When Bangladeshi expatriates working abroad send their hard-earned money back home to their families, it is called remittance. Currently, over 15 million Bangladeshi migrant workers are working in around 176 countries worldwide, and every day, many more are heading abroad in search of livelihood. These migrant workers send home approximately $24-25 billion annually as remittances. After the ready-made garments industry, remittance is Bangladesh’s second-highest source of foreign currency earnings. The remittances sent by expatriates are not only a major source of foreign currency income but also a crucial part of the country’s forex reserves. Due to recent conflicts in the country, many expatriate remittance warriors have stopped sending remittances through official banking channels. However, in the current economic conditions of Bangladesh, remittance will play a vital role in rebuilding and revitalizing the economy. In this article, we will explore the critical role remittance plays in sustaining Bangladesh’s economy.
Overview
According to *The Daily Star*, currently, about 15 million migrant workers are working in 176 countries worldwide. Among them, 31% are in Saudi Arabia, over 17% in the UAE, over 13% in Oman, over 9.5% in Malaysia, over 6.5% in Singapore, and about 6.5% in Qatar. The hard-earned money of these migrant workers reaches Bangladesh mainly through two channels. One is through official banking channels such as remittances, and the other is through unofficial means or hundi. Sending remittances through official banking channels requires filling out certain forms and other documentation, which is not required through unofficial means. Since the majority of Bangladeshi expatriates are not highly educated, many face difficulties when sending remittances through official channels. As a result, even though there is an incentive of 2.5% to 5% for sending remittances through official channels, hundi remains a widely used method among less-educated Bangladeshi migrant workers to send money to their families back home. A review of data from the Bangladesh Bank shows that in the fiscal year 2023-24, total remittances amounted to approximately $24 billion (23.91 billion), while in the fiscal year 2022-23, it was $21.61 billion. The highest amount of remittance in Bangladesh’s history was recorded in the fiscal year 2020-21, with nearly $25 billion (24.77 billion), mainly because, during the COVID-19 pandemic, many people were unable to reach hundi agents due to lockdowns, sent remittances directly through banking channels. On the other hand, according to various media sources, while 51% of the income of Bangladeshi expatriates comes through legal means or official channels as remittances, the remaining 49% comes through hundi.
If the income of expatriates is sent to their families in Bangladesh through banking channels, the remittance received by Bangladesh plays a crucial role in the country’s forex reserves. A country’s forex reserves are mainly composed of gold reserves, foreign currency assets (i.e., reserves of different currencies), IMF’s Special Drawing Rights, etc. A country earns foreign currency or globally accepted reserve currency mainly from exports and remittances. Additionally, foreign direct investment, various development loans, and financial aid also contribute to building a country’s foreign exchange reserves. Forex reserves are an essential part of any country’s economy. It is crucial to maintain a strong forex reserve to determine the value of a country’s currency and keep the economy running by sustaining import activities. In August 2021, Bangladesh’s forex reserves reached a record high of $48 billion, with the exchange rate being 85-90 BDT per dollar.
However, after the global recession following the COVID-19 pandemic in 2021 and the increase in crude oil and LNG prices worldwide following Russia’s invasion of Ukraine in February 2022, Bangladesh’s forex reserves began to come under pressure, leading to a continuous decline, dropping to as low as $18 billion. Due to such pressure on forex reserves, the value of the BDT has continuously depreciated against the US dollar. Currently, the exchange rate is 116-125 BDT per dollar. This depreciation has led to high inflation in the country, increasing the prices of all essential goods indicating how vital it is for an economy to maintain strong forex reserves.
At the end of July 2024, Bangladesh’s forex reserves stood at approximately $20.5 billion. The decrease in remittance inflows, disruptions in export activities, and other factors in July caused the country’s forex reserves to drop by $1.3 billion. For an import-dependent country like Bangladesh, remittance plays a crucial role in building forex reserves. According to the Bangladesh Bank, in the fiscal year 2022-23, the country imported goods worth over $78 billion, while exports amounted to nearly $51 billion. In other words, in the fiscal year 2022-23, the trade deficit in the country was nearly $27 billion. Despite such a massive trade deficit, Bangladesh was able to sustain this level of imports due to the nearly $22 billion in remittances sent by migrant workers in the fiscal year 2022-23. This is why remittance is so vital for Bangladesh’s forex reserves. If for any reason, the inflow of remittances to Bangladesh is disrupted, it could pose a significant threat to the country’s economy.
How Crucial is Remittance?
