A Study on Performance and Challenges of Remittances Inflows in Bangladesh

A Study on Performance and Challenges of Remittances Inflows in Bangladesh Md. Golzare Nabi Joint Director Monetary Policy Department Bangladesh Bank Head Office, 21 st Floor Dhaka-1000, Bangladesh E-mail: mdgolzarenabi@yahoo.com Mobile: +88 01716 480146 Md. Mahmudul Alam * PhD Student Institute for Environment and Development (LESTARI) National University of Malaysia 43600 UKM Bangi, Selangor Darul Ehsan, Malaysia E-mail: rony000@gmail.com Tel: +601-6279 9091 Citation Reference: Nabi, G., and Alam, M.M. 2011. A Study on Performance and Challenges of Remittance Inflow in Bangladesh, In Quddus, M. and Khan, F.C. (ed.), Bangladesh Economy in the 21st Century: Selected Papers from the 2008 and 2009 Conferences on Bangladesh at Harvard University, Chapter 8, pp. 165-194, Dhaka: University Press Ltd., Bangladesh, Dec. ISBN: 978-984-506-035-6. This is a pre-publication copy The published article is copyrighted * Corresponding author

A Study on Performance and Challenges of Remittances Inflows in Bangladesh Md. Golzare Nabi Md. Mahmudul Alam Abstract Bangladesh witnessed a surge in remittances inflow since 2002, especially as measures had been taken to encourage remitters to send their money through official channels. The multifaceted benefits generated from remittances include increasing the living standards of recipient households, easing national saving-investment and exports-imports gap, and the building up of foreign exchange reserves. Reaping continuous benefits from remittances depends on addressing two key issues, namely increasing number of remitters, particularly skilled and professionals and maintaining the sustainability of remittances inflow. Though the remittances inflow into Bangladesh is increasing and is proportionate to the growth in world remittance flows, continued increases are not guaranteed. This paper attempts to analyze the present performance of remittances inflows in Bangladesh as well as investigate the challenges in the acceleration of remittances inflows. The paper also suggests coherent policies that can facilitate smooth emigration, ensure sustainable remittance inflow and divert a significant share of received remittances into productive sectors aiming at achieving higher growth, generation of employment, and alleviation of poverty. Introduction In tandem with the growth of international migration, remittances inflows, a key visible symbol of globalization, grew steadily in developing countries across the globe. It began to increase sharply after the 9/11 event in the United States in 2001 following better data collection, creation of greater awareness of the development potentials of remittances, growing concern about money laundering and terrorist financing, lower transfer costs, expanded sophisticated banking networks and a growth in the number of migrants and their income (World Bank 2006). The World Bank reports that the officially recorded remittances received by developing countries rose to USD191 billion in 2005, up USD75 billion from 2002. In 2006, remittance flows stood at USD297 billion worldwide, USD221 billion of which went to developing countries. The remittances inflow worldwide is estimated at USD318 billon in 2007. Of this, developing countries received USD240 billon (World Bank 2007). The actual size is higher if unrecorded flows of remittances are considered. The rising trend in remittances is expected to sustain in the next decade due to aging populations in industrial countries and a higher demand for labor arising from augmented development activities in developed, oil exporting and emerging countries. Some reference to the current drop in remittances due to the world wide recession may be useful. Workers remittances are a major source of foreign exchange in Bangladesh. As in many developing countries, this is an increasingly important outcome of global economic integration. The growth of these flows has outpaced private capital flows (FDI) and official development assistance (ODA). Bangladesh is among the top 20 countries receiving remittances ranging from USD2.8 billion to USD21.7 billion (IMF 2005). Bangladesh has experienced phenomenal growth in remittance inflows from US$ 1.8 billion in 2001 to 2

