Remittances have long underpinned Bangladesh's economy - boosting household consumption, stabilising the balance of payments and acting as a buffer against shocks. From a modest US$1.4 billion in the 1997 financial year, inflows surpassed US$30 billion in the 2025 financial year and reached nearly US$9.93 billion in the first four months of the 2026 financial year.
Remittances now account for 6.57 per cent of Bangladesh's gross domestic product (GDP), finance approximately 47 per cent of import payments and rival export earnings as a critical foreign exchange source.
Remittance inflows have proved resilient through crises - they grew 19 per cent during the COVID-19 pandemic as informal channels faltered and migrants shifted to formal banking. A similar pattern followed the political unrest after the July 2024 uprising, which saw remittances decrease to a 10-month low of US$1.9 billion but rebounded to over US$2.2 billion within several months.
This growth largely reflects Bangladesh's targeted policy measures. The depreciation of the Bangladeshi taka, revisions to the crawling-peg exchange rate regime, Bangladesh Bank's directive for banks to raise inward remittance buying rates and the crackdown on hundi networks - informal money transfer systems - narrowed the gap between official and curb-market rates and increased the appeal of formal channels.
Amid ongoing economic and political instability, remittances have become a stabilising force. Yet, this reliance raises critical questions about whether remittance inflows are fuelling a sustainable recovery or deepening Bangladesh's structural reliance on external earnings.
The benefits of remittances are clear. Remittances act as a safety net for households, sustaining consumption, funding education and healthcare and supporting small enterprises. Remittance income can reduce rural poverty, ease inequality and enables long-term investment in human capital. Remittances have also bolstered foreign-exchange reserves, steadied the Bangladeshi taka and served as a buffer during the COVID-19 pandemic and 2024 political unrest. As fiscal pressures mount, these inflows deliver reliable foreign currency and a resilient growth engine.
But without structural reforms, dependence on expatriate earnings could mask weaknesses in domestic industries, stall diversification and limit inclusive growth - making future shocks even harder to absorb.
Most inflows still finance consumption rather than productive investment. Low- and semi-skilled jobs in the Gulf region dominate Bangladesh's migration profile and informal hundi channels persist due to faster transfers, lighter paperwork and more competitive rates. Following the July 2024 revolution, the interim government intensified efforts to curb illegal financial flows and tightened enforcement, launching large-scale crackdowns on hundi networks domestically and in key labour markets.
While these efforts redirected some remittance flows to formal channels, they highlighted the persistence of the problem. Without institutional reforms - narrowing the bank-curb rate gap, expanding digital platforms, easing documentation and improving service quality - informal channels will persist.
Nepal exemplifies the remittance trap. Inflows exceed 28 per cent of GDP, cover most of its trade deficit and serve as the country's primary economic engine. In contrast, Bangladesh's remittances represent roughly 6 per cent of a larger and more diversified economy, dominated by ready-made garment exports. Despite Nepal's shift towards higher-wage destinations such as Japan, South Korea and Europe, roughly 80 per cent of its inflows are spent on household consumption, yielding limited productive investment and perpetuating domestic labour shortages.
Though Bangladesh is still reliant on low-skilled migration to the Gulf region, it benefits from greater use of formal channels and more varied spending across consumption, education and micro-enterprise development. Bangladesh's broader export base affords more resilience than Nepal, though Bangladesh remains exposed to labour-market disruptions and political volatility. Remittances are a valuable buffer, giving policymakers room - but not infinite time - to upgrade skills and expand labour corridors before external conditions shift.
For Bangladesh, sustainable development demands a shift - from passive consumption to active investment and from structural dependency to economic diversification. Integrating remittance management into national development plans, while expanding financial inclusion and skills development, can turn remittances into a driver of inclusive and resilient growth.
A forward-looking strategy rests on three pillars, beginning with the need for skills development. Over-reliance on low- and semi-skilled migration limits earning potential and heightens exposure to external shocks. Scaling vocational training, digital competencies and internationally recognised certifications can unlock higher-wage jobs and increase remittance inflows, provided training aligns closely with labour demand in the Gulf and Southeast Asian markets.
Remittance-linked finance must also be prioritised. Expanding micro-investment schemes, savings products, small- and medium-sized enterprise credit and remittance-backed insurance, alongside diaspora bonds and co-investment platforms supported by tax incentives, would channel funds into productive assets and enable expatriates to invest directly in national development.
Formal remittance channels also require strengthening. Reducing dependence on hundi networks is critical for foreign-exchange stability and transparency. This requires stricter enforcement, competitive exchange rates, zero hidden fees, simplified procedures, expanded digital platforms and closing the gap between official and curb-market rates.
Remittances must serve as a bridge towards sustainable development, not a permanent crutch. Without deliberate channelling into infrastructure, entrepreneurship and human capital, current strengths risk becoming vulnerabilities. Through targeted policies, Bangladesh can transform its diaspora earnings from a resilient lifeline into a powerful engine of industrialisation and shared prosperity.
Bazlul H Khondker was formerly Professor of Economics at the University of Dhaka, Chairperson of the South Asian Network on Economic Modeling and Research Director at the Policy Research Institute of Bangladesh. Samah J Majid is Senior Research Associate at the Policy Research Institute of Bangladesh. The piece is excerpted from www. eastasiaforum.org