High and low tide of inward remittance
Till the end of May our inbound remittance totaled $19.19 billion, $3.6 billion dollar less than that last year. With the current downward trend, in an optimistic estimate, we can eye a near $21 billion by the end of the financial year which would be 15 per cent less on a year-on-year basis. But based on this figure alone will it be justified to arrive at a decision that the magic of remittance have waned, we have run out of means to fill the increasing trade gaps, and are quickly embracing a bleak financial future? Before siding with a yes or a no let us revisit the trend of remittance flow.
Bangladesh Bank recorded our remittance inflow from FY 2016-17 to FY 2019-20 at $12.77, $14.98, $16.42 and $18.21 billion on each year respectively. At this progression, in 2020-21 it would have been between $20.50 and $21 billion. But as Covid-19 turned all predictions upside down, we closed the year with $24.78 billion, an unprecedented 36 per cent rise.
While we label the current trend of remittance inflow as "declining", we must not forget that this rise was somewhat unnatural. Which is why, it was inevitable to fall from that cliff, settle at a lower point, regroup, and start the uphill climb again
While we label the current trend of remittance inflow as "declining", we must not forget that this rise was somewhat unnatural. Which is why, it was inevitable to fall from that cliff, settle at a lower point, regroup, and start the uphill climb again.
The market forces that traditionally prevailed, but were gone during the pandemic, are striking back now. One such force is the alternative channels of money transfer. The whole hundi racket went into oblivion since April 2020, money came through banking channels mostly and we piled up a near $25 billion. But the bad boys are back on the streets now and the gap of Tk 6 to Tk 7 between bank rates and the kerb market is only fueling the fire.
Has the government failed to respond?
Some economists might not have approved of the way the central bank acted in the face of a rising rate of US dollars in the unofficial market and later amended its actions but one thing is for sure that is the government cannot be blamed for its inaction. The government is also allowing unlimited fund transfers without requiring supporting documents since May 23. Also, we heard it on the grapevine that the 2.5 per cent incentive will go up in the budget proposals.
If it is done, we would not hesitate to welcome the move. Let us assume that the receiving party cashes Tk 103.50 for every Tk 100.00 remitted. Let us also assume we reach $25 billion again in June 2023. How much additional expenses will the government incur for it at the existing exchange rate of Tk 89.90? It would be a subsidy of Tk 5,618 crore with 2.50 per cent and with one taka more in every hundred it would be Tk 7,866 crore. That is an additional subsidy of Tk 2,247 crore worth spending for the greater good of a greater number of people, for stabilising the forex market and for ousting the bad players from the ground.
Above and beyond $25 billion
The $25 billion prediction for FY 2022-23 is not riding on the cash incentive alone. There are four more reasons why it is bound to happen and will see a steeper rise in the following years:
1. Oil rich countries are getting richer as the fuel prices are soaring. We have the largest concentration of wage earner diaspora, roughly 55 per cent, in this mineral mighty region of Asia. With the widening size of their economies these nations would bring changes in their wage patterns, a basic economic assumption.
2. Our government is relentless in facilitating employment beyond borders. The Bureau of Manpower, Employment and Training (BMET) website shows 7.34 lakh, 7 lakh, 2.17 lakh and 6.17 lakh new workers were sent abroad in last four calendar years respectively. In the first four months of this year, 4.26 lakh have flown out. This is a special year as we are addressing pent up demand (demand withheld during the pandemic) from various countries. Combined with the decision of last week's joint working group meeting with the Malaysian government accommodating 5 lakh employees in five years, total overseas employment by the end of December might hit 1 million.
3. That people prefer safer, quicker, and more yielding modes of money transfer is common wisdom. The banking channel is safer than hundi. These days they both are quick but for the last three months hundi's yield is significantly higher than the official routes. The more the government truncates the difference, less and less people will use the risky medium.
4. Last but not least, the BMET may consider incorporating the tax factor of remittance channeled through banks in their training sessions for the outbound workers. If you send the money officially, you do not pay a pie as tax but can put it in your tax file and make crores of white money in the process. In sharp contrast while your closest keens receive your remittance through illegal routes no one can put it in tax records, nor you neither the receiver. The money can be used now, but also can be questioned at a certain point of time.
The skeptics' dilemma
There is a not-so-popular but alive stream of thought that when a government pampers it's remitters with incentives or otherwise, a poisonous cycle of unearned income may roll out. How? Well, it is a three-step action plan. First you amass illegitimate earnings, then send it abroad through informal ways and then bring it back as remittance.
What a scheme! Legitimizing illicit money without paying taxes and there is also a bit of icing on the cake. All you need to run the project is a "brother" who lives abroad and who you can be trusted with hoarding the money for a while and then re-routing it to you.
Skeptics always bring this evil design to the fore whenever the question of more subsidy is raised. They say effective addition of forex is negligible in this process.
There are arguments as well which brush aside all skepticism. Most reasonable of them would be, what is the harm if it really turns out to be a respite for earners of illegal wealth? Forex still rolls on to the country which could have been left outside permanently. If the person in question has really piled up unearned income, he would always be at risk for the money trail he leaves behind unknowingly.
Remitters are our unsung heroes. That we have never valued them with dignity and honour is evidential in our airports, onboard the national carrier and in many cases in our embassies.
It's time we express our gratitude. One small step would be to add one more taka for every hundred taka they send putting in the blood and sweat.
Views expressed here are personal. The writer is a member of the Pacific Council on International Policy. He can be reached at [email protected]