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In Bangladesh, remittance is one of the most important economic variables in recent times as it helps in balancing balance of payments, increasing foreign exchange reserves, enhancing national savings and increasing velocity of money. For about two decades remittance has been contributing around 35% of export earning. Moreover, it is greater than foreign aid and thus helps in lessening dependence on foreign aid. Remittance gets momentum in recent time in Bangladesh and is the second largest sector of foreign exchange earning after the garments sector. If cost of imported raw materials is deducted from the foreign exchange earning of the garments sector, remittance becomes the single largest sector of foreign exchange earning. Remittance earning is increasing day by day but at a lower rate than the increase in emigration from Bangladesh due to the increasing share of unskilled or semi-skilled labours than the professionals in international migration. The share of remittance in GNI (Gross National Income) is increasing day by day. It affects almost all the macro-economic indicators of a country positively. Though there are also negative sides of remittance earning e.g. brain drain, its overall contribution to Bangladesh economy is very much effective. Appropriate and timely government policies and initiatives can boost up the amount of remittance and can rectify the problems related to it. Remittance has created a new dimension in the economic development of Bangladesh. We have to properly unlock the potentialities of remittances and utilize it properly to make it an indispensable tool of the economic development of Bangladesh.
Abstract
Introduction
International migration is a worldwide phenomenon. Though Bangladesh is a labour surplus country, most of the labours are unskilled or semi-skilled. As a developing country Bangladesh can not provide all its labours with job facilities and so unemployment rate is very high here. In this backdrop, international migration started in the part of the globe. Bangladeshi emigrants send a portion of their earning as remittance or foreign exchange from foreign countries to Bangladesh for their family members and relatives. Remittance gets momentum in recent time in Bangladesh and is the second largest sector of foreign exchange earning after garments sector. If cost of imported raw materials is deducted from the foreign exchange earning of garments sector, remittance is the single largest sector of foreign exchange
*Corresponding Author, 1. Economics Discipline, Social Science School, Khulna University, Bangladesh. 2. Agriculture Officer, World Vision Bangladesh
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earning. Remittance earning is increasing day by day but at a lower rate than the increase in emigration from Bangladesh. As there is very little research or study carried out in this topic and as remittance is now a day one of the greatest contributing factor in Bangladesh economy, we have chosen to study on this topic only on international inward remittance and its economic impact on Bangladesh economy. To have clear conception about remittance, to know the problems about the concerned activities of remittance and their solution, to know the important determinants etc are some other rational or logic for choosing this type of research topic. Objectives of the study To know about the impact of remittances on economic condition of our country To investigate the problems regarding different aspects of remittances To find out the ways for solving these problems To indicate some important determinants to raise the amount of remittances
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A number of reasons have been attached to the growth of Hundi market. These include: Financing smuggling of various items, including gold; Existing tax regime leading to under- invoicing of imports; Unholy alliance between officials of financial institutions and hundi elements; Financing recruitment charges of the recruiters; Difference between official and unofficial exchange rates; Quality and speed of service; Ability to reach clients both in destination countries and in the source countries.
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1, 949.00 1, 882.00 2, 501.00 3, 062.00 3, 372.00 3, 848.00 4, 802.00 21, 416.00 3, 059.43 -3.44 32.89 22.43 10.12 14.12 24.79 100.92 14.42
Source: Statistics Department, Bangladesh Bank and Bureau of Manpower and Training. Table 1 shows that there occurred deficit in trade balance from the year 2000 to 2006. On average it is -2,336.29 million US$, though the average rate of growth of export earning (9.41%) was more than the average rate of growth of import payment (8.79%), during the said period. The increasing rate of remittance is quite satisfactory in the face of this deficit. This definitely played a positive role regarding trade balance by financing excess imports payments. Remittance and balance of payment The balance of payments of a country is a systematic record of all economic transactions between the residents of the reporting country and the residents of foreign countries during a given period of time. The balance of payment is usually composed of two accounts: (I) the current account; (ii) the capital account Symbolically we can write, B = Rf-Pf Where, B = the balance of payments Rf = receipts from foreigners Pf = payments made to foreigners
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FY 199900 2 -1, 865 5, 701 4, 252 -7, 566 -645 849 -1, 494 -302 97 -399 -160 2, 394 165 2, 229 1, 949 -418 561 561 -116 383 0 -499 806 -396 127 71 -190 -641 -276 -161 -115 152 179 -179 -179 -79 -100
FY 200001 3 -2, 011 6, 419 4, 860 -8, 430 -914 759 -1, 673 -344 97 -441 -168 2, 171 72 2, 099 1, 882 -1, 098 432 432 682 550 0 132 790 -416 -13 31 -114 -260 114 147 -33 -297 -281 281 281 302 -21
