Towards bolstering remittance

The external economy of Bangladesh remains volatile mainly because of imbalances both in current and financial accounts. Invariably, this has been creating a lot of uncertainties in the foreign exchange market, including the exchange rate volatility and depletion of the foreign exchange reserve. The prevailing uncertainty owes to a great extent to the fall in remittances despite a rise in the number of wage earners in recent months.

At the same time, we must also acknowledge that the export sector remains vibrant. Despite the geopolitical tensions, our exports to Europe and the US continue to grow. RMG exports to previously unexplored non-traditional markets also appear to be increasing. 

Bangladesh's exports in FY23 were higher compared to that in FY22. In July 2023, we exported RMG worth $3.95 billion, whereas the figure for the same month in 2022 was $3.37 billion, indicating a 17.21 per cent growth. 

However, because of the exchange rate not being entirely market-driven, a significant share of the export income has not been brought back to Bangladesh, perhaps due to speculative expectations for an even higher exchange rate. I believe Bangladesh Bank is working to address this challenge. Our export prospects can be more positive if we get our exchange rate near the market-driven solution.

However, the growth of remittance inflow does not look so good. Whether this is because of the gap of Tk7 to Tk8 between formal and informal exchange rates or because of small importers relying more on hundi due to import control measures needs to be seriously investigated. 

Moreover, some observers argue that the flight of capital money may have increased because of the unstable political environment. This normally happens in an election year. Or is the dollar crisis in the kerb market a seasonal phenomenon? 

Many students go abroad to study during this time of the year. Many go for tourism, including health tourism. This could have also contributed to the increased demand for cash dollars, the supply of which may not have been augmented with some proactive directional measures from the regulators to the foreign banks that normally import such notes. 

Answering these questions is definitively challenging. Yet there is no doubt that our remittance inflow has been decreasing over the last few months. Dollar prices in the kerb and formal markets have also increased during this turbulent period. Bangladesh Bank has already requested the BFIU and the detectives to investigate the matter. 

Some punitive actions have been taken against some money changers who have been allegedly involved in shady deals. Notwithstanding these administrative measures, some experts recommend in-depth analysis to determine the root causes of increased demand for hundi (i.e., informal forex market transactions).

Given this backdrop, policy attention is urgently required to find alternative measures to boost remittance inflow to maintain macroeconomic stability. According to the latest data from the Bangladesh Bank, between 1 August to 17 August 2023, total remittances received through formal channels stood at $1,041 million. Last year, during the same period, the amount received was $1,261 million, indicating a 17.5 per cent decrease. 

Given the limited scope of this write-up, it is difficult to analyse the factors leading to such decreases. We can, however, certainly investigate the alternative measures that may be undertaken to bolster the remittance inflows in addition to streamlining the exchange rate anomalies:

01)   The mobile financial service (MFS) providers in Bangladesh have become mature enough to participate more actively in the forex market. It is high time that we might link them with foreign digital wallets.

02)   Remitters could be allowed to send money quickly from their chosen foreign digital wallets via the linked Bangladeshi MFS providers or wallets of sub-branches of domestic banks.

03)   Until we have our own forex transfer cards, can we not allow Visa card to Visa card transactions for our remitters?

04)   We have many PSPs operational in the country. Can we not allow them to bring in remittances as well? Remitters would find it easier to use services of the online payment gateway service providers, payment service providers, payment service providers etc.

05)   If the remitters send their money directly to third parties such as service providers or vendor creditors, should that not be considered a remittance? If so, then we should not impose taxes on those transfers. Instead, we should incentivise such transfers as we do in other cases.

06)   If possible, remitters should be allowed to maintain forex accounts with MFS providers. If that could be done, remitters could easily send money home via those accounts.

07)   Remitters could be allowed to have joint debit cards. Nominated members of their families could be allowed to use those cards to procure goods and services from domestic markets.

08)   There is undoubtedly a provision for remitters to have deposit accounts with domestic banks. The money they remit can be deposited in those accounts. Once they return home, they can spend money from those accounts.

09)   Remitters (expatriates) should be allowed to spend some foreign currency under the "travel quota". When they come home for a few days, they should be allowed to spend some USD or other foreign currency from those accounts.

10)  It has been observed that whenever remitters get the benefits of innovative financial inclusion, they are encouraged to send money via formal channels. We must work further to strengthen their ties with the formal financial service providers. The recently launched universal pension scheme with a specific program for the wage-earners is indeed a prudent move. If adequately informed through a smart communication strategy, this program will help incentivise the remitters to send their remittances through formal channels.

I have indicated only a few creative ways to attract more remittances through formal channels.

If we try the innovative measures mentioned above and move ahead with a "learning by doing" approach, we can convince our remitters to rely more on formal financial channels. Otherwise, curtailing the "shadow market" of foreign currency will be very challenging. 

Some experts suggest that around $15 billion is transacted annually via this shadow market. Unfortunately, the size of this shadow fx market may have been expanding in recent times. 

The customers rely on the shadow market mainly because formal channel transactions are often very complex and challenging. Therefore, we should consider measures such as 01) making the current account transactions really "convertible", 02) ensuring different suitable incentives including pension facilities for remitters, 03) legal provisions for remitters to take their money (earned through investment in bonds) back to foreign countries at their convenience, 04) market-based lucrative exchange rate for remitters, and 05) provision for direct use of remittance for commercial purposes like the air travel, student fees, purchase of digital products and services etc.

This discussion here aims towards bolstering remittance inflow. I have raised specific issues/questions so that the regulators may revisit their existing regulations and consider bringing necessary changes after serious brainstorming among themselves and with relevant stakeholders. 

There is no doubt that the times have changed. We must also consider changing our forex-related regulations. We must facilitate discourses among the stakeholders to augment the regulatory regime to suit the prevailing realities better and ease the forex market ambience for attracting more remittances at a time of existing headwinds. 

Simultaneously, we must continue to ease the supply-side challenges that many hapless remitters are forced to fall into the so-called "free-visa" trap, creating a robust scope for "undocumented labourers". These unfortunate labourers become nameless, vulnerable informal workers surviving on occasional sales of their labour only to collect enough money to return home penniless. 

Besides paying a handsome amount to the so-called employers, they are often forced to get more money from their already depleted resources from home through hundis. All this further encourages more flight of capital instead of augmenting the inward flow of remittances. This, too, certainly demands more in-depth investigation by the concerned authorities.

Dr Atiur Rahman is an Emeritus Professor at Dhaka University and former Governor of Bangladesh Bank.

Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the opinions and views of The Business Standard.