USD4.8 billion in 2006 (Annexure-1). Overseas employment and remittances contribute significantly to the economy of Bangladesh through raising the living standard of recipient households, easing national saving-investment and exports-imports gaps, and building up foreign exchange reserves. The amount of remittances in terms of GDP, exports and imports stood respectively at 7.7%, 45.6% and 32.6% in 2006 (Bangladesh Bank 2007 and Bangladesh Economic Review 2007). Given its size, the stability of remittances inflow has become an important policy issue due to its growing development potentials to affect both micro and macro economy via current account financing and influencing liquidity of the banking system. Assessing the dynamics of remittances has been imperative for the smooth conduct of monetary and exchange rate policy. This paper attempts to investigate the performance of remittance inflows in Bangladesh during 1981-2006. In analyzing the performance of remittance inflows, the paper made focuses on the trend, nature, scale and channels of remittances in Bangladesh and its impacts on the national economy. Though manpower export started in 1976, after 1980 it attained momentum so that data from1981 is analyzed here. To analyze the trends of remittances, its nature and impacts on the national economy of Bangladesh, secondary sources of data is used. The main sources include Economic Trends (Bangladesh Bank), Bangladesh Economic Survey (Ministry of Finance, Government of Bangladesh), Scheduled Banks Statistics (Bangladesh Bank), International Financial Statistics (IFS), International Organizational for Migration (IOM) and World Bank Data Series. This paper also suggests policy options to maintain sustainable inflows of remittances and make them effective by utilizing them properly in productive sectors in Bangladesh. Review of Literature Though there are many studies dealing with various issues such as trends, determinants and impacts on remittances in key recipient s countries (e.g., Turkey, India, Pakistan, Kenya, Jordan, Greece, Egypt, Philippines, Mexico), surprisingly only a few are available on the topic in Bangladesh. Bangladesh Institute of Development Studies (BIDS) [give details of the publication], Bangladesh Unnanyon Parisad (BUP) [give details of the publication], The Refugee and Migratory Movements Research Unit of Dhaka University[give details of the publication], and individual researchers [give details of the publications]have conducted some research on remittances and migration from Bangladesh. Siddiqui (2003, p. [of quote]) has conducted study on remittances for analyzing trend and impacts of remittances in Bangladesh, stating that Every year some 200,000 or more Bangladeshis leave the country officially to work elsewhere. In the last 29 years 3.8 million temporary labor migrants have been recorded. Add to this the more than 1 million Bangladeshis living permanently outside the country and the extent of emigration becomes apparent. Most of these migrants send part of their earnings home on a regular or irregular basis. Azad (2005) suggests using remittances for the development of micro-enterprises. Sarker (2007) focuses on structural changes of remittances in Bangladesh. Nabi (2007) empirically examines the macroeconomic determinants of remittances inflows in Bangladesh. Sobahan and Hossain (2007) reveal that Bangladesh has potentials to tap into huge amount of remittances. Another article by Ray and Sinha (2007) shows immense potentialities of remittance inflow in Bangladesh. Ahmed and Das (2007) cite some policy options to promote remittances inflows in Bangladesh. While analyzing the sustainability of remittance inflow of 3

Bangladesh, Alam (2007) says that being among the top remittance recipient countries, Bangladesh maintained a static position of 13 th from 1995 to 1997 and moved to 8 th position from 1998 to 2002, attesting to the stability of remittance flows to Bangladesh as compared to global flows. He also mentions although its remittance inflow position is very high and hence likely to be sustainable, the highly country specific, job specific and unskilled nature of labor migration show a very risky scenario which points to the danger of unsustainability of this remittance inflow. Any kinds of economic crisis in these countries, especially in the Middle East region or in Saudi Arabia, would lead to a poor remittance balance for Bangladesh. This is also evident from the current global economic meltdown. According to the data base of Bureau of Manpower, Employment and Training (BMET), some 38,568 people have found jobs abroad in June, 2009, a downfall (24%) from 50,632 of January, 2009 (The Financial Express, July 2, 2009). While studying the determinants of remittances inflows, researchers focus on both micro and macro variables. Microeconomic determinants are socio demographic characteristics of migrants and their families; these include migrant income, household income, gender, marital status, age, education level, duration level, migration costs, risk, wealth, shock and dependency ratio (Agarwal and Horowitz 2002; Amuedo-Dorantes and Pozo 2006; Holst and Schrooten 2006). Most studies use microeconomic determinants to test altruism as a key motive to remit. They measure the altruism motive by looking at the effect of higher migrant or household income on remittances. They predict a positive relationship between migrant income and remittances and a negative relationship between household income and remittances. Most papers also test the effect of other variables on remittances to separate altruism from other motives. Macroeconomic determinants refer to the economic activity in host and home countries, exchange rates, relative interest rate, wage rates and financial development. All of these influence remittance inflows. Most of the macroeconomic literature maintains that the most important determinant is economic activity in the migrant workers host country because improved economic conditions in the host country allow migrants to increase their employment and earnings prospects, which then allow them to send more money home (Swamy 1981; Straubhaar 1986; Elbadawi and Rocha 1992; El-Sakka and McNabb 1999; Aydas et al. 2004; IMF 2005). The state of the economy in the migrants home country is also important since negative shocks in the home country may increase the need for remittances to be sent, which may induce current migrants to send money or cause migration in the first place (IMF 2005). A few studies find that neither interest rate differentials between the host and home countries, nor the variation in exchange rates have any effect on remittance flows (Swamy 1981; Straubhaar 1986), although other studies such as those by Chandavarkar (1980), Jadhav (2003), and Aydas et al. (2004) reveal that exchange rate variations affect remittance flows. Economic policies and institutions in the home country, such as exchange rate restrictions and black market premiums, may discourage remittances from being sent and may also shift remittances from the formal to the informal sector (IMF 2005; El-Sakka and McNabb 1999). Macroeconomic instability such as high real exchange rate or hyperinflation may have a similar negative effect. On the other hand, financial sector development, which makes remittances easier and cheaper, should stimulate remittances (IMF 2005). 4

