Fat remittance may prove bane of economy

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FHM Humayan Kabir
Financial analysts said rising remittances to Bangladesh should be invested in the productive sector to avert inflation and spur economic growth.
They said the idle foreign exchange in the banks could spur inflation and raise import of luxury goods, which would affect the country's macro-economy badly.
The non-resident Bangladeshis (NRBs) and workers have remitted over US$1.0 billion in November-- the highest monthly inflow recorded, central bank statistics said.
The foreign exchange reserve of the country also stood at $10.425 billion last week due to the robust remittance flow.
Former finance adviser Dr. Mirza Azizul Islam said: "On one hand, higher remittance flow is good for the economy. But, on the other, if the fund cannot be channelled to productive sector it would not have a positive impact on the overall macro-economy."
"It is really a concern for the country that the remittance and foreign exchange reserve are increasing but imports of capital machinery and raw materials are decreasing. It has already hit the private sector investment."
Import orders for capital machinery plummeted by nearly 30 per cent in the last fiscal year, ended on June 30, 2009, as the global economic crisis created a climate of uncertainty in the country's industrial expansion.
If the central bank can not mange the remittance properly, the commercial banks and central bank will have excess liquidity and push the inflation up, Dr Islam added.
The former finance adviser has suggested channeling the remittance to the productive sectors. "The government can encourage introduction of more fresh shares of different private enterprises where quota for the NRBs will be raised for attracting their investment."
"The government should issue investment bonds for the remittance earners for big projects and productive sectors in the country," he said.
Most of the remittances in the country are utilised to the non-productive sectors like purchase of lands, flats and luxury goods.
Chairman of the Policy Research Institute (PRI) Dr Zaidi Sattar said: "The high remittance flow is swelling the banks' liquidity and money circulation in the market. It has the potential to push the inflation further up."
"On the other hand, the country's term loan and import growth have dropped. These are concerns for the country's economy," he said adding the monetary management by the central bank is going to be more challenging in the future days amid higher remittance flow and rising forex reserve.
If the reserve increases, value of Taka would appreciate affecting the export earnings badly which would wallop the country's macro-economy, Dr. Zaidi said.
He suggested channelling of the remittance to the productive sector through setting up "NRB investment fund".
"As the NRBs are not well informed about the investment opportunity and its security in Bangladesh, the government or the private sector can utilise their money through setting up the fund for investing in the productive sectors," he said.
Former Bangladesh Bank governor Dr Salehuddin Ahmed said it was a big challenge for the economy on how to divert the remittances to the productive sectors.
"The commercial banks and financial institutions should offer new products where the NRBs will be interested to invest."
Dr Ahmed said the private sector could have some advisory services so that the NRBs could be well informed about the investment opportunities here.
"Lack of such information is the key obstacle to ensure investment of the foreign earnings to the manufacturing and other productive sectors."
"When I was the governor I proposed setting up of an SME Data Bank for the NRBs so that they could get adequate information," he said adding the proposed "NRB Bank" could be a good solution for attracting remittance to the productive sector.
Remittances from Bangladeshi expatriates stood at $4.662 billion in the first five months of the current fiscal 2009-10, growing by 24.44 per cent from that of the corresponding period of the previous fiscal.
A sizeable amount of the remittances are being spent on land or houses and luxury goods and other consumption purposes.