Inward remittances dropped to $1.34 billion in September, lowest in 41 months, according to the Bangladesh Bank data released on Sunday, though August saw the highest number of workers going abroad in a single month and a record 11.3 lakh in FY23.
The poor show of remittance met with another set of shocking numbers from the Export Promotion Bureau (EPB) on the same day unveiling that merchandise exports in September, worth $4.31 billion, were the lowest in the past five months, despite posting a 10% growth year-on-year.
The slides in exports and remittances are causing experts to raise red flags about the mounting pressure on the country's balance of payments.
This alarming trend in the two main sources of the country's external earnings puts additional strain on the nation's foreign exchange reserves and could potentially trigger a depreciation of the taka against the US dollar.
Bangladesh's foreign exchange reserves continue to slide and stood at $21.15 billion on 26 September in line with the IMF reserve calculation method, according to central bank data.
Analysts said exports and remittances are not just crucial sources of foreign currency; they are also significant drivers of economic growth in Bangladesh. A decline in these key income streams can lead to a slowdown in overall economic growth. This, in turn, might translate into fewer job opportunities and reduced living standards for the population—a worrisome scenario that experts are keen to address.
Remittance is low despite surging manpower export
Remittances came in at a 41-month low in September due to a high gap between official and unofficial rates of the dollar, pressure on banks to meet the official rate and increased demand for the illegal money transfer channel hundi, according to bankers.
April 2020 saw fewer remittances ($1.09 billion) than September this year with the beginning of the pandemic. Though the world is currently witnessing an economic downturn, the situation is less dire than it was during the pandemic as major global economies were shut down.
Low remittance amid high manpower export is somewhat unusual. August this year saw an all-time high of 1.39 lakh labour exports.
The total labour export from January to August this year was 8.82 lakh. Among them, Saudi Arabia is the top destination (35%) followed by Malaysia (30%), Oman (11%), UAE (8%), Singapore (4%), Kuwait (3%) and Qatar (3%). In 2022, labour exports to various countries reached an annual record of 11.35 lakh.
Senior officials of several banks told The Business Standard that the remittance rate of hundi is Tk118-119 but banks offer a maximum rate of Tk112.75 with a 2.5% government incentive. Normally this difference in rate is Tk3-4, but now it is Tk6, which is why remitters are leaning towards the unofficial channel.
When asked why remittances are decreasing, central bank spokesperson Md Mezbaul Haque told TBS, "We need some more time to look into the reasons."
Zahid Hussain, former lead economist of the World Bank's Dhaka office, said, "The dollar rate fixed by the Association of Bankers Bangladesh ABB and Bafeda is not always followed. Last September, the central bank pressured the banks to follow the fixed rate. Some banks were even criticised for offering higher rates. But now banks have to follow the official rate of the dollar and this is the main reason for the drop in formal channel remittances in September."
Calling for a market-based dollar rate, he said, "We have been saying this repeatedly. Due to the lower formal rate, remittance inflow through the hundi has increased."
Stating that $2 billion in remittances come every month during normal times, he said, "Remittances came in around $650-700 million less in September. Meanwhile, our trade deficit was narrowing due to a reduction in imports and growth in exports. Although there was no significant improvement in the overall balance of payments last July, our current account balance position was slightly better due to good remittances in that month."
However, the situation in our current account balance will deteriorate again due to a reduction in remittances in September, the economist said, adding that the decline in remittances will further erode our foreign exchange reserves.
Md Afzal Karim, chairman of the Bangladesh Foreign Exchange Dealers' Association (Bafeda) and managing director of Sonali Bank, said, "Looking at the remittance trend of a few months is not enough to say that remittance is decreasing. We need to see the trend for a longer period of time."
Export earnings second lowest in nine months
Bangladesh earned $4.31 billion in merchandise exports in September which is the second lowest this calendar year, according to EPB data. Earlier in April, the export earnings fell to $3.96 billion.
According to EPB, exports grew by 10.37% year-on-year in September, up from $3.9 billion in the same month a year ago.
But in August, exports grew by around 36% year-on-year to $4.61 billion, driven by a number of products including readymade garments, home textiles, leather and jute goods, EPB data shows.
The country's export earnings have been on the decline since last June, except in August. In June, Bangladesh raked in over $5 billion in merchandise exports, which fell to $4.59 billion in July.
An analysis of the EPB data shows that apart from the ready-made clothing sector, exports fell in the other major sectors including frozen and live fish, agricultural products, plastic goods, leather and leather products, jute and jute goods, and home textiles in September.
During the period, only RMG exports soared 13% last month. About 85% of Bangladesh's exports come from the ready-made garment sector.