Bangladesh is an import-dependent country, and one of its most crucial import items is energy or fuel. Bangladesh’s energy imports include crude oil, LNG, LPG, coal, and more. A significant portion of the country’s energy requirements is used for power generation and transportation. Most of Bangladesh’s power plants are oil, gas, or coal-based. The amount of gas produced annually in Bangladesh is not sufficient to meet the country’s daily electricity demand, nor does Bangladesh have enough gas-based power plants to generate the required amount of electricity. Therefore, for an uninterrupted power supply across homes, offices, factories, and other economic activities, the import of energy, alongside the supply of domestic natural gas, is essential. Without this, the country would face disruptions in daily life and all types of production and economic activities, pushing the economy toward a greater crisis. The second major area where Bangladesh’s energy requirements come into play is transportation. If the country fails to maintain a strong forex reserve, the value of its currency will decline. This would increase the cost of all types of imports, including energy imports. Higher energy import costs would, in turn, increase transportation costs, leading to a rise in the prices of all essential goods, which would further burden the general public.
The agricultural sector in Bangladesh also relies heavily on fuel for irrigation. While Bangladesh is self-sufficient in agriculture, it is still highly dependent on imports for various aspects, from crop production to animal husbandry. In addition to imported fuel for irrigation, the agricultural sector needs to import high-quality seeds, fertilizers, pesticides, machinery, animal feed, various vaccines, and medicines. If remittance inflows decrease or the forex reserve weakens for any reason, leading to disruptions in the necessary imports for the agricultural sector, it could result in a decline in agricultural production in the country. A decrease in agricultural production would inevitably lead to higher prices for all essential goods, causing hardship for the general public. To reduce public suffering and control market prices, the government would have to resort to imports, putting further pressure on the country’s forex reserve.
Key manufacturing industries in Bangladesh include RMG (Ready-Made Garments), textiles, jute, leather, pharmaceuticals, FMCG, plastics, steel, cement, and ship-breaking. The RMG, textile, jute, leather, and pharmaceutical industries are among Bangladesh’s major export industries. All of these industries earn foreign currency through exports, playing a crucial role in the country’s forex reserve. However, each of these industries is dependent on imports for production. The garment industry, for instance, needs to import raw materials like yarn, fabric, and various machinery for production, while the textile industry imports cotton, dyes, and various chemicals. Similarly, jute and leather processing industries also rely on the import of chemicals and machinery. The pharmaceutical industry in Bangladesh, too, needs to import various active pharmaceutical ingredients (APIs) to meet domestic demand and for export purposes. If pressure on the forex reserve increases, the regular import activities of these industries could be disrupted, which would, in turn, disrupt production. A decline in production would ultimately reduce the country’s export income, posing a threat to the forex reserve and the overall economy. While export-oriented industries like RMG generate 80% of Bangladesh’s total export earnings, they also require significant imports. On the other hand, remittance income involves little to no cost.
Apart from production for export, the country’s industries also import goods for the production of essential items for the people. For instance, Bangladesh’s FMCG companies regularly import various raw materials to produce packaged goods for the local market. In addition to FMCG, the country also imports significant amounts of materials for the production of plastics, steel, and various construction materials. If the flow of remittance is disrupted and the country’s forex reserve comes under pressure, complications may arise in paying for import bills, affecting all sectors of Bangladesh. As a result, issues like the rise in prices of goods that people have faced over the past year could resurface. Therefore, there is no alternative to sending remittances through official channels for the growth of Bangladesh’s economy.
On the other hand, when expatriates use hundi or other unofficial channels instead of official ones, their families may receive the money, but the foreign currency earned by the expatriate remains in the foreign country. As a result, no foreign currency is added to the country’s forex reserve. Moreover, while families may receive money through hundi, corrupt and unscrupulous businessmen send money out of the country. This illegal transfer of money hampers the proper growth of the country’s economy. As a result, remittances sent through hundi do not significantly impact the economy. Bangladesh’s economy is still small and growing compared to its neighboring countries. Over time, the continuous inflow of remittances through the hundi and the outflow of money from the country have consistently harmed Bangladesh’s economy. If remittances were sent through official channels and money laundering was prevented, significant growth would be seen in the country’s GDP, industrialization, and overall economy.
By implementing various policies, enacting strict laws, or bringing hundi operators under legal action and imposing harsh penalties, even reducing hundi operations by 20 to 50 percent could significantly increase remittance income and prevent money from being siphoned out of the country. This would ultimately play a crucial role in maintaining sustainable growth for Bangladesh’s economy in the coming days.
Furthermore, any government that comes to power should pay special attention to the country’s remittance warriors. Many Bangladeshis who go abroad for education often rely on money sent from home to fund their studies. Some manage to support themselves while sending money back to their parents in Bangladesh. However, such expatriates are more likely to settle abroad. As they settle, they often bring their families to join them abroad, selling off most of their assets in Bangladesh and taking the money with them. In other words, student migrants or those seeking a better life abroad often do not contribute to the country’s economy in the long term. In contrast, a migrant worker sends all of their earnings back home to their family. With their income from abroad, they build assets and establish businesses in Bangladesh, leaving a long-lasting impact on the country’s economy. Therefore, future governments must take measures to provide greater financial benefits and social recognition to expatriate workers.
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