Balance of payments improves on CAD cure

Bangladesh relishes some relief in external finances as its overall balance-of-payments (BoP) situation improved notably in May, driven by a sharp fall in the current-account deficit.

According to the latest data released by the central bank of Bangladesh, the overall BoP deficit stood at US$1.149 billion in May 2025 -- in an over fivefold contraction from US$5.885 billion shortfall recorded in the same month last year.

Balance of payments is a comprehensive record of all economic transactions between a country's residents and the rest of the world.

A BoP surplus typically occurs when a country earns more from exports and foreign income than it spends on imports and other external obligations. Conversely, a deficit indicates the opposite.

Bangladesh Bank officials attribute the recent improvements to stronger inflows, including disbursements from the International Monetary Fund (IMF), which boosted the official foreign-exchange reserves. They anticipate a more favourable BoP outcome for June as additional tranches of IMF and other multilateral loans are reflected in the accounts.

The BoP consists of three major components: current account, capital account and financial account.

In May, the current-account deficit or CAD narrowed significantly to US$432 million, compared to US$6.116 billion during the same period a year earlier. This marks a major turnaround.

The country's capital-account surplus stood at US$320 million, about 11- per-cent lower than previous year's.

The financial-account surplus declined steeply to US$266 million in an 87-percent drop year on year.

Economists say BoP's overall improvement emanates largely from a dramatic reduction in the current-account deficit.

"The large decline in the current-account deficit is due mostly to sustained improvement in remittances and a recovery in exports," says Dr Zahid Hussain, a leading independent economist in Bangladesh.

Remittance inflows surged by nearly 29 per cent, while export earnings rose 9.4 per cent during the period.

Commenting on the weakened financial account, Dr Hussain notes that outflows related to trade credit spiked in May, possibly indicating slower repatriation of export proceeds.

He also mentions that net aid flows declined, contributing to the weaker financial account.

However, the economist expects the numbers for June to show improvement as budget supports from multilateral lenders such as the IMF and the World Bank are disbursed.

Dr M. Masrur Reaz, Chairman and CEO of Policy Exchange Bangladesh, told the FE that the BoP figures signaled a return to macroeconomic stability.

"These developments in the BoP components suggest that Bangladesh is back on a stronger economic track, particularly in terms of foreign- exchange earnings," he said.

He describes the improvement in the current account and overall BoP as "encouraging" and "robust."

"Now, Bangladesh can gradually ease import compression and return to "normal levels".

He further notes that this trend is a positive sign for all stakeholders, especially commercial banks and their foreign counterparts, and could strengthen the country's credit profile and international rating.

jasimharoon@yahoo.com