Remittances from migrant workers and Bangladesh’s foreign exchange reserves are two essential external flows that have long supported the country’s macroeconomic resilience. After ready-made garment (RMG) exports, remittances were the second-largest source of foreign profits in FY24, contributing about USD 23.9 billion, or roughly 5.21% of GDP. Meanwhile, as a result of growing pressure from both local and international economic challenges, the country’s foreign exchange reserves, which had previously reached a peak of over USD 48 billion in August 2021, have drastically decreased to about USD 22 billion by April 2025.
These dual lifelines have made maintaining currency stability, paying necessary imports, and stabilising the nation’s balance of payments possible. However, recent global events have shown systemic flaws in reserve management and remittance movements, including increased energy prices, geopolitical tensions, and post-pandemic economic upheavals. This article thoroughly examines Bangladesh’s foreign reserves and remittance flows, their interactions, new problems, and the strategic policies required for long-term economic stability in a turbulent international environment.
Bangladesh’s Remittance Flow: Patterns and Factors
Remittances have become Bangladesh’s financial lifeblood over the last forty years, greatly enhancing household incomes and macroeconomic stability. With USD 23.9 billion in remittances as of FY24, the nation ranked eighth globally. Over 13 million Bangladeshi laborers, who are mostly employed in the Middle East, Southeast Asia, and increasingly in Europe and North America, have contributed significantly to this influx, making it the sixth-largest migrant origin nation.
Remittance inflows have historically increased steadily, averaging between 10 and 12 per cent per year between 2010 and 2019. The COVID-19 pandemic, however, caused a rare wave, with inflows hitting a record USD 24.8 billion in FY20–21, mostly due to increased incentives and the usage of official channels. Since then, this rise has been tempered by post-pandemic normalisation and a decline in labor exports.
Labor migration is a key factor in the flow of remittances. More than 1.1 million workers left the country in 2022 alone to find work, the most in a single year. Despite the gradual emergence of other pathways like Italy, Greece, and Japan, the Gulf Cooperation Council (GCC) nations, especially Saudi Arabia and the United Arab Emirates, remain the most popular travel destinations. The dynamics of exchange rates are also quite important. Although it has increased domestic inflationary pressure, the depreciation of the Bangladeshi Taka from BDT 84/USD in early 2021 to over BDT 117/USD in 2025 has made remitting through official channels more alluring.
Introduced in 2019 and later raised from 2%, the government’s 2.5% cash incentive for remittance through official banking channels has had encouraging but modest effects. Although there are still gaps in digital access and financial awareness, the remittance process is becoming easier due to the increasing use of digital transfer platforms like bKash and mobile financial services (MFS) like Tap Tap Send.
The Difficulties of Maintaining Remittance Growth
Considering its crucial role in Bangladesh’s economy, a variety of structural and policy-related issues are threatening to undermine the long-term viability of remittance growth.
The downward trend in foreign worker migration is a major worry. Even though 1.1 million workers were moved overseas in 2022, a large portion of this was a backlog from the COVID-19 era. The volume of new labor exports decreased to about 750,000 in FY23–24 as entrance barriers in important target nations increased. Unskilled and semi-skilled Bangladeshi laborers, who currently make up more than 70% of the migrant labor market, are seeing their chances being reduced by stricter immigration laws, growing workforce localisation in Gulf countries, and worldwide automation trends.
Another significant barrier is the high expense of moving. Bangladeshi workers pay some of the highest hiring fees in the world, with an average salary of USD 3,500 to $5,000 per person (WB). These costs are sometimes covered by high-interest loans, which results in financial fragility, a protracted payback time, and, in certain situations, a complete deterrent to relocation.
A sizable portion of possible formal inflows is somehow diverted by the continued use of unofficial remittance channels, especially hundi. The Bangladesh Bank believes that up to 30% of remittances may be sent through unofficial routes, particularly when legitimate methods become burdensome or when exchange rates are volatile.
The absence of reintegration assistance for returning migrants worsens these problems. The number of returning workers is rising as global labor markets tighten, but few have the resources or skills necessary for economic reintegration. Furthermore, only about 25% of households that receive remittances are thought to invest this cash in productive areas like small businesses, health care, or education, indicating that financial illiteracy is still a barrier.
