Tuesday, June 18, 2019 | ePaper
Economy's increasing reliance on remittance
BD should look for new drivers to offset future shocks
For the past several years, Bangladesh has been incurring a deficit in the current account. Basically, we are exporting less than we are importing resulting in a deficit in forex that is plugged by remittance earnings from of our workers in foreign countries.
Remittance earners are primarily located in oil-rich countries. Rapid emergence of electric vehicles will put increasing pressure on those economies to maintain the current level of employment of foreign workers.Â
Even though exports of RMG products continue to increase, the margins are declining as such net contribution from exports are to GDP is declining.
In this situation, economists suggested for formulating long-term strategies to diversify Bangladesh's export and labour market to offset future economic shocks, which may be spring from unsustainable remittance and export growth and growing balance of payment deficit in view of implementation of mega infrastructure projects.
Bangladesh economy is highly dependent on remittances and exports of ready-made garments. But economists are skeptical about maintaining the required growth rate in remittances and exports due to the persistent economic slowdown in the Middle East and uncertainty in global trade, caused mainly by US-China trade war and Brexit.
"Exports of garments and remittances are two major drivers of economic growth in Bangladesh. The dividends from these drivers of growth are likely to decline in future due to various internal and external factors," Dr Selim Raihan, a Professor at the Department of Economics, Dhaka University, told The New Nation.
Over the past three years, he said, the economy has been witnessing over 7.0 per cent growth with high import, while the growth rates in exports and remittances have been subdued and unstable, which has led to widening trade deficit and current account deficit.
"This has also led to surge in balance-of-payment (BOP) deficit in recent years, causing a big concern for the stability of the macroeconomy," he added.
In the fiscal year 2017-18, import rose by 25 per cent to US$58 billion and exports advanced by only 5.81 per cent to US$36.66 billion, sending the country's trade deficit to record high.Â Â Â
The wage earners remittance grew by 17.32 per cent to US$ 14.48 billion in the fiscal year (FY) 2017-18, following back to back negative growths in FY 16 and FY 17.
The countries of Gulf Cooperation Council (GCC) accounted for over 50 per cent share of the migrant remittance, led by Saudi Arabia, where unemployment hit record highs in early 2018.
Â "Saudi Arabia is the single largest source of wage earners remittance for Bangladesh. Recently, Saudi government stopped recruitment of foreign workers in 12 categories. The low-skilled Bangladeshi migrant workers have fallen into these categories making an unsustainable future of remittance earnings from the oil-rich Gulf country.
Besides, falling oil revenues of GCC countries, including Saudi Arabia, as result of declining global crude oil prices, simply put a strain on governments' finances and thus hinder the required growth in the remittance inflow for Bangladesh.
On the other hand, Dr Selim Raihan said, the United States of America (USA) is the biggest export destination for Bangladesh. The bilateral trade and economic relations between the two countries came under strain following the US's suspension of GSP facility to Bangladesh.
"An improved Dhaka-Washington bilateral tie is necessary to sustain Bangladesh's export growth in the US market," he added.Â Â Â Â Â Â Â
In this context, there is a need to find new drivers of growth through diversification of export and labour markets to sustain remittance and export growth, which is imperative to counter future economic challenges.
"Bangladesh has undertaken a number of mega development projects with costly foreign loans, mostly these loans are from China resulting Chinafication of Bangladesh. This will push up the external debt to highly risky level unless earnings from remittances and exports cannot be raised to ease the balance of payment pressure," said Dr Selim Raihan.
Given the current situation, he said, managing the balance of payment pressure and outstanding external debt would be a key challenge for the Bangladesh economy in near future.
The total outstanding external debt stood at $33.52 billion by the end of the fiscal year 2017-18, while it stood at US$ 28.56 billion by the end of the fiscal year 2016-17, according to an official figure.
In the fiscal year 2016-17, the government made debt service payment of US$ 1.14 billion during the period, according to Bangladesh Economic Review.
Â "Sustaining remittance and export growth are crucial for maintaining a high economic growth in the years to come. But its seems to be quite difficult due to the present economic slowdown in the Middle East and prevailing global trade scenario," Dr Zahid Hussain, lead economist at the World Bank's Bangladesh office told The New Nation.
He said that a significant drop in international crude oil prices over the last three to four years were major reasons for the economic slowdown in Gulf nations, where most of the Bangladeshi migrant workers are employed.
"A growing popularity of electric cars world-wide can lead to fall in global oil consumption resulting in further decline in oil prices," he added.
Sales of Electric Vehicles worldwide top 400,000 units for the first time in 2018. Â
According to media reports, motorized vehicles are consuming 70 per cent of global oil production and rest of the 30 per cent are used for generating power and energy.
Dr Zahid Hussain further said that GCC countries might axe jobs of foreign workers if their oil revenues fall further. Such a development could lead to a fall in remittances, which remain a big source to specifically finance imports and debt repayments. Bangladeshi unskilled and semi-skilled workers are working in different sectors of those economies.
"Remittance is a key source of external finances like servicing external debt and import payment. It also plays a pivotal role in elevating living standards of the migrant's family," said economist Dr Ahsan H Mansur.
He said remittance has a strong positive impact on GNP, consumption and investment.
Currently, some 10 million migrant workers are working in various countries in the world. The countries of Middle East have been the key destinations for Bangladeshi migrant workers along with Malaysia and Singapore.
"Given recent development in Gulf, the government should aim at efficient policies to explore new markets for manpower for sustaining the inflow of remittances," said Dr Ahsan H Mansur, an Executive Director of private think tank Policy Research Institute (PRI). On the export front, Dr Ahsan H Mansur that challenges remain in market and product diversification and productivity of the export-oriented industries. Even, the country's export sector remains under pressure in the wake of diminishing competitiveness of manufacturing industries, hurt by rising cost of production, high lending rates, increase in wages and high-energy costs. With diminishing competitive edge exports are not accelerating to cover up the import payment.
Despite the government's efforts at diversification, garments still accounts for about 82 per cent of Bangladesh's export revenue. "Bangladesh's reliance on apparel sector left it even more vulnerable to external shocks," he added.
Dr Ahsan H Mansur also urged the government to avail only concessional foreign loans to implement mega projects in order to avert future economic shock.
Economists of the view that the government should protect wage earners' interest by providing various state facilities. They should (wage earners) have foreign currency accounts so that they may not incur loss due to devaluation of local currency.