“Bangladesh received $22 billion in remittance inflows in 2023, making it the eighth-largest remittance recipient in the world and the second largest in South Asia.”
The inflow of foreign currency into Bangladesh's economy from remittances is substantial. In 2023, Bangladesh received almost $22.1 billion in remittances, placing it second in South Asia and seventh internationally, published in Wikipedia. The majority of these remittances come from Bangladeshis living abroad in places like the United States, Saudi Arabia, and the United Arab Emirates, but they also finance food and non-food purchases as well as land investments. The inflow of remittances has been steadily rising over the years, reaching a second-highest level of USD $21.61 billion in the fiscal year 2022-23 through official channels, mentioned in BD Pratidin. Since remittances affect consumption and investment equally, they continue to be an important part of Bangladesh's economic strategy.
Sources and Destinations of Remittance
Labor Income
According to the World Bank, remittances to low- and middle-income countries (LMICs) are estimated to grow by 1.4% to $656 billion in 2023, following a remarkable 8% growth in 2022. The main sources of remittances for LMICs are the United States, the Middle East, the European Union, and the United Kingdom. The Gulf Cooperation Council (GCC) hosts more than half of the Bangladeshi migrant workers and accounts for more than 60% of the remittance inflows.
The top five remittance recipient countries in 2023 according to World Bank are India ($125 billion), Mexico ($67 billion), China ($50 billion), the Philippines ($40 billion), and Egypt ($24 billion).
Remittances represent a significant share of GDP for many LMICs, such as Tajikistan (48%), Tonga (41%), Samoa (32%), Lebanon (28%), and Nicaragua (27%)2. Remittances are expected to soften further to 3.1% in 2024, due to the risks of global inflation, low growth prospects, and volatile oil prices.
Freelancing Income
According to the Bangladesh Bank, freelancers received $1.2 billion in remittances in 2023, which was 5.5% of the total remittance inflows of $21.91 billion.
Freelancers can diversify the sources of remittance for Bangladesh, as they work for clients from different countries and regions, such as the US, the UK, the EU, and Asia.
According to a survey by Pioneer, a global payment platform for freelancers, the top five countries that paid freelancers in Bangladesh in 2023 were the US ($400 million), the UK ($200 million), Germany ($100 million), Canada ($80 million), and Australia ($60 million)
Sectors and Activities Related to Remittance
The Financial Sector
Remittance helps to maintain the balance of payments, stabilize the exchange rate, and build up the reserves. Remittance also increases the deposits and liquidity of the banks and other financial institutions, which can be used for lending and investment.
bKash has recently launched a service that enables freelancers in Bangladesh to receive payments from their clients abroad through Payoneer, a US-based commerce technology company. This service allows freelancers to transfer their earnings from Payoneer to their bKash account instantly, without any paperwork hassle. Customers can open a Payoneer account from the 'Remittance' section of the bKash app and transfer a minimum of BDT 1,000 to their account. But the 2.5% government incentive will not apply to Payoneer.
The Labor Market
The flow of remittances to Bangladesh stems from the migration of its workers abroad. This financial influx eases the domestic job market's strain by offering employment and income alternatives to the excess workforce. Additionally, remittances shape labor dynamics, impacting factors like the minimum acceptable wage, opportunity costs, and the job choices of both aspiring and returning migrants.
The Social Sector
Remittances boost living standards, health, and education for recipients, enhancing their consumption and service access. They empower women and children, improving their autonomy and reducing dependence.
Challenges for Remittance Inflow
The exchange rate depreciation
The taka has depreciated against the US dollar and other major currencies in recent years, which has reduced the incentive and return of remittance. The depreciation has increased the taka prices of the goods and services that the remittance recipients buy in Bangladesh, and decreased the dollar prices of the assets that the remittance senders buy abroad. The depreciation has also widened the gap between the official and unofficial exchange rates, which has encouraged the use of informal channels, such as hundi, for remittance transfer.
Hundi
Hundi is often used by migrant workers, traders, and smugglers to send money across borders, avoiding taxes, fees, and regulations. Hundi is based on trust, reputation, and personal networks of Hundi agents, who facilitate the transfer of money through a complex and secretive process. This informal channel offers higher exchange rates, lower fees, faster speed, and greater convenience and accessibility for remittance transfer. However, the informal channels also pose risks and costs, such as fraud, theft, money laundering, and terrorism financing, for the remittance senders, receivers, and the country.
Bangladesh was deprived of nearly $2 billion in monthly remittances sent via legitimate banking channels because expatriate workers instead used hundi to send money home in August 2022, discussed in the Bangladesh Post. At least Tk 25,000 crore, meant to be remitted by Bangladeshi expatriates, was channeled through hundi in the last four months of 2022, reported by The Daily Star.
Future Projections and Government Initiatives
The future of remittances in Bangladesh looks promising, with an expected rise due to sustained global demand for migrant workers and freelancers. To foster this growth, the government and Bangladesh Bank have implemented initiatives like the 2.5% cash incentive and partnerships with entities like Payoneer, encouraging remittance through formal and digital channels. Service providers, including banks and MTOs, are enhancing their offerings to be faster, more affordable, and user-friendly. The government of Bangladesh has declared freelancers as ‘remittance warriors’ and encouraged them to choose freelancing as a career. The government has also introduced various initiatives and programs to support and promote freelancing, such as the Learning and Earning Development Project, the National Skills Development Authority, and the Bangladesh Freelancer Development Society. Projections from the World Bank anticipate remittances surpassing $23 billion in 2023, with the ADB predicting an 8.4% growth in FY2024.
