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1.

Introduction

My topic is effect of flow of remittance in Bangladesh. It important to discuss about the flow of remittance because it has potential economic impact with unique characteristics. There are many way through which remittance can be connected with macro economics. In Bangladesh remittance flows are high. In the fiscal year 2011-12 it was around BDT 8992.89 crore. As the remittance effect the household in the receipt economics (Bangladesh) they undoubtedly have effect at macro level. Remittance is composed of numerous small transfers between private individuals. Thats how it introduces well known economic issues concerning interaction among family members and fuels the uniqueness of remittance behavior. The maximum inflow of remittance comes from Middle East in Bangladesh. We need to know the remittance flow pattern and their effect on the economy due to its contribution towards growth. In the recent year Bangladesh faced so many structural problem in exporting labor forces which could finally contribute foreign remittance. In Feb 2011 the economy of Bangladesh witnessed a decreasing trend in per capita remittance. The way remittance effect offset the negative impact of the economy is crucial and very important to understand. The impact of remittance depends on their use. The brain drain issue along with the issue of job competition from migration to labor receiving country can be understood through these paper. Remittance can increase the money supply of the country , hence effect all the economic factors related with money. Objectives of the study To know about the effect of remittances on economic condition of our country To explore the problems regarding different aspects of remittances To find out the ways for solving these problems

2. Literature Review

Remittance is the sum of money that is sent to somebody in order to pay for something or it is the act of sending money to somebody to pay for something. It generally means money sent by migrant workers in foreign countries to their former homes. Actually, remittance is a much broader concept. It has many dimensions and categories. Types of remittance There are mainly two types of remittance: national/domestic remittance and international/foreign remittance. While national/domestic remittance is remittance within countries, international remittance is the remittance from one country to another country. According to its direction international remittance is again of two types: inward remittance and outward remittance.

Remittance sending system Formal system Remittance is sent formally through various ways such as demand draft, travelers check, telegraphic transfer, postal order, direct transfer, Automatic Teller Machine (ATM) etc. Informal system Hundi or money carrier system is prevalent as informal procedure of remittance sending in most of the cases. Hundi refers to the illegal money exchange not supported by the international or national legal structure. The exchange rate offered by the hundi operators is 1-2% higher than the official exchange rate. They do not charge anything for transaction. It is the fastest method of transaction. In urgent situations this is the quickest method for sending money. The hundi operators provide door to door services. It was interesting to note that there are other social reasons for sending remittance through hundi. Few mentioned they send money to wives, fathers or brothers separately and preferred to keep the amounts sent secret, as it creates tension among the family members. Hundi provides the opportunity to maintain such confidentiality.

Remittance and international trade We know that a country has to trade with other countries. Trading means exchange of goods and services among countries. Trading is occurred through export and import system. A country exports something and imports something. Normally, some currencies play important role in exchange of these goods and services. From economic point of view trade is one of the primary needs of a country. We need foreign currency to run trading activities. But, we have deficit balance of trade because our import is more than export. So, the amount of our foreign currency is very negligible and its earning sources are limited. In this case, remittance plays a vital role to make up the deficit in foreign earning

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

Remittance and reserves Satisfactory level of reserves of foreign currencies has positive impact on the macroeconomic condition of a country. We have limited sources of earning of foreign currencies. Our import is high but export is low. Every year we have to take loan and to wait for it to make up BOT

deficit. But now remittances help a great to have the reserves at satisfactory level. In recent times, it is recorded that our reserve is at the maximum level where remittance is the largest contributing sector. Hence there is no doubt that remittances and reserves have a positive correlation. Moreover, reserves and remittance are rising over time.

Remittance and investment Bangladesh is a slowly developing country with a huge population. It is also characterized by political unrest. Due to political unrest, level of direct foreign investment and future prospects of the same in our country is not very hopeful. Besides, in our country micro level investment is not flourished due to lack of sufficient financial support. A vast number of people are poor. If they are provided some financial support then they can build up micro-enterprises to reduce their poverty. In case of remittance, it can be assumed that financial support provided by remittance may help the poor people to make micro-investment. But it is observed in various studies that maximum amount of remittance is used to meet primary needs and to buy luxury goods. Some portion of remittance is used for investment purposes also. Macro-investment is possible if the emigrants invest in joint ventures. Besides, individual investment also plays an important role in economic development of the country.

3.Data Analysis

Overseas employment and remittances play an important role in speeding up the economic development by reducing unemployment problem creating new jobs, eradicating poverty and increasing the foreign exchange reserve. A sizeable number of Bangladeshi labor forces are employed in different parts of the world including the Middle East. A total of 4.19 lakh Bangladeshi workers went abroad for employment during FY 2010-11. To facilitate financial assistance by providing soft term loan to the aspirant migrant workers and returnees, a specialized bank titled Probasi Kalyan Bank has been established. To enhance skilled migration as per demand of the international labour market, National Skill Development Council has been strengthened. Remittance during 2010-11 is about US$ 11.65 billion which is more than 6 percent that of the average of the last year. The number of expatriate Bangladeshi workers and the amount of remittances in Taka and US dollar are shown in Table below-

Fiscal Year

No

of Amount of remittance

employment abroad Million US$ Percentage change (%) 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2001-02 195 251 277 250 291 564 981 650 427 419 195 2501.44 3060.31 3372.49 3848.30 4801.88 5978.47 7914.78 9689.16 10987.40 11650.32 2501.44 32.81 22.25 10.20 14.11 24.78 24.50 32.39 22.42 13.40 6.0 32.81 14390.19 17719.58 19872.39 23646.97 32274.60 41298.50 54293.24 66674.87 76010.96 82992.89 14390.19 Crore Tk. Percentage change (%) 40.17 23.14 12.15 18.99 36.49 27.96 31.47 22.80 14.00 9.18 40.17

2002-03 2003-04

251 277

3060.31 3372.49

22.25 10.20

17719.58 19872.39

23.14 12.15

Remittance inflow in Bangladesh : Over the years, the flow of remittance in Bangladesh is increasing in volume, but the rate of growth in remittance has decreased since FY 2008-09 except in the last fiscal year.

