Foreign remittance fluctuation needs to be stabilised
Saturday, 4 December 2010
Inward flow of foreign remittance to our country is fluctuating for the last few months. The last financial year has passed bagging 13.25 per cent growth over the previous financial year. Foreign remittance is the major source of foreign currency of Bangladesh. Remittance inflow rose by 10-32 per cent in the last 20 years, which continued even during the global recession in the past two years.
Impact of remittance is well known to all. It reduces the extent of the country's dependence on foreign aid. The amount of remittance received in a year is four times higher than the foreign aid the country receives yearly. It contributes to the GDP of the country. A research showed that increase in remittance by Tk 1.00 would result in the increase in national income by Tk 3.33. Currently, garment manufacturing is considered as the highest foreign currency-earning sector of our country.
However, if the cost of importing raw materials is adjusted then the net earnings from migrant workers' remittances stand higher than that of the garment sector. As Bangladesh has a very narrow export base, remittance has been used in financing the import of capital goods or raw materials for industrial development. So it improves the balance of payment (BOP). It also helps increase the supply of national savings. Foreign remittance constitutes one-third of foreign currency earnings. It should be added here that our foreign remittance is nine times larger than the foreign direct investment.
Identification of problem regarding oscillation of foreign remittance is necessary. A senior economist of World Bank has recently said that remittance inflow into Bangladesh would fall because of recession, and its impact is being felt now. He also said one of the causes for negative growth is that the recovery from the global economic meltdown is slow. Most economies, except China and India, are not showing a strong rebound. This is holding back the earnings of the Bangladeshi expatriates working abroad.
However, a recent Asian Development Bank research says, the reason for the rise of incoming remittance is due to the tendency of migrant workers to spend less and save more during the crisis. A relatively lower impact of global recession on countries such as Kingdom of Saudi Arabia (KSA), an employer of nearly 20 lakh Bangladeshi migrants, also helped to maintain an upbeat trend in remittance inflow. The research also indicates a macro-micro mismatch. At macro level, we can see a rosy picture of an increase in inward remittance, but at micro level, many families of migrant workers are suffering as a result of the global financial crisis.
In the Middle East, more than 30 lakh Bangladeshi are employed out of 50 lakh migrants across the globe. These migrant workers in the Middle East send about 62 per cent of the total remittance. The government has set the target for exporting about five lakh people in the year 2010, but up to September 2010 only 91,904 persons were sent abroad. In the last 10 months manpower export stood at 5,768 to KSA, 34 to Kuwait, 609 to Malaysia and 12,132 to Libya. In the year 2007 and 2008, Bangladesh had exported 2,04,112 and 90,234 to KSA, 2,73,201 and 38,332 to Malaysia respectively. Bangladeshi expatriates are returning home in greater numbers because most of their contracts have expired. As a resulting these markets are being occupied by other manpower exporting countries. According to media reports, no country is interested to take foreign labours except Singapore, UAE and Mauritius.
Experts believe a huge amount of remittance also flows through an illegal network known as Hundi, which is a big problem for our economy. This unlawful inflow covers around 40 per cent of inward remittance. Hundi is prohibited by law in Bangladesh.
Prof Tasneem Siddiki in 2004 showed that only 46 per cent remittance comes through proper channel and 8.0 per cent carried by wage earners themselves and 5.0 per cent via friends or relatives. She also shows that the goods brought by the migrants, although not considered remittance as such, are a remarkable segment of the wages earned. Recently, some real estate and other business groups are influencing the expatriates to invest their money at a high profit rate or to purchase plots or flats. Sometimes they encourage wage earners to send their money through Hundi and avoid banking channels.
Even when the rate of USD in open market has been increased, it is found that some remitters are using Hundi for its high exchange rate. It has badly affected the flow through legal channel. The government is trying its best to mitigate the situation, but very little has been achieved so far. Bangladesh Bank had arranged special campaigns to prevent Hundi activities in the country.
In July 2002, the government announced full tax exemption on money remitted through the official channel. In this arrangement emigrants will not be required to furnish TIN certificates to purchase immovable property. Interest earned from foreign currency deposit account and wage earners development bond has also been made tax-free. Such type of incentives and exemption do exist, but it is not enough to attract remitters. The area of the exemption has to be widened.
