Why does the taka remain weak despite record remittances?

In 2025, Bangladesh achieved an unprecedented milestone in its economic history: remittance inflows surpassed $32.8 billion for the calendar year—the highest ever recorded, marking a roughly 22 percent increase from the previous year. This surge was driven by expatriate Bangladeshis sending more money home, often through formal banking channels, and government policies which encouraged legal remittance transfers while cracking down on informal hundi networks.

Despite this historic record, many ordinary citizens are feeling the weight of a weak taka in their everyday life: prices for fuel, edible oil, medicine, and imported essentials remain high; foreign goods seem relentlessly expensive; and the cost of living hasn’t eased in any palpable way. This disconnect between the remittance increase and people’s lived experience points to deeper structural challenges: remittances are cushioning the economy, not curing its vulnerabilities.

Remittances do more than simply pad foreign exchange reserves; they are a lifeline for millions of Bangladeshi families. For households, remittance income helps pay for food, education, healthcare, and investment in small businesses. At the macroeconomic level, these dollar flows have played a critical role in shoring up Bangladesh’s external balance and providing much-needed liquidity in foreign currency markets. While remittances arrive continuously, they are swiftly absorbed by the economy’s overwhelming demand for foreign exchange, which explains why rising remittance inflows have not translated into a visibly stronger taka.

Bangladesh’s reliance on imports remains deeply entrenched. Fuel, industrial raw materials, capital machinery, pharmaceuticals, fertilisers, and even many processed foods are sourced from abroad. A significant portion of remittances is quickly spent on these imports. In simple terms, remittances enter through the front door and exit via import bills—a cycle that weakens the currency’s upward momentum. Although they reduce the pressure on reserves, they do not automatically cut import demand. As imports rebound with economic activity, the expenditure of remittance dollars on necessary imports continues to constrain the overall net foreign exchange position. Consequently, the taka’s exchange rate reflects the tension between these inflows and even larger outflows: the continued necessity of paying for foreign goods. As a result, even increased remittance inflows does little to make the taka substantially stronger.

The surge in remittances has led to a notable rebound in Bangladesh’s foreign exchange reserves. Gross reserves in early January crossed $33 billion, the highest in three years since FY2021-2022, buoyed by strong remittances and continued dollar purchases by the central bank. But once again, the headline number masks underlying fragilities. Reserves measured under the International Monetary Fund’s BPM6 methodology, which excludes certain illiquid or encumbered assets, stand at $28.51 billion, illustrating that usable reserves are not as large as the gross figure suggests. Moreover, these reserves must cover months of import payments, leaving limited slack for unforeseen shocks. So, while reserves are steadying, they are doing so largely because remittances are financing imports in real time instead of strengthening reserves sufficiently to support broad currency appreciation.

There’s an intuitive expectation that if the taka stabilises, consumer prices should ease. But the mechanics of exchange rate pass-through (how well and how fast changes in the exchange rate show up in domestic prices) are often asymmetric. When the taka depreciates, increased import costs quickly push up domestic prices. Yet, when the pressure of depreciation eases, even significantly, prices rarely fall with similar speed or magnitude. There are several reasons for this asymmetry. Many import contracts are tied months in advance at previous exchange rates. Even if the taka stabilises, goods already priced at higher dollar rates will continue to contribute to inflation. Besides, higher costs of transport, financing, and energy persist even after exchange rate stabilisation, sustaining price pressures. Moreover, firms often adopt cautious pricing strategies in uncertain environments, preferring to maintain margins rather than lower prices. Thus, the “feel” of a weak taka persists even when official metrics indicate stability, because those metrics do not translate directly or immediately into lower consumer prices.

Exchange rates are not just about numbers, they are also about confidence and expectations. The level of foreign reserves signals to markets how much buffer an economy has against external shocks. When reserves are under pressure or perceived to be so, traders and importers hedge by demanding higher premiums for dollars, driving up the effective exchange rate. While remittances have helped arrest reserve decline and even deliver gains, the broader confidence in the taka has not fully recovered. Ongoing external obligations and heavy import needs mean markets are still cautious. The result is that even with rising remittances, the taka remains sensitive to fluctuations in import and debt-servicing demands.

A deeper structural challenge lies in the fact that remittances are not the same as export earnings. Export growth, especially in diversified, high-value sectors, is far superior for sustainable currency strength. Export revenues represent returns from productive economic activity, tied to global competitiveness, technology adoption and industrial capability. Remittances, by contrast, are income transfers. They boost consumption and savings but do not necessarily enhance productive capacity, diversify the export basket, or reduce import dependence. As Bangladesh nears graduation from the least developed country status—a transition that will gradually strip away preferential trade benefits—reliance on remittances will be even less adequate as a long-term shield.

If remittances cushion the economy but do not cure its structural weaknesses, what would real strengthening look like? First, export diversification must become more than a slogan. Beyond ready-made garments, Bangladesh needs to promote new manufactured goods, digital services, pharmaceuticals, and creative industries. Second, import efficiency must improve. Investing in energy independence, local supply chains, and improved logistics can reduce foreign exchange outflows without throttling growth. Third, policymakers must enhance transparency and credibility in reserves management, communicating clearly and resisting ad-hoc measures that create mixed signals in markets. Finally, remittances themselves could be better leveraged, not just spent on consumption, but channelled into productive investments and diaspora-linked enterprise development.

While record remittances are a welcome headline and a lifeline for many families, the cushioning they provide is not a cure for the economy. Without addressing structural weaknesses in export capacity, import dependence, and foreign exchange management, the taka will continue to feel weak, and ordinary citizens will feel the pinch of prices that never truly ease. The economic equation is simple: remittances can support stability, but only broader, deeper reforms can sustain strength. Bangladesh should celebrate its remittance inflow milestone, but it must also treat it as a window of opportunity to fix the vulnerabilities which have held its currency and economy captive for far too long.

Md Mominur Rahman is assistant professor at the Bangladesh Institute of Governance and Management (BIGM). He can be reached at mominur.rahman@bigm.edu.bd

Views expressed in this article are the author's own. 

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