The Economic Significance of Remittance in Bangladesh

W​ritten by: Myesha Ahmed, MD. Rohan Akon

​Remittances serve as a vital source of external income within an economy. In Bangladesh, the remittance rates have proved that their contribution to stabilizing the economy, balancing the balance of payments, increasing foreign exchange reserves, escalating national savings, and accelerating the velocity of money cannot be overlooked. It clearly exceeds foreign aid in significance because we can rely on our people and lessen the dependency on seeking assistance. Our focus should be more on making this sector a steady resource for aggregated success. 

Trends in Bangladesh’s Remittance Inflows: Growth, Decline, and Recovery
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Bangladesh has experienced significant fluctuations in remittance inflows over the past decade. The country's economy has been heavily reliant on remittances, particularly from overseas workers in the Middle East. Following a substantial downswing from $15.32 billion in 2014-2015 to $14.93 billion in 2015-2016, remittances began to further decline. In 2016-2017, remittances dropped to $12.77 billion, followed by a recovery to $14.98 billion in 2017-2018. Remittances continued to rise, reaching $16.42 billion in 2018-2019 and $18.21 billion in 2019-2020. The peak occurred in the 2020-2021 fiscal year, with remittances surging to $24.78 billion. However, remittances saw a slight decline in the following years, dropping to $21.03 billion in 2021-2022 and further down to $21.61 billion in 2022-2023. Most recently, remittances stood at $23.91 billion in 2023-2024.

This rollercoaster trend highlights the vulnerability of Bangladesh's economy to external factors, particularly political instability and economic conditions in the countries where Bangladeshi workers are employed.

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Remittance Dynamics in South Asia: Bangladesh’s Position and Challenges 
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Remittance is responsible for raising domestic consumption and reducing poverty in South Asian countries. It’s more beneficial in the case of poverty reduction rather than economic growth. According to a study by Soma Rani Sutradhar published in 2020, a 1% increase in remittance growth leads to a 0.05, 0.021, and 0.004% decrease and a 0.017% increase in GDP per capita growth in Bangladesh, Pakistan, Sri Lanka, and India, respectively. 

Despite a hefty increase in the rates in recent times, Bangladesh faces tough competition in numbers when it comes to neighboring countries’ remittances. India remained the top recipient among remittance-recipient countries, followed by Mexico ($66 billion), China ($50 billion), the Philippines ($39 billion), and Pakistan ($27 billion). India has managed to achieve their goal, which was to hit $124 billion inflows this year. The UAE emerges as the second largest source for India and Bangladesh, according to recent reports. In the case of Pakistan, its remittance contribution is slightly different from that of Bangladesh. Foreign reserves are better off because of Pakistan’s remittance inflow, whereas Bangladesh and India’s rates are critical for GDP growth. Pakistan directs remittance inflows towards foreign exchange reserves to stabilize its external finances. In contrast, Bangladesh and India utilize remittances primarily to enhance household consumption, investments, and overall GDP growth. Bangladesh may have managed to gain macroeconomic stability to a considerable degree with the help of remittances, yet it struggles to catch up with Pakistan’s rates. Pakistan’s annual inflow is higher for an effective policy they undertook, the Pakistan Remittance Initiative (PRI), which encourages people to opt for official channels. The government of Pakistan teamed up with private financial institutions to simplify the process of sending money home without opting for illegal streams. For which, 80-85% of total remittances are sent through these channels and recorded by the State Bank of Pakistan. As Bangladesh is still heavily reliant on unofficial channels, the rates are somewhat lower than in its neighboring countries.

Understanding Bangladesh’s Remittance Sources: A Data-Driven Insight
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Bangladesh receives a significant amount of remittances from its expatriates living abroad, with the USA, UAE, and Saudi Arabia being the top three sources. Data from the Bangladesh Bank detailing the flow of remittances into the country reveals a clear pattern.

In September 2024, Bangladesh received a total of 2.4 billion USD in remittances (source: Bangladesh Bank). Expatriates from the USA sent approximately 387.95 million USD, accounting for around 16.14% of the total inflow. The second largest contribution came from the United Arab Emirates, with around 361.78 million USD, or 15.05% of the total. Saudi Arabia followed closely, sending 345.46 million USD, making up 14.37% of the inflow.

These three countries—the USA, UAE, and Saudi Arabia—can be called the "Big Three" in terms of remittance contributions, as they consistently send significant amounts year after year.