General risks in the home country such as political instability or low levels of law and order may deter remittances since such an environment is not conducive for investment purposes (IMF 2005). Investment opportunities in the home and host country may also have an effect on remittances. Greater potential return to assets in the host country (as opposed to the home country) may encourage migrants to invest to in the host country and reduce remittances for investment purposes (IMF 2005). Some other macroeconomic papers also look at the investment motive of remitters by looking at the macro economic conditions for investment in both the home and host countries (Akkoyunlu and Kholodilin 2006; Schiopu and Siegfried 2006). Bouhga-Hagbe (2006) uses macroeconomic determinants to test altruism as a motive to remit. They use a measure of hardship (fall in domestic GDP) to test altruistic motives in Egypt, Jordan, Morocco, Pakistan and Tunisia and find that as hardship increases so do remittances. When testing altruism versus investment at a macroeconomic level, Schiopu and Siegfried (2006) find evidence for altruism, but little evidence for the investment motive. Very few quantitative studies are available to find out determinants of remittances in Bangladesh. Siddiqui (2003) revealed the factors that influence short-term migration include: distressed economic condition, desire for further economic improvement, information on job opportunities, operation of private recruiting agents and social networks. The main reasons behind permanent migration are: access to specialized jobs, better education for children, standard health care system etc. A study by Barua, Majumder and Akhtaruzzaman (2008) showed that income differential between host and home country and stock of migration workers have positive impacts on remittances inflows but inflation differential between host and home country is found to be negatively correlated with the inflow of remittances. A study on macroeconomic determinants on remittances in Bangladesh during 1981-2006 by Nabi (2007) reveals that the economic condition in the host and home country are the major factors to enhance remittances inflows. The study also shows that the state of the economy in home country is also important; negative shocks in the home country promote remittances inflows. The negative effect of home GDP also indicates that remittances inflows mainly smoothes consumption of recipient households to compensate for negative income shocks. Though remittances are used to remove consumption hardship, it promotes GDP through multiplier effects. Another important finding of Nabi (2007) is that financial sector development augments remittances inflows. As the continuation of these studies, this paper examines the performance of remittances inflows in Bangladesh and suggests policy options for promoting its inflows. Performance of Remittance Inflows in Bangladesh Overall Trends Bangladesh started to export manpower abroad particularly in the Middle East (ME) countries following oil price boom in the early 1970s. Because of labor shortage ME countries had to import foreign labor to gear up huge development activities financed by surplus oil revenues. Since inception, exports of manpower and remittance inflows are increasing every year with little exception (Figure-1). << Figure-1>> 5

The amount of remittances was 12 million in 1976. It started to increase in the early years of 1990s and grew robustly since 2002. These flows increased to 764 million in 1991, it further grew to 1882 million in 2001 and stood at 4801 million in 2006 (Annexure-1). As a laborsurplus country, Bangladesh has huge potentials to raise the level of remittances inflows to US$ 30 billion per annum by 2015 through adoption of proper strategies and steps (Sobahan and Hossain 2007). Country-wise Trend Most of the Bangladeshi expatriates are working in Middle Eastern countries. As a result the major share of remittances comes from Middle Eastern countries (Annexure-1, 2 and Figure- 2, 3). The Kingdom of Saudi Arabia (KSA) is the top destination country of non-resident Bangladeshis (NRBs) (36%) followed by the United Arab Emirates (UAE) at 12% and Kuwait in third position (10%). The other Middle Eastern countries that have a significant number of Bangladeshi workers include: Qatar, Oman, Bahrain, Libya, Iran and Iraq. Besides Middle Eastern countries, Southeast Asian countries such as Malaysia and Singapore are also importing Bangladeshi workers at considerable numbers. The other East Asian countries with many Bangladeshi workers are Brunei and Japan. The OECD countries like the United States, United Kingdom and Italy are also emerging as significant sources of remittances (Annexure-1). Other major OECD countries that have a significant number of Bangladeshi workers are Spain, Germany, and Canada. An analysis of yearly flow of migration depicts that from 1981 to 2007 the highest number of migrant workers registered in the years 1993, 1998, 1999 and 2002 to 2004. It may be here mentioned that majority of Bangladeshi migrants go for short term employment in Middle Eastern and South-East countries and a small portion migrate to Western countries permanently. Scale and Nature of Labor << Figure-2>> << Figure-3>> About 4.5 million Bangladeshi workers have received overseas employment. Now more than 0.3 million Bangladeshi emigrate every year for jobs. Of these, only one percent are female. As figure 4 shows, of the female migrates, 0.4% are professionals, 41% are skilled, 9% are semi-skilled and 49.6% are unskilled workers. << Figure-4>> << Figure-5>> Initially, Bangladesh government organizations like the Bureau of Manpower, Employment and Training (BMET) and the Bangladesh Overseas Employment Services Ltd (BOESL) played a leading role in recruiting manpower. Today, most overseas job seekers go through licensed private recruiting agents or use contacts with individuals already working abroad (Figure-5). Remittance Transferring Channels 6

