Remittance recedes further as reserves also deplete

Inward remittance continues declining as Bangladesh saw the lowest receipt of foreign currencies from expatriates in eight months to October-in tandem with export fall-even though manpower export has rebounded.

Latest Bangladesh Bank (BB) data show in the just-past month, Bangladeshi nationals working abroad sent in foreign currencies worth US$ 1.52 billion, down by 7.37 percentage points, year on year. The expatriates remitted home $1.64 billion in the same period of 2021.

Compared with the previous month of September also, the remittance inflows dropped as expatriates sent US$1.53 billion, while the monthly volume was US$ 2.03 billion and US$ 2.09 billion in August and July respectively.

Islami Bank Bangladesh Limited netted the highest volume of remittance worth US$358.47 million followed by Agrani Bank with US$ 106.41 million, Sonali Bank US$ 89.44 million, Dutch-Bangla Bank US$86.56 million and Al-Arafah Islami Bank Limited US$84.85 million.

Amid growing pressure on the country's foreign-exchange reserves in the wake of dollar appreciation and mounting import costs against falling export earnings following the Russia-Ukraine war, Bangladesh saw a ray of hope in July when the inward flow of remittances recorded over 12-percent growth to US$ 2.9 billion from US$ 1.83 billion.

The downturn in remittances emerged as a matter of serious concern for the economy which economists say is under immense stress amid Bangladesh's shrinking foreign-exchange reserves.

The local currency, BDT, has depreciated nearly 10 per cent since June 2022 and it did not bring anything positive for the foreign-currency reserves as there is a common trend of increasing inward remittance whenever the local currency depreciates.

The unrelenting remittance fall despite incentives and higher exchange rate for the remitters remains a riddle to central bankers too. Some economists and donors, however, prescribe fully floating exchange rate as a remedy as actors in forex underworld make hay with bigger bets.

When contacted, chief economist of Bangladesh Bank (BB) Dr Md. Habibur Rahman said it's really tough to say why the falling trend in remittance continues despite giving various benefits, including 2.5-percent incentives, to remitters from the state.

"The growing inflation all around the world, including in the major destinations of remittance, might be a cause as inflation probably increases their cost of living there. But we need to wait few months to understand the situation," says the chief economist.

Seeking anonymity, another BB official said they were expecting much higher inflow of remittance as a record number of Bangladeshi people find jobs in overseas markets in recent months.

"The remittance figure is really surprising. We need to address the reasons as quickly as possible because declining trend in remittance is not a good sign right at the moment when reserve is getting squeezed," he adds.

The country's foreign-currency reserves continued declining over the last several months, standing at US$35.85 billion until October 26, 2022.

Another factor that surprises the market analysts about the falling remittance is that the number of Bangladeshi workers going abroad increased significantly in recent months but it did not reflect in the remittance inflow.

They, however, say the flow of remittance decreased as money transfers through informal channels such as 'hundi' and cross-border capital flight might have resumed because of higher import payments alongside the easing of pandemic restrictions.

Contacted for an explanation of the conundrum, Chairman of local think-tank Policy Exchange of Bangladesh Dr M. Masrur Reaz said there are some factors that might discourage the expatriates from sending their hard-earned money back home through formal financial system.

The exchange rate of the foreign currencies on spot market is still much higher than that of the rate offered by banks. Even after the incentive of 2.5 per cent included, this gap might encourage remitters to choose informal options for more gains, he said.

Multiple dollar rates might confuse the remitters and the ongoing uncertainty of dollar prices probably forces the remitters to keep additional savings in their hand so that they can get more bucks if the rate increases further, he further explains.

Mr. Reaz said the growing illicit cross-border capital flight could be another reason as Bangladesh Financial Intelligence Unit (BFIU) in its latest report mentioned that the number of suspicious transactions and activities in the country's financial system increased significantly (62.33 per cent year on year in FY'22).

"Cross-border illicit capital flight is inversely correlated with the formal inflow of remittance," he says, indicating forex retention in destination countries in exchange for taka payments at home to recipients.

"We need to stabilise the dollar market ensuring a uniform rate along with taking measure to further depreciate our local currency," he says.

He also suggests that the policymakers can include a new provision allowing the remitters to keep 20 per cent of their sent money in foreign currencies that they desire. "It might help encourage our expatriates to send remittance in formal channel."

In a latest step, the central bank has asked commercial banks to provide Tk 107 against per US dollar for inward remittance.

The instruction was given Monday in a meeting between the central bank and the Association of Bankers, Bangladesh (ABB), an association of banks' chief executives, and Bangladesh Foreign Exchange Dealers' Association (Bafeda).

But the rate for inward remittance was Tk 108 even a month ago.

A total of 617,209 Bangladeshis found jobs abroad in 2021, while the number was 217,669 in 2020. In the nine months of the current calendar year, about 0.9 million Bangladeshi workers have found jobs in different job-destination countries, according to the Bureau of Manpower Employment and Training (BMET).

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