The current high levels of remittance flows have no doubt played a critically important and positive role from the perspective of replenishing forex reserves, macroeconomic management and household welfare in Bangladesh
In the backdrop of the high flow of remittances over the past months, a question that is natural to ask is whether, and to extent, the current high growth of remittance flows will be sustainable in near term future. As data indicate, the high growth rates have held for the last twelve months, starting from the time when the first wave of Covid pandemic hit the Bangladesh economy (April 2020) till the present time (March 2021). Remittance flow during these 12 months was $23,034.0 million compared to the previous 12 months when these flows amounted to $ 18,325.5 million. The corresponding growth rate was a robust 25.7%. Will such high growth rates continue over the near term future? It is reckoned that going forward a number of factors should be kept in mind in view of this.
First, sustaining high growth on the current high growth is by definition going to be difficult. Growth of remittance flows over the next months, April 2021 and onwards, will be calculated on these high growth rates. Maintaining and sustaining such high growth rates will not be easy. Secondly, it is true that, remittance flows are impacted more by stocks of migrant workers rather than by flows of migrant workers. This is why in spite of the lower number of people going abroad during post-Covid period (March 2020 onwards) the implication in terms of remittance flows was limited However, as the data indicate, about 480,000 workers, who either came home on leave or were sent back home, have got stuck in Bangladesh during the Covid period. The number of people going abroad have also come down rather sharply since March 2020. If during the January-March 2020 period about 182,000 people had left for work overseas, during the next 11 months (April 2020- February 2021) the total number was only 120,000. True, the numbers are picking up in recent months, averaging about 43,000 per month in January-February 2021 period. However, this number is still below the 7th Five Year Plan average number of about 65,000 workers leaving the country each month. Besides, because of the ongoing second wave of the pandemic, the sector is experiencing another setback and even the current numbers will not be sustained, at least for the next few months. The consequent impact of this, on both flow and stock of migrant workers, will have adverse implications for future remittance flows.
Secondly, in all likelihood, the cash incentive, of 2% and the possible transfer from informal channels to formal channels did have a positive impact on recent remittance flows. However, these gains are likely to be more of a one-time nature. Even if the levels of transfers sustain over time, their implications in terms of growth will likely be subdued in future. Thirdly, if overseas workers were sending more money to their pandemic-stricken households, through dissavings, such additional sources will likely be drying up soon, if not already. Consequently, a major source driving high remittance flows may not be available in future. Fourthly, the job market outlook and prospects in majority of host countries is not favourable. Economies of Middle-East and East Asian countries have been adversely affected by the pandemic and these are yet to get on the recovery path. Some countries (particularly Saudi Arabia, the most important destination for Bangladesh) are trying to reposition their economies by putting more emphasis on employment of own people through replacement of migrant workers, wherever feasible and possible.
The upshot of the above discussion is that Bangladesh should be ready, in view of the above, for a slowdown in remittance flows in near term future. However, thanks to high growth of the recent past, the level of flows itself is expected to exceed $25.0 billion in FY2021, in anticipation of the higher flow of remittances during the two upcoming Eid festival periods. This is quite impressive by any measure. However, holding on to this level or thereabout will be, by any measure, impressive. However, what is argued here is that sustaining the high growth on the already attained high level will be difficult.
The likely emerging scenario should induce policymakers to pursue more proactive policies in a number of areas. Some of these are: (a) Diversify destination countries by exploring opportunities of sending more people particularly to East Asian destinations where demand for workers is expected to be high in view of their better track record in managing the pandemic (e.g. Malaysia, Singapore, South Korea); (b) Diversify skills in alignment with global market opportunities (e.g. in services sectors, more particularly caring and medical services, technical jobs; digitally embedded services); (c) Incentivize remittance flows through formal channel by continuing with the prevailing 2 per cent cash incentive; (d) Take measures to ensure speedy travel of new as also returnee migrant workers by undertaking proactive consultations with host governments; (e) Pursue dialogue with host countries to ensure safety and job security of Bangladeshi people working in those countries; (f) Engage energetically with global processes such as the Colombo process (which include a number of host and sending countries) and Global Compact for Safe, Orderly and Regular Migration (which is an intergovernmental negotiated Agreement that deals with migration-related issues); (g) Negotiate more G to G Agreements for sending workers and enforce laws regulating safe migration; (h) Take concrete steps to reduce cost of migration by bringing more transparency and accountability in the work of recruiting agencies through enforcement of legal measures and regulations.
The current high levels of remittance flows have no doubt played a critically important and positive role from the perspective of replenishing forex reserves, macroeconomic management and household welfare in Bangladesh, in very difficult times, in the backdrop of the pandemic. It is suggested that Bangladesh should pursue a two-pronged strategy in view of this: prepare for a slowdown in the growth of remittance flows over near to medium term future and at the same time pursue proactive policies to take advantage of the emerging global labour market scenario and in anticipation of the opportunities in post-Covid period. Indeed, Bangladesh’s policymakers should factor in the migration sector as a key component of building back better as part of its post-Covid recovery strategy.
The author is a distinguished fellow at the Centre for Policy Dialogue (CPD)