Remittance: an Effective Mechanism for Development

 Remittance: an Effective Mechanism for Development
Bezon Kumar 

Photo: Pound Sterling Forecast and Internet

The successive improvement in economic indicators of Bangladesh has drawn deep attention to world leaders and policymakers. When Bangladesh achieved her independence in 1971, the country was fully burdened with the huge population suffering from acute hunger and poverty. Moreover, the country had no adequate natural resources and developed socio-economic infrastructures. Seeing this sometime after independence, former National Security Advisor of USA, Henry Kissinger, remarked that "Bangladesh is a bottomless basket".

However, 45 years later, in February 2014 US Ambassador Dan W Mozena in Dhaka expressed a completely opposite statement that Kissinger's remark was totally wrong. He also added that Bangladesh is a country with many possibilities and will soon be one of the most influential countries in Asia. On the other hand, a UN's report-2013 revealed that Bangladesh is the second economic probable country in South-East Asia beyond Sri-Lanka. In this context, a question arises that how Bangladesh overcomes this challenge and reaches in today's situation. What is the magic stick in this regard?

The answer to the question is that after the independence of the country, a group of prudent economists and powerful administrative authorities of the government considered newly born Bangladesh as a "Taste case of development" and took a lot of challenges. Despite the challenges were too many and difficult like the effect of world depression, inflation, political instability, insecurity, the emergence of crime and terrorism, strike, violence, vulnerable socio-economic infrastructure, shortage of power, energy and electricity, now Bangladesh has become a "Role model case of development" by dint of their valiant struggle, skill, strategies, and planning. Behind this splendid development, a lot of factors have played a vital role, namely, the export of readymade garments, frozen food, medicine; SME; remittance; foreign exchange reserve, and so on. Among them, the role of remittance is really visible and beggar description. Therefore, this article explores how remittance acts as an effective mechanism for development.


Remittance affects the development of our economy in many ways. Before knowing that, it requires knowledge about development, migration, and remittance in Bangladesh. In general, economic development means the improvement in per capita income, economic growth, the balance of payment, education, health, infrastructures, and reduction in poverty, income inequality, and so on. On the other hand, when people cross the national boundary of a country in shifting abroad, called migration or emigration. Then they are assigned as expatriates or migrants. When these expatriates live and work abroad and send their earnings to their families either in form of cash or goods, known as remittance. Let us come back to the main context, why people migrate?

The answer is that Bangladesh is a densely populated developing country (1266 persons per square kilometer) and most of her people live in rural areas and depend on agriculture. Moreover, the per capita income of the country is low ($1602) and the socio-economic conditions, especially of the rural people, are not satisfactory. In most cases, it is also observed that rural people suffer from the hardship of poverty and lower living standards. Sometimes they cannot meet up their basic needs as well. That is why every year many people migrate abroad searching for better employment and income-earning opportunities.

According to the World Bank (2016), Bangladesh is the fifth and tenth-largest country in the world in terms of emigration and remittance receipt, respectively. The workers of the country migrate mostly Middle-East countries like Saudi-Arabia, Qatar, UAE, Kuwait, Oman, and so on.

Apart from they also migrate Asian, European, and American countries. The history of emigration in Bangladesh inaugurated from 1976 with 6087 migrants and now the figure is almost ten million. While the total number of migrants in 2016 was 757731, the figure reaches at 520490 up to June in 2017. Similarly, the country received $23.71 million remittances in 1976 and now the figure is $169.59 billion. The country has received $6.60 billion remittances up to June in 2017 while it was $13.60 billion in 2016. It is observed that the volume of emigration and remittance receipt have been notably increasing and affecting our economy in many ways.

The inflow of remittance has diversified effects both in microeconomic and macroeconomic aspects in our economy. In the microeconomic perspective, the inflow of remittance directly reduces the budget constraint of the recipient families by increasing their income level. With this remittance, recipient families mainly meet up their consumption demands and invest in productive purposes like education, health, business, commercialized farming, transportation and so on which induces the demand for local goods and services, and generates new employment opportunities in the community.

As a result, the country's industrial and infrastructural sector becomes developed and the rate of unemployment decreases. Apart from, remittance also helps to increase the children's school attendance rate, improve health condition, and reduce the infant mortality rate. In a word, remittance reduces poverty and improves living standards significantly.

The impact of the inflow of remittance is also diversified from macroeconomic perspective. The remittance, notably, accelerates economic growth and favors the balance of payment condition of Bangladesh, a World Bank analysis said. Besides spending consumption purposes, remittance is also invested in many productive and development sectors in our economy which ultimately generates new employment opportunities and accelerates economic growth. On the other hand, remittance is the major source of foreign exchange reserve and it favors the country's balance of payment.

While the number of foreign exchange earnings was $31.06 billion in July-May of FY 2016-17 from the export of goods and services, the Balance of Trade (BOT) was deficit with $8.59 billion. After the inclusion of remittance, the figure changed into a surplus with $2.80 billion. In the first quarter of 2017, the deficit in BOT was $111.97 billion without including remittance but the figure reduced to $24.87 billion after the inclusion of remittance. It is known that BOT is a part of the Balance of Payment (BOP).

Migration and remittance not only benefits to the economy but also it bears many social and psychological costs. For instance, remittance increases the dependency behavior among the members of remittance recipient households which makes people idle. Apart from, migration creates many moral and social problems such as parentless children, broken family incidents, and sometimes women fall on psychological pressure to take a strong decision in absence of family's male member. Remittance also causes brain drain which has strong negative effects on a country's long-run economic growth.

In addition, migrants face many complexities at their migration process like the higher cost of migration, late flight, cheating of brokers, and so on. It is also observed that most of the workers are uneducated or semi-educated, unskilled or semi-skilled and mostly they have no vocational education or training. Consequently, they get a lower rate of remittance than as compared to China and India's workers. On the other hand, migrants use illegal ways of sending remittance rather than using proper channels due to the higher cost in sending remittance. On the other hand, households spend remittance mostly on consumption purposes rather than productive purposes which do not reduce poverty.

From the above discussion, it is apparent that remittance significantly helps to the economic development in Bangladesh without few limitations. Moreover, a great concernment has been propagated to the policymakers due to recent consecutive falls in the flow of remittance.

If this fall is continued for a long time, the country's macroeconomic balance may be debauched and the country may fall on great challenges. Before happening, very soon further comprehensive investigation on the promotion of migration and remittance receipt policy along with its proper utilization should be run and adopted effective initiatives although Bangladesh Bank and other prudent authorities have done this. However, in order to achieve the SDGs and for keeping up the socio-economic development in Bangladesh, there is no alternative to consistent remittance receipt.

Sources: Bangladesh Bank, BMET, World Bank, Ministry of Finance (BD), Worldometers website, and some books and research articles. 

The writer is a Teacher and Researcher in Economics at Rabindra University, Bangladesh. Email: bezon.kumar3@gmail.com


Published in The Daily Asian Age on 23 August 2017. (Edited Briefly)

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