Economy
Decline in Remittances Worries Bangladesh Amid Focus on Forex Reserves
Remittance inflows, a crucial source of USD earnings for Bangladesh, have reached a concerning low, marking the lowest level in three and a half years. This decline comes at a time when Bangladesh is actively seeking to bolster its foreign exchange reserves. According to data released by Bangladesh Bank on a Sunday, remittance inflows stood at $1.34 billion in September 2023, the lowest figure since March 2020 when it was $1.27 billion. Compared to the same month last year, remittances decreased by 12.72 percent or $200 million.
During the first quarter of the fiscal year 2024 (July-September), Bangladesh received $4.91 billion in remittances. This was compared to $4.52 billion during the same period in fiscal year 2020. The decline in remittances has raised concerns among economists and bankers, with hundi, an illegal cross-border money transaction channel, cited as a major reason.
Remitters are drawn to hundi due to its offering of higher exchange rates in comparison to the official channel. Syed Mahbubur Rahman, Managing Director and CEO of Mutual Trust Bank, emphasized the need for the central bank to take action against hundi to reverse the declining trend in remittance inflows through official banking channels.
Zahid Hussain, a former lead economist at the World Bank’s Dhaka Office, pointed out that the primary reason for the drop in remittances is the exchange rate disparity between the banking channel and the kerb market. Remitters receive Tk 112.75 per USD, including an incentive, through the banking channel, while in the kerb market, they get Tk 117 to Tk 118, resulting in a difference of nearly Tk 5 to Tk 6.
An anonymous senior bank manager and director revealed that some businessmen are encouraging remitters to use hundi, possibly due to the uncertainty surrounding the upcoming national polls. Zahid Hussain also noted that the number of Bangladeshi remitters has not decreased, and the countries where they predominantly work are not experiencing economic turmoil.
Despite the declining remittance inflow, Bangladesh has witnessed a substantial increase in the number of overseas workers. In 2022, after the easing of pandemic restrictions, Bangladesh exported a record 11.35 lakh manpower, the highest in its history. In the first eight months of 2023, this figure stood at 8.82 lakh, surpassing the 2021 yearly figure of 6.17 lakh.
The impact of this decline in remittances is being felt on Bangladesh’s foreign exchange reserves, which have been steadily decreasing. In September, reserves dwindled to $21.14 billion, compared to $36.5 billion in the same month the previous year. The devaluation of the Taka against the USD continues due to declining reserves, with the interbank exchange rate recently increased to Tk 110.5.
While the government’s austerity measures curbed imports of luxury goods, leading to an overall decline in import payments in July, the cost of essential goods imports has risen significantly due to USD price hikes. This situation has prevented Bangladesh from benefiting from the drop in global goods prices.
During the eleventh month of the current fiscal year, the country’s foreign currency reserves have fallen below $19 billion for the first time. After paying off some import bills, the reserves have now stood at $18.26 billion on Sunday.
According to the International Monetary Fund (IMF), as of May 8, the total foreign currency reserves of the country were $19.82 billion.
Mohammad Mezbauul Haque, the spokesperson of Bangladesh Bank, informed that through the Asian Clearing Union (ACU), the central bank has paid off import bills totaling $1.63 billion over the past two months.
However, Bangladesh Bank maintains that after paying off the import bills, the foreign currency reserves now stand at $23.71 billion.
According to the Central Bank’s accounts, the reserves were $25.27 billion on May 8.
The Dhaka Stock Exchange (DSE) and the DSE Brokers Association (DBA) have expressed gratitude towards Prime Minister Sheikh Hasina for her directive to list government companies in the capital market, a move hailed as timely and positive.
The directive was issued during the recent meeting of the Executive Committee of the National Economic Council (Ecnec) last Thursday.
Dr. Hafiz Muhammad Hasan Babu, Chairman of DSE, described the directive as a significant step towards enhancing the dynamics of the capital market. He emphasized that besides invigorating the capital market, this move would also attract foreign investment and promote sustainable development.
Despite previous efforts, government institutions had not been listed in the stock exchange, according to a notification issued by the DSE. The Prime Minister’s directive is seen as a pivotal step towards revitalizing and expanding the economy.
Dr. Babu further remarked, “The listing of reputable companies in the capital market, as directed by the Prime Minister, will greatly benefit the country’s economy. It will also enhance investor confidence.”
Similarly, the DBA released a notification applauding the Prime Minister’s directive, terming it as positive and timely for the capital market.
Saiful Islam, President of DBA, expressed optimism about the directive’s potential to accelerate the country’s capital market and overall economy. He pledged support to relevant government departments and regulatory bodies in implementing the directive, ensuring its positive impact on the economy, including the capital market.
India has expressed interest in financing Bangladesh’s Teesta project, announced Foreign Minister Hasan Mahmud. Speaking to reporters after a meeting with Indian Foreign Secretary Vinay Mohan Kwatra, Mahmud stressed the importance of aligning the project with Bangladesh’s needs. He confirmed discussions on the Teesta issue during the meeting. Mahmud also affirmed Prime Minister Sheikh Hasina’s upcoming visit to New Delhi, indicating that the finalization of the date would depend on the formation of the new Indian government following ongoing elections.
Meanwhile, the IMF has approved a $1.15 billion staff-level loan for Bangladesh in its third tranche. Mahmud noted the ongoing elections in India and the subsequent formation of the new government as factors influencing the scheduling of PM Hasina’s visit.
When asked about the sequence of visits to India and China, Mahmud suggested Delhi’s geographical proximity to Bangladesh. Diplomatic sources suggest PM Hasina’s visit to India is planned for early July, following India’s elections.
Pre-election surveys indicate strong prospects for Indian Prime Minister Narendra Modi’s re-election. Modi previously congratulated PM Hasina on her electoral victory in January, expressing optimism about strengthening ties between the two nations.
The last bilateral engagement between the prime ministers occurred during the G-20 Leaders Summit in September 2023. Modi is expected to invite South Asian and BIMSTEC leaders to his swearing-in ceremony, fostering regional cooperation.
Addressing border killings, Mahmud emphasized the government’s commitment to ending such incidents and promoting the use of non-lethal weapons by border forces. Discussions also covered enhancing physical and people-to-people connectivity, including cooperation with India to import hydropower from Nepal and Bhutan through India. Mahmud highlighted the need to further ease visa restrictions to strengthen people-to-people relations.