Bangladesh is used to send unskilled or semi-skilled manpower abroad who earn a little compared to the skilled and trained professionals. For going abroad all categories of manpower spend about the same amount of money. But their earnings vary according to their skills. An unskilled person earns four times less than a skilled person, while professionals earn even higher. So the number of outgoing manpower is not always important, but fewer skilled people can earn much more than a large number of unskilled persons. So it is very important to develop skills in the relevant sectors to cater to the demand abroad.
Absence of exchange houses or representative of banks overseas is another reason for the negative growth in our national remittance. Most of the expatriates of our country are illiterate and cannot understand the native language of the land they go to work. They feel hesitant to enter into foreign banks or exchange houses to remit money. Moreover, there are wage earners, who work in remote rural areas and have no time to go to the banks in cities, as every single working hour counts to them. They usually use the illegal channel. The Philippines government sent more than sixteen Filipino bankers to KSA to look after the welfare of their nationals, in spite of the facts that these expatriates are more or less literate.
In order to increase remittance some strategy may be taken at national, institutional and individual levels.
= Diplomatic relation should be developed with the manpower importing countries. In all diplomatic contacts and missions, the agenda of manpower export should be given priority. As Bangladesh is one of the first few countries to have signed the 'International Convention on the Protection of the Rights of all Migrant Workers and Members of their Families' (1998), the country can raise the problems of the expatriates with the host governments and solve them.
=To prevent Hundi, more exchange houses should be opened in different employer countries around the world. Exchange houses will help re-route more remittances through the banking channel. Currently, local banks, both private and state-owned, have 35 exchange houses abroad. According to Bangladesh Bank data, the central bank is considering applications for another 13 exchange houses.
= More bankers should be deputed in the main remittance source countries. The high official of Islami Bank Bangladesh Ltd. (IBBL), the highest remittance earning bank of Bangladesh (27.46 per cent of the total amount), suggested that 100 skilled bankers might be sent to the major remittance source countries, who would solve all the problems relating to remittance of the migrant workers. A hundred bankers can help improve national remittance considerably.
*Special campaign may be arranged by the central bank to discourage Hundi. Through this process, the facilities and incentives offered to the remitter should be disclosed. 'Remittance Fair' may be arranged in different places of the country.
=The process of sending remittance should be made easy for both literate and illiterate wage earners. Bankers can provide latest technology such as SMS banking, Mobile banking, remittance card, spot cash facility for speedy service. They can ignore the little mistakes often made by the remitter, if it is not related to legal aspects.
=Both state-owned and private organisations can develop training modules based on specific foreign markets. All outgoing manpower should be trained in any particular field, so that they can retain their jobs abroad. The government can take initiatives to export professionals such as doctors, engineers, teachers and nurses, and skilled manpower like drivers, computer operators, electricians, who can earn more than semi-skilled or unskilled manpower. A study on 'Policy and Public Benefit Interventions to help Bangladesh Achieve an Annual Migrant Remittances of USD 30 billion Per Annum by 2015' suggested that the government should prioritise skilled workers to command higher wages to remit more money back home.
Moreover, offering reasonable exchange rates is important. It is also essential to inform the remitters about the current market rates to prevent them from taking recourse to Hundi. So, attractive exchange rates should be offered to retain the remittance in the banking channel.
Though Bangladesh is trying to ensure greater flows of remittance through official channel but steps towards effective utilisation of remittance are still inadequate. Expatriates spend a large portion of their remittance in consumption. They spend 20.45 per cent on food and clothings, 5.97 per cent on medical treatment, 16.43 per cent on purchasing land, 15.02 per cent on home construction and repair, 10.55 per cent on repayment of loan, 4.76 per cent on investment in business, 7.19 per cent on financing migration of other family members, 9.7 per cent on social ceremonies and 3.4 per cent on bank savings.
Recently, a roundtable on the optimum use of foreign remittance in Dhaka laid emphasis on planned utilisation of foreign remittance by which the country can be turned into a middle-income country within 2021. Using the foreign remittance as a tool, the government can establish high-tech industries, establish large conglomerates, issue bonds and encourage public private partnership for developing the infrastructure, establishing power plants, bridges, airports and other development activities.
The government plans to earn USD 31.40 billion within the FY 2014-15 with a growth rate of 22 per cent every year. According to media reports, five teams are going to visit 17 countries to explore manpower markets.
