Kazi Zahidul Hasan :
Remittances sent by overseas Bangladeshi workers fell by almost 20 per cent during the first seven months of the current fiscal year despite an increase in the number of outbound migrant workers with major employment destinations.
The fall has sparked concern that further decline could disturb the structure of the economy at the macro level when the inflow contributes to GDP growth, creates income opportunities for the millions of rural households and facilitates infrastructural development.
Remittances are also a main source of foreign exchange reserves for Bangladesh and they help contain trade balances, external debt payment and widen the revenue base through increased consumption.
“Families of the migrant workers would not be affected because remittances will somehow reach their hands even after transferring through informal channels. “But the main impact would be on balance of payment amid higher import expenses,” Dr Zahid Hussain, former lead economist of the World Bank’s Dhaka office told The New Nation.
The cumulative remittances reached $11.93 billion during the July-January of the current financial year (2021-22). The inflow of remittances was $14.90 billion during July-January of the last financial year (2020-21).
Recently, the governmentincreased cash incentive on remittances to 2.5 per cent from 2 per cent to encourage migrants to use proper channels to send money home amid their falling inflow.
Dr Zahid cited that Bangladesh remains under growing balance of payment pressure as import spending surpasses export earnings and remittances. Such lower receipts of foreign exchange aggravates the country’s current account balance during the fast half (July-December) of the current fiscal year (FY) 2021-22.
Referring to a central bank data, Dr Zahid mentioned that Bangladesh’s current account – the difference between the value of export and import, has already turned $8.18 billion negative in the H1 of the current fiscal year from a positive balance of payment of $3.52 billion during the same period in FY21.
Dr Zahid said, “Remittances are used to finance trade deficit and foreign debt servicing. A lower flow of remittances associated with high import payment could weaken the country’s capacity to external payment needs, for essential imports and foreign debt service.”
Bangladesh registered a record $24 billion in remittances last fiscal year amidst the global pandemic.
“Hundi, an illegal way of transferring funds that helps money laundering, came to a complete halt following the travel restrictions in the migrant destinations due to Coronavirus outbreak. As a result, Bangladesh saw all-time-high remittance inflows in FY 2020-21,” observed Dr Zahid.
“But, these hundi activities have begun to flourish again causing fall to remittances through official channels,” he added.
Dr Zahid mentioned that falling remittances along with soaring trade deficit contributed to the country’s negative balance of payment position. “A persisting period of negative balance of payment will make the whole balance of payments situation into jeopardy and thus will exert pressure on country’s external payment needs for imports and foreign debt service.”
When asked, he said that the trade deficit is expected to widen further in the months to come as the growth in exports is not taking place in line with import.
Bangladesh Bank data showed that the country’s export earnings increased by 27.25 per cent to $23.36 billion in July-December of FY22 from $18.35 billion in the first half of FY21.
On the other hand, the country’s import payments grew by 54.49 per cent to $38.97 billion during the period against $25.23 billion in the same period of FY21.
Consequently, the country’s trade deficit widened to $8.74 billion or by 127.2 per cent during the period under review.
Due to the widening of trade deficit, the country’s foreign exchange reserve has faced contraction after reaching a record high of $48 billion in August 2021.
The country’s foreign exchange reserve stood at $42.70 billion on 26 January 2021 and it was $45.13 billion on 26 January this year.
Citing the IMF report, Dr Zahid said, “This high reserve has been accumulated as BB overstated its foreign exchange reserves by $7.2 billion ‘through inclusion of non-reserve assets underestimating related risks.”
“If we deduct $7.2 billion from the current level of reserve it would come down to $38 billion. The current level of reserve could help meet the country’s import payment for the five months. Level forex reserve should be more to help gain investors’ confidence and keep the domestic economy safe from external shocks,” he added.
Dr Zahid also said. high import has already made foreign exchange market highly volatile with Bangladesh currency ‘Taka’ losing value against the main reference currency, US ‘Dollar’. “If Taka continues to lose value in the foreign exchange market against the main reserve currencies like US Dollar, it will become a matter of concern,” he said.
