumder is associate professor of international finance at Northern Kentucky University in the US.

Views expressed in this article are the author's own. 

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