Narrowing down exchange rate gap

A stable and rather cheap source of Bangladesh's foreign currency earning, remittance from migrant workers, has been on a falling curve since long despite a marked rise in the outflow of overseas jobseekers. Last year (2022), for instance, more than 1.1 million migrant workers, the highest ever from the country, went abroad, most of them to the Gulf countries. But the money they sent through the official channel dropped to US$21.28 billion from US$22 billion in the previous year, marking a 6.65 per cent decline. The fall in remittance, except the Eid time surge (as in last June), continued with the last month (September 2023) recording the lowest receipt at US$1.34 billion in 41 months since April 2020. It was also 13 per cent lower year-on-year. As expected, the country's forex reserves, which are already severely strained, received yet another blow.
The receipt from export, too, fell short of meeting monthly target recording the lowest earning in three months, though, year-on-year, it earned 10.4 per cent more at US$4.3 billion. But still such a gain compared to the past will be meaningful, if the exporters concerned are not waiting in the hope of a further rise in the US dollar's rate before retrieving those (the US dollars so earned) from abroad. Given the fall in consumers' demand overseas, the reported comparative (year-on-year, if not in monthly terms) gain in export may not be sustainable. This is hardly good news for the forex reserves.
Notably, by the end of last month (on September 26), the country's foreign currency reserves stood at US$21.5 billion. According to the US-based credit rating agency, Ficht, by the end of 2023, reserves will dip further, and will be able to cover only three months' import bill. Clearly, these are the warning signals for the central bank, the Bangladesh Bank (BB), in the upcoming months ahead of the national polls. Hopefully, the BB will go for the drastic policy changes it has been promising since last year to meet the challenges of fast depleting forex reserves, the persistent depreciation of taka against US dollar and the resulting upward push to the inflation. In this context, the BB's present policy of raising the exchange rate from time to time by Tk 0.50 or Tk 1.0 per US dollar, experts hold, is proving counterproductive as it is only fuelling expectations (of further rise in its rate) in the market. The BB should opt for the market-based exchange rate as it promised last July while announcing its monetary policy. To that end, urgent measures have to be in place to narrow down the existing exchange rate gap between formal and informal markets to zero. The current official exchange rate of greenback as determined at Tk 110 by the Bangladesh Foreign Exchange Dealers Association (BAFEDA) and the Association of Bankers, Bangladesh (ABB) with the unofficial backing of the BB, is still lower than the rates being offered by the hundi operators through the kerb market, for instance, recently, at Tk 118 per US dollar.
So, no exhortation even with the 2.5 per cent incentive is going to work as long as the remitters get Tk 8.0 extra for every dollar they send home. But to stop the trend, nothing short of a full-scale war on the hundi operators, who also serve as the conduit for capital flight, both at home and abroad will be necessary.