Remittances fall in May, increasing pressure on forex

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Remittances to Bangladesh fell 13.15% year-on-year in May as higher US dollar rates in informal markets cause many migrant workers to avoid formal channels, creating further pressure on the market the country’s already strained exchange rate.

The inflow stood at $1.88 billion last month, up from $2.17 billion in the same month a year ago, according to data released yesterday by the Bangladesh Bank.

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Similarly, remittances fell 15.95% year-on-year to $19.19 billion in the first 11 months of the current fiscal year.

The flow of remittances, economists say, is still healthy as May receipts are well above the pre-pandemic monthly range of $1.2 billion to $1.5 billion.

The flow exceeded $2 billion on average per month during the pandemic. But as the effects of the crisis have faded, some of the remittances are once again being redirected through informal channels.

The higher exchange rate of the taka against the US dollar in the sidewalk market, a platform where commoners sell and buy US dollars, than in formal channels also makes the hundi channel attractive.

Mustafizur Rahman, a distinguished fellow at the Center for Policy Dialogue, however, thinks there is no need to panic over the downward trend in remittances.

The sidewalk market now offers 96-97 Tk for every US dollar against the interbank exchange rate of 89 Tk.

Thus, Rahman urged the central bank to carry out an awareness campaign among migrant workers on the drawbacks of transferring funds through the hundi channel.

Zahid Hussain, former chief economist at the World Bank’s Dhaka office, does not believe monthly remittances will fall below $1.5 billion in the coming days as large numbers of Bangladeshis have left for foreigner in recent months looking for a job.

Nearly 8 lakh migrant workers went overseas in the first 10 months of the current fiscal year, far surpassing the numbers from a year ago, according to data from the Manpower Bureau , state-run employment and training.

Some 4.26 lakh went abroad in April alone. Among them, 2.68 lakh workers went to Saudi Arabia, 56,830 to Oman and 51,531 to the United Arab Emirates.

Another positive development, Zahid says, is rising oil prices, which has accelerated economic growth in oil-exporting Middle Eastern economies, which are home to about 55% of Bangladesh’s more than 1.2 crore migrant workers. .

“Economic activities have accelerated in Middle Eastern countries and their incomes are rising. As a result, the demand for workers will increase. And it is possible that current workers will get higher wages.”

According to Monzur Hossain, research director of the Bangladesh Institute of Development Studies, expatriate Bangladeshis are now facing hardship due to rising inflation prevailing globally.

“The financial situation of many expatriates is in bad shape, so they send less money.”

Another reason is that the flow of remittances generally slows down after the Eid holidays.

Officials from three commercial banks say the banks are desperately trying to raise dollars from abroad to get some breathing room from continued currency pressures.

Last week foreign exchange offices charged Bangladeshi banks Tk 95-96 per dollar. Lenders need the US greenback to pay import bills.

This prompted the central bank on Sunday to fix the interbank exchange rate at 89.20 Tk per US dollar.

Money changers owned by Bangladeshi banks follow the BB rate, but foreigners ignore central bank instructions. Thus, the foreign exchange market is still facing crisis, bankers say.

“If banks can’t offer better rates than the curbside market, who would sell them dollars?” asked Zahid.

Syed Mahbubur Rahman, managing director of Mutual Trust Bank, said the central bank should make efforts to narrow the exchange rate gap between formal and informal channels.

“If the gap widens, senders may prefer to send their money via hundi.”

Zahid Hussain warned that if the central bank maintains its strong grip on the exchange rate, remittance senders through formal channels may even explore other ways to get better rates.

“Under such circumstances, one cannot expect to increase remittance flows, even by paying a 2.5% incentive and allowing remittances without question.”

“If you don’t offer the market rate, you can’t expect a lot of remittances through the formal channel.”

The downward trend in remittances affected foreign exchange reserves: they amounted to 42.29 billion dollars as of May 25 against 46.15 billion dollars as of December 31.

Ensuring stability in the foreign exchange market is key to boosting the flow of remittances, said CPD’s Rahman.

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