A flurry of speculations greeted the recent decline in the flow of home remittances from Bangladesh migrant workers. Think tanks, news reporters, freelance columnists and arm-chair analysts have joined the fray to tell their own stories of why the remittances took the sudden downturn. The arguments and the comments floating around as a result of these exercises are mostly knee-jerk reactions reflecting inadequate appreciation of the dynamics of home remittances and how they interact with multiple factors impinging on remittance inflows.
"Remittance inflow dips to $13.83b in 2013", screamed a headline in a Dhaka daily (not the Financial Express) on January 02, 2014. The reason, it says, is downward manpower exports during 2013. In fact, downturn in manpower export appears to be the common theme picked up by most of the commentators to explain why remittance flow has weakened. This and other amazing 'stories' serve to remind us that people are indeed eager to quickly jump to the conclusion or, should I say confusion.
Admittedly, smaller number generates smaller remittances and affects the future growth potential. However, empirical evidence suggests that thinner flow in a given year does not necessarily affect the flow of remittances of that year or even subsequent years. The following chart, juxtaposing manpower export and remittances received during the last 10 years, illustrates this point:
It can be seen that manpower export maintained an erratic trend within a range of as low as 251,699 to as high as 981,102. Despite this highly skewed distribution remittances continued to maintain an upward trajectory up to 2012-13. It demonstrates that the remittances depend quintessentially on the stock of manpower abroad and not on the number of new recruits joining them at a given moment of time. For instance, the number of foreign-bound workers reached the peak in 2007-08 when 981,102 went for work abroad, especially to the UAE. The number fell dramatically in the following two years on account of worldwide recession but the flow of remittances continued to rise at an accelerated pace.
During the last few years, overseas manpower stock swelled from a modest level to a staggering number of around 7.5 million. It explains why the remittances also rose from a relatively small amount to around $14 billion, not counting another $6 to $7 billion sent through unofficial channel. What all these numbers point to are that thinness of the outflow of workers in 2013 is not the reason for the recent downturn of remittances.
The newspaper report mentioned above also quoted the Bureau of Manpower, Employment and Training that Bangladeshi workers were earning low wages abroad due to global economic recession and hence sending less remittance to the country. Someone from the Bureau also reportedly suggested to the paper that many 'Bangladeshi migrant workers are passing 'hard times' in the Middle East countries due to prevailing Arab unrest and so-called 'Arab Spring'.
Explaining the recent decline in remittances to Bangladesh, an official of the local World Bank office submitted in a blog on January 12, 2014 that there are four factors that can potentially account for the decline in remittances: the stock of Bangladeshi migrants abroad, earnings per migrant worker, their average propensity to save, and their average propensity to remit money home out of those savings.'
It seems that imaginations ran real wild in quest of the factors contributing to the slowdown of the remittance flow. The phenomena - low wages of Bangladesh workers, their 'hard times' in the desert lands or rubber plantations in Malaysia, 'Arab Spring', average propensity to save or remit money - are all too age-old common factors impinging on the long-term remittance curve but does not unlock the riddle behind the falling remittances in 2013.
Some commentators have cited downturn in economic growth of the host countries as possible answer to the conundrum of declining remittances. If it were so, it would have reflected in the remittances to our neighbouring countries. But, as the following chart would show, their remittances had increased, not declined.
According to a recent World Bank study, remittances to developing countries are estimated at $404 billion in 2013, up 3.5 per cent compared with 2012.
We have no doubt that, commensurate with the upward trend in the world, including our neighbouring countries, home remittances by the Bangladesh migrant workers have also increased but these have not been reflected in the official records. We should not forget that many players in the market, especially in the shadow market, constantly divert a thick slice of expatriate workers' remittances to the unofficial channels. They are all too familiar faces in businesses, politics, bureaucracy - the rent seekers who are anxious to shift their ill-gotten wealth to safe havens abroad.
Smugglers need foreign exchange to finance their illegally imported wares. Then there is what we could say quasi-smugglers who need a huge amount of foreign exchange from the kerb market to under-invoice imports for dodging tax and import duty. The amount they require is anybody's guess but it would be at least $5.0 billion.
The manpower agents need close to 2.0 billion dollar a year to buy job opportunities abroad. The central bank does not allow foreign exchange quota to buy job visa. What else can the adam beparis (manpower exporters) do other than nibbling at the parallel foreign exchange market fed from the wage earners' money?
Then there are legions of Bangladesh visitors, especially nouveau riche ones, flying abroad in droves in quest of fun and frolic, education and medical treatment. The official foreign exchange quota is either inadequate or access to a higher quota is fraught with bureaucratic tangles.
All said and done, it has been estimated by some agencies, including the World Bank, that in a typical year anything from 40 per cent to 50 per cent of migrants' money is diverted to the parallel foreign exchange market.
What is so special about the year 2013 that saw a downturn of remittances? The single most important factor was the pre-election trauma that spurred flight of capital to safer havens like Switzerland where, according to the Swiss authority, deposits from Bangladeshi citizens at the Swiss banks rose by 62 per cent year-on-year in 2013 to 372 million Swiss franc ($411 million). Then there is this mad rush for buying property in Malaysia (under the so-called second home programme), UAE, Canada and other locations.
The year also witnessed unprecedented rise in bank loan scams involving several billions taka most of which had been shuffled away to distant lands. The relaxation of pre-shipment inspection (PSI) requirement has also opened new opportunities to under-invoice imports. Falling gold prices at the international level also spurred hectic activities of the smugglers who are using all conceivable and bizarre means, including the long-robed imams, to carry the yellowish metal for Bangladesh and India. In one of my recent articles I had estimated that an amount of something like $2.5 billion is required per annum to finance the gold consignments.
Where did all the foreign exchange components of the demand for foreign money come from? The answer is obvious - the lion's share of the supply came from our hardworking expatriates. That precisely is the reason for the downturn. I am certain that if political agitation does not take a violent turn, the remittance curve will once again resume its upward journey.
The writer is a former central bank official. [email protected]
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