South Asia stands at a paradox. Home to nearly 2 billion people and a US$5 trillion economy, the region trades far more with Europe, the United States, and China than within its own borders. Intra-SAARC trade remains stuck at just 8% of total exports, around US$38.7 billion, compared to 22% in ASEAN and nearly half in the European Union. This chronic underperformance comes at a time when Bangladesh, the region’s second-largest economy, is grappling with mounting external debt and new borrowing restrictions imposed by the IMF. Together, these trends expose the risks of a fragmented trade architecture and a debt-fueled growth model.
The shrinking regional trade share
The latest figures are demotivating. Bangladesh’s intra-SAARC trade share has collapsed from 12.8% in 2021 to just 2.8% in 2024. India and Pakistan remain stuck at a meagre 3–4%. Bhutan, once 90% dependent on SAARC trade, now relies on the bloc for only 16.5% of its commerce. Only Nepal has consistently maintained regional trade shares above 50%. In contrast, landlocked economies in other regions, ASEAN’s Cambodia or Laos have thrived by integrating into regional supply chains. South Asia’s persistent mistrust, tariff barriers, and infrastructure bottlenecks make it cheaper to ship a Bangladeshi garment to Rotterdam or Tokyo than to Kolkata.
Debt pressures closing in
Bangladesh’s external debt has tripled in just over a decade, rising from US$21 billion in 2010 to over US$74 billion in 2023 and reaching US$112.15 billion by June 2025, up from US$104.8 billion in March. Government debt alone jumped 9% in a quarter to US$92.37 billion, while state corporations owed US$12.18 billion. Private sector debt fell slightly to US$19.77 billion, reflecting weak credit demand and slowing investment. With the debt-to-export ratio at 162.7% in FY24, the IMF capped new foreign borrowing at US$8.44 billion for FY26. Debt servicing has already surpassed US$4 billion annually, sharply narrowing space for external financing.
Trade barriers and political roadblocks
The drivers of South Asia’s low trade integration are well known, which are, high tariffs, duplicative and unnecessary non-tariff measures, congested land ports, withdrawal of port accesses, stagnant status of infrastructure build-up projects and sudden trade bans. In April 2025, for instance, Bangladesh halted yarn imports from India to protect spinners, prompting New Delhi to retaliate by blocking transshipments and prohibiting certain Bangladesh originating exports through land. Nearly US$15 billion in bilateral trade was disrupted overnight. Similar disputes underscore how political impulses routinely override regional commercial interests. Meanwhile, ASEAN and the African Union show that political will, harmonized standards, and investment in logistics can reverse decades of fragmentation. Even severe tensions rarely outweigh commercial interests– recent Thailand-Cambodia clashes that left dozens dead and thousands displaced show how ASEAN still functions on shared economic goals, unlike SAARC, crippled by non-visionary leaders persuaded by provocative, non-factual media narratives.
The way forward
For Bangladesh, with foreign borrowing capped and external liabilities mounting, the only sustainable option is to accelerate intra-regional trade and build wealth from within. Five urgent policy imperatives stand out for Bangladesh to lead along with other South Asian countries:
- Move from market integration to productive integration: Focus on joint manufacturing and industrial clusters, not just customs unions.
- Develop regional sectoral roadmaps: For textiles, machineries, leather, electronics, renewable energy, and agro-food, where complementarities are strongest.
- Leverage comparative advantages: Bangladesh’s labor-intensive production sectors like textiles, India’s IT, electronics and big consumer market, Pakistan’s agribusiness, minerals, petroleum and chemicals, Sri Lanka’s rubber, seafood and aquatic products, Nepal’s and Bhutan’s hydropower, Maldives’ tourism, Afghanistan’s fruits, nuts, and rare-earth elements.
- Invest in enabling infrastructure: Corridor rail networks, harmonized ports, and interoperable regional digital payment and customs systems.
- Institutionalize coordination: Through SAARC, BIMSTEC, or BBIN platforms, backed by monitoring mechanisms and accountability frameworks.
- Embedding trade into macroeconomic resilience strategies: Treating intra-South Asian commerce as a buffer against external volatility.
Unless South Asia embraces economic cooperation, it will remain a region of lost trade and investment opportunities– large in population, heavy in debt, but light in trade with itself.
