Inflows up 31.3% to $2.1 billion in October
Expatriate Bangladeshis sent home $2.1 billion last month, up 31.3% year-on-year -- incredible seeing that the world is still very much in the thick of a pandemic.
October’s receipts take the inflows so far this year to $17.7 billion, up 18% from a year earlier, according to data from the Bangladesh Bank.
“This is a surprising development and there is no plausible explanation for that,” said Ahsan H Mansur, executive director of the Policy Research Institute of Bangladesh.
If the tremendous run continues, the country is heading towards a record-setting year for remittance inflows, which have gone on to become one of the pillars of the Bangladesh economy over the decade.
As per the World Bank, Bangladesh’s inflows are projected to hit $20 billion in 2020, making it the eighth highest remittance-receiving country in the world.
But things were not expected to be this rosy, as per the predictions of multilateral lenders such as the World Bank and the Asian Development Bank.
The WB in April had made a forecast that remittance inflows to Bangladesh may plunge as much as 22% in 2020 to about $14 billion.
And then in July, the ADB made a similar grim forecast: Bangladesh would be among the five worst-hit developing Asian economies in terms of remittance inflows.
In the worst-case scenario, Bangladesh's remittance will decline 27.8% from its 2018 level. In 2018, Bangladesh received $15.5 billion in remittance.
The “worst-case” scenario assumes that the domestic outbreak control and resumption of economic activities will take a year. It also assumes that the economic impact of Covid-19 will persist throughout the year and dissipate halfway in the last three months of the outbreak.
But now, in its latest report “Covid-19 Crisis through a Migration Lens”, the WB made a volte-face.
Bangladesh, along with Mexico and Pakistan, stands out as exceptions to the general pattern, said the Washington-based multilateral lender in the report that was released on Friday.
“These countries escaped a decline in remittance inflows in the second quarter and seem to register increases in the third one,” it added.
Upon careful consideration, the spike in remittance inflows seems rather suspect seeing that the manpower export is virtually on hold since March and that the top sources for remittance -- the oil-rich Gulf nations, the US and Malaysia -- are very much in recession.
The collapse in the hundi system, an illicit cross-border transaction network, thanks to the travel ban brought on by the raging coronavirus could explain the gush of remittance, said Zahid Hussain, former lead economist of the World Bank’s Dhaka office.
The hundi network was moored on international travel, import business and medical tourism. All have been in the slow lane since the pandemic began in February.
“But the expatriate Bangladeshis still need to send in money home and they turned to the legal channel,” Hussain added.
The 2% cash incentive offered on remittance, introduced in fiscal 2018-19 by Finance Minister AHM Mustafa Kamal, sweetens the deal.
“Of course, there is the flood effect, Hajj effect and returnees bringing their savings home, but none can explain such an increase as witnessed since July other than the switch to a legal channel for sending money home,” Hussain added.
The ongoing growth spurt of remittance then drives home the point of the uphill task the government still has to be to combat the menace of hundi, which deprives the central bank coffer of foreign currency reserves.
As of Sunday, foreign currency reserves stood at $41 billion.
The technological transformation seen in recent times that has made receiving remittance within minutes via mobile financial services might have posed itself as a viable alternative to hundi amid the pandemic, according to Mansur.
Another reason for the spike, particularly from the US, could be the higher returns on savings in Bangladesh.
In much of the developed world, the interest rates are close to zero or even negative in some cases.
“A portfolio reallocation might be happening here,” Mansur added.