Understanding Bangladesh’s economy requires a comprehensive view of remittance flows. While the formal sectors like manufacturing struggle, the rural economy thrives significantly due to remittances.

Estimating Remittance Inflows

Accurate data is challenging, but remittances play a critical role. Estimates suggest Bangladesh receives between $30 billion and $60 billion annually, with official channels accounting for about $25 billion. The informal ‘hundi’ system potentially handles between $5 billion and $35 billion. Estimations of the number of people sending remittances range from 10 to 15 million, with a high-end estimate of 15 million workers abroad.

According to the 2022 Household Income and Expenditure Survey (HIES) by BBS, 8.3% of households receive remittances. With 38.3 million households, this means about 3.2 million individuals are sending money home. The average remittance was Tk 257,000 ($3,000) annually, and recent bank estimates suggest this has increased to $4,000.

For 2022, with 15 million workers, remittances totaled $45 billion: $22 billion via banks and $23 billion through hundi. By 2024, with 15.5 million workers and an average remittance of $4,000, total remittances could reach $62 billion, with $24 billion through banks and $38 billion via hundi.

The Role of the Hundi System

The hundi system’s substantial role indicates more than half of remittances come through informal channels. The projected $62 billion in 2024 aligns closely with expected exports. The remittances help alleviate poverty and mitigate inflation’s effects, especially in rural areas where $50 billion is directed, versus $12 billion in urban areas.

Economic Implications

Adjusting the 2022 balance of payments reveals a different economic landscape