Officially recorded remittances are channeled through banking networks. In this case, the role of nationalized commercial banks (NCBs) is gradually decreasing while private banks are emerging as major players in channeling remittances. In 2000-01, about three-fourth of the total remittances were received through NCBs and only around 20% came through private commercial banks. But the situation has now been reversed. In 2005-2006, about half of the total received through private commercial banks and the contribution of NCBs declined to below 50% (Figure- 6). During this period the role of foreign banks in channeling remittances has remained the same. But it is important that the volume of remittance inflows through all categories of banks have been increased despite the structural changes. << Figure-6>> Beyond official channels, a huge amount of remittances also come through hundi or friends or relatives (World Bank 2006). A study by Siddiqui, T and C. R. Abrar (2003, p.4 ) reveals that "in Bangladesh, 46% of the total volume of remittance has been channeled through the official sources, around 40% through hundi, 4.61% through friends and relatives and about 8% of the total was hand carried by migrant workers' themselves when they visited home. " However, considering the above World Bank and ILO statistics, it is evident that 40% to 59% of remittances were made into Bangladesh through hundis. If this amount of remittances were made through official banking channels, the current account balance (CAB) would be dramatically changed and the foreign exchange reserves position would have been far better. Contributions of Remittances on the Economy Though Bangladesh is a physical resource poor country, its vast youth population may bring more development funds in the form of remittances that would curtail dependency on conditional foreign funds and enhance the policy sovereignty. The striking feature of remittances as development funds is that it has exceeded ODA and FDI and showed sufficient resilience and better stability trend than those of ODA and FDI (Figure-7). This is similar to other developing countries. The importance of remittances is reflected in its ratio to GDP, exports, imports, ODA and FDI (Annexure-III). The ratio of remittances to GDP, exports and imports was 3.4, 49.7 and 20.2 in 1990. These ratios were 4.4, 29.0 and 20.0 in 2001 and 7.7, 45.6 and 32.6 in 2006. << Figure-7>> Remittances play vital role in the reduction of unemployment and the incidence of poverty. Every year more than 0.3 million people emigrate from the country, lowering the unemployment level. Moreover, remittance inflows have helped the country reduce its poverty substantially. According to World Bank (2006), "Remittances have an association with significant declines in poverty in several low income countries including six percent in Bangladesh, eleven percent in Uganda and five percent in Ghana." Remittances have contributed a lot to maintain healthy foreign exchange reserves. Among major sources of foreign exchanges, exports secured the top position followed by remittances. But if back-to-back imports used for RMG exports are taken into consideration, remittances emerge as the single largest source of foreign exchanges. The surge in remittances reduces the dependency on conditional costly foreign borrowing. It also plays a vital role in bringing sustainability to the current account balance. The current account has turned positive in 2002, 7

2003, 2004, 2006 and 2007, following better performances of remittances inflows (Annexure- IV). Financial sector development is enhanced through the increased inflows of remittances. This is reflected in an increasing number of clients, an expanding base of different products among the beneficiaries of remittances, and the adoption of modern technology by involved financial institutions. Remitters also create markets in the country of destinations for domestic products. Existing Policies and Challenges Remittances and Migrants related Measures and Policies In the past, the major official measures included the establishment of BMET in 1976, BOESL in 1984, introduction of the Wage Earners Scheme in 1974, wage earners development bond and non-resident foreign currency account, and the Emigration Ordinance, 1982. In recent years, the major surge in remittances has occurred due to various effective official measures. The enactment of the Anti Money Laundering Act-2001 in line with US Patriot Act to encourage the remitters to send their money through official rather than informal channel or Hundi has increased the official remittances inflows records. The establishment of a separate Ministry entitled Ministry of Expatriates Welfare and Overseas Employment, approval of a large number of drawing/remittance arrangements in different countries, and relaxation of drawing/remittance arrangement approval policy by imposing thresholds, especially for United Kingdome-, United States- and Canada-based exchange houses - have influenced the higher remittance inflows into Bangladesh. Other initiatives for expatriate and migrant workers such as ensuring credit of remittances to the beneficiaries account within a maximum of 3 days, giving priority to the remitter for RAJUK/government plot allotment, allowing Commercial Important Person (CPI) status for bulk remitters, and providing income tax wavers for remittance also increase the confidence of the remitters in Bangladesh. Government policies for international relationship such as increases in the deployment of Bangladeshi Peacekeeping forces around the globe help to accelerate migrant workers and remittances. Different financial and investment opportunities such as Non-resident Foreign Currency Deposit Account (NFCD), Non-resident Investor s Taka Account (NITA), Wage Earners Development Bond, US Dollar Premium Bond and US Dollar Investment Bond attract migrants to invest in their origin country of Bangladesh. After the introduction of the floating exchange rate regime, all banks have been instructed to open an import letter of credit (L/C) within their own capacity so as not to pressure the foreign exchange market. Consequently, banks have concentrated on developing their drawing/remittance arrangements. Some banks have sent their representatives to the foreign exchange company to campaign among the Bangladesh community. Constraints and Challenges of Smooth Remittances Inflows The remittance inflows in Bangladesh is highly country specific. It is mostly dependent on the Middle East, especially Saudi Arabia. Political turmoil in the countries of destination has 8

