A news item on inflow of remittance in the country in the just concluded fiscal 2015-16 carried by local media has revealed that the remittance from the Middle Eastern countries has gone down by 5.17 per cent against the preceding year. It is rather disconcerting since the lion's share of remittance comes from our migrant workers in the Middle East. The recent unprecedented fall in oil prices appears to have taken its toll in the form of reduced remittance. Overall remittance earned in 2015-16 fiscal amounted to US$14.93 billion down by 2.54 per cent over the preceding year. But things are not simple as that as remittance declined despite an increase in the number of emigrant workers last year. Economists have blamed falling oil prices for reduction in remittance. Another contributing factor responsible for reduced remittance from Middle Eastern countries was the declining value of the currencies in the region against US Dollar.
Oil price which plunged to a record bottom early this year, affected the economies of the gulf countries and subsequently demand for migrant workers went down. Till such time, however, remittances from migrant workers in the oil rich Middle Eastern countries looked as promising as ever. Remittances to Bangladesh were rising steadily. In May 2016 remittances rose to US$1214.48 million from US$1191.15 million in April of 2016. Remittances in Bangladesh averaged US$1211.73 million from 2012 until 2016, reaching an all time high of US$1491.36 million in July of 2014 and a record low of US$1005.80 million in August of 2013 as reported by the Bangladesh Bank.
Remittance from more than 10 million citizens abroad is very important for Bangladesh and along with garment exports are the key sources of foreign exchange. Remittance has become a major contributor to the economy as the number of emigrant workers from Bangladesh gradually increased over the years,
Saudi Arabia has been the largest contributor followed by UAE. Interestingly although remittances from these countries declined, those from other regions rose by 1.38 per cent. This is an encouraging feature and efforts should be intensified to draw more remittances from regions other than the oil rich countries of the Middle East. Remittances can be significantly increased by exporting ever-increasing numbers of skilled manpower to those regions. However, it is well known that the presence of an educated and skilled workforce in a country helps to attract foreign direct investment.
But only remittances can not help poor countries to grow rich. In many countries, the money received from workers who are toiling abroad represents a significant source of income. India received remittances last year that were almost three times as large as the inward investments made by foreign firms. In Tajikistan, remittances from migrant workers accounted for 47 per cent of the country's gross domestic product (GDP). About half of the Tajik men of working age is now believed to be living abroad. Similarly, an estimated 40 per cent of Somalia's population depend on remittances and need the cash to buy basics like food and medicine.
Remittance, howsoever large it may be, are seen to have very little effect on economic development of a country. According to International Monetary Fund (IMF), decades of private income transfers-remittances-have contributed little to economic growth in remittance receiving economies. No nation can credibly claim that remittances have funded or catalysed significant economic development.
It is enigmatic why such a rapid growth in remittances has not led to any discernible growth in GDP. According to a recent paper by World Bank there are three possible answers to the question. Firstly, the growth in remittances is magnified due to measurement error. Those who recall overnight increase of 89 per cent in Nigeria's GDP, should be familiar with the risk of poor data in developing countries. According to the World Bank paper, about 80 per cent of the reported growth in remittance receiving developing countries between 1990 and 2010 simply reflects changes in measurement and are far from reality.
Secondly, statistical methods may not be powerful enough to detect a potential effect on economic growth. A common approach in development economics is to use cross-country panel data, which is data collected for a set of countries over time and to control for unobserved factors that either vary across countries and are constant over time or vary over time and are constant across countries. The number of countries and years for which data is available is too sparse to help identify the potential effects on economic development.
Thirdly, regardless of measurement errors and inadequate statistical methods, the effect on growth may in fact be fairly small. Indeed the effect of remittances caused by new migration can be negative. The cash may flow back but the human capital has left. Inward flows of remittances may boost national income, but not GDP as GDP is a measure of the output of a country. The effect of remittances on GDP growth therefore depends on how the money is spent by the recipients. However, remittances have big effects on things other than national GDP growth, such as poverty in the home country.
According to experts, remittances act as a major counter-balance when capital flows weaken. Money sent from abroad, can also work as an automatic stabiliser when the currency of the receiving nation weakens. Helping migrants to remit could still have a greater impact in developing countries than many other policies even if the effect on economic growth may turn out to be negligible.
Therefore, efforts to increase remittances should be made to create a stable and conducive socio-economic and political climate that can help create a functioning economy. To do so, the institutions that establish the rule of law, strengthen oversight and weed out corruption should be strengthened, bureaucratic entanglements and regulations should be eased and technology and telecommunications facilities should be enhanced for greater integration with world markets. Amount of remittance will be higher if a congenial atmosphere is created for useful investment of the amount remitted.
Another factor that can significantly push remittances up is exporting ever-increasing numbers of skilled manpower. However, it is well known that the presence of an educated and skilled workforce in a country helps to attract foreign direct investment.
In view of the volatility of oil prices in the world market, overdependence on Middle Eastern countries for foreign remittance should be avoided and priority should be given to earnings from other regions. In that case, however, the possibility of remittance will increase to some extent, but not dramatically. It will also increase as more people find jobs abroad, but again, not dramatically.
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Source: The Financial Express