The remittance debacle is mainly caused by the impractical policy of the country’s financial sector, coupled with the extremely low inflow of currency, making it largely responsible for the high rate of the Dollar in the kerb market.
People in general reported having bought dollars for Tk 112 to Tk 113 from the kerb market with little to no regulations, while the banks in Bangladesh paid Tk 107 to remittance recipients for each dollar last month.
The Taka depreciated nearly 10 per cent since June 2022, but it still failed to point to the expected direction of increasing inward remittance as the local currency depreciates.
This shows how apparent the problem has become, as even BB officials could not fully fathom the situation despite providing various benefits, including 2.5-per cent incentives, to remitters from the state.
The number of workers leaving the country in October 2022 was just shy of nine lakh, a whooping 2.58 lakh increase from the year's total in 2021. Many workers lack the proper financial knowledge and the technical means to send money through normal channels.
Even if they can overcome the difficulties, the informal channels, such as the 'hundi', offer a market rate of Tk115 to Tk120 against the Tk107 plus a 2.5% cash incentive [per dollar] by the banks in Bangladesh, making it unattractive for most.
Subsequently, the high remittance expectations from increased export of labour got smashed amid the mounting pressure on the country's foreign exchange reserves in the wake of the dollar crisis and rising import costs and sinking export earnings.
Remittance inflow in Bangladesh dropped by a staggering 7.37 per cent to $1.52 billion in October, the weakest among the eight months in 2022.
The Current Account Deficit (CAD) would suffer brutally if the current trend of remittances continues. Suppose the CAD keeps its head over 3% of GDP for too long. In that case, Bangladesh risks slower economic growth in upcoming years or even a financial crisis, according to historical and cross-country analysis.
Moreover, numerous alarming future factors, including famine, could intensify the ongoing instability in the foreign exchange market and may lead Bangladesh into a vicious cycle that may take years to recover.
The CAD is projected to stand at 3.7 percent of the GDP in 2027 by the International Monetary Fund (IMF), bringing more vivid color to the painting of fear.
Many experts and economists suggested closing the gap between the exchange rate, and an increasing number of opinions are being gained in favor of a unified exchange rate, which is suitable for most economies.
Multiple dollar rates might confuse the remitters. The ongoing uncertainty of dollar prices may encourage them to keep extra savings in hand to get more value if the rate increases further. Hence, some economists and donors express their opinions on a fully floating exchange rate.
The Association of Bankers Bangladesh (ABB) and the Bangladesh Foreign Exchange Dealers Association (Befeda) recently moved for a uniform dollar rate for remittances and export bills to stabilize the forex market earlier this year in September.
Whatever the government decides, it must address the reasons as quickly as possible to stop choking the Forex Reserves. Some other solutions were also presented by economically inclined individuals, such as taking initiatives to prevent the growing, illicit cross-border capital flight.
This would stop many businesses from avoiding import duty through under-invoicing, which occurs when the price of goods on an invoice is less than the price paid for them.
