The increased inflow of remittance is expected to push up consumption and thus helping the economic growth of Bangladesh to exceed 6% in the current fiscal year.
Global rating agency Moody’s yesterday forecast the country’s GDP based on the recent strong rebound of remittance inflow.
Last Monday, the central bank of Bangladesh released data showing that remittances from migrant workers overseas grew 19.7% to a record high of $1.4bn in July.
This is the third consecutive month of double-digit growth and marks a significant turnaround from the contraction in remittance during fiscal 2013-14, which ended on 30 June.
“The rebound in remittance inflows helps consumption and will enable Bangladesh to maintain its relatively strong economic growth performance this year,” said Moody’s Credit Outlook on Bangladesh.
“The improvement is credit positive for Bangladesh (Ba3 stable) because it suggests a bolstering of the sovereign’s external payments position, a key strength of its credit profile.”
On a year-over-year basis, the growth in remittances in July indicates a strong recovery from the 8.3% average contraction seen during the first half of fiscal 2014 and the 1% contraction for the full year, it said.
It noted that one factor behind the contraction was a decline in the number of workers obtaining jobs overseas after Gulf nations (a major source of remittances from Bangladeshi workers) imposed restrictions on migrants. The sharp rise in remittances in July points to a reversal of this trend, it said.
“We project that their recent remittance rebound will help boost real GDP growth back above a 6% pace this fiscal year from 5.8% GDP growth last fiscal year,” said Moody’s.
In sharp contrast, the government set the target of GDP growth rate of 7.3% for this fiscal year.
However, Bangladesh Bureau of Statistics (BBS) came up with a GDP growth rate of 6.12% for FY2013-14 despite political turbulence that caused some serious disruption in economic activities for a prolonged period last year. Both local and foreign economic analysts questioned credibility of GDP growth figure provided by the BBS.
The growth figure of last fiscal year presented by Moody’s is from the World Bank’s Global Economic Prospects (GEP) report released in June last year. The report had said Bangladesh’s annual GDP growth will not cross the 5.8% for 2013-14 fiscal year.
The rating agency said cumulative remittances to Bangladesh were $14.2bn in fiscal 2014, making it the eighth largest remittance-recipient country in the world.
At 8.2% of GDP, remittances have more than offset the trade deficit, counterbalanced the lack of diversification in the export base (which primarily relies on textiles) and are a major contributor to the country’s surplus current account position.
Factoring in the contraction in remittances, the central bank estimates that the current account surplus narrowed to $1.8bn in fiscal 2014, from $2.5bn a year earlier, it said.
It said a continuation of the recent uptick trend would help return Bangladesh to a stronger current account position in fiscal 2015, which would further bolster its foreign reserve position, which as of June was at a record high of $21.5bn. Also, remittances support household incomes and are a key driver behind consumption expenditure, which comprises nearly 80% of the country’s GDP, it said.
It said more broadly, the uptick in remittances signals an alleviation of some of the pressures that hit Bangladesh’s credit profile in the first half of fiscal 2014.
These included political tensions following elections in early calendar 2014 that resulted in outbreaks of strikes and incidents of violence, and slowing export growth owing to labor unrest and infrastructure constraints in the garment sector last year, according to Moody’s.