External balance swings to surplus after 3 years

The country's balance of payments returned to a surplus in the fiscal year (FY) 2024-25, ending a three-year spell of deficits.

The turnaround has been attributed to stronger remittance inflows, foreign aid, a flexible exchange rate, and tighter fiscal measures.

According to the Bangladesh Bank data, the overall balance of payments posted a surplus of $3.3 billion at the end of FY25, bouncing back from a $4.3 billion deficit the previous year.

The country recorded deficits of $8.22 billion in FY23 and $5.38 billion in FY22. The last time the external balance was in surplus was in FY21, when it stood at $9.27 billion.

The balance of payments tracks the difference between what the country earns from the rest of the world and what it spends abroad.

In its Monetary Policy Statement (MPS) for the July-December period of FY26, the central bank said the external sector's recovery was evident in the return to a surplus, the rise in foreign exchange reserves, and a more stable exchange rate.

It also said the main driver of this improvement was the current account balance, which returned to surplus after a large deficit. The financial account also posted a surplus, though to a lesser extent than in previous years.

The current account recorded a $1 billion surplus in FY25, which was $6.6 billion in deficit in FY24, showed data. Meanwhile, the financial account ended the just-concluded year with a $3.2 billion surplus.

The recovery was powered by higher remittance inflows and strong export earnings, while sluggish imports also played a role. The current account swung to a surplus of $981 million, a remarkable improvement on the previous year's shortfall, as per the MPS.

"The current account turned positive because remittance inflows have been strong. That's one aspect. The second aspect is the financial account, which previously had a large deficit," Mustafizur Rahman, distinguished fellow at local think tank Centre for Policy Dialogue (CPD), told The Daily Star.

He said the financial account benefited from loans and assistance from the International Monetary Fund, World Bank and Asian Development Bank.

"With both the financial account and the current account now in surplus, the overall balance of payments has turned positive," he said. "This is certainly a positive development."

"As a result, two things have happened. Our exchange rate has become more stable, and if there is any pressure on the exchange rate, the Bangladesh Bank has also created a half-billion-dollar fund to intervene in the market, when necessary," said the economist.

"So overall, this is definitely a good development for the economy, at least in terms of the external sector, where external balances have been stabilised. As a result, the exchange rate is stabilising, the forex reserves are increasing because of this surplus, and the previous import restrictions are now being eased."

The central bank in the MPS that steady global demand and a market-driven exchange rate helped lift exports by 8.6 percent to $48.3 billion in FY25, up from $44.5 billion a year earlier.

Imports, which had dropped by 11.1 percent in FY24, began recovering in FY25 as the foreign exchange market became more liquid.

Total imports grew by 2.4 percent, led by consumer goods and raw materials for the garment sector. However, the import of capital machinery remained weak, reflecting a lack of investment appetite, it said.

Rahman pointed out that the private sector had not yet resumed capital machinery imports in any meaningful way. However, he said restrictions were no longer necessary.

"If the macroeconomy remains stable, we may then see an increase in capital machinery imports by the private sector, and that could put some pressure on overall imports," he said.

"Now that our reserves are in a good position," he added, "if import pressure increases, the economy is now in a position to handle it."

"But we need to stay cautious, because demand might rise in the future."

Rahman also observed that while the financial account's surplus is a positive sign, it is largely debt-driven.

"The surplus is coming from the loans we are receiving," he said. "Against this, we have to provide debt servicing. So, in that sense, the structure is also positive. It's not just a surplus driven by a debt-creating financial account."