also affected the remittance flow. The sluggish growth in the mid-1980s may be attributed to the Iran-Iraq war of that time. A similar correlation might exist between the slow growth rate at the beginning of the 1990s and the Gulf War (Afsar et al. 2002). In 1994, the war caused Saudi Arabia, Kuwait, Qatar, Oman, Bahrain, Malaysia to reduce labor migration. In 2000 Saudi Arabia, Qatar, Kuwait, reduced labor migration from Bangladesh because of unfavorable intra country relationships and also because of the bad performance of existing Bangladeshi labor. In 2001 Saudi Arabia, UAE, Qatar, Oman, Bahrain, Libya, Singapore, and Malaysia reduced labor imports from Bangladesh, as their economic conditions were not good for international political and financial reasons. During that time, three year s reduction of labor migration to the Middle East caused total labor emigration from Bangladesh to fall. This highly country specific labor migration shows a very risky scenario for the labor migration and remittance in Bangladesh. It is possible that after a certain period these countries might not require any more labor. In that case, Bangladeshi labor migration will further decline. Any economic or political crisis in Middle East or unfavorable intra country relationship with very few countries will drastically reduce the remittance inflow in Bangladesh Bangladesh sends labor in very specific category of jobs. BMET has classified temporary migrant workers in four categories. Professionals refer to doctors, engineers, nurses and teachers; skilled workers include manufacturing and garment workers; semi-skilled workers include tailors and masons; and housemaids, cleaners and laborers are considered as unskilled workers (Siddiqui and Abrar 2003). Men mainly work in the construction sector, cleaning, maintenance work, services and farming in the Middle Eastern and South-East Asian countries (Hassan 2000). Women, on the other hand, work mainly as garment workers, cleaners, housemaids and nurses, and in the manufacturing industry in Malaysia ( Bruyn, T. D. and U. Kuddus (2005). A study by INSTRAW and IOM (2000) showed that unrecorded female migrants are mainly employed as domestic workers. The professionals are highly salaried people who can generate huge remittance but the least migrated group from Bangladesh. Skilled people are always highly demanded so that at the time of 1994, 2000, 2001, when total labor migration is decreased, mainly unskilled labor migration decreased but skilled demand continued to be the same. Bangladesh is a highly populated country but most of its manpower is unskilled. If the country sends more skilled and professional labor abroad, remittance inflows would increase at increasing rate. When people migrate only to specific job sectors, any economic slowdown of these sectors will cause to reduce remittance drastically. Also within a very short period, few specific countries specific job sectors will not required more labor. As a result, Bangladesh needs to diversify its migration to different job sectors. Recruiting data on labor migration shows that small portions of labor are migrated through the government and most of the labors are migrated through individual or by the recruiting agents. The government could increase its role in negotiations and intra country relationships. The state is a more powerful player than individual persons or recruiting agencies, especially when it comes to salary and opportunity negotiations. When people migrate individually or through recruiting companies, they may not have sufficient information and ability to negotiate properly with the actual authority or may not be able to get jobs that use their skills to the fullest. Sometimes people face middlemen who are fraudulent. For these reasons, the resource inflow is low in proportion to the many people who migrate. In such situation, if the government increases the rate of labor migration through government channels, this will accelerate remittance inflows and help to make it sustainable. 9

In the last few years, many developed countries have hired skilled labor permanently from Bangladesh. Despite this, Bangladesh government has not prepared a proper migration policy. Scholars have raised the issue of brain drain due to skilled labor migration. As a labor surplus country, Bangladesh can easily remove negative effects of brain drain by providing necessary training to its vast unskilled surplus labor. At the same time, there is no social security system or social insurance for remitters and even not enough facility for providing vote at the time of national election. Remittance transferring intermediaries have an important role to increase remittance. Sometimes remittances are transferred through underworld activities, e.g. smuggling, hundi, where these people collect remittances in foreign country and their agents pay the equivalent taka in Bangladesh to sender agents. At the same time, Bangladeshi agents also collect taka from any local person of any company or smuggler and the collector s agent pay collected remittance in foreign countries. These processes deprive the government from taxes and foreign currency inflows decrease. There are not enough facilities to transfer remittances in Bangladesh from different countries. At the same time, transfer fees are also high and remittance transfer to rural areas is difficult. According to the IMF (2005), the transfer cost of funds to Bangladesh is high compared to those of other top remittance recipient countries like India, Pakistan, Philippines Turkey, or Morocco. Recruiting fees are also higher in Bangladesh compared to other developing countries. According to the World Bank (2006) report, the recruiting fee in Bangladesh is higher (USD1727) compared to that in India (USD900), Pakistan (USD768) and Sri Lanka (USD689). Current investment areas for remitters are not enough attractive to catch the attention of Nonresident Bangladeshis. There is only one mutual fund for Non-resident Bangladeshis in the capital market. Most of the incoming remittances are used for consumption purposes. In many cases, migrants cannot invest in any productive sector so that they only invest in land. As a consequence of the inadequate investment opportunities for Non-residences Bangladeshis, land prices and inflation increased significantly in Bangladesh. Remittances are often used to buy social status and land, leading to a concentration of land ownership in Bangladesh (De Haan 1999). Policy Options and Recommendations Bangladesh has a huge potential to raise the number of remitters by increasing the export of manpower from large pools of unemployed youths. This would also reduce the level of unemployment and poverty. Base on the findings, the paper suggests the following measures to augment the remittances inflow in Bangladesh. Building Use Friendly Sending Infrastructure: Bangladesh needs to develop a hassle free and transparent sending infrastructure to attract massive inflows of remittances through exporting millions of unemployed youth. To this end, required policy measures include: (a) Setting up a counseling centre at District Manpower and Employment Office with automated arrangement of data base of potential migrants and complete information on overseas jobs markets, costs, benefits, tenure and name of recruiting agencies having valid offer of exporting manpower. 10

