Stronger dollar weighs on remittance

A stronger US dollar against currencies in Bangladesh's expatriate hubs has affected the inflow of remittances from those host economies.

If the devaluation of currencies, such as pound, euro, ringgit and riyal continues, the amount of remittance will go further down, according to analysts.

“We have identified a devaluation of currencies as the major reason for the decline in remittance,” said a senior Bangladesh Bank official.

Other reasons for the fall are -- the use of informal channels to send remittance home and job or wage cuts in the Middle East following the oil price drop, the official said. 

Bangladesh received around $4.26 billion in remittances between July and October, down 15.42 percent from the same period a year ago, according to data from the central bank.

Bangladesh's remittance inflow has taken a hit as the US economy is slowly gaining strength amid weakening growth in China and a fragile European Union. The US Dollar Index has appreciated in value, rising 21 percent in the last two years until July 2016.

The US dollar this week has climbed to its highest level in almost 14 years and major indices remained in near-record territory

Some currencies, such as the Malaysian ringgit, dropped to its lowest level in over a decade, following Donald Trump's victory in the US presidential elections.

The robust greenback has had a ripple effect on Bangladesh's remittance income as the country fixes its currency to only the dollar. Whatever foreign currency Bangladeshis earn, it must be converted to US dollars to be remitted.

For example, if an expatriate remits 1,000 ringgit to Bangladesh, their beneficiaries would now get $226.75, against $285.71 in 2014.

Similarly, a depreciating British pound is also hurting the Bangladesh economy, as a good number of expatriates live there. The situation worsened after the Brexit vote in June this year. The pound fell 11 percent to a 31-year low relative to the US dollar.

In fiscal 2015-16, Bangladesh earned $1.337 billion and $863.28 million from expatriates in Malaysia and the United Kingdom respectively.

The currency in Saudi Arabia is depreciating slightly against the greenback in recent months. Yet, the concerns of a possible decline of remittance from this market remain high as the Middle East country generated the highest remittance of $2.955 billion in 2015-16.

As of November 19, a US dollar traded for 3.752 Saudi riyals, which was 3.723 riyals on October 11.

“Currency depreciation in host countries is one of the main reasons for declining remittances. A continued downturn in oil prices has further affected the income of Bangladeshi expatriates there,” said Dr Yousuf Khan, a remittance expert and managing director at People's Leasing.

The gap in rates at the banks and open market is also discouraging people to remit funds through banking channels, he added.

Budget and cost cuts in Saudi Arabia, which is the largest host of Bangladesh's remittance, are another reason for a drop in remittance, said Khan.

In addition to currency devaluation and sliding oil prices, unskilled workers are another reason for falling remittance, said Nurul Amin, managing director of Meghna Bank.

“More people have gone to the Middle East, but few of them are skilled workers.”