Remittance drops in May, piling pressure on forex

Remittance flows to Bangladesh declined 13.15 per cent year-on-year in May as higher rates of US dollars in the informal markets are prompting many migrant workers to shun formal channels, creating additional pressure on the country's already heated foreign exchange market.

The inflow stood at $1.88 billion last month compared to $2.17 billion in the same month a year ago, data released yesterday by the Bangladesh Bank showed.

Similarly, remittance transfers plummeted 15.95 per cent year-on-year to $19.19 billion in the first 11 months of the current fiscal year.

The remittance flow, according to economists, is still satisfactory since May's receipts are much higher than the pre-pandemic monthly range of $1.2 billion to $1.5 billion.

The flow shot past $2 billion on average per month during the pandemic. But as the impacts of the crisis have waned, a portion of remittance is again being re-routed through informal channels.

The higher exchange rate of the taka against the US dollar in the kerb market, a platform where the commoners sell and purchase US dollars, than in the formal channels is also making the hundi channel attractive.

Mustafizur Rahman, a distinguished fellow of the Centre for Policy Dialogue, however, thinks that there is no need to panic due to the downward trend of remittance.

The kerb market now offers Tk 96-97 for each US dollar against the interbank exchange rate of Tk 89.

So, Rahman urged the central bank to carry out an awareness campaign among migrant workers on the demerits of transferring funds through the hundi channel.

Zahid Hussain, a former lead economist of the World Bank's Dhaka office, does not think that monthly remittance receipts would slip below $1.5 billion in the coming days since a huge number of Bangladeshis have gone abroad in recent months in search of jobs.

Nearly 8 lakh migrant workers went abroad in the first 10 months of the current fiscal year, comfortably exceeding the numbers a year ago, data from the state-run Bureau of Manpower, Employment and Training showed.

Some 4.26 lakh went abroad in April alone. Of them, 2.68 lakh workers went to Saudi Arabia, 56,830 to Oman, and 51,531 to the United Arab Emirates.

Another positive development, says Zahid, is the rising oil prices, which have accelerated economic growth in the oil-exporting Middle Eastern economies, home to about 55 per cent of Bangladesh's more than 1.2 crore migrant workers.

"Economic activities have accelerated in the Middle Eastern countries and their revenue earnings are picking up. As a result, the demand for workers will go up. And there is the possibility that existing workers would get higher wages."

According to Monzur Hossain, research director of the Bangladesh Institute of Development Studies, expatriate Bangladeshis now face difficulties due to the higher inflation prevailing across the globe.

"The financial condition of many expatriates is in bad shape. So, they are sending a lower amount of remittance."

Another reason is that remittance flow usually slows after Eid festivals.

Officials of three commercial banks say banks are now desperately trying to mobilise dollars from abroad to get respite from the ongoing foreign exchange pressure.

Last week, exchange houses, located abroad, charged Bangladeshi banks Tk 95-96 per dollar. The lenders need the American greenback to settle import bills.

This prompted the central bank on Sunday to fix the interbank exchange rate at Tk 89.20 a US dollar.

The exchange houses owned by Bangladeshi banks follow the BB rate, but the foreign ones are ignoring the central bank's instructions. So, the foreign exchange market is still facing the crisis, bankers say.

"If banks can't offer better rates than in the kerb market, who would sell dollars to them?" questioned Zahid. 

Syed Mahbubur Rahman, managing director of Mutual Trust Bank, said that the central bank should make efforts to reduce the exchange rate gap between the formal and informal channels.

"If the gap widens, remitters may prefer to send their money through hundi."

Zahid Hussain warned that if the central bank maintains its strong grip on the exchange rate, the senders of remittance through formal channels may even explore alternative ways to get better rates.

"Under such circumstances, one can't expect to boost remittance flows even by paying 2.5 per cent incentive and allowing fund transfers without asking any questions."

"If you don't offer the market rate, you can't expect much remittances through the formal channel."

The downward trend of remittances has hit the foreign exchange reserves: it stood at $42.29 billion on May 25 in contrast to $46.15 billion on December 31.

Ensuring stability in the foreign exchange market is highly essential to give a leg-up to remittance flow, said CPD's Rahman.