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Explaining the Recent Decline in Remittances in Bangladesh

Zahid Hussain's picture

Migrant workers sent $6.77 billion home to Bangladesh in July-December, down 8.41% from the same time a year ago. For the first time in recent memory, Bangladesh has experienced a decline in remittances in the first half of the fiscal year.

There are four factors that can potentially account for the decline in remittances: the stock of Bangladeshi migrants abroad, earnings per migrant worker, their average propensity to save, and their average propensity to remit money home out of those savings.

The standard refrain appears to be that the flow of remittance has declined because the stock of Bangladeshi migrants abroad is not growing like it used to. This is because of two reasons. First, Bangladesh is failing to send more workers abroad to traditional markets and exploring new markets. Only 450,000 migrants managed oversees jobs in 2013, down by more than 33% from 680,000 in 2012. Second, the number of migrant workers returning to Bangladesh has also increased because the government could not resolve problems related to the legal status of Bangladeshi migrant labors in Saudi Arabia, the United Arab Emirates and Kuwait through diplomatic channels. Unfortunately, there is no reliable time series on the annual number of migrant returnees from abroad.

Is that the full story?  I doubt it although it is generally assumed that the current migrant workers are sending money home as per their maximum capacities and have little capacity to increase the flow.

There may have been a decline in their capacity to remit because of decline in earnings per migrant worker or decline in the propensity to save or decline in the propensity to remit out of their saving or a combination of all these factors.

Average earnings may have declined because of increased unemployment and/or decreased wages of illegal migrants in GCC countries in particular as the authorities tightened enforcement of regulation against illegal migrants.

With increased unemployment and/or lower wages, the propensity to save may have decreased because of ratchet effects on consumption. Conventionally, if income falls, then consumption should fall proportionally, but this does not necessarily happen because once consumption habits are acquired, it is hard to get rid of them. Certain consumption habits are formed at high income levels which are not completely abandoned when income falls. This effect is particularly strong when the income decline is perceived to be temporary.

The propensity to remit may also have declined because of the appreciation of taka against US dollar in 2013 and increase in transaction costs due to incessant political turmoil. Taka appreciation has stronger effects on remittances motivated by the desire to invest. By reducing the taka paid per unit of dollar, appreciation raises the taka prices of the assets the migrant workers wish to buy in Bangladesh, thus reducing the asset demand and hence the amount that would have been remitted to buy those assets. Political turmoil affects remittance transaction costs as well as the ability to remit by disrupting the smooth functioning of the banking system.

Detailed data to quantify the contribution of each of the factors noted above is unfortunately not available. Anecdotally, it appears their contribution to the decline may be nontrivial.

Focusing economic diplomacy to resolve the legal problems Bangladeshi migrant workers are facing abroad so as to prevent their premature return home, helping unemployed migrant workers abroad find decent jobs, improving the skill composition of new migrants, ensuring the competitiveness of the exchange rate, and ring fencing remittance transactions from the impact of political turmoil will help stem the decline in remittances experienced in the first half of FY14.

Comments

Submitted by Mahmud on

Good writing about remittance trend of Bangladesh! Being a Middle East expat I have same ovservation which author has underlined. No doubt major drawback is downtrend of overseas employment of Bangladeshi worker and in addition numerous problems facing by the GCC workers has worsen the situation. UAE & KSA as a whole contributing more then 30% of the global incoming remittance of Bangladesh and both the country has stopped or tightened hiring workers from Bangladesh and it has directly affected the remittance graph. Already visa ban is crossed more than two years for UAE and KSA and there are no visible sign of exemption of the same will deteriorate the situation further! Govt of Bangladesh should immediate intervene the situation with most priority to hold the string.

Submitted by Zahid on

Thanks for commenting Mr. Mahmud. The information you have provided on visa is extremely useful.

Submitted by Zakir Hossain on

It's a negative signal but not ominous. It's true we had some political problem for few months. But we have succeeded it. Current Govt. is trying it's best to explore new job markets.This Govt. efficiently explored a new system as Govt. to Govt. man power exchange with Malaysia. It's very cheap and hassle free. We are highly optimistic that our Govt. will explore more markets and new destination for our industrious working community. KSA and UAE have some domestic problem related expatriates. Here alternative market can give some good relief like Qatar, Brazil, South Africa. So we can expect something good for the next days.

Submitted by Mahmud on

Mr. Zakir, you have mentioned that current govt is trying to explore new job market and you underlined about malaysia. I am asking you,do you relly has any data of that how many new workers has got the mayalsian visa? No-2, if you compare last 5 years term of current govt major remittance countris were stopped issuing visa like KSA, UAE, QATAR, KUWAIT as well. What steps had govt taken to ease the situation. I am UAE Expat last 8 years working with remittance base company and we have the data that last one year from UAE only approximately 100K labours has lost their job and sent back to Bangladesh on other hand no visa since 2 years for new inflow. Same case happened in Libya when war started approximately 60k workers has gone back and govt has no clue where they are what they are doing now. Though govt had mentioned they will compensate those who all were affected in libya. You mentioned there are some domestic problems in UAE & KSA but what are the problems you didnot mentioned. I can tell you there are no such problems for thems. Problems are from our side we dont have strong diplomatic relationships in gulf or middle-east. You know why UAE has banned Bangladeshi Visa? Apperently its because of damographic balance they have their own poulation estimate for different countries and for bangladesh it has surplus the limit, but the reality is Bangladeshi govt failed to cooperate with UAE govt in illegal workers issue, Mannual to MRP Passport issues, High Expenses of visa charging by Bangladeshi Rucruiting agancies, Many Bangladeshi visiting with fake visas and also who all are coming in visit visas after few month they are becoming illegals and not returning back these are major issues for visa ban in UAE. similarly in KSA as well. Even KSA govt has proposed to open direct recruitng office in Bangladesh so that bangladeshi workers can easily choose their job category as per their skills and with minimum expense they can go to KSA, but our prudant govt has apperently declined the proposal by favouring the interest of BAIRA( Bangladesh Association or Recruting agencies) not looking to the workers interest. You are metioning about the new market but reailty is last 5 years we havnt seen any develeopment or initiatives by the govt for that. Besides our Overseas worker welfare Minister Masarrof is sleeping whole time and giving meaningless statements rather putting some real effort for the expatriates wellbieng. I have never heard of his visit in UAE last two years for any single time. If he is an expatriate welfare minister he should visit the major expatriate living countries like KSA, UAE, KUWAIT ..etc but unfortunately he is mostly stationed in Dhaka and giving media statements. I would really appreciate if you could mention some real steps where govt has succeeded to increase remittance or for easing visa ban and creating new job market. just giving vague statements or forcasting big things would never serve the purpose!!

I appreciate you. The government is just careless with this issue as like as another issues in Bangladesh. Our main remittance source just losing it's flow. We want remedy.

Submitted by anonymous on

Dear Mr. Hussain,
It has always been a pleasure to read your thoughts about such crucial matters of Bangladesh. I personally get to learn a lot from your write-ups. Please try to write often.
Best Regards

Submitted by Anonymous on

Now the current economical status of Bangladesh based on remittance sending from abroad and other part is garments workers in the country. Bangladesh Government should take initiative to solve the labour issue for both sector specially in uae where about eight lacs people are working. But unfortunately since more than two years they are not taking any pain for those numbers of hard worker problem what they are facing. It is very unfortuante.

Submitted by Anonymous on

Some good points, Remittance brings in a lot of funds to Bangladesh, I believe a big factor effecting these migrants is the actuality to get a job abroad, in order to remit the money home.

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