Over the past 25 years, labour migration from Bangladesh has registered a steady increase. From 1990 onwards on an average 2,25,000 Bangladeshis are migrating on short-term employment, mostly to 13 countries. In the past, the bulk of the migrants consisted of professional and skilled labour. However, the recent trend is more towards semi- and unskilled labour migration. The major outflow of Bangladeshi labour generated significant financial flow to the country in the form of remittance. Remittance is crucial for Bangladesh’s economy. It constitutes almost one-third of the foreign exchange earnings. In 1998-99, remittance contributed 22 percent in financing imports. Studies have shown it has a strong positive impact on GDP, and also on consumption and investment.
Remittances are funds transferred from migrants to their home country. They are the private savings of workers and families that are spent in the home country for food, clothing and other expenditures, and which drive the home economy. For many developing nations, such as ours, remittances from citizens working abroad provide an import source of much-needed funds. In some cases, funds from remittances exceed aid sent from the developed world and are only exceeded by foreign direct investment (FDI).
Remittance is the second-highest source of foreign currency earnings for Bangladesh, second only to the ready-made garments industry. However, in terms of net earnings, remittance can be considered the highest, since a large portion of RMG earnings needs to be spent on raw materials. As such, there is no way to underestimate the importance of remittance earnings in the growth of the Bangladeshi economy.
To put this into numbers, Bangladesh has the third-highest inward flow of remittance in South Asia, right after India and Pakistan, and 11th globally according to the World Bank. Well, at least this was true until a pandemic broke out globally.
Inward remittance grew by nearly 18 per cent to a record $18.42 billion in 2019 thanks in part for a government effort to incentivize remitters. Last year, Bangladesh’s remittance income hit an all-time high, giving a breather to the country’s ongoing foreign exchange crisis. Remittance is one of the main drivers of the country’s economic growth, accounting for 5.4 percent of the gross domestic product in the year.
The ongoing depreciating trend of the taka against the US dollar, a strong stance taken by the central bank to fight illegal money transfers and the good commission offered by banks to remitters were the main reasons behind the spike.
The figures jumped from $15.53 billion in 2018, according to the central bank’s latest statistics. Financial incentive along with the depreciating mode of taka against the dollar has helped boost the influx in the last calendar year, according to bankers.
The remittance inflow was estimated at $1.69 billion in December last, up by nearly $132 million from that of the previous month. In November 2019, the amount stood at $1.55 billion. While the number was $1.18 billion in November 2018.
The importance of boosting remittance was not lost on the government. The government of Bangladesh recently proposed a 2% incentive for the expatriate community from the financial year 2019-20, in an effort to encourage more foreign remittance into the country. As per a notice issued by the Central Bank, beneficiaries will receive a direct 2% incentive for transfers of up to USD 1500 without any verification. However, for amounts exceeding USD 1500, they will have to show valid supporting documents; to prevent the misuse of money.
The cash incentive was also part of central banks efforts to strengthen its surveillance against hundi, an informal system of remittance that is illegal as the money exchange takes place outside the banking channels. However, due to stringent measures to curb the illegal movement of money, official remittance numbers could look even brighter in the future, as fewer and fewer workers abroad will be turning to illegal channels to send their money.
When China sneezes, the world catches a cold
Bangladesh is one of the top 30 remittance sending countries, inflows from 19 have contracted in the first two months of the year, according to data from the central bank of Bangladesh. In January of this year, remittance inflows stood at $1.63 billion, down 3.14 percent from a month earlier. The figure also decreased by 11.36 per cent to $1.45 billion in February. And in the days ahead, it will drop off even more, given the fact that the virus is bringing the global economy down to its knees, experts said.
Remittance from Japan, which was also struck by the lethal virus, also registered a declining figure. $3.04 million came in February and $3.92 million in January, down from $5.53 million in December last year. Italy, one major remittance source for Bangladesh and is currently on lockdown, sent in frustrating sums in the last two months. Remittance from the European country stood at $57 million in February, $73 million in January, but the figure was $83 million in December.
In January of this year, remittance inflows stood at $1.63 billion, down 3.14 percent from a month earlier. The figure also decreased 11.36 per cent to $1.45 billion in February.
Oil Prices, What’s up with that?
While it is desirable to blame all evils of the economy on the pandemic, it would be unwise of us to do so. According to Ahsan H Mansur, executive director of the Policy Research Institute, the Gulf countries, which play host to a large population of Bangladesh’s migrant workers, are facing economic setbacks too due to lower demand of petroleum. He was quoted saying, “This means, remittance from the Middle East will also decline, which will hit the rural economy,”.
Remittance from Saudi Arabia and the UAE, the top two sources of remittance for Bangladesh, decreased in January and February. Non-resident Bangladeshis in Saudi Arabia sent home $321 million and $308 million in January and February respectively. In December last year, they remitted $335.73 million. The UAE also showed the same worrisome trend: $213 million in January and $192 million in February came from that country, in contrast to $235 million in December.
Ahsan Mansur, who was also a former economist of the International Monetary Fund, added that Bangladesh will not face a major crisis in managing its balance of payments as the price of oil is decreasing because of the sluggish global economy. But the Bangladeshi workers of the Middle East may lose their jobs as the Gulf economies are largely reliant on their petroleum exports.
Similar opinions were shared by other economists, such as Dr. Zahid Hussain, former lead economist for the World Banks Dhaka Office. He was quoted saying, ‘Those who send home money amongst the Bangladeshi diaspora are mostly engaged with small businesses such as fast food shops and grocery stores. But a large number of people in those nations have been quarantined, so small businesses there have been shut. So, their income sources have been affected. Many large companies have also been forced to suspend production, forcing the workers to leave their job. Against the backdrop, the remittance will decrease more in the coming days.’
The sharp reduction in remittance is likely to add to the economic strain. In March, the expatriate workers sent home around $1.29 billion, which is the lowest in 15 months and 12.84 percent less than February. The year-on-year drop is 13.34 percent. The remittance inflow in the July-February period was 20 percent higher than the amount received by the country the same period last fiscal year. With the amount received in March, the growth has dropped to 16.15 percent. Remittance inflow contributes 12 percent to the national GDP.
According to Bangladesh’s Wage Earner’s Welfare Board, roughly 10 million Bangladeshis work abroad. But over 666,000 of them returned home between January and mid-March as the coronavirus spread to all parts of the world.
Syed Mahbubur Rahman, ex-chairman of the Association of Bankers, Bangladesh, a forum of managing directors of banks, stated that a good number of non-resident Bangladeshis have been compelled to return to their home country because of the outbreak. “Remittance, which is the only positive indicator in our economy, has now started to feel the pinch. This is highly frustrating”. Rahman further added that the situation may get worse in the coming days, but there is no remedy right now to tackle the state of affairs. The lower remittance will not hit the banking sector immediately given the declining trend of import, but the problem will be created once imports pick up.
Thus, while we wait for the global economy to recover, we need to provide better support to those Bangladeshis stuck abroad and curb the movement of those who have returned home. Since perhaps it will be the only time in history that we can save lives and make a difference by staying home.