August remittance drops to 6-month low at $1.6b

Bangladesh witnessed an 18.78% decline in inward remittances in August compared to the previous month, marking the lowest inflow in the past six months – a development that raises concerns regarding the country's depleting foreign currency reserves and financial accounts.

According to Bangladesh Bank data, the country received $1.6 billion in remittances in August and $1.97 billion in July. In February, the figure stood at $1.56 billion. 

The year-on-year comparison for August also reveals a concerning 21.57% decrease in inward remittances.

Remittance inflow declined despite some 10.74 lakh workers going abroad for employment in the 2022-23 fiscal year, up by 15.59% from the previous fiscal year.

Bankers and experts attributed the decline to the higher exchange rate of the US dollar in the open market, which is attracting expatriates towards informal cross-border money-transfer channels like "hundi".

Syed Mahbubur Rahman, managing director of Mutual Trust Bank, told The Business Standard, "Remittances through the 'hundi' channel have risen significantly, which is hampering remittance flow through the banking channel. If the supply of dollars in the banking channel is not increased, it will have an adverse effect on our economy."

Managing directors of several private banks said even though the Association of Bankers Bangladesh (ABB) and Bangladesh Foreign Exchange Dealers Association (Bafeda) fixed the dollar selling rate at Tk110, most of the banks are not selling it below Tk116-117. 

One of the reasons for this is that many banks are offering rates up to Tk113-115 to collect remittances. As a result, the dollar price has increased to more than Tk120 in the hundi channel, the bankers said, adding that remittances are decreasing due to this difference in the dollar price.

In August, the US dollar was priced at Tk109 in the banking channel. In the ABB and Bafeda meeting on 31 August, the rate of remittance dollars was increased by Tk0.50 to Tk109.50. Along with this rate, the remitters get a 2.5% incentive announced by the government. 

When asked about the reason for the decline in remittances, Central Bank Spokesperson Md Mezbaul Haque told TBS, "We are looking into the facts to understand why remittances in the banking channel have decreased in August."

Towfiqul Islam Khan, senior research fellow of The Centre for Policy Dialogue (CPD), told TBS, "Remittances came in at about $500 million less in August than the normal time. This is a concern for us because we are in deficit with our financial account balance. That is, we needed to maintain a good standing in our current account balance through remittances. But that will not be possible now due to low remittances. The pressure on our reserves will increase also."

Stating that the dollar rate should be made market-based to increase remittances, the economist said dollar transactions have increased through the hundi channel and the central bank should leave the rate to the market. 

The central bank and commercial banks are taking some initiatives such as increasing publicity, declaring prizes to the remittances, and erasing the exchange house charges to raise the remittance inflow.

Remittance flow in state-owned and private banks

Remittance has been decreasing but not at the same pace in all banks. Analysing central bank data reveals that the remittances in the state-owned banks have declined by 49.59% compared to last year's August and in private banks by 16%.

The state-owned banks received $363 million in August 2022, while it came down to only $183 million in August this year. 

Among the state-owned banks, Rupali Bank's remittance declined the most by almost 90%. Around $100 million in remittances received by the bank in August 2022. In August 2023, only $9.45 million in remittances came to this bank. 

Apart from this, the remittances of Agrani, Sonali and Basic Bank have also decreased significantly. However, Janata and Krishi Bank's remittance income has increased.

Remittances of most of the private banks have decreased compared to August last year. There are also some banks whose remittance inflow has fallen by as much as 90%. 

However, some banks such as Brac, Eastern, NRB, First Security Islami, Social Islami, and Standard received more remittances in August this year compared to August last year.