Foreign Exchange Reserves: Composition and Usage
Reserves are composed of several components, including Special Drawing Rights (SDRs) with the IMF, gold holdings, and foreign currency assets, primarily held in US dollars. These assets are managed by the Bangladesh Bank, primarily invested in short-term sovereign securities and foreign bank deposits to ensure liquidity. The primary sources of Bangladesh’s foreign exchange reserves include exports, especially ready-made garments (RMG), alongside remittance inflows from migrant workers. Additional contributions come from official development assistance (ODA) and concessional loans, foreign direct investment (FDI), and multilateral borrowing, including programs from institutions such as the International Monetary Fund (IMF). Several key factors have driven Bangladesh’s recent growth in foreign exchange reserves:
Surge in Remittance Inflows:
Remittances from overseas workers have significantly bolstered the reserves. As of April 29, 2025, remitters sent foreign currencies equivalent to $2.61 billion, contributing to a total of $24.40 billion in remittances for the fiscal year, marking the second-highest in the country’s history after FY’21.
Growth in Export Earnings:
Export earnings, particularly from the ready-made garments (RMG) sector, have seen a notable increase. The country registered a 10.52% rise in export earnings, amounting to $37.19 billion in the first nine months of FY’25, up from $33.65 billion during the same period in the previous fiscal year.
Clearing of External Payment Backlogs:
Bangladesh Bank has taken measures to clear overdue external payments, such as those to Chevron and Qatar Energy, which have improved the country’s financial image globally and contributed to reserve stability.
Multilateral Support and Loans:
While discussions with the International Monetary Fund (IMF) are ongoing, previous disbursements under the Extended Credit Facility (ECF), Extended Fund Facility (EFF), and Resilience and Sustainability Facility (RSF) have provided financial support, aiding in reserve accumulation.
Reserve adequacy is commonly assessed using indicators like import coverage, which refers to the number of months of imports the reserves can finance. According to the Bangladesh Bank, current reserves can cover about 3.2 months of imports, falling below the recommended threshold of 3.5–4 months set by the IMF for developing economies. Similarly, the ratio of reserves to short-term external debt has declined, indicating increased external vulnerability.
Recent Pressure on Foreign Reserves
Bangladesh’s foreign exchange reserves are primarily used to finance imports, particularly essential commodities such as fuel, food, and industrial raw materials. A significant portion is also allocated toward servicing external debt, which has increased in recent years due to substantial borrowing for infrastructure-related mega projects. Additionally, the reserves are used for currency stabilisation through open market operations aimed at managing volatility in the value of the Bangladeshi Taka.
In recent years, a significant increase in import payments has put significant strain on Bangladesh’s foreign exchange reserves. Due to high global commodity prices and a sharp increase in domestic demand, import expenses in FY22–23 alone topped USD 81 billion. Meanwhile, the gap between foreign exchange earnings and outflows widened at a moderate 3–4% per year, much below pre-pandemic levels. Fuel import prices increased by more than 50% between 2021 and 2023 as a result of the conflict between Russia and Ukraine, which also caused a substantial increase in food and energy prices. BDT lost value because the U.S. Federal Reserve rapidly increased its interest rate from almost 0% in early 2022 to over 5% by mid-2024, making investors pull their money out of Bangladesh.
Policy Measures and Way Forward
To rebuild foreign exchange reserves and sustain remittance growth, Bangladesh must adopt a comprehensive strategy that addresses both structural constraints and leverages digital innovation and strategic diplomacy. A key priority is improving remittance channels by expanding low-cost digital corridors, such as the bKash–Western Union partnership, and replacing the flat 2.5% incentive with a tiered system that encourages higher volumes and longer-term deposits. Additionally, issuing diaspora bonds and Sukuk with competitive returns and social-impact features can tap into broader expatriate wealth. Prudent reserve management will also be essential.
Volatility can be mitigated by forming a stabilisation fund from surplus remittances and commodity gains, and fiscal sustainability can be enhanced by reprofiling short-term debt and negotiating lower-cost financing with multilateral partners.
On the labor front, Bangladesh must secure bilateral agreements with high-wage countries and align vocational training under the “Skill Bangladesh” initiative with global standards, enabling workers to access premium job markets. Expanding rural banking and agent networks will reduce reliance on informal channels like hundi. At the same time, financial literacy campaigns can promote the productive use of remittance inflows, which currently see only 25% invested.
