By any measure the largest contributor to Bangladesh’s economy are our migrant workers working abroad who sent over USD 24.77 billion in fiscal 2020-2021utilizing formal channels. Including informal channels will raise this amount substantially considering many work illegally abroad.
However, recently the remittances arriving through formal channels have been declining alarmingly. This decline, if not addressed, may substantially deteriorate the state of our balance of payments and impede Bangladesh’s trajectory of government-spending driven economic growth.
In 2021 Bangladesh was ranked 37th in terms of GDP, yet we rank among the top 8 recipients of remittances globally. Bangladesh is undeniably a global remittance powerhouse thanks to our overseas migrant workers. The total remittance flows globally stand at around USD 700 billion; comparable to global crude exports.
In terms of net forex earnings-after accounting for associated raw material imports and subsidized power costs- the contribution from low-margin garments exports cannot even be compared to remittance earnings sent by Bangladeshi migrant workers. Today more than 12 million (1.2 cr) Bangladeshi migrant workers send remittances using official channels. Remittances plug the over USD 20 billion deficit in our current account. In reality, our exports don’t even cover our import bills even after excluding infrastructure related forex expenses.
According to International Organization for Migration (IOM), the average amount sent by our migrant workers monthly is around USD 203, which is far higher than they would earn locally.
Even considering and average number of dependents of migrant workers of 5 living in the country, the 12 million workers abroad support at least 60 million people in the country or almost a third of our population!
The billions of dollars sent by our migrant workers not only help cover our import bills, but they also single handedly created our forex reserves and help pay installments on Bangladesh’s USD 78 billion (and growing) of foreign debt.
Our neighboring countries also realize the value of remittances to their respective economies. Oxford educated Prime Minister of Pakistan, Imran Khan has placed a strong focus on rewarding abroad Pakistanis and providing them with VIP treatment when it comes to remittances.
Khan claimed that nine million Pakistanis living abroad make a significant contribution to the country’s economy. He congratulated Pakistanis living abroad for demonstrating their faith in the country’s bright future by sending record-breaking remittances of over $29 billion in the last fiscal year of FY21, and for continuing the trend in FY22.
According to a recent story in a national daily, eight major projects in Bangladesh account for 4% of our GDP growth. However, these projects’ import expenses and accompanying debt coverage must come from a single source: migrant worker remittance payments.
Remittances that arrive from migrant workers through formal channels go directly to Bangladesh government, which in turn pays the families in Bangladesh taka. This forex becomes available for discretionary spending of Bangladesh government to cover our massive import bill totaling over USD 70 billion, service our foreign debt and carry out mega projects.
Remittance money arriving through informal channels is unaccounted for and doesn’t help carry out Bangladesh’s development initiatives. As such, these illegal channels must be plugged.
Bangladesh Government introduced a 2% cash incentive scheme to promote transfer of remittances through formal channels. Subsequently this was increased to 2.5%. However, the difference between official and market exchange rate for dollar is almost 7-8% today. As such much larger cash incentive will kill illegal money transfers permanently.
Many export businesses in the country are eligible for monetary incentives of up to 20%. These incentives, on the other hand, are calculated based on gross exports. This percentage on net exports will be significantly higher after accounting for associated imports. As a result, a 10% monetary incentive on remittances may not appear unreasonable considering the benefits.