Figure: Yearly flow of Remittance Source: Bureau of Manpower, Employment and Training, Foreign Exchange Policy Department, Bangladesh Bank, 2012 According to newspaper reports, Bangladesh received remittances of BDT 68,437.80 million in total in December, 2010 including BDT 3.5 million from the Bangladeshis in Libya. The remittance from Libya was the highest in August, 2010 with BDT 6.9 million. As the political crisis in Libya along with some other Middle- Eastern countries continues for long, remittance inflow to the country have come down drastically. Bangladesh is considered one of the major labor exporting countries of the world.

Monthly Scenario of labor migration: According to Bangladesh Association of International Recruiting Agencies (BAIRA), over 0.08 million Bangladeshi people worked in Libya in FY 2011-122. The recent crisis in Libya has forced to quit many of the Bangladeshi workers from the strife-torn country. The labor migration might further reduce in the rest of the months of the current fiscal year because of the prohibition of VISA by the authorities in the UAE. According to newspaper reports,3 The UAE has stopped issuing all kinds of entry permits for Bangladeshi passport holders due to security concerns in case of identification and fake documents which showed a decline in manpower export to the UAE in the month of August, 2012. However, this restriction is assumed to have a drastic fall in manpower export in UAE. According to newspaper reports, 4 Bangladesh exported 23,025 people to UAE in June 2012 whereas it was 27,535 in July 2012. However, the migration of labor came down at 15,771 in August, 2012.

Figure 5: Scenario of labor migration over the months Source: Authors calculation based on Bureau of Manpower, Employment & Training, Bangladesh Bank, 2012

Remittance flow from the middle eastern country : Most of the countries of the Middle Eastern regions have seen a downward trend of remittance flow in the beginning of current the fiscal year. In the recent past, most of the remittance came to the country from the expatriates working in the Middle Eastern countries. The global economic recession and Middle Eastern political unrest has changed this scenario

Figure 8: Country wise (middlie east region) flow of remittance Source: Bangladesh Bank, Economic data, 2012

4. Interpretation and Findings

Interpretation:

Remittance inflow in Bangladesh

In FY 2011-12, the rate of growth in remittance was 10.24 percent, which was 4.21 percent more than that of FY 2010-11. In FY 2010- 11, the rate of growth in remittance was 6.03 percent, which was respectively 7.36, 9.02 and 9.97 percent less than those of FY 2009- 10, FY 2008-09 and FY 2007-08. In FY 2011-12, Bangladesh received remittances of USD 12843.43 million which was 1193.11 million more than that of FY 2010-11. Especially, the inflow of remittance had been increasing from the FY 2001-02 (Figure: 1). The peaks in rate of growth of remittance were in FY 1996-97, FY 2001-02 and FY 2007-08. Again, the rate of growth in remittance was the lowest in FY 1995-96, FY 2000-01, 2003-04 and FY 2010- 11. During FY 2002-03 - FY 2004-05, the yearly average rate of growth in remittance was 15.56 percent whereas it was only 9.89 percent during FY 2009-10 to 2011-12.

Monthly Scenario of labor migration: The flow of labor migration is following an erratic trend over the months of FY 2011-12 because of the unrest in some Middle Eastern countries such as Libya. During the first two months of the current fiscal year (2012-13), total exports of manpower were 0.11 million which was 10.08 percent higher than that of the same period of FY 2011-12. In the second month of the current fiscal year, the total number of labor migration declined to 0.04 million which was 30.20 percent lower than that of the first month of the current fiscal year. In January 2012, the migration of labor was the highest at 0.07 million which was 24.17 percent higher than that of December, 2011. Again, it declined astonishingly in June, 2012 by 26.51 percent.

Remittance flow from the Middle Eastern country:

The receipt of remittance from two of the known remittance sending countries, Kuwait and K.S.A. have squeezed respectively by USD 12.82 million and USD 10.82 million in the month of August, 2012 than those of July, 2012. Remittance inflow was lower by USD 1.24 million from Bahrain, USD 5.21 million from Qatar, USD 7.42 million from U.A.E. and USD 0.43 million from Libya during the month of August, 2012 compared to the previous month. Except Oman, most of the Middle Eastern countries have faced negative growth which is alarming for the economy in terms of labour migration and receipt of remittance. In FY 2011-12, total remittance earning from Middle Eastern regions was USD 8328 million which was 15.42 perecnt more than that of the previous fiscal year. However, the rate of growth in ramittance from Middle-Eastern region was 28.24 percent in FY 2008-09 and 33.22 percent in FY 2007-08. The rate of labour migration from Bangladesh after 2008 has witnessed a comparatively lower rate of growth which has also affected the flow of remittance in the country. In FY 2001-02, 46 percent (USD 1,147.95 million) of the total remittance receipt of the country had come from Saudi Arabia, which fell by 28.65 percent (USD 3684.37 million) in FY 2011-12.

Problems created by remittance 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. 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.

Findings

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. It is statistically proved that there is devaluation of taka 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.

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 favorable 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 helpensuring 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.

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