(b) Making arrangements for legal and transparent contracts between recruiting agency and job seekers in the presence of BMET officials including a clause of receiving money through a scheduled bank account of the recruiting agency and mandatory submission of a copy of deposit slip to BMET. (c) Providing training for skill development and undertaking programs for language learning and (d) Making the recruitment fee and transfer cost of fund rational. Searching New Overseas Markets: A key weakness of manpower export market from Bangladesh is that it is heavily concentrated in the Middle East. To remove this structural limitation, Bangladesh needs to diversify its overseas jobs markets through adoption of proper strategies such as expanding existing markets in Middle East and designing aggressive programs penetrating into OECD countries with aging problem and low population as well as policies to enter into emerging economies like Russia, China, South Africa, East European countries, Middle Asian countries and India. Further Improvement of Formal Channel of Fund Transfer: Bangladesh has to develop her financial sector further to facilitate remittances inflows at greater pace by adopting measures such as automation of rural bank branches, encouraging private banks to open branches in rural areas and allowing well-established non-governmental organizations (NGOs) and microfinance institutions (MFIs) to receive and disburse remittances through their vast rural network. Creating Investment Avenues for NRBs: Though remittances mainly smoothes consumption, there are potential investors who are interested in investing in Bangladesh. In this regard, the following measures may be undertaken along with aforementioned three bonds and the issuance of special bonds for NRBs with attractive returns. These are the establishment of Special Economic Zones with appropriate infrastructural facilities and monetary and fiscal incentives, the setting up of townships for NRBs with better residential, educational, medical and recreational facilities and establishing a bank for repatriates with option of allotment of shares to NRBs with a mission to finance industrial and social development projects owned by NRBs. Banks involved with huge volume of remittances can use securitization option to issue remittances-back bonds in order to raise cheap and longterm funds from global markets. Like non-resident Indians, NRBs can play vital role in alluring foreign funds for implementing productive projects aiming at achieving of higher growth, generation of employment and alleviation of poverty for a humane innovative Bangladesh. Making Bangladeshi missions abroad more active: The Bangladeshi missions abroad should be more active so that remitters can be aware of formal official arrangements for sending remittance to the country. A special desk may also be established in the Bangladeshi missions to inform the NRBs about the country's future development plan and strategies and opportunities designed for them. Coherent National Policies: Bangladesh needs to formulate and implement a National Migration Policy in order to enhance remittances inflows and ensure welfare of remitters. It should also conduct optimal monetary and fiscal policies in order to divert remittances into productive sectors so that national economy can be benefited in terms of higher growth, 11

employment, poverty alleviation and price stability. Bangladesh Bank always needs to vigilant at assessing the dynamics of remittances for smooth conducting of monetary and exchange rate policy. This would help combat Dutch-disease type of problems and maintain price stability. Conclusion Remittances have brought immense benefit to Bangladesh economy in terms of employment generation, poverty alleviation, import financing, and building of healthy foreign exchange reserves. In Bangladesh, the stability of remittances inflow has become an important policy issue due to its growing development potentials to affect both the micro and macro economy via current account financing and the injection of liquidity into the banking system. Following this policy perspective and based on the findings, the paper concludes that Bangladesh as a labor exporting country can influence the inflow of remittances by means of appropriate policies of building a user friendly sending infrastructure, searching new overseas markets, improving the formal channel of fund transfer, and creating investment avenues for non-resident Bangladeshis. As remittances are generally countercyclical and quid-pro-quo in nature and these flows have no future payment obligations like other forms of foreign capitals and have exhibited resilience and stability, Bangladesh should pay topmost priority to tap huge amount of foreign exchange by exporting millions of unemployment youths to remove the constraints of financing development activities to make Bangladesh poverty free within 2020. In the backdrop of a declining trend of ODA and fierce competition for FDI, massive remittances flows to Bangladesh would also curtail dependency on conditional foreign funds and enhance the policy sovereignty. Further rigorous research should be conducted to examine trends, determinants and policy options so that remittances can be a viable sustainable source of development finance in Bangladesh. 12

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(Million US$) 6000 Figure 1: Remittance Inflow in Bangladesh (1981-2006) 5000 4000 3000 2000 1000 0 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 Source: Bangladesh Economic Review (2007), Ministry of Finance, GOB Figure-2: Country-wise Remittance Inflows, 2006 Singapore 1% Others 5% UK 12% KSA 36% USA 16% Kuwait 10% UAE 12% Bahrain 1% QATAR 4% Oman 3% Source: Bangladesh Economic Review, 2007 Figure-4: Expatriates Classified by Skill, 2006 Unskilled 0% Professi onal 41% Figure-5: : Recruiting Mediawise Migration from Bangladesh, 2006 Recruitin g Agency 31% Semi- Skilled 50% Skilled 9% BOESL 0% BMET 0% Individual 69% Source: Bangladesh Economic Review, 2007 Source: Bangladesh Economic Review, 2007 15

(Million $) Figure 6: Bank-wise Receipts of Expatriates' Remittances in Bangladesh (In million US $) 100% 80% 60% 40% 20% 0% 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 Source: Bangladesh Bank FCBs PCBs Govt Bank 6000 5000 4000 3000 Figure 7: Trend of REM, ODA and FDI in Bangladesh Remittance FDI (Net) ODA 2000 1000 0 2000 2001 2002 2003 2004 2005 2006 Source: Bangladesh Economic Review (2007), Ministry of Finance, GOB 16

