Originally posted in The Business Standard on 26 January 2026
Export sector performance: Some cautionary early signals
Bangladesh’s export momentum has faltered midway through FY2025–26, as declining shipments, ambitious targets and mounting global trade disruptions raise serious questions about the economy’s external resilience in the year ahead
As far as the export sector of Bangladesh is concerned, the halfway mark of FY2025-26 transmits a number of cautionary signals which Bangladesh’s policymakers should take cognisance of. Against the backdrop of 8.6% export growth in FY2024-25 and the 13.9% target set for FY2025-26, the track record of export performance in the first six months of FY2025-26 is, without doubt, rather disquieting, and ought to be seen as a reason for serious concern.
The looming prospect of LDC graduation impacts, adverse impacts of Trump’s (so-called) Reciprocal Tariffs (RTs), the rules-based multilateral trading system facing an existential crisis as Bangladesh prepares for the upcoming WTO-MC14, and the emerging global geo-economic and geo-strategic scenarios transmit a challenging time ahead for Bangladesh as the economy embarks on its journey in the new year 2026 and the second half of the ongoing FY2025-26.
Export Performance: Disquieting Outlook
Export performance during the first half of FY2025-26 has been quite dismal, with a 2.2% dip compared to the corresponding period of FY2024-25 (USD 24.0 billion against USD 24.5 billion). Exports started with a robust month on month growth of 24.9% in July, 2025 but ended with a negative growth of 14.0% in December, with secular decline in growth in between. This would indicate that the high targets set for export of goods in the budget for FY2025-26, at 13.8%, is unlikely to be achieved. Indeed, to attain the target, exports will need to reach an impractically high growth of 30.2% over the next six months of FY2025-26 compared to the corresponding period of FY2024-25.
Two inferences can be drawn from export performance in this period. First, export earnings were pulled down, as was to be expected, by the lower than projected exports of the dominant RMG sector (-2.6%), though non-RMG export performance was also rather discouraging (-0.3%). Second, since knit-RMG, with its higher domestic value retention, did worse than the woven-RMG, the growth of net export earnings was even lower than what the performance of gross export earnings would indicate. This, in turn, would indicate that the contribution of export earnings to foreign exchange reserves (via net exports) in the first six months of FY2025-26 was notably lower than the corresponding period of the preceding fiscal year.
Export earnings disaggregated by price effect and volume effect exhibit some disconcerting features as far as key markets were concerned. In the US market, for the first quarter of FY2025-26, exports posted a rise of 8.7%. This may appear to be encouraging. However, digging deeper, a decomposition of the earnings growth reveals the continuing feature of volume-driven, and not price-driven, growth of export earnings. In the first quarter of FY2025-26, volume contributed about 6.7 percentage points while average unit price contributed about 1.9 percentage points to the aforesaid export earnings growth of. Some export diversion effect – from China to other apparels exporting countries such as Bangladesh and Vietnam is clearly discernible from concerned data. Decomposition of export growth in the US market shows that for Bangladesh, the two figures are 6.7 percentage points (increase in volume) and 1.9 percentage points (increase in price) respectively. In case of China, both average price (-26.2%) and volume (-27.3%) posted negative growth, contributing to the negative export earnings growth (-46.4%) during.
In the EU market, the trends need to be carefully interpreted. There are signs of growing competition as some exporters tend to shift from the RT-imposed US market to other markets, primarily to the EU market. During July-October period of FY2025-26, Bangladesh’s export earnings in the major EU market have as a matter of fact come down, posting a negative growth of 1.9%. Decomposition shows average prices coming down by 7.9%, with the volume growth of 6.5% not being sufficient to compensate for this, resulting in the overall fall in export earnings. EU market performance appears to be a ‘collateral damage’ originating from the RTs, indicating tough times ahead.
Depleting Current Account Balance
It is true that during the July-October period of FY2025-26, the Balance of Payments position shifted noticeably compared to the corresponding period of FY2024-25. Overall Balance crossed over to positive terrain, from USD (-) 2.2 billion to USD (+) 1.1 billion, an improvement of about $3.3 billion. This was underpinned largely by the positive change in the Financial Account, from USD (-) 0.5 billion to USD 2.2 billion. The negative in the trade balance suffered a further fall (against the backdrop of stagnant export and some rise in imports), and inspite of the robust remittance growth, the Current Account Balance also experienced some decline compared to the corresponding period of the preceding year. This is mainly because exports have not been able to live up to the promise.
From a compositional point of view, the overall improvement in the Balance of Payments position is not reassuring in the sense that the positive shift has come against the backdrop of debt-creating Financial Account Balance, and not from improvements in the Current Account Balance. The persistent robust growth rates of remittances are unlikely to hold over the medium term, and renewed efforts must be put in to improve the Trade Account Balance so that the Current Account Balance reverts back to the earlier positive territory.
Anticipated Challenges In Going Forward
As FY2025-26 enters into the second half, a number of anticipated developments need to be carefully monitored and acted upon accordingly.
Preparing for LDC Graduation
In all likelihood, it is the export sector which will be required to bear the brunt of the adverse impacts of Bangladesh’s LDC graduation, slated for November 24, 2026. 70.0% of Bangladesh’s exports enjoy duty-free, quota-free preferential market access thanks to the more than 40 LDC preferential schemes of various countries. When preferential treatment is no more available, the scenario in which Bangladesh’s exporters will compete in the global market will undergo significant changes because of significant preference erosion.
