Bangladesh’s remittance inflow – a key source of USD – rose by 3 per cent year-on-year to $21.92 billion in 2023. Despite the country in dire need of a better growth in remittance inflow to tackle the persistent USD shortage, forex market volatility had been a major hurdle.
The country had not been able to exceed the $2 billion mark in monthly inflow during the July-December period last year. Remittance stood at $1.98 billion last December, which is 17.15 per cent higher compared year-on-year, show Bangladesh Bank data published Tuesday.
An analysis of regulator data shows that during the July-December period (H1) of FY24, remittance inflow stood at $10.80 billion, which is 2.9 per cent higher than the same period previous year. In H1 of FY23, the amount was $10.49 billion.
Experts on multiple occasions stated that the country has the potential to earn at least $2 billion in remittance every month. During the July-December period last year, in September, Bangladesh witnessed $1.33 billion in remittance inflow – lowest in three and half years.
The country had witnessed $2.19 billion inflow in June 2023. The central bank has been taking a number of initiatives to boost remittance inflow in the country, but regulator data show these moves have largely been ineffective.
Speaking to The Business Post, former lead economist of World Bank Dhaka office Zahid Hussain said, “We had seen the remittance inflow crossing $2 billion several times during the Covid crisis.
“This phenomenon indicates that the country has the capability to gain over $2 billion remittance every month. But currently, the central bank is not utilising this opportunity.”
He added, “The Association of Bankers, Bangladesh (ABB) and Bangladesh Foreign Exchange Dealers Association (BAFEDA) have been setting the exchange rates since September 2022 as per Bangladesh Bank decision.
“But the banks are not following this rate. Most of the banks are offering their own rate to remitters in recent times. Currently, banks are buying remittance at Tk 122 – Tk 124 from remitters and exchange houses, so it is clear that ABB-BAFEDA’s rate is not effective in the banking sector. This official rate disrupted the remittance inflow as well.”
Hussain further said, “The central bank frequently changes their decision on the remittance rate. Sometimes, the regulator asks the banks to collect USD under their own offer rate, and sometimes they ask to follow ABB-BAFEDA's rate.
“I think the remittance rate should be market-based, so that it can go up similarly seen during the Covid lockdown. The central bank should give the opportunity to banks to collect the remittance at their ABB-BAFEDA's rate. This will bring back discipline in the forex market.”
Beneficiaries get Tk 109.75 per USD with 2.5 per cent incentive from the government and additional 2.5 per cent from the banks, while the informal markets are offering up to Tk 123 – Tk 124.
The remittance inflow stood at $10.80 billion in July-December of FY24. In the same period, the remittance inflow was $12.94 billion of FY21 – which was the Covid crisis period.
On the issue, Policy Research Institute (PRI) Executive Director Ahsan H Mansur said, “The data indicates that a portion of the remittance is now coming through hundi, which explains why the inflow has gone down compared to that of the Covid crisis period.
“The government should take firm steps to curb hundi.”
Impacts on reserves, exchange rate
Remittance is a key source of USD for Bangladesh, because a large portion of the export earnings is spent on importing goods for production. Hence, a decrease in remittance inflow means a direct impact on forex reserves – which has been declining steadily.
Currently, the country's forex reserves stand at $21.44 billion until December 28. The interbank exchange rate has recently been increased to Tk 110.
As greenback rates rise, the cost of import payment increases as well. But the import cost of essential goods is going up more than ever before due to the USD price hikes, despite the declining prices of many products in the international market.
So, Bangladesh is unable to benefit from any drop in goods prices globally, experts say.
