Current account deficit narrows despite wider trade gap as remittance inflows remain strong

During the first 10 months (July-April) of FY26, the current account recorded a deficit of $1.07 billion, compared with a deficit of $1.64 billion during the same period of the previous fiscal year. As a result, the deficit narrowed by $563 million.

The Bangladesh Bank released the latest balance of payments data today (8 June).

Experts say remittances were the main factor behind the improvement in the current account. Despite the trade deficit widening by more than $4 billion, robust remittance inflows helped offset the impact and reduce the overall deficit.

Economists note that the current account is one of the most important indicators within the balance of payments. An economy generally performs better when the current account is in surplus. However, despite strong remittance growth, the current account remains in deficit because of the country's large trade gap.

Mustafizur Rahman, distinguished fellow at the Centre for Policy Dialogue (CPD), said, "Although the trade deficit has increased, higher remittance inflows have prevented a deterioration in the current account. Remittances have risen by more than $5 billion. Achieving a current account surplus would strengthen the economy."

He added, "Even with robust remittance inflows, we are unable to turn the current account positive. This reflects a structural weakness. The economy needs to improve through stronger current account balances, but we have not been able to reach that stage. The persistent trade deficit is preventing us from breaking out of this trend."

The current account is a key component of a country's balance of payments, covering net trade in goods and services, income from abroad, and current transfers such as remittances.

According to Bangladesh Bank data, remittance inflows during the first 10 months of the current fiscal year increased by 19.5% compared with the same period a year earlier. Expatriate Bangladeshis sent $29.33 billion during July-April of FY2025-26, up from $24.54 billion during the corresponding period of FY2024-25.

Trade deficit widens as exports decline

Bangladesh Bank data show that the trade deficit widened to $22.21 billion during the first 10 months of FY2025-26, compared with $18.23 billion during the same period of the previous fiscal year.

Economists identify weak export performance as the main reason behind the widening trade gap.

Exports during the first 10 months of the current fiscal year totalled $36.02 billion, down from $36.57 billion a year earlier. This represents a decline of about 1.5%.

Meanwhile, imports increased by nearly $4 billion. Imports reached $58.23 billion during the period, compared with $54.80 billion during the same period of the previous fiscal year.

Mustafizur Rahman said, "The trade deficit has widened because imports have increased by nearly $4 billion, while exports have not grown and have instead declined."

He added, "Exports are not increasing at the same pace as imports. The slowdown in export growth is contributing to the widening trade deficit. Imports are likely to increase further in the future, which will add pressure. Unless exports rise, the trade deficit will continue to expand."

He noted that higher imports are generally positive for the broader economy, but stressed that greater efforts are needed to boost exports.

Financial account records surplus

According to Bangladesh Bank data, the financial account posted a surplus of $4.47 billion during the first 10 months of FY2025-26, compared with $1.13 billion during the same period of the previous fiscal year.

Economists said the improvement was mainly driven by a positive trade credit position.

Trade credit stood at a positive $3.57 billion during July-April of the current fiscal year, compared with a deficit of $1.47 billion a year earlier.

Trade credit refers to goods or services received with payment deferred to a later date. In balance of payments accounting, it is treated as a short-term capital flow under the financial account because it finances imports.

Overall balance of payments position improves

During the first 10 months of FY2025-26, the overall balance of payments recorded a surplus of $3.74 billion, compared with a deficit of $655 million during the same period of the previous fiscal year.

The improvement was primarily driven by the stronger performance of the financial account, which helped significantly improve the country's overall balance of payments position.

Zahid Hussain, former lead economist, World Bank Dhaka office said, "We are beginning to see the impact of the global price increases due to the [Iran] war on our trade balance. 

"The trade deficit increased as import payments rose significantly, largely due to hefty increase in payments for the import of crude oil, refined oil and fertiliser. Despite strong remittances, the current account deficit almost doubled in April relative to March largely due to increased trade deficit."

Thanks to surplus in the financial account, surplus in the overall balance of payments has increased, he said. 

"This is primarily due to increased trade credit which predominantly reflects the growth of import payments. Since trade credit is very short term, the rise we are seeing now cannot be sustained. This means the financial account will face pressure going forward unless other items, especially MLT disbursements pick up," the economist explained.

Overall the BOP shows some resilience to heightened external pressure, thanks largely to remittances, but this cannot be taken for granted, Zahid Hussain added.