Bangladesh's trade deficit widened by nearly 24 percent to $23.98 billion in FY2025-26 as weak exports and a sharp decline in capital machinery imports underscored slowing industrial activity, with a record surge in remittances emerging as the economy's main buffer against external pressures.
The country's external sector presented a mixed picture during the fiscal year. While falling imports of industrial raw materials and capital machinery signalled sluggish manufacturing and weak private investment, export earnings also fell short of expectations, worsening the trade imbalance.
A record inflow of remittances, however, significantly eased pressure on the balance of payments, helping stabilise foreign exchange reserves.
Bangladesh Bank's Economic Indicators and Balance of Payments (BoP) data, alongside Export Promotion Bureau (EPB) statistics, point to a challenging macroeconomic environment. Economists attributed the subdued trade performance to persistent global uncertainty, high interest rates, financial stress among major industrial groups, rising production costs and weak business confidence.
According to Bangladesh Bank, the trade deficit during the first 11 months (July-May) of FY26 rose to $23.98 billion, up 23.73 percent from $19.38 billion in the corresponding period of the previous fiscal year.
During the period, imports totalled $64.02 billion, while exports stood at $40.04 billion.
Economists warned that if export growth remains subdued, sustaining the current level of imports could put prolonged pressure on the country's external sector.
Import settlements through letters of credit (LCs) reached $70.4 billion in FY26, virtually unchanged from $70.3 billion a year earlier, reflecting growth of just 0.09 percent.
As LC settlements are considered a key indicator of industrial activity, the stagnant figures suggest that the manufacturing sector has yet to regain momentum.
Fresh LC openings, however, rose 7 percent to $74.7 billion, indicating a potential recovery in future imports, although businesses remain cautious about undertaking major investments.
The sharpest declines were recorded in imports of production-related goods.
Imports of industrial raw materials fell 3.33 percent to $23.18 billion, while capital machinery imports dropped 10.68 percent to $1.80 billion, signalling a significant slowdown in long-term investment. Imports of both consumer goods and intermediate goods also declined by around 7 percent.
Petroleum was the only major exception, with imports increasing 6.42 percent to $10.68 billion.
Bankers and industry leaders said several large business groups, including Beximco Group, Nassa Group and Gazi Group, have either suspended factory operations or are operating at only 30-40 percent of capacity following recent political changes. Combined with high borrowing costs and rising debt-servicing expenses, this has sharply curtailed new investment.
The slowdown in manufacturing was reflected in export performance.
Merchandise exports totalled about $48 billion in FY26, down 0.58 percent from a year earlier and well below the government's $55 billion target.
The ready-made garment (RMG) sector, which accounts for nearly 80 percent of Bangladesh's exports, earned around $38.7 billion.
Exporters attributed the weaker performance to retaliatory US tariffs, intense competition in European markets, soft global demand, high domestic logistics costs, persistent energy shortages and elevated interest rates.
Although exports surged 26 percent in June, analysts said the increase was largely driven by a higher number of working days rather than stronger international demand or successful market expansion.
Amid mounting trade pressures, remittances remained the economy's brightest spot.
Bangladesh received a record $35.5 billion in remittances during FY26, up 17.3 percent year-on-year.
The strong inflow substantially reduced the current account deficit and helped generate a $4.16 billion surplus in the financial account, preventing more severe balance-of-payments pressures.
To strengthen trade competitiveness, the government has initiated the country's first Free Trade Zone (FTZ). Bangladesh Bank has already issued guidelines allowing duty-free import, storage, processing, repackaging, relabelling and re-export of raw materials on a consignment basis without requiring conventional letters of credit.
Business leaders believe the initiative could shorten lead times, improve working capital management and strengthen supply chain efficiency.
Mohiuddin Rubel, founder and chief executive officer of Bangladesh Apparel Voice and former BGMEA director, said export performance depends not only on overseas demand but also on domestic production capacity, raw material availability, energy supply, logistics and the investment climate.
"The decline in raw material and capital machinery imports is a clear warning sign for future production. The investments we fail to make today will translate into lower output and exports in the months ahead," he said.
Mohammad Hatem, president of the Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA), said Bangladesh must urgently improve its competitiveness as rival exporters such as Vietnam and India continue to benefit from free trade agreements while Bangladesh prepares for LDC graduation.
"The FTZ is a positive initiative, but its success will depend on effective implementation, faster customs clearance, product diversification and expansion into new markets," he said.
Professor Mustafizur Rahman, distinguished fellow at the Centre for Policy Dialogue (CPD), said reforms are essential as Bangladesh faces growing challenges from global geopolitical conflicts, LDC graduation and preferential trade agreements enjoyed by competing countries.
He said lowering business costs, improving logistics, implementing the National Single Window, facilitating trade, diversifying exports and concluding free trade agreements should be national priorities.
Masrur Reaz, chairman and founder of Policy Exchange Bangladesh and former senior economist at the World Bank Group, said Bangladesh remains overly dependent on the ready-made garment industry, which accounts for about 83 percent of export earnings.
He said competing countries such as Vietnam have significantly diversified their export baskets, enabling them to expand exports more rapidly.
Masrur also stressed the need for long-term policies to modernise manufacturing through smart technologies and a more skilled workforce to strengthen export competitiveness and ensure macroeconomic stability.