Boon for Bangladesh while grappling with sub-par forex reserves New year bodes well for Bangladesh as its monthly remittance receipt hits an all-time high at US$2.64 billion in December, coming as a boon for the government grappling with sub-par forex reserves.
According to the central-bank data released Wednesday, such a record rise in receiving foreign currencies, the US dollar in particular, gives some respite to the economy that has been facing multipronged macroeconomic strains because of depletion of foreign-exchange reserves.
In fact, the upturn in receipt of foreign currencies comes at a time when the Bangladesh Bank (BB) takes several regulatory measures to bolster the reserves through clearing government’s import overdue.
Bankers and money-market analysts give credit of the rising trend in remittance in recent times to some regulatory interventions, like massive depreciation of the local currency, taka, against the US dollar since May last. It also intensified monitoring to control the grey market after the changeover in state power following the July-August mass uprising.
According to the data with the central bank, Bangladeshi expatriates working abroad sent a total of $2.64 billion in December, which is the highest monthly inflow of remittance in the history of the economy.
With the latest monthly figure, the country received a total of $13.78 billion in the first six months of this fiscal year (FY’25), which accounts for nearly 60 per cent of the record-making entire financial year of 2023-2024 when the annual figure was $23.91 billion.
The previous highest monthly inner remittance was $2.59 billion recorded in July 2020 during the Covid period while the third highest inflow was $2.54 billion in June last.
Husne Ara Shikha, executive director and spokesperson for the central bank, hails the upturn in remittance, saying that the country has been witnessing growing inflow of remittance after the recent changeover.
Apart from tightening effective measures against Hundi operations, she says, the banking regulator takes various measures that ultimately help control the exchange-rate differentials between formal and informal markets that allure remitters to send more money back home.
Another BB executive director (monetary policy department), Dr Md. Ezazul Islam, mentions that the BB made the biggest depreciation of local currency against the American greenback in May through the introduction of crawling peg-driven exchange mechanism when the exchange rate rose to Tk 117 from Tk 110. And then the rate further extended to Tk 120 and the banks are allowed to pay remitters around Tk 123 a dollar.
Soon after the regime change in state power, Mr Islam also says, the central bank took several steps to strengthen its monitoring to stop forex outflow from the financial sector through eliminating the grey market.
“These factors incentivise the remitters to send more money back home,” he told the FE writer, adding that the recent change in exchange-rate mechanism based on reference rate will certainly help encourage the remitters in the days ahead.
Managing Director and Chief Executive Officer of Mutual Trust Bank (MTB) Syed Mahbubur Rahman says the regulator managed to stop the mass exodus of foreign currencies because the demand for hundi, an unofficial channel, comes down remarkably in recent months.
Apart from that, the experienced banker says, “there was a pressure of paying overdue import costs for many banks. So, the banks are on healthy competition to collect more remittance through offering good rates following the central-bank regulations”.
Dr M Masrur Reaz, an economist and chairman of the Policy Exchange of Bangladesh, notes that the controversial business conglomerate S Alam Group manipulated the forex market through creating its own grey market by its controlled commercial banks riding on favourable regulatory steps.
After the regime change through the July-August mass uprising, he says, the latest regime of the central bank successfully destroyed the grey market by intensifying their regulatory moves in those banks.
“So, the forex demand in the unauthorised market almost got eliminated. This is one of factors apart from exchange-rate hike behind the remittance surge,” the economist adds.
He was suggesting for the regulator not go for significant raise in exchange rate under the reference rate-driven regime because it could result in the remitters reverting to speculating behaviour.