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.
The Foreign Minister, in a meeting today with the outgoing Kosovo ambassador Güner Ureya, urged Kosovo to recruit skilled human resources and consider importing high-quality readymade garments and pharmaceuticals from Bangladesh. The ambassador paid a farewell call on the Foreign Minister at the foreign ministry this afternoon.
During the meeting, the Foreign Minister commended the ambassador for actively advancing bilateral relations and emphasized the importance of enhancing people-to-people contact for stronger mutual relations. The outgoing envoy, in turn, expressed appreciation for Bangladesh’s progress and development across various sectors. Additionally, the envoy briefed the Foreign Minister on the shared interest of business communities in both Bangladesh and Kosovo to boost trade and investment between the two countries.
Discussions also encompassed topics such as women empowerment and the necessity of peace for sustainable development. The outgoing envoy lauded the people, culture, and the beauty of Bangladesh.
In the farewell month of November, Bangladesh received remittances totaling $1.93 billion, equivalent to 193 crore dollars in local currency (approximately 21,181 crore 75 lakh taka at the exchange rate of 109.75 taka per dollar). This information was disclosed in the recent update from the Bangladesh Bank.
The instability in the dollar market within the country has been a longstanding issue, and the crisis is escalating. Due to the shortage of foreign currency, strict measures have been imposed on imports. The government and the central bank are working to resolve the crisis, resorting to supplying dollars from reserves. However, these efforts have yet to yield a significant improvement in the situation.
Despite a stable supply of dollars for sale from reserves to stabilize the market, various bill payments from reserves are dwindling. The dollar sale has resulted in a reduction of reserves by more than $6 billion in the first five months of the fiscal year 2023-24 (July-November). The net reserves have fallen to $25 billion, and according to BPMEA-6, a further decrease to $19 billion is noted.
Amidst these challenges, there was hope for an increase in remittances to mitigate the dollar crisis. However, November witnessed remittances amounting to $1.93 billion, which is nearly five crore dollars less than the previous month, October. Comparatively, it is more than 33 crore dollars higher than in November of the previous year.
According to the recent Bangladesh Bank report, the November remittances arrived through state-owned banks, totaling 14 crore 42 lakh 60 thousand dollars, through a particular bank, reaching five crore 31 lakh 80 thousand dollars, through private commercial banks, amounting to 172 crore 66 lakh 80 thousand dollars, and through foreign banks, totaling 59 crore 20 thousand dollars. Seven banks, including Rupali Bank, Rajshahi Krishi Unnayan Bank (RAKUB), Islami Bank, Social Islami Bank, Habib Bank, National Bank of Pakistan, and State Bank of India, did not receive any remittance during this period.
Bangladesh faced challenges in remittance inflow during the fiscal year 2022-23, with the pandemic-induced closure of hundi channels contributing to a significant decline. However, in the first five months of the current fiscal year (2023-24), expatriates have sent the highest remittance through official banking channels, amounting to 216.1 crore dollars.
During the initial four months of the current fiscal year (FY24), the National Board of Revenue (NBR) recorded a robust 14.36 percent growth in revenue collection from income tax, customs, and VAT, amounting to Taka 1,03,976 crore.
Customs contributed Taka 32,668 crore, VAT brought in Taka 40,048.62 crore, and income tax and travel tax totaled Taka 31,259 crore. Despite this positive performance, the overall revenue collection fell short of the targeted Taka 1,23,185 crore for the July-October period.
Comparatively, in the same period of the previous fiscal year (FY23), NBR’s revenue collection was Taka 29,937 crore from customs, Taka 26,784 crore from income tax, and Taka 34,197 crore from VAT. Notably, the NBR has set an ambitious revenue collection target of Taka 4,30,000 crore for the current fiscal year.