Annexure I: Country-wise remittances inflows in Bangladesh (Million US$) Year KSA UAE QATAR Oman Bahrain Kuwait USA UK Malaysia Singapore 1981 83.9 65.59 13.7 5.91 1.26 19.09 33 104.9 - - 327.3 53.89 381.18 1982 121 55.49 16 10.36 2.48 22.97 31.9 69.27 - - 329.3 89.15 418.47 1983 200 78.68 29 12.65 3.68 44.94 39.5 84.55-4.04 496.8 122.7 619.48 1984 215 59.8 30.2 24.1 8.1 50.5 36.8 70.6-6.6 501.8 88.8 590.6 1985 154 42.1 22.1 27.5 6.8 37.6 32.4 50.9-3.4 376.5 65.1 441.6 1986 180 54 22.3 54.1 9.4 62.3 38.7 77.6-2.4 501.2 147.4 648.61 1987 216 60.9 38.4 53.4 11.3 101.3 43.2 92.8-2.6 620.2 77.25 697.45 1988 226 62.36 45.7 51.92 12.4 96.37 61.4 88.39-2.11 647.1 90.29 737.43 1989 219 61.23 44.8 45.31 13.3 96.41 84 67.39-2.09 633.9 137 770.82 1990 226 55.16 40.3 40.55 14.3 89.22 82.4 58.4-2.28 608.7 149.5 758.2 1991 265 78.13 59.5 49.69 16.5 9.01 60.2 68.83-2.16 608.9 155.2 764.04 1992 316 79.56 48.1 60.55 20.2 66.9 55.4 57.15-1.52 705.1 142.9 847.97 1993 398 80.22 53.8 60.08 22.4 124.1 68.1 48.44 4.22 2.53 862.3 81.75 944 1994 441 88.1 56.2 73.03 27.3 185.2 78.7 48.49 10.2 2.32 1011 78.21 1088.79 1995 477 81.34 72.2 81.27 33.7 174.7 102 47.02 10.2 2.32 1082 115.8 1197.63 1996 498 83.7 53.3 81.71 30.1 174.3 115 41.28 74.4 3.99 1156 60.76 1217.06 1997 587 89.64 53.2 94.45 31.5 211.5 157 56.2 94.5 6.66 1382 93.23 1475.4 1998 589 106.9 57.8 87.61 32.4 213.2 203 65.8 78.1 7.69 1442 83.57 1525.42 1999 685 125.3 63.9 91.93 38.9 230.2 239 54.04 67.5 13.07 1610 95.82 1705.74 2000 916 129.9 63.7 93.01 41.8 245 241 71.79 54 11.63 1868 81.14 1949.32 2001 920 144.3 63.4 83.66 44.1 247.4 226 55.7 30.6 7.84 1822 59.91 1882.1 2002 1148 233.5 90.6 103.3 54.1 285.8 356 103.3 46.9 14.26 2436 65.29 2501.13 2003 1254 327.4 114 114.1 63.7 338.6 458 220.2 41.4 31.06 2962 99.61 3061.97 2004 1386 373.5 114 118.5 61.1 361.2 468 297.5 37.1 32.37 3249 123.2 3371.97 2005 1510 442.2 136 131.3 67.2 406.8 558 375.8 25.5 47.69 3701 147.2 3848.29 2006 1697 561.4 176 165.3 67.3 494.4 761 555.7 20.8 68.84 4567 234.8 4801.88 Source: Bangladesh Economic Review 2007, Ministry of Finance, Government of Bangladesh Total 10 Others Grand Total 17

Annexure II: Number of Bangladeshi expatriates (1981-2006) Year KSA UAE QATAR Oman Bahrain Kuwait UK Malaysia Singapore Total 9 Others* Grand Total 1981 13384 6418 2268 7352 1392 5464 - - 385 36663 19124 55787 1982 16294 6863 6252 8248 2037 7244 - - 1083 48021 14741 62762 1983 12928 6615 7556 11110 2473 10283 - - 331 51296 7924 59220 1984 20399 5185 2726 10448 2300 5627 - - 178 46863 9851 56714 1985 37133 8336 4751 9218 2965 7384 - - 718 70505 7189 77694 1986 27235 8790 4847 6255 2597 10286 - - 792 60802 7856 68658 1987 39292 9953 5889 440 2055 9559 - - 25 67213 6804 74017 1988 27622 13437 7390 2219 3268 6524 - - - 60460 7661 68121 1989 39949 15184 8462 15429 4830 12404-401 229 96888 4836 101724 1990 57486 8307 7672 13980 4563 5957-1385 776 100126 3688 103814 1991 75656 8583 3772 23087 3480 28574-1628 642 145422 1709 147131 1992 93132 12975 3251 25825 5804 34377-10537 313 186214 1910 188124 1993 106387 15810 2441 15866 5396 26407-67938 1739 241984 2524 244508 1994 91385 15051 624 6470 4233 14912-47826 391 180892 5434 186326 1995 84009 14686 71 20949 3004 17492-35174 3762 179147 8396 187543 1996 72734 23812 112 8691 3759 21042-66631 5304 202085 9629 211714 1997 106534 54719 1873 5985 5010 21126-2844 27401 225492 5585 231077 1998 158715 38796 6806 4779 7014 25444-551 21728 263833 3834 267667 1999 185739 32344 5611 4045 4639 22400 - - 9596 264374 3808 268182 2000 144618 34034 1433 5258 4637 594-17237 11095 218906 3780 222686 2001 137248 16252 223 4561 4371 5341-4921 9615 182532 6433 188965 2002 163269 25462 552 3854 5421 15769 166 85 6856 221434 3822 225256 2003 162131 37346 94 4029 7482 26722 166 28 5304 243302 10888 254190 2004 139031 47012 1268 4435 9194 41108 2055 224 6948 251275 21683 272958 2005 80425 61978 2114 4827 10716 47029 2793 2911 9651 222444 30258 252702 2006 108671 1.00E+05 7662 8038 16301 35483 1597 20452 20077 318281 30155 377591 Source: Bangladesh Economic Review 2007, Ministry of Finance, Government of Bangladesh *USA data is very insignificant in number that included in others 18

