The finance ministry on Saturday increased the incentive on the exchange rate of remittances to 2.5% from the previous 2%, with immediate effect, as remittances from migrants abroad experienced a 21% year-over-year decrease over the July-November period of the current fiscal year.
AHM Finance Minister Mustafa Kamal said the increased incentive will cover the costs of expatriates sending foreign currency home and help meet Bangladesh’s $ 26 billion remittance target this year. year.
However, economists, who had alerted the government earlier that the magic of remittances may be over, said more incentives to re-energize the inflow of money is nothing more than “paying money.” the water in the river “. On the contrary, they argued for reducing the gap between the official rate and the market rate of the US dollar.
While the official exchange rate is around Tk 85 to the US dollar, the corresponding rate in the restricted or free market is around Tk 91-92.
The government first announced a 2% incentive on remittances in the 2019-20 fiscal year. The finance minister attributed the incentive to larger than expected remittances from migrants abroad in the last fiscal year amid the pandemic.
Despite the decline in the infection curve globally since July 2021, Bangladesh has experienced negative growth in remittances.
In the first five months of the current fiscal year, Bangladeshi expatriates sent $ 8.61 billion, about 21% lower than the corresponding period of the previous year.
In November of last year, the finance ministry wrote to the central bank to seek a way out of the poor prospects for remittances. Subsequently, the Bangladesh Bank recommended that the government reduce the cost of sending money home.
According to the World Bank, it costs Bangladeshi expatriates 3.15 Tk to send funds of 100 Tk. The cost is the highest of 3.51 Tk in Saudi Arabia from where the country receives most of the foreign exchange.
Ministry of Finance officials say it is quite complicated to reduce the cost of sending money from abroad since foreign countries and several international organizations set the costs of sending money home.
Finance Minister Mustafa Kamal said the government’s cash incentive to encourage remittances through formal channels worked tremendously and they still wanted to get the full inflow of foreign currency through formal means.
Ahsan H Mansur, Executive Director of the Policy Research Institute, said: “Increasing the incentives would be like pouring water into a river where the interbank exchange rate differential with the parallel market is 6-7 Tk. The higher the spread, the lower the exchange rate. remittances will go through formal channels. “
“With cash incentives to expatriates, it doesn’t make sense to apply two US dollar rates in the country. There should only be one dollar rate. The official exchange rate should be raised to 87 Tk, “he added.
However, the Research Unit on Refugees and Migratory Movements appreciated raising the initiative.
CR Abrar, the organization’s executive director, said they’ve been advocating a 4% incentive on remittances from the very beginning. The Department of Expatriate Welfare has also requested incentives at the same rate.
Responding to the question of whether the laundered money returns to Bangladesh in the form of remittances for inducements, Finance Minister Mustafa Kamal said: “We are taking action against money launderers while they make the headlines.
“Some money laundering cases were closed a few days ago and many of them are now in prison,” he added.