FY 200102 4 -1, 768 5, 929 4, 584 -7, 697 -499 865 -1, 364 -402 50 -452 -161 2, 826 69 2, 757 2, 501 157 410 410 391 391 -6 6 733 -435 -42 63 -87 -253 27 -90 117 -550 408 -408 -408 -276 -132
FY 200203 5 -2, 215 6, 492 4, 912 -8, 707 -691 887 -1, 578 -358 64 -422 -167 3, 440 82 3, 358 3, 062 176 428 428 413 376 2 35 918 -452 -20 142 -125 -499 71 217 -146 -202 815 -815 -815 -887 72
(Million US Dollar) FY FY FY 20032004-05 200504 06 6 7 8 -2, 319 -3, 297 -2, 879 7, 521 8, 573 10, 422 5, 686 6, 418 7, 901 -9, 840 -874 924 -1, 798 -374 63 -437 -175 3, 743 61 3, 682 3, 372 176 196 196 78 385 6 -313 544 -397 -41 13 -125 -321 14 86 -72 -279 171 -171 -171 -235 64 -11, 870 -870 1, 177 -2, 047 -680 116 -796 -203 4, 290 37 4, 253 3, 848 -557 163 163 760 776 0 -16 940 -449 -46 241 -182 -320 -200 -91 -109 -299 67 -67 -67 -225 158 -13, 301 -1, 110 1, 296 -2, 406 -786 134 -920 -201 5, 347 34 5, 313 4, 802 572 242 242 -24 675 32 -731 921 -489 -58 -256 -245 -805 201 56 145 -425 365 -365 -365 -554 189
Portfolio investment Other investment MLT loans (excluding suppliers credit) MLT amortization payments Other long term loans (net) Other short term loans (net) Other capital Trade credit (net) Commercial Bank Assets Liabilities Errors and omissions Overall balance Reserve assets Bangladesh Bank Assets Liabilities
Source: Statistics Department, Bangladesh Bank From table 2, we find that in the FY 2005-06, remittances from non-resident Bangladeshi nationals increased substantially by 24.8 percent. The countrys current account balance turned to a significant surplus with robust growth in exports and remittances and a slower growth in import payments. A significant surplus in current account balance as well as capital account led to a sizeable
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surplus in the overall balance, which helped improve the countries foreign exchange reserve position. Despite larger services deficit of US$ 1,110 million in FY 2005-06, up from US$ 870 million in FY 2004-05, the countrys external current account balance was in a significant surplus due to smaller trade deficit and steady growth in workers remittances during the year. The overall balance of payments recorded a significant surplus of US$ 365 million in FY 2005-06, which was much higher than the surplus of US$ 67 million of FY 2004-05, reflecting a notable improvement in current account balance and a larger surplus in capital account, despite of large net outflows in trade credit and other short term loans, the financial account sank into a deficit from a large surplus of FY 2004-05.
6000.00 5000.00 Million US$ 4000.00 3000.00 2000.00 1000.00 0.00 1990 Total Reserves Total Remittances
1995
2000
2005
2010
Financial Year
Figure 1. Trend lines of remittance and foreign reserves Upward sloping shape of the line means that remittance as percent of GNI is on the increase. Figure 1 shows trend lines of remittance, balance of trade and balance of payments. The trend line of remittance is in the positive quadrant and is upward sloping, while that of balance of trade is in the negative quadrant and is downward sloping and the trend line of balance of payment has ups and downs around the horizontal axis. This implies that remittance greatly helps to reduce the deficit in the balance of trade and some times make the balance of payment surplus. Moreover, remittance is increasing at an increasing rate. Since in case of Bangladesh balance of trade is almost in all years negative, therefore amount of remittances has significant influence on the balance of payments. It is the amount of remittance which makes BOP either deficit or surplus.
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R-Square = 0.96
50.00
25.00
0.00 1990 1992 1994 1996 1999 2001 2003 2005 2007
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Total reserves (million US$) From the graph given below, we see rising trend of total reserves (million US$) from financial year (end June) 1991-2006. The value of R2 is 0.19.
4000.0
3000.0
R-Square = 0.19
2000.0
1000.0
0.0 1990 1992 1994 1996 1999 2001 2003 2005 2007
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Findings
Our research findings are summarized here as follows Remittance is the second largest sector of foreign exchange earning after garments sector. If cost of imported raw materials is deducted from the foreign exchange earning of garments sector, remittance is the single largest sector of foreign exchange earning. Remittance earning is increasing day by day but at a lower rate than the increase in emigration from Bangladesh. There is a linkage between remittances at present and development and consumption in the future. The available pool of resources from which emigrants remit depends mainly on number of emigrants, characteristics of the migrants and the country of employment and on salary levels and costs of living. On the other hand amount of remittances sent depends on available pool of resources, characteristics of the migrants, country of origin and employment and propensity to remit. There is high probability of supremacy of yearly growth rate of remittance over that of RMG sector for fiscal years (end June) 2010, 2015 & 2020. There is high probability of supremacy of remittance over foreign assistance for fiscal years (End June) 2010, 2015 & 2020. It is statistically proved that there is devaluation of taka over time. Total reserve (million US$) is rising at a negligible rate over time. Total reserve (million taka) is rising at a significant rate over time. Bangladeshi emigration is rising at a significant rate over time. Bangladeshi inward remittance is rising at a very significant rate over time. Remittances of Bangladesh (million US$) have negligible positive impacts on foreign reserves. Remittance helps in balancing Balance of Payments (BOP). Remittance helps in reducing dependence on foreign assistance. Remittance increases national savings and national investment.