Annexure III: Remittances as % of key macroeconomic variables in Bangladesh Year % of GDP % of Exports % of Imports % of FX Reserve % of CAB % of BOP % of ODA % of FDI 1981 2.7 53.7 16.32 3246 46.5 321 31-1982 3.2 66.8 17.4 345.5 47.6 314.2 33.7-1983 5.1 90.2 28.8 172.9 193.4 333.2 52.6-1984 4.2 72.9 27.9 109.4 219.4 323.4 46.6-1985 2.8 47.3 16.7 111.9 76.3 339.6 34.8-1986 4.2 79.2 27.5 136.3 130.3 1066.2 49.7-1987 4 64.9 26.6 97.5 153.8 1686.6 43.7-1988 3.9 59.9 24.7 86.1 226.5 690.8 44.9-1989 3.8 59.7 22.8 84.4 110.3 12196.2 46.2-1990 3.4 49.7 20.2 145.8 97.8 324.6 41.9-1991 2.5 44.5 21.8 86.8 525.3 255.4 44.1-1992 2.7 42.5 24 52.7 407.4 145.2 52.6-1993 3 39.7 23.3 44.6 522.5 161.7 56.5-1994 3.2 43 26 39.5 391.2 153.9 69.9-1995 3.2 34.5 20.5 39 653.8 264 68.9-1996 3 31.3 17.6 59.7 130.9 153.1 84.3-1997 3.5 33.4 20.6 85.8 1017.7 600.4 99.6-1998 3.5 29.5 20.3 87.7 329.4 2824.1 121.9-1999 3.8 32.1 21.3 112 357.7 883.9 111.1 862 2000 4.1 33.9 23.3 121.7 466.3 1088.8 122.7 509 2001 4 29.1 20.2 144 171.4 669.8 137.5 342 2002 5.3 41.8 29.3 158 1593 613 173.4 640 2003 5.9 46.8 31.7 124 1739.8 375.7 193.2 814 2004 6 44.4 30.9 124.7 1915.9 1971.9 326.4 1222 2005 6.4 44.5 29.3 131.3 690.8 5743.3 258.1 481 2006 7.7 45.6 32.6 137.8 839.5 1315.6 320.3 711 Source: Economic Trend, Bangladesh Bank & Bangladesh Economic Review 2007 19

Annexure-IV: Balance of payments (Million US$) Items FY02 FY03 FY04 FY05 FY06 * FY07 ** Trade balance -1768-2215 -2319-3297 -2889-3458 Export fob (including EPZ) 5929 6492 7521 8573 10412 12053 Of which, Ready Made Garments (RMG) 4584 4912 5686 6418 7901 9211 Import fob (including EPZ) -7697-8707 -9840-11870 -13301-15511 Services -499-691 -874-870 -1023-1261 Receipts 865 887 924 1177 1340 1484 Payments -1364-1578 -1798-2047 -2363-2745 Income -402-358 -374-680 -702-883 Receipts 50 64 63 116 136 245 Payments -452-422 -437-796 -838-1128 Of which, Official interest payments -161-167 -175-203 -204-212 Current transfers 2826 3440 3743 4290 5438 6554 Official 69 82 61 37 125 97 Private 2757 3358 3682 4253 5313 6457 Of which: workers remittances 2501 3062 3372 3848 4802 5979 Current account balance 157 176 176-557 824 952 Capital account 410 428 196 163 375 490 Capital transfers 410 428 196 163 375 490 Financial account 391 413-31 784-141 721 Foreign direct investment (net) *** 391 376 276 800 743 760 Portfolio investment -6 2 6 0 32 106 Other investment 6 35-313 -16-916 -145 MLT loans (excluding suppliers credit) 733 918 544 940 1023 1037 MLT amortization payments -435-452 -397-449 -488-525 Other long term loans (net) -42-20 -41-46 -37-29 Other short term loans (net) 63 142 13 241-256 493 Other capital -87-125 -125-182 -295-524 Trade credit (net) -253-499 -321-320 -898-470 Commercial Bank 27 71 14-200 235-127 Assets -90 217 86-91 31-98 Liabilities 117-146 -72-109 204-29 Errors and omissions -550-202 -170-323 -720-670 Overall balance 408 815 171 67 338 1493 Reserve assets -408-815 -171-67 -338-1493 Bangladesh Bank -408-815 -171-67 -338-1493 Assets -276-887 -235-225 -554-1593 Liabilities -132 72 64 158 216 100 Source: Statistics Department, Bangladesh Bank * Revised, ** Provisional, *** The figure for FY07 is estimated 20