Central Bankers, Foiled Economists

Bets, including 2.5% incentives, to shippers make no difference

| Updated:
November 02, 2022 08:43:01

Incoming remittances continue to fall, with Bangladesh recording the lowest foreign exchange receipt from expatriates in eight months to October – alongside falling exports – even as labor exports rebounded.

Bangladesh Bank (BB) latest data shows that over the past month, Bangladeshi nationals working abroad sent foreign currency worth $1.52 billion, down 7.37 points percentage, year over year. Expats sent home $1.64 billion in the same period of 2021.

Also compared to the previous September, remittances fell, with expats sending $1.53 billion, while monthly volume was $2.03 billion and $2.09 billion in August. and July respectively.

Islami Bank Bangladesh Limited recorded the highest volume of remittances worth $358.47 million, followed by Agrani Bank with $106.41 million, Sonali Bank $89.44 million, Dutch -Bangla Bank $86.56 million and Al-Arafah Islami Bank Limited $84.85 million.

Amid growing pressure on the country’s foreign exchange reserves following the appreciation of the dollar and rising import costs in the face of declining export earnings following the Russian-Ukrainian war, Bangladesh saw a silver lining in July when the inflow of remittances registered more than 12% growth to US$2.9 billion from US$1.83 billion.

Falling remittances have emerged as a matter of grave concern for the economy, which economists say is under immense strain amid Bangladesh’s dwindling foreign exchange reserves.

The local currency, BDT, has depreciated by almost 10% since June 2022 and has brought nothing positive for foreign exchange reserves, as there is a common trend of increasing inbound remittances each time that the local currency depreciates.

The relentless fall in remittances despite incentives and a rising exchange rate for senders also remains a conundrum for central bankers. Some economists and donors, however, prescribe a fully floating exchange rate as a remedy, as forex underworld players make hay with bigger bets.

When contacted, Bangladesh Bank (BB) Chief Economist Dr. Md. Habibur Rahman said it was really hard to say why the downward trend in remittances continues despite the granting of various benefits, including 2.5% incentives, to state shippers.

“Rising inflation all over the world, including in major remittance destinations, could be a cause because inflation is likely increasing their cost of living there. But we have to wait a few months to understand the situation. “, says the chief economist.

Seeking anonymity, another BB official said he expected a much higher influx of funds as record numbers of Bangladeshis found jobs in overseas markets in recent months.

“The remittance figure is really surprising. We need to tackle the reasons as soon as possible, because the downward trend in remittances is not a good sign at a time when reserves are running low,” adds- he.

The country’s foreign currency reserves have continued to decline over the past few months, standing at US$35.85 billion through October 26, 2022.

Another factor that surprises market analysts regarding the decline in remittances is that the number of Bangladeshi workers going abroad has increased significantly in recent months, but this has not been reflected in remittances.

They say, however, that the flow of remittances has declined as money transfers through informal channels such as the ‘hundi’ and cross-border capital flight may have resumed due to rising import payments alongside the easing of restrictions in the event of a pandemic.

Contacted for an explanation of the conundrum, the chairman of local think tank Policy Exchange of Bangladesh, Dr M. Masrur Reaz, said some factors could discourage expats from sending their hard-earned money home through the financial system. formal.

The foreign currency exchange rate in the spot market is still much higher than the rate offered by banks. Even after including the 2.5% incentive, that spread could encourage shippers to choose informal options for more gains, he said.

Multiple dollar rates could confuse shippers, and the continued dollar price uncertainty likely forces shippers to keep extra savings in their hand so they can get more money if the rate goes up further, he says. he additionally.

Mr. Reaz said that the increasing flight of illicit cross-border capital could be another reason, as the Bangladesh Financial Intelligence Unit (BFIU) mentioned in its latest report that the number of suspicious transactions and activities in the system financial situation in the country had increased considerably (62.33% in one year). year in FY’22).

“Cross-border illicit capital flight is inversely correlated with the formal inflow of remittances,” he says, pointing to the retention of currency in destination countries in exchange for taka payments at recipients.

“We need to stabilize the dollar market by guaranteeing a uniform rate while taking steps to further depreciate our local currency,” he said.

He also suggests that policymakers could include a new provision allowing senders to keep 20% of their money sent in whatever foreign currency they want. “It could help encourage our expatriates to send funds through official channels.”

In a final step, the central bank asked commercial banks to provide Tk 107 per US dollar for inbound remittances.

The instruction was given on Monday at a meeting between the central bank and the Bangladesh Bankers Association (BBA), an association of chief executives of banks, and the Association of Bangladeshi Stockbrokers (Bafeda).

But the rate of inbound remittances was Tk 108 just a month ago.

A total of 617,209 Bangladeshis found employment abroad in 2021, while the number was 217,669 in 2020. In the nine months of the current calendar year, around 0.9 million Bangladeshi workers have found employment in different destination countries, according to the Bureau of Manpower. Employment and Training (BMET).

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