Bangladesh’s two main sources of foreign currency are remittances and export earnings. In the current fiscal year, both sectors have seen significant growth. Remittance inflows have increased by nearly 27 percent, while export earnings have grown by 10 percent. Despite this strong growth in foreign currency inflows, the country’s foreign exchange reserves have not increased. For the past eight months, reserves have fluctuated between $19 billion and $21 billion.
According to the international BPM6 standard, Bangladesh’s reserves stood at $19.73 billion on March 13. At the beginning of the 2024-25 fiscal year, on July 1, 2024, reserves were at $21.68 billion. This means that instead of increasing, reserves have actually dropped by $1.95 billion over the past eight months. However, during this same period, Bangladesh received $6.79 billion more in remittances and export earnings than in the previous fiscal year. Of this, remittance inflows were $4.40 billion higher. Export earnings increased by $2.39 billion during the same period.
A closer look at Bangladesh Bank’s data reveals that despite the rise in remittances and exports, reserves remain under pressure due to a decline in foreign direct investment (FDI), foreign grants, and medium- and long-term foreign loans. The central bank’s balance of payments (BoP) data for the first seven months of the 2024-25 fiscal year (July–January) shows that FDI inflows dropped by $650 million compared to the previous year. During the same period, foreign aid declined by $1.22 billion, while medium- and long-term foreign loans fell by $1.27 billion. In total, these three sources brought in $3.14 billion less than the previous year. Additionally, imports have risen by $1.22 billion in the first seven months of this fiscal year.
Economists argue that relying solely on remittances and export earnings is not enough to drive economic growth. To strengthen the economy and create new jobs, Bangladesh must attract more foreign investment while also boosting domestic investment. Two key factors are essential for investment growth in any country—law and order as well as political stability. At present, both remain a challenge in Bangladesh.
Given the current situation, expecting foreign direct investment (FDI) in Bangladesh may not be realistic, says economist Dr. Mustafa K Mujeri. The former chief economist of Bangladesh Bank and executive director of the Institute for Inclusive Finance and Development (InM) told Bonik Barta, “The law and order situation is unstable, and political uncertainty is deepening. In this scenario, foreign investors won’t be interested in coming here. No country attracts foreign investment without political stability and a secure environment. Even development partners are unlikely to invest under these conditions. To bring in FDI, loans, and grants, Bangladesh needs a free, fair, and credible national election that establishes long-term political stability.”
Dr. Mujeri also pointed out that a surge in remittances alone cannot stabilize the economy or foreign reserves. “Most remittance money is spent on household consumption. Whatever is left is used to build houses or buy land. Purchasing cars or property is not the same as making productive investments. For job creation and economic stability, investment needs to increase. Even if foreign investors stay away, at least some funds could be raised from expatriates through Wage Earner Development Bonds. But the problem is that there’s little awareness or promotion of these bonds among expatriates. Those who have savings to invest often don’t find suitable opportunities in Bangladesh.”
According to Bangladesh Bank data, between July and March 19 of the current fiscal year, remittance inflows totaled $20.74 billion. During the same period in the 2023-24 fiscal year, expatriates sent $16.34 billion. That means an additional $4.40 billion in remittances has come in this year, marking an increase of 26.92 percent. Meanwhile, export earnings have maintained a nearly 10 percent growth rate. In the first seven months (July–January) of the 2023-24 fiscal year, exports stood at $23.98 billion. In the same period this fiscal year, export earnings crossed $26.36 billion, marking an increase of $2.39 billion.
On the other hand, after two consecutive years of contraction, imports have started growing again this fiscal year. A surge in money laundering and record-high imports of $89 billion in 2021-22 led to a severe dollar shortage in the country. To address this, Bangladesh Bank imposed various restrictions on imports since the beginning of the 2022-23 fiscal year. However, most of these restrictions have now been eased. As a result, import growth has picked up, rising by 4.26 percent in the first seven months (July–January) of this fiscal year. In monetary terms, imports increased by $1.22 billion during this period. In the first seven months of 2023-24, imports stood at $38.86 billion, whereas in the same period this year, they exceeded $40.51 billion.
As the gap between foreign currency earnings and expenditures has narrowed, Bangladesh’s current account deficit has also decreased. In the first seven months of the 2023-24 fiscal year, the deficit stood at $4.28 billion. During the same period this fiscal year, it has dropped significantly to just $550 million. However, this improvement in the current account has not been enough to turn the balance of payments (BoP) positive. By the end of January, the BoP deficit stood at $1.17 billion, which is typically covered by the country’s foreign exchange reserves.
Deputy Governor of Bangladesh Bank, Dr. Md Habibur Rahman, believes that attracting foreign investment is crucial for increasing reserves. “No country can boost its reserves without foreign investment, and for a country like ours, it’s even more challenging. The earnings we get from remittances and exports are mostly spent on imports. Right now, our foreign exchange earnings are helping to stabilize the economy, but to move towards real growth, we need foreign investment.”
When asked what role the central bank is playing in bringing in foreign investment, he said, “Attracting foreign investment is tied to the government’s overall efforts. Political stability is also a key factor. Bangladesh has always been an attractive destination for businesses. The government has taken various initiatives to bring in investors. If foreign investors feel confident, there should be no shortage of investment.”
A review of Bangladesh Bank’s data shows a significant decline in net foreign direct investment (FDI). In the first seven months (July–January) of the 2023-24 fiscal year, net FDI was $900 million. In the same period this year, it dropped to just $250 million—a decline of $650 million. Alongside FDI, foreign grants have also decreased sharply, falling by more than $1.22 billion. In the first seven months of last fiscal year, Bangladesh received $3.28 billion in foreign grants. During the same period in the current fiscal year, that amount has dropped to $2.06 billion, marking a $1.22 billion decrease.
Since 2022, foreign loans to both the public and private sectors have also been declining. The trend has worsened this fiscal year. In the first seven months of 2024-25 FY, the flow of medium- and long-term foreign loans shrank by nearly $1.27 billion.