Analyzes Bangladesh's balance of payments, detailing the dominance of RMG export revenues, remittance transmission mechanics, and the persistent informal Hundi system.
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Bangladesh's balance of payments is defined by two dominant structural inflows: RMG export revenues (84%+ of merchandise exports) and diaspora remittances ($22B annually).
Back-to-Back LC: foreign buyer opens export LC which becomes collateral for raw material import LC — eliminates cash collateral requirement for manufacturers. EDF (Export Development Fund): Bangladesh Bank provides low-interest FX loans to exporters for input financing — being reduced under IMF guidance. Post-devaluation dynamics: 2024 Birr-style, the 2024 taka depreciation significantly increased local currency revenue for exporters, improving competitiveness.
$22B formally recorded annually. Primary sources: Gulf Cooperation Council (Saudi Arabia, UAE, Qatar, Oman, Kuwait), Malaysia, Singapore, and diaspora in UK, Italy, USA. Hundi system: informal trust-based hawala. Operators offer faster transfers, zero paperwork, and higher exchange rates than banks. Prior to taka depreciation, massive volumes routed via Hundi due to overvalued official rates. Post-reform: 2.5% government cash incentive for formal banking channel routing, plus direct bKash/Nagad wallet receipt options significantly increased formal flows.
FDI historically low relative to economic size due to infrastructure gaps, power shortages, and regulatory complexity. Special Economic Zones (SEZs): Bangladesh Economic Zones Authority (BEZA) developing 100 SEZs to attract manufacturing FDI, particularly in electronics and light manufacturing beyond garments. Post-LDC graduation risk: losing preferential EU/UK market access (GSP+) could impact RMG competitiveness and indirectly FDI attraction.