Why remittance flow decreasing?

Farhad Chowdhury: Although most of the important indicators of the economy are down, the remittance flow sent by expatriates has been relatively dynamic. Bangladesh Bank has given worrying information about this remittance flow. Remittances sent by expatriates in August were the lowest in six months. The central bank says that remittances have decreased by 21.57 percent in August last year compared to August last year. According to central bank data, remittances (through legal channels) came in at around $2.04 billion in August last year.
Besides, the least amount of remittances came in August this year compared to August of the last four years. Concerned parties fear that this may create additional pressure on the declining foreign exchange reserves.
However, the export of labor to various countries has increased more than ever before. In the first six months of this year, 6 lakh 18 thousand workers went to different countries. And last year (2022) workers left a record amount of 11 lakh 36 thousand. If workers go abroad like this, remittances should naturally increase. But Bangladesh is unable to get out of this downward trend of remittances.
According to the data of the central bank, expatriates sent $2199 million last June. In the following month, July, remittances came in at $197.3 million. And in August came 159 crore 94 lakh 50 thousand dollars. A total of $1.97 billion in remittances came through the country’s banking or legal channels in July. As such, remittances fell by 18.78 percent in August compared to July.
Bankers say about this decline in expatriate income, banks are giving lower price of dollars to expatriates in terms of remittances than the market rate. In this, the flow of remittances in the banking channel has decreased, the hundi has increased.
In August, the dollar rate in the bank sector was Tk 109. There, the hundiwalas delivered Bangladeshi taka per dollar at the rate of Tk 117 to Tk 119 to the homes of expatriates.
The comments of most of the bank officials are that expatriates have chosen the medium of hundi as the price of dollar is high in the open currency market. Due to this there has been such a decline in remittances through formal or banking channels. Currently, the difference between the dollar price in the open market with the bank is about Tk 8. Expatriates are encouraged to send money to Hundi as open market rate is much higher than that of banks. Especially among migrant workers with low monthly income and those who are illegal, they are more willing to send money in Hundi. As a result, remittances are decreasing in banking channels.
In this context, Taufiqul Islam Khan, Senior Research Fellow Economist of the private research organization Center for Policy Dialogue, said that remittances are decreasing due to the increase in the use of hundi in recent times. He said, ‘where the spread of hundi is supposed to decrease, its demand is increasing. As a result, the trend of sending money through hundi has also increased recently.
In this context, former chairman of private sector BRAC Bank and executive director of Policy Research Institute. Ahsan H. Mansoor said, “Remittances will increase only when the dollar rate is based on the market.” Now people are getting Tk 118 against every dollar. Bangladesh Bank is trying to keep within Tk 109. This is not a good practice.’’ But doesn’t want to be in control. Due to this, remittance flow is decreasing.
The former chief economist of the World Bank Zahid Hossain said, “Remittances are not increasing because the dollar rate is not market-based.” An analysis by the World Bank has shown that 3.5 percent of remittances go there if the price is one percent higher in informal channels.
He said, “The banks have announced a rate on the instructions of the central bank, but the hundiwalas have been delivering the dollar value to their homes at a higher price than that.” That’s why Hundi channel is becoming more popular than banking channel.
The officials of the central bank themselves think that this downward trend may be present in the current September month and the coming months as well. Officials at the top level, on condition of anonymity, say that if the political uncertainty in the country is not removed, the flow of remittances may not pick up. The chief executive of several commercial banks also felt that there could be a link between the money-laundering syndicate and the political uncertainty. Besides, under invoicing and money laundering have increased the hundi. A few days ago, the Finance Minister said that almost half of the remittances are now coming to the country through the Hundi system.
The chief executive (MD) of a private bank, who did not disclose his name, said that the efforts of commercial banks to collect remittances a few days ago have now declined. Earlier some commercial banks used to send their officials to different countries including Saudi Arabia, Oman to collect remittances. They lived in those countries in the Middle East for years, but now those officials have been brought back to the country.
In this context, Syed Mahbubur Rahman, former chairman of Association of Bankers Bangladesh (ABB) and managing director and CEO of Mutual Trust Bank, said, ‘The demand for hundi should be reduced. Hundi has to be controlled. Until this is reduced, no matter what initiatives are taken, remittances will not increase much.’
Incidentally, the year of Hundi closure i.e. the financial year 2020-21, the remittance flow reached the highest level of $24.77 billion in history. Reserves also stood at a maximum of $48.06 billion. The main reason for this inflation is that the Hundi system was almost stopped during the Corona pandemic. Remittances to hundi picked up again in the fiscal year after Corona was over. Legal remittance flows then fell by 15 percent to $21.03 billion.
According to the data of the Central Bank, in the first two months (July-August) of the current financial year, the remittances received through the banking channel were only $357 million. It is $56 million or 13.56 percent less than the same period of last financial year. However, the remittances in the 2020-21 fiscal year during the Corona crisis reached a record $24.78 billion.
Bankers said that currently the central bank has fixed the maximum price of buying dollars for remittances and exports through banks at Tk 109.50. Expatriates are getting incentives at the rate of two and a half percent on this. Although the dollar price in the open market is now Tk 115 to Tk 117.
Many people say that behind this hundi, the controlling monetary policy of the government and money laundering are mainly responsible. The government has been trying to control the value of the taka against the dollar rather than leaving it to the market, which has had the opposite effect. The dollar price in the curb market is higher than the rate set by the government.
A recent study conducted by the Refugee and Migratory Movement Research Unit (Ramru) found that 66 percent of Maldivian laborers send money in hundi. 64 percent of them do not have a bank account. There are about 200,000 Bangladeshi expatriate workers in Maldives, a small country in South Asia. The number of Bangladeshi workers abroad is approximately 100 million. In that case, the amount of expatriate income coming from other countries through hundi can be easily estimated.
However, Bangladesh Bank spokesperson Majbaul Haque says that they are trying to find out the reason for the decrease in remittances. He mentioned that an attempt is being made to investigate the reason for the sudden decrease in remittances. The concerned department of Bangladesh Bank is investigating why the remittance has decreased. It is being looked into whether there is any link between the dollar trade and the decline in remittances. He also said that explanations have been sought from some banks. Mejbaul Haque said, “Several initiatives have been taken by Bangladesh Bank so that remittances do not decrease. Several banks have been brought under surveillance. Several money exchange institutions have been fined and the licenses of some money exchange institutions have been suspended.
Meanwhile, the central bank is encouraging in various ways to increase remittances. Relaxed the conditions for filling Form-C to bring remittance income to the country in return for services. Besides, service sector entrepreneurs and exporters have been given the opportunity to bring 20 thousand US dollars or equivalent foreign currency into the country without declaration. Besides, two and a half percent cash incentives against legitimate wage earners remittances, CIP awards to remittance senders, expansion and simplification of remittance disbursement process, investment and housing finance facilities for non-resident Bangladeshis have also been provided.