Problems of remittance
Problems created by remittance Problems created by remittance are as follows: Brain drain: Brain drain is the most significant negative side of enjoying remittance for any developing country like Bangladesh. Though we get an important portion of remittance from our educated skilled person after all it is not favourable because educated people are very important for our economy. Income inequality: In a specific community, relative income inequality may be found where there are both emigrants families and non-emigrants families due to the variation in their income levels. Regional disparities: In the same line of above reasoning regional disparities may be found among emigrants intensive regions or districts like
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Sylhet, Chittagong, Comilla, Noakhali, Dhaka etc. and less emigrants intensive regions or districts of the country. Increased demand for imported luxury goods: There is a tendency of remittance earning families to purchase foreign luxury goods which creates unfavourable condition in the balance of payments. Misuse of remittance: Some times the young people of remittance earning family easily get huge money on their hand and misuse that money creating various types of immoral and illegal activities. Social insecurity: Some times remittance earning families feel insecurity from hijackers. They are sometimes compelled to pay to the bad section of the society. Exploitation by the dalals: Sometimes remittance earning families have to pay unreasonable amount of money or a portion of their income to the dalals for helping to send a person abroad. Sometimes emigrants are caught red-handed abroad with illegal documents and some of the emigrants are deceived by different concerned agencies. Recommendations Bangladesh is one of the important remittance earning countries in the world. Moreover it is increasing persistently. No doubt, we want to solve our unemployment problem and working of Bangladeshi residents in different countries is a great opportunity to reduce the prevailing unemployment rate. But actual impact of remittance on the economy of migrant sending countries depends on how the remittance is being used. We have seen that various policies and activities have been undertaken to increase remittance flow in formal way. But, lesser effort has been taken for the development of effective utilization of remittance. So it is recommended that proper policy measures be formulated to manage this sector considering the following issues carefully. The issues are: 1. Proper information about job opportunities in the overseas countries has to be spread all over the country timely and job security should be ensured in the foreign countries. 2. Remittance concerned information centers have to be setup and arrangement be made for provision of proper knowledge regarding administrative activities, passport and visa processing etc. 3. Training centers are to be setup for the people who want to go overseas countries for employment opportunities. 4. Moreover, all types of migration related activities should be completely free from corruption. Quick processing system of issuing passport and visa should be developed and bureaucratic problems should be solved within very short time. 5. Reasonable costs should be ensured by the concerned authority. 6. Influence of the middlemen and their interest should be controlled and problems created by them should be checked. 7. Inspirations to go abroad and other favourable influences have to be provided to the migrant workers and employees.
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8. It should be ensured by the embassies in the overseas countries that any problem faced by the migrant workers will be taken care of as early as possible and MEWOE and Ministry of Foreign Affairs will have to take every responsibility to take care of the native manpower. The Bangladeshi embassies in foreign countries should also help the native migrants in searching for new job opportunities in the overseas countries. 9. Government has to make a close relationship with the concerned overseas countries to search job opportunities in those countries. 10. Remittance sending procedure should be developed to make it secured, quick and effective. Available formal channels for sending money to the native country have to be reorganized to take as short time as possible. Moreover the remittance sending process should be liberalized so that irregular emigrants can also send remittance through regular channels. 11. Charges on sending money should be very favourable for the migrant workers. 12. All information regarding migration should be preserved by the concerned authority. Conclusion Remittance is one of those important instruments, which helps to solve our problem by strengthening the economy. Migration is such a process, which helps to reduce unemployment, increases reserves and helps to make the balance of payment favourable and also helps immensely in other socio-economic aspects. Unemployment situation is one of the most alarming economic indicators of a country; migration and consequent remittance is mainly related with employment and earning of foreign currency. So, remittance is a vital issue for over-populated countries like Bangladesh. Therefore, we need to give proper attention this issue. It also helps to increase foreign reserves, national savings and investments. From socio-economic point of view it uplifts living standard, social status and help ensuring basic needs. Therefore, it is very vital for the acceleration of economic growth in Bangladesh. Remittance has some problems also but they are very negligible in comparison to its overall benefit. So, government, concerned authorities and the people of Bangladesh have to take proper care about remittance considering its importance in our economy. References Bangladesh Bank (BB), Annual Report 2005-06, 2005-06(a, Bangladesh bank Dhaka, Bangladesh, www.bangladesh.org.bd, www.bangladesh-bank.org Bangladesh Bank (BB), (2005-06 b), Balance of payments Bangladesh bank (BB), (2006a) Economic trends, Statistics Department, Volume XXXI, No. 11 Bangladesh Bank (BB), (2006 b), Bangladesh bank Bulletin, Volume XXXIV Number1 Black, Jone, (2002-03). OxfordDictionary of Economics, Oxford University Press (OUP), Oxford, New York, USA Gujarati, Damodarn., (1998). Basic Econometrics, 3rd Edition, Economic Series, McGraw- Hill International Editions
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