To strengthen our economy, the government, Central Bank, PCBs and NCBs should work together to achieve the target for a sustainable development of our country.
The writer is a Senior Officer of Islami Bank Bangladesh Limited Khatungonj Branch, Chittagong.
Impact of remittance is well known to all. It reduces the extent of the country's dependence on foreign aid. The amount of remittance received in a year is four times higher than the foreign aid the country receives yearly. It contributes to the GDP of the country. A research showed that increase in remittance by Tk 1.00 would result in the increase in national income by Tk 3.33. Currently, garment manufacturing is considered as the highest foreign currency-earning sector of our country.
However, if the cost of importing raw materials is adjusted then the net earnings from migrant workers' remittances stand higher than that of the garment sector. As Bangladesh has a very narrow export base, remittance has been used in financing the import of capital goods or raw materials for industrial development. So it improves the balance of payment (BOP). It also helps increase the supply of national savings. Foreign remittance constitutes one-third of foreign currency earnings. It should be added here that our foreign remittance is nine times larger than the foreign direct investment.
Identification of problem regarding oscillation of foreign remittance is necessary. A senior economist of World Bank has recently said that remittance inflow into Bangladesh would fall because of recession, and its impact is being felt now. He also said one of the causes for negative growth is that the recovery from the global economic meltdown is slow. Most economies, except China and India, are not showing a strong rebound. This is holding back the earnings of the Bangladeshi expatriates working abroad.
However, a recent Asian Development Bank research says, the reason for the rise of incoming remittance is due to the tendency of migrant workers to spend less and save more during the crisis. A relatively lower impact of global recession on countries such as Kingdom of Saudi Arabia (KSA), an employer of nearly 20 lakh Bangladeshi migrants, also helped to maintain an upbeat trend in remittance inflow. The research also indicates a macro-micro mismatch. At macro level, we can see a rosy picture of an increase in inward remittance, but at micro level, many families of migrant workers are suffering as a result of the global financial crisis.
In the Middle East, more than 30 lakh Bangladeshi are employed out of 50 lakh migrants across the globe. These migrant workers in the Middle East send about 62 per cent of the total remittance. The government has set the target for exporting about five lakh people in the year 2010, but up to September 2010 only 91,904 persons were sent abroad. In the last 10 months manpower export stood at 5,768 to KSA, 34 to Kuwait, 609 to Malaysia and 12,132 to Libya. In the year 2007 and 2008, Bangladesh had exported 2,04,112 and 90,234 to KSA, 2,73,201 and 38,332 to Malaysia respectively. Bangladeshi expatriates are returning home in greater numbers because most of their contracts have expired. As a resulting these markets are being occupied by other manpower exporting countries. According to media reports, no country is interested to take foreign labours except Singapore, UAE and Mauritius.
Experts believe a huge amount of remittance also flows through an illegal network known as Hundi, which is a big problem for our economy. This unlawful inflow covers around 40 per cent of inward remittance. Hundi is prohibited by law in Bangladesh.
Prof Tasneem Siddiki in 2004 showed that only 46 per cent remittance comes through proper channel and 8.0 per cent carried by wage earners themselves and 5.0 per cent via friends or relatives. She also shows that the goods brought by the migrants, although not considered remittance as such, are a remarkable segment of the wages earned. Recently, some real estate and other business groups are influencing the expatriates to invest their money at a high profit rate or to purchase plots or flats. Sometimes they encourage wage earners to send their money through Hundi and avoid banking channels.
Even when the rate of USD in open market has been increased, it is found that some remitters are using Hundi for its high exchange rate. It has badly affected the flow through legal channel. The government is trying its best to mitigate the situation, but very little has been achieved so far. Bangladesh Bank had arranged special campaigns to prevent Hundi activities in the country.
In July 2002, the government announced full tax exemption on money remitted through the official channel. In this arrangement emigrants will not be required to furnish TIN certificates to purchase immovable property. Interest earned from foreign currency deposit account and wage earners development bond has also been made tax-free. Such type of incentives and exemption do exist, but it is not enough to attract remitters. The area of the exemption has to be widened.
Bangladesh is used to send unskilled or semi-skilled manpower abroad who earn a little compared to the skilled and trained professionals. For going abroad all categories of manpower spend about the same amount of money. But their earnings vary according to their skills. An unskilled person earns four times less than a skilled person, while professionals earn even higher. So the number of outgoing manpower is not always important, but fewer skilled people can earn much more than a large number of unskilled persons. So it is very important to develop skills in the relevant sectors to cater to the demand abroad.