Here is a ranking of the top ten countries by remittances sent to Bangladesh in September 2024:
1. United States of America (USA): 387.95 million USD
2. United Arab Emirates (UAE): 361.78 million USD
3. Saudi Arabia: 345.46 million USD
4. Malaysia: 237.17 million USD
5. United Kingdom (UK): 205.65 million USD
6. Italy: 129.47 million USD
7. Kuwait: 114.13 million USD
8. Oman: 96.1 million USD
9. Qatar: 88.62 million USD
10. Singapore: 66.78 million USD

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Blue-Collar Workers Abroad: Overcoming Exploitation and Promoting Skill Development
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Bangladesh heavily relies on remittances sent home by its overseas workforce, which numbers around 6.6 million individuals. These workers, primarily employed in blue-collar jobs, contribute significantly to the country's economy. While the volume of remittances is substantial, the underlying challenges faced by many Bangladeshi workers abroad are often overlooked.
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The majority of Bangladeshi workers employed overseas hold blue-collar positions, earning relatively low wages. They often work in demanding conditions, particularly in countries like Saudi Arabia, the United Arab Emirates, Kuwait, and other Middle Eastern nations. Despite their contributions, these workers are frequently exploited due to their limited educational qualifications, which often do not extend beyond high school. They face a myriad of risks, including financial exploitation, excessive financial debt due to migration costs, xenophobia, and workplace abuses. Misleading information about wages, working conditions, or job roles during the recruitment process is frequent. On top of dealing with unsafe work environments, they are constantly threatened with deportation to suppress complaints about mistreatment. 

While a smaller proportion of Bangladeshi workers possess technical skills or university degrees, they tend to send more substantial remittances on average due to their higher-paying jobs. However, the country has struggled to increase the number of skilled workers it exports, leading to a loss of valuable human capital.

Furthermore, many Bangladeshi workers who go abroad for employment or education eventually settle in their host countries, contributing to a phenomenon known as "brain drain." This migration of skilled individuals hampers domestic development and innovation.

To address these challenges, Bangladesh must prioritize strategies to retain its top talent and promote the export of skilled workers. Initiatives focused on improving education, vocational training, and job placement services can play a crucial role in achieving these goals. Additionally, the government should work to protect the rights of Bangladeshi workers abroad, ensuring fair wages, safe working conditions, and access to legal assistance.

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Bangladesh’s Remittance Flow: The Dominance of Informal Channels and Its Consequences
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International remittances sent by Bangladeshi migrant workers are collected through both formal and informal channels. Formal channels help with stablilizing the foreign currency scenario, but regrettably a fairly large amount comes through informal channels every year. This informal channel is mostly addressed as "Hundi," an illegal business that transfers money from one country to another. Mostly a verbal agreement, its well-organized strategies get more highlighted to the migrant workers wanting to send money back home than the traditional bank transaction practices. The irregularities in exchange rates in Bangladesh and high transaction costs of sending remittances through official channels have been identified as the main factors driving Bangladeshi expatriates to use informal channels for remittances. There’s also a strong demand for utilizing these unofficial channels, so the hundi service providers seldom fear their unlawfulness and its penalty. The total remittance was estimated at $62 billion, with $38 billion received through the Hundi system and $24 billion through the financial sector, based on nine months of data from 2024. As of 28 December, the latest remittance total is $26.67 billion through formal channels, according to data from the Bangladesh Bank, which is still notably lower than the informal channels’ inflows. 

However, the official channels are in abundance despite their lack of popularity among the migrant workers, ranging from both governmental and commercial banks to mobile wallet platforms. The examples being Sonali Bank, Janata Bank, Agrani Bank, BRAC Bank, Islami Bank Bangladesh Limited, etc., and in terms of Mobile Financial Services (MFS), there are bKash, Rocket, Nagad, and as such. Money Transfer Operators are also specialized in transferring funds across borders, like Western Union, MoneyGram, Xpress Money, etc. These official channels are regulated and comply with the guidelines set by Bangladesh Bank, ensuring secure and legal monetary transfers. 

But the main challenge is diverting the demand from informal to formal channels. Strong economic policies can smoothen the process of sending money to Bangladesh without the extra hassle and strengthen our reserve of foreign currencies. More and more focus should be on remittance inflows because the rates are what combat our macroeconomic crises.

Resources:
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