Remittance dips 21.5pc in August

Remittance saw its steepest decline since the depths of the pandemic in August as expatriate Bangladeshis eschew the official channels to send money home thanks to the wide difference in the official and kerb market exchange rates.

Last month, migrant workers sent $1.59 billion, down 21.5 percent year-on-year, in what has been the sharpest drop since April 2020, when the inflows plummeted 25 percent, according to data from the Bangladesh Bank.

August's receipts are the lowest in six months and 19 percent lower than in the previous month.

The development signals a further blow to the country's strained dollar stockpile, which stood at $23.06 billion on August 30 and is projected to slip below the $23 billion-mark this week after a $1.20 billion payment to the Asian Clearing Union for imports from eight Asian countries.

"[August's remittance] is $1 billion lower than the usual situation -- this is bad news for our economy," said Ahsan H Mansur, executive director of the Policy Research Institute of Bangladesh.

He sees a parallel with Pakistan's contracting remittance inflows.

In July, Pakistan's remittance inflows were 19.3 percent lower at $2 billion, while its inflows in fiscal 2022-23 were 13.7 percent lower at $27 billion, according to data from the State Bank of Pakistan.

"Pakistan used to get remittance of $12 billion and that dried up to only $3 billion -- it is very difficult to turn around from the situation," said Mansur, who served as the International Monetary Fund's senior resident representative to Pakistan during 1998-01.

The remittance earnings are not increasing despite a record number of workers going abroad due to the huge gap between the formal and informal exchange rates, said Mustafa K Mujeri, executive director of the Institute for Inclusive Finance and Development.

In fiscal 2022-23, Bangladesh sent a record 11,44,993 workers abroad, up 15.8 percent from a year earlier, according to data from the Bureau of Manpower Employment and Training.

Remitters usually send money through the channel offering them the highest rate, he said.

The Bangladesh Foreign Exchange Dealers Association and the Association of Bankers, Bangladesh fix the dollar rate for collecting remittances as per the unofficial directive of the central bank.

Last Thursday, the two bodies set Tk 109.5 for a dollar from September 3 from Tk 109 previously.

But the exchange rate prevailing at the kerb market is Tk 117 to Tk 118.

Remittance inflows through the banking channels have shrunk due to inappropriate policies by the central bank, said two chief executives of private banks who asked not to be named to speak candidly on the issue.

"How can we get remittance at Tk 109.50 a dollar? And we can't even offer more to remitters due to the central bank's order," said one of them.

The inflows continue to contract for the fixed exchange rate, said the other bank CEO.

"Our exchange rate is not sustainable and that is why a large number of Bangladeshi expatriates are sending remittance through informal channels like hundi and other online systems," Mujeri said.

Now, there are a host of online channels for sending remittance smoothly other than the banking channels, he said, adding that the terms and conditions will have to be easier in banking channels.

Zahid Hussain, a former lead economist of the World Bank's Dhaka office, echoed the same.

The remittance inflow decreased due to the exchange rate premium between the formal and informal exchange rates.

The difference in the exchange rate between the formal and informal markets is called the premium.

A World Bank study found remittance inflows through the formal channels decrease by 3.5 percent if the premium offered by the informal market exchange rate increases by 1 percent, he said.

BB spokesman Md Mezbaul Haque declined to comment on the matter.

"We will analyse why the remittance inflow decreased."