Remittances: Bane Or Boon?

Remittances fill the gap in balance, Desirable is an economy with less influence.

Remittances have become rescuer of Bangladesh's macroeconomic stability. Riding on remittances, Bangladesh managed to narrow down the current account deficits. In 2023-24(Jul-Apr) , current account deficit was $6 billion, it became $1.4 billion in 2024-25(Jul-Apr).During the same period ,overall deficit came down to $656 million from $5.5 billion. Meanwhile, in 2023-24(Jul-Apr), remittance was $19.12 billion and it became $24.53 billion in 2024-25(Jul-Apr).(Source: Bangladesh Bank)

We have never been a trade surplus economy. Foreign aid and remittances pop up the current account balance for so long. Macroeconomic mismanagement deteriorated the current account balance, starting the free fall of forex reserve. Forex reserve starts to grow following the latest receipt of the IMF credit pack and WB' s budget support. Import has been tightly controlled since the govt introduced the monetary tightening policy.In addition, govt freely floated Taka,sustaining no fall in its value. Rather, Taka is appreciated in recent times.

The improvement in current account deficits is due to remittances, controlled import and nonintervention in central bank's decision making process. There is widespread fear that both exchange rate of Taka and current account balance may plunge when the restrictions on import are relaxed. There are some other factors need to be taken into account like [increased] oversight on external trade in recent years and depreciation of USD. USD has depreciated 1.77% in last one month and 7.52% in the last one year (source: www.tradingeconomics.com). The long-term desire of the US to weaken it further in future so that the economic policy makers use the USD as an instrument to get more foreign market share for American goods and services.

Bangladesh heavily [relies] on USD to settle international transactions. So depreciation of USD also played a role in appreciating Taka in the midst of free floating of Taka. In this backdrop, it will be difficult to depreciate Taka in the future. Depreciated Taka will be key to augment export and bring more remittances.

Too much dependence on remittances exposes weakness of our economy. If you look at the sources of remittances, you clearly see the USA, Saudi Arabia,UAE,Uk and Malaysia top the list [of major sources of remittances].

And most of these remittances reached Bangladeshis through Islami Bank, Agrani Bank,Janata Bank,BRAC Bank and Trust Bank. Amid trouble, Islami Bank is still the bank that brings most remittances from abroad every year. The bank is also responsible for opening most LCs for import of food grain and fertilizer. Back in 2023, a group swindled billions of Taka from the bank in the name of importing food grains, jeopardizing the banking of it and other specialized banks.

Not only that amid negotiations with the IMF, Jeddah and Dubai based exchange houses tried to manipulate the exchange rate of Taka.

So this Middle Eastern based remittances give the countries of that region leverage over our economy.

We have to either diversify our remittance sources or focus on trade surplus through bringing more exportable item, market diversification and innovation. Any shock to our remittance sources will definitely put our macroeconomy at stake, worsening our future debt burden and prolonging the economic recovery.