Highest emphasis will need to be put on implementing the Smooth Transition Strategy (STS) that the Interim Government has formulated, with its 5 foundational pillars, 30 specific areas of interest and 157 concrete actions (with timelines and responsible agencies). The High Level Expert Group (HLEG) set up by the Interim Government to monitor the implementation of the STS has identified a number of priorities: these include putting in place the Single Window system at customs, implementation of the National Logistics Policy 2025, getting the Active Pharmaceutical Ingredients Park off the ground to strengthen backward linkage of the pharmaceutical industry, enhancement of environmental-friendly production capacity of Savar leather park, renewed efforts at product and market diversification through intra-RMG diversification (shift to higher-end items and man-made fibre-based apparels) and by moving into non-RMG sectors such as assembling plants, light-engineering, IT-enabled services and electronics, along with traditional sectors with proven competitive strength such as leather products and environment-friendly jute items.
Indeed, exports of services will need to be given heightened attention and importance as Bangladesh prepares for life after LDC graduation. This will call for promoting and incentivising IT-enabled services, e-commerce, and upgrading the skills of freelancers and those involved with business process outsourcing. Here internet quality, speed and cost will play a key role.
To note, Bangladesh will be able to enjoy preferential market access, indeed for about nine-tenths of its exports for an additional three years, and in some cases till Bangladesh becomes an upper middle-income country, as part of GSP+ scheme of the EU and Enhanced Preference Schemes of a number of other countries. However, the key issue will be compliance assurance with regard to various standards. In short, whether any submission for deferment of graduation is made, or whether this is successful if and when made, Bangladesh must give highest priority to implementing the STS and undertaking the needed homework over the next few years.
Dealing with Trump Reciprocal Tariffs
A number of insights can be discerned from the analysis of the September, 2025 US import data for apparels. First, as far as major apparels export items are concerned, Bangladesh is holding its foothold in the US market. Second, the export growth is predominantly volume-driven. Third, a major trade diversion is taking place from China. Inspite of absorbing the RTs through significant price cut, China has also seen its volume of export fall significantly, resulting in sharp decline in export earnings. Fourth, there are signs that Viet Nam is shifting to the upper-end and MMF segments of the apparels market. Fifthly, Bangladesh’s major competitor India is making aggressive moves to raise its share in the global apparels market. Indeed, the September data shows India was able to absorb lower prices, particularly in woven items (-10.3%), and significantly raised its export volume (+22.5%), thanks to which its export in the US went up by 10.0%.
If September, 2025 performance is an indication, in the coming days, Bangladesh’s apparels exporters may expect further pressure from brands and buyers to keep export prices low which would enable them to absorb additional tariffs along the supply chain (in the process, absorbing a part of the additional tariffs themselves).
Thus, to remain competitive, and maintain its market share in the US, Bangladesh’s exporters will need to go for productivity growth at the enterprise level, and Bangladesh’s policymakers will need to extend the necessary support to the exporters to help them bring down the cost of doing business and reducing lead time through policy support, needed infrastructure and institutional efficiency.
Preparing for the Upcoming MC-14
The upcoming fourteenth Ministerial Conference of the WTO (WTO-MC14) will be an important milestone for Bangladesh, for several reasons. This will be the last MC prior to Bangladesh’s graduation which is slated for November 2026. It will be in Bangladesh’s interest to keenly follow and actively take part in the discussion on international support measures favouring the Graduating LDCs (GLDCs). Indeed, Bangladesh should take the lead to garner support of the WTO members in this regard at MC14.
WTO, as an institution entrusted with putting in place a rule-based multilateral system, has come under serious attacks in recent times, on many fronts. A number of its founding principles such as consensus-based decision-making process, single undertaking (nothing is agreed unless everything is agreed) and national treatment, have come under question. How the post-MC14 global trade is going to develop remains an open question. For developing countries such as Bangladesh, a rules-based trading system, with flexibilities and special and differential treatment (S&DT) for developing countries and LDCs, and sensitive to the development dimensions of trade, is no doubt the preferred option. At the same time, it is likely that regional trading arrangements will become increasingly powerful in the coming days. South-South cooperation and pan-Global South integration will likely gain growing traction.
Some of the telltale signs concerning the export sector of Bangladesh should give reasons for concern as the economy enters the second half of the current fiscal year. As was mentioned, export growth has been persistently negative over the last five months, adverse impacts of Trump RTs are becoming increasingly visible, and it is the external sector which will face the major challenge originating from Bangladesh’s LDC graduation. Policy makers should put maximum emphasis on implementation of STS with a view to making LDC graduation sustainable.
It is highly unlikely that any positive result will emerge from the upcoming MC14 of the WTO in terms of support towards sustainable LDC graduation of the GLDCs. Rather, in which direction the anticipated reforms of the WTO will take the organisation in future remains rather uncertain. However, Bangladesh should take due preparation to secure its interest at MC14.
Bangladesh will need to continue and further strengthen its ongoing efforts towards regional integration of its economy and to ensure that it is able to participate in the global economy from a position of strength, through market and product diversification and raising competitive power. Performance of the Bangladesh economy will no doubt critically hinge on the capacity of the next elected government to successfully navigate the emerging challenges facing the country’s export sector, some of which have been flagged in this write-up.
