Written by Muktadir Mubassir, Team MBR

Remittances constitute the most crucial component of a financial network in the global economy, especially for countries such as Bangladesh. According to the data by KNOMAD via the World Bank, Bangladesh stood out as one of the top recipients of remittances, receiving a staggering USD 21.5 billion in 2022. The trickle of foreign revenues flowing mostly from Bangladeshi expats working in the United States, the United Kingdom, Southeast Asia, and the Middle East is the critical pillar on which social progress and economic emancipation rest for this country.

However, a more complex reality becomes apparent beneath the surface of this seemingly successful narrative. Although there is a huge upsurge of Bangladeshis migrating overseas in search of work, the expected surge of remittances did not come through. The remittance inflow in 2022 witnessed a surprising 1.5% year-on-year decrease from the previous year. The remittance inflow in 2023 has been turbulent throughout the year, to say the least. A few months of lower earnings typically follow a period of high remittance earnings, with a variety of factors playing major roles in shaping this unexpected trajectory.

 

 

Migration Dynamics of Expatriate Workers

Remittances have emerged as a key component of the Bangladeshi economy. According to the World Bank, Bangladesh ranked among the top ten countries globally in terms of remittance receipts, accumulating over USD 21.5 billion in 2022.

 

In Bangladesh, migration is an important source of income, positively impacting empowerment and social development. Historically, during British rule, some people travelled to the west for trading and higher education. However, post-1971 independence, the number of migrants increased to various countries. The oil exploration in the Middle East in the mid-1970s caused a new wave of immigration, demanding skilled and non-skilled laborers. Overseas employment officially began in 1976, with a total of 6,078 workers. Primarily, Bangladesh consists of two categories of international migration, namely permanent migrants and contractual migrants. Permanent immigrants include work permit holders mostly migrating to the industrialised west, while temporary workers migrate to the Middle East and Southeast Asia and return home after completing their employment contracts in the countries they went to work in. The temporary migrants are classified into four groups: professionals, skilled individuals, semi-skilled workers, and unskilled laborers. Professionals encompass occupations like doctors and engineers, while skilled workers are mainly found in manufacturing industries. Semi-skilled individuals include white tailors, whereas housemaids are classified as less skilled. Notably, the employment rate abroad has steadily increased, as evident in the accompanying graph.

This rise in employment corresponds with a year-on-year increase in remittances, contributing significantly to poverty alleviation. Only 10% of expatriates work in the white collar sector, while more than 90% engage in low-wage blue collar jobs. 

 

Remittances possess the power to strengthen the economic status of poverty-stricken families by opening avenues for investment in small businesses or other income-generating ventures. Improved access to education and educational resources has become more affordable for families, offering the potential for brighter prospects and escaping the cycle of poverty. Moreover, the influx of funds facilitates greater accessibility to quality medical care and nourishing food, consequently leading to enhanced health outcomes, reduced mortality rates, and overall improved well-being.

Current Scenario of Remittance Inflows

Regardless of the migration figures reaching a record of 1.136 million the previous year, followed by approximately 618,000 in the previous year, the expected increase in remittances has not materialized. During the months of June 2023, July 2023, and August 2023, emigrants sent USD 2.199 billion, USD 1.973 billion, and USD 1.599 billion, respectively, followed by a 41-month low during September (USD 1.344 billion) since April 2020 (USD 1.093 billion).

 

   

As the aforementioned figure shows, the inflows of remittances during the July–September period of FY2023–24 against FY2022-23 experienced a sharp drop from almost every country. 

Inhibiting Factors Behind Declining Remittance Inflows

The composition of migrant workers plays a pivotal role in remittance earnings. Despite the substantial increase in the number of migrants, a majority, approximately 78.64%, as per the Refugee

and Migratory Movements Research Unit’s 2022 Migration Trends Report, are categorised as less skilled, contributing to a diminished remittance yield. This is evident in the decline of skilled workers migrating abroad, dropping from 33.3% in 2019– 2020 to 20.4% in the subsequent two years, as per the expatriates’ welfare ministry. As the less-trained workers are lowly paid, Bangladesh has not received as much remittance as projected.

Also, as per migrant rights experts, this decline can be attributed to the exorbitant recruitment costs, where about 50%–60% is directed towards illegal practices, such as paying visa traders in the destination countries. As per the Bangladesh Bureau of Statistics, the average recruitment expense of a migrant worker from Bangladesh is BDT 4.16 lakh (USD 4,903), while the average monthly salary stands at BDT 23,093. As a consequence, it takes 17.6 months for a worker to merely return the amount spent on recruitment.

However, the predominant reason for the decline in remittance inflows is the extensive use of unofficial channels, particularly the widespread reliance on hundi or hawla. The significant difference in exchange rates between official and informal channels, with the latter offering substantially higher rates, attracts workers away from formal banking processes. In August 2023, for example, the official bank rate for the dollar was BDT 109; however, hundi vendors offered rates ranging from BDT 117 to BDT 119 per dollar as per The Business Standard. The allure of hundi, with better exchange rates, zero transaction fees, and a simplified process, continues to overshadow formal banking, especially among workers with lower incomes and those in illegal capacities. According to a recent survey by the Refugee and Migratory Movements Research Unit, 66% of Bangladeshi expats in the Maldives send money using hundi, with 64% lacking bank accounts. The 2.5% incentive offered by banks is deemed insufficient, and the attractiveness of hundi, with cheaper exchange rates, no transaction costs, and a streamlined process, continues to trump regular banks.

The Government’s Intervention amidst Declining Remittances

In order to tackle these challenges and minimise associated risks, the government of Bangladesh has introduced a fresh initiative aimed at enhancing the inflow of remittances. The Association of Bankers Bangladesh (ABB) and the Bangladesh Foreign Exchange Dealers Association (BAFEDA) have removed the previous restriction of 2.5% on the incentives that banks could offer for remittance income. This modification grants banks the authority to establish their own incentive rates, potentially rendering them more competitive and encouraging individuals to select banks as their preferred means of sending money back to their homeland. This adjustment has already demonstrated positive effects, with remittances increasing from USD 1334.35 million in September 2023 to USD 1977.56 million in October 2023, providing a welcome boost to the nation’s economy after four months of decline.

Diversification of the Workforce

The maintenance of remittance inflows in Bangladesh could greatly depend on the diversification of the workforce. Bangladesh receives remittances from a multitude of countries, with a staggering 14.9 million Bangladeshi workers employed across 176 countries globally. 

 

 

 

The table above gives a picture of how remittances have been earned from different parts of the world throughout the year. Diversity can minimise potential risks, as economic or political crises in the countries where most Bangladeshi expatriates work can disrupt remittance flows. Diversification can help reduce the vulnerability of remittances to such crises.

To enhance the diversity of remittance inflows, the government can adopt various strategies. One key approach involves encouraging Bangladeshi workers to explore job opportunities in different countries and industries. Moreover, investments in skill development and education programmes are essential to prepare Bangladeshi workers for a wider range of job opportunities, especially those in high demand abroad.

Promoting greater female labour force participation and facilitating their migration opportunities is also crucial. Female workers are often underutilised in the expatriate labour market, although there has been a gradual increase in the number of female workers travelling abroad over the last decade.

 

 

 

Notably, a considerable proportion of these female employees can be found in Saudi Arabia, accounting for 67% of the overall workforce. The majority of female migrant workers predominantly secure positions as domestic maids, offering essential housekeeping services in countries.

The majority of female migrant workers predominantly secure positions as domestic maids, offering essential housekeeping services in countries like Saudi Arabia, Singapore, and Malaysia. Their roles extend beyond mere domestic tasks, encompassing crucial responsibilities such as childcare, eldercare, and various household duties, providing vital support to families. In contrast, the construction industry, particularly prominent in the Middle East and Southeast Asia, actively seeks skilled Bangladeshi workers, primarily males. These male workers play a pivotal role in advancing the development of host nations by contributing their expertise in trades such as masonry, carpentry, and plumbing.

Bangladesh stands out globally for its significant involvement in textiles and garments, with a substantial workforce, particularly females, engaged in the overseas apparel sector. The agriculture industry of other nations also benefits from Bangladeshi workers, expanding the scope of their contributions beyond traditional sectors. Additionally, there is a notable influx of Bangladeshi employees to Gulf countries, where they undertake various physical occupations ranging from construction to maintenance and services, earning their livelihood in diverse job roles.

The Role of Technology and AI

Technology and artificial intelligence hold immense potential to revolutionise remittance inflows in Bangladesh, offering streamlined and improved processes. Digital advancements have made it increasingly convenient for remitters to send money, reducing their reliance on physical visits to transfer agencies. Online and mobile platforms now allow Bangladeshi expatriates to send money home at a lower cost, with the proliferation of mobile phone usage enabling the growth of mobile money services like bKash and Nagad. These services facilitate money transfers even in remote areas, further boosting remittance inflows. Its broad network, which includes collaborations with worldwide banks and money transfer companies, connects over 114 countries, providing a seamless and safe financial experience.

Artificial intelligence has the capability to contribute to the monitoring of currency exchange rates and predictions, which can assist both remitters and recipients in obtaining more favourable rates during transactions. However, there are some downsides to the emergence of technology.

While generative artificial intelligence is considered a major danger to many white-collar jobs, the technology’s rapid advancement in the manufacturing industry indicates that blue-collar workers, which comprise the majority of Bangladesh’s foreign expats, are also at risk of being displaced. In the manufacturing industry, robots and automated systems are becoming increasingly adept at tasks such as gathering and production, while drones and smart machines are taking over agricultural tasks previously performed by humans. While these advancements enhance efficiency, they also pose a potential threat of unemployment for individuals working in these industries.

To address technology-related challenges, it is imperative to implement specific actions such as educating the population and offering suitable training programmes to enable workers to effectively utilise modern technologies. Furthermore, the government can leverage technological advancements, specifically artificial intelligence, to predict the amounts and timing of remittances, thereby assisting in the development of economic and fiscal policies. It is crucial for the government to proactively ensure that technology complements the efforts of remittance workers rather than competing with them.

In spite of being one of the least prosperous nations in 1971, Bangladesh achieved lower-middle-income status in 2015. Moreover, it is making steady progress towards being removed from the UN’s list of least developed countries by 2026. The poverty rates have also witnessed a significant decline, dropping to 5% in 2022 from 11.8% in 2010, based on the international poverty line of USD 2.15 per day (using the 2017 purchasing power parity exchange rate). It is worth mentioning that the substantial inflow of remittances and the thriving exports of ready-made garments played a crucial role in this remarkable accomplishment.

While the nation stands as a beacon among the top remittance recipients globally, the recent unexpected dip in inflows necessitates a comprehensive understanding of the underlying dynamics. As Bangladesh navigates the complexities of a dynamic global economy, the reinvigoration of its remittance corridor becomes not just an economic imperative but a strategic pathway towards sustained growth and resilience. The journey ahead demands a collaborative effort, blending policy innovation, skill enhancement, and technological integration to secure a robust and flourishing future for Bangladesh and its diaspora.