Absence of exchange houses or representative of banks overseas is another reason for the negative growth in our national remittance. Most of the expatriates of our country are illiterate and cannot understand the native language of the land they go to work. They feel hesitant to enter into foreign banks or exchange houses to remit money. Moreover, there are wage earners, who work in remote rural areas and have no time to go to the banks in cities, as every single working hour counts to them. They usually use the illegal channel. The Philippines government sent more than sixteen Filipino bankers to KSA to look after the welfare of their nationals, in spite of the facts that these expatriates are more or less literate.
In order to increase remittance some strategy may be taken at national, institutional and individual levels.
= Diplomatic relation should be developed with the manpower importing countries. In all diplomatic contacts and missions, the agenda of manpower export should be given priority. As Bangladesh is one of the first few countries to have signed the 'International Convention on the Protection of the Rights of all Migrant Workers and Members of their Families' (1998), the country can raise the problems of the expatriates with the host governments and solve them.
=To prevent Hundi, more exchange houses should be opened in different employer countries around the world. Exchange houses will help re-route more remittances through the banking channel. Currently, local banks, both private and state-owned, have 35 exchange houses abroad. According to Bangladesh Bank data, the central bank is considering applications for another 13 exchange houses.
= More bankers should be deputed in the main remittance source countries. The high official of Islami Bank Bangladesh Ltd. (IBBL), the highest remittance earning bank of Bangladesh (27.46 per cent of the total amount), suggested that 100 skilled bankers might be sent to the major remittance source countries, who would solve all the problems relating to remittance of the migrant workers. A hundred bankers can help improve national remittance considerably.
*Special campaign may be arranged by the central bank to discourage Hundi. Through this process, the facilities and incentives offered to the remitter should be disclosed. 'Remittance Fair' may be arranged in different places of the country.
=The process of sending remittance should be made easy for both literate and illiterate wage earners. Bankers can provide latest technology such as SMS banking, Mobile banking, remittance card, spot cash facility for speedy service. They can ignore the little mistakes often made by the remitter, if it is not related to legal aspects.
=Both state-owned and private organisations can develop training modules based on specific foreign markets. All outgoing manpower should be trained in any particular field, so that they can retain their jobs abroad. The government can take initiatives to export professionals such as doctors, engineers, teachers and nurses, and skilled manpower like drivers, computer operators, electricians, who can earn more than semi-skilled or unskilled manpower. A study on 'Policy and Public Benefit Interventions to help Bangladesh Achieve an Annual Migrant Remittances of USD 30 billion Per Annum by 2015' suggested that the government should prioritise skilled workers to command higher wages to remit more money back home.
Moreover, offering reasonable exchange rates is important. It is also essential to inform the remitters about the current market rates to prevent them from taking recourse to Hundi. So, attractive exchange rates should be offered to retain the remittance in the banking channel.
Though Bangladesh is trying to ensure greater flows of remittance through official channel but steps towards effective utilisation of remittance are still inadequate. Expatriates spend a large portion of their remittance in consumption. They spend 20.45 per cent on food and clothings, 5.97 per cent on medical treatment, 16.43 per cent on purchasing land, 15.02 per cent on home construction and repair, 10.55 per cent on repayment of loan, 4.76 per cent on investment in business, 7.19 per cent on financing migration of other family members, 9.7 per cent on social ceremonies and 3.4 per cent on bank savings.
Recently, a roundtable on the optimum use of foreign remittance in Dhaka laid emphasis on planned utilisation of foreign remittance by which the country can be turned into a middle-income country within 2021. Using the foreign remittance as a tool, the government can establish high-tech industries, establish large conglomerates, issue bonds and encourage public private partnership for developing the infrastructure, establishing power plants, bridges, airports and other development activities.
The government plans to earn USD 31.40 billion within the FY 2014-15 with a growth rate of 22 per cent every year. According to media reports, five teams are going to visit 17 countries to explore manpower markets.
To strengthen our economy, the government, Central Bank, PCBs and NCBs should work together to achieve the target for a sustainable development of our country.
The writer is a Senior Officer of Islami Bank Bangladesh Limited Khatungonj Branch, Chittagong.