Bangladesh has rebuilt its dollar cushion. The bigger question now is whether the recovery in foreign exchange reserves can translate into stronger investment, production and growth.
Foreign exchange reserves have risen enough to cover about four months of imports, easing the dollar pressure that weighed on the economy for years. But the recovery has come alongside weak private-sector credit growth and declining imports of capital machinery, industrial raw materials and intermediate goods.
Bangladesh Bank data show gross foreign exchange reserves stood at $36.39 billion on Monday, up $6.08 billion from a year earlier.
The improvement has helped stabilise the foreign exchange market. However, economists say reserves alone cannot revive the economy unless businesses regain confidence and investment returns.
“The increase in foreign-exchange reserves is reassuring because it strengthens Bangladesh’s capacity to meet import payments, manage external shocks and maintain confidence in the currency,” said Fahmida Khatun, distinguished fellow at the Centre for Policy Dialogue.
“However, reserves should not be viewed in isolation. The economy needs to be revived through productive investment, financial-sector reform, reliable energy supply, improved business confidence, policy predictability and access to credit,” added the economist.
Private-sector credit growth has remained below 5 per cent since March, falling to 4.47 per cent at the end of June. In fiscal 2025-26, settlement of letters of credit for capital machinery declined 10.5 per cent from the previous year. Imports of intermediate goods fell 6.5 per cent and industrial raw materials 3.33 per cent.
The figures show that while Bangladesh has regained dollars, demand for foreign currency for productive investment remains weak.
The key question now is whether the reserve recovery will support new factories, machinery imports, production expansion and job creation.
Birupaksha Paul, former chief economist of Bangladesh Bank, however, said the way reserves increased was not necessarily a positive sign for the economy, as it reflected weak investment confidence.
He described it as a recovery rather than an increase, saying the current level remained insufficient.
“We need at least $80 billion in reserves for a healthy economy,” said Paul, now an economics professor at the State University of New York.
Paul said the recovery began during the previous interim government, partly because lower imports reduced dollar demand. At the same time, he said, the market-based exchange rate introduced during that period helped increase remittance inflows.
“As a continuation of the interim government, the current government has failed to maintain political inclusiveness. The finance minister’s statement that it will take two years to resolve the energy crisis has further weakened business confidence,” he said.
He added that an economic review was necessary, but the government had yet to take any initiative in this regard.
The reserve recovery has been supported by stronger remittance inflows and export earnings rather than only lower import demand.
From December through May, expatriate Bangladeshis sent more than $3 billion in remittances in each of six consecutive months, strengthening the country’s foreign currency supply.
Bangladesh Bank spokesperson Arief Hossain Khan said the market-based exchange rate and improved management of the foreign exchange market helped increase formal remittance flows.
“Bangladesh Bank’s move to make the exchange rate market-based, together with sound management, has kept the exchange rate stable for a prolonged period,” he said. “It has also been possible to reduce hundi transactions. These factors have encouraged expatriates to send more remittances through legal channels, which has played a major role in rebuilding the reserves.”
Following the fall of the Awami League government, the interim administration moved towards a market-based exchange rate following IMF recommendations. As the gap between official and market rates narrowed, formal remittance channels became more competitive.
Gross reserves stood at $25.92 billion when the Awami League government lost power in August 2024. They increased by about $9 billion during the 18 months of the interim government, even as authorities began settling external obligations and gradually eased import restrictions imposed during the dollar crisis.
The rise continued after the BNP government took office on 17 February, with reserves increasing by roughly another $3 billion over the following six months.
Bangladesh’s recent history shows that a large reserve does not automatically mean a stronger economy.
Gross reserves reached a record $48 billion in August 2021 when the Covid-19 pandemic sharply reduced imports while remittance inflows increased.
More dollars were entering the country while fewer were leaving.
However, the reserve figure was partly inflated by foreign exchange committed to the Export Development Fund and other uses. Reserve money was also used to finance Biman Bangladesh Airlines and dredging of the Rabnabad channel at Payra Port.
Bangladesh Bank later began publishing reserves under the internationally recognised BPM6 methodology as part of its IMF commitments.
The weakness of the earlier reserve position became clear after Russia’s invasion of Ukraine in 2022 pushed global fuel and commodity prices higher.
Bangladesh’s import bill surged, creating a dollar shortage. Bangladesh Bank sold foreign currency from reserves to support the market, causing reserves to decline rapidly.
The exchange rate, which was around Tk86 per dollar, eventually rose as high as Tk128.
By August 2024, gross reserves had fallen to $25.92 billion.
In three years, nearly half of the record reserve level had disappeared.
Economists say the current reserve position provides Bangladesh with a stronger external buffer, but the next challenge is converting stability into growth.
