Economic crisis going to deepen because of falling remittance

MIGRANT workers sent home $1.97 billion in July, down 5.86 percent from a year earlier, in yet another bad tiding for the country’s strained foreign exchange reserves. Remittance inflows along with export receipts are the main sources of dollar for Bangladesh, and a surge in inflows is expected in line with the growing manpower exports, which would have eased some pressure on the foreign currency reserves.

Experts said the minimum remittance inflow should be at $2 billion each month because of growing manpower export. The inflows so far this year were less than $2 billion every month save for March and June. In fiscal 2022-23, Bangladesh sent 11,44,993 workers abroad, up 15.8 per cent from a year earlier, according to data from the Bureau of Manpower Employment and Training. The inflows did not increase due to the exchange rate premium between the formal and informal markets. 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 per cent if the premium offered by the informal market exchange rate increases by 1 per cent. Some Bangladeshi expatriates are still sending remittance through the illegal channels because of a higher dollar rate than the bank rate. In the absence of adequate remittance inflows, banks are turning to the BB for dollar support to settle their import bills. The BB sold nearly $14 billion to banks in fiscal 2022-23 fiscal year. In July, it sold $1 billion as per the central bank officials.

The exchange rate gap between the formal and informal markets will narrow further in the coming months and ramp up the remittance inflows through the official channels. The exchange rate should be market-based for remittance inflow because now there is no negotiation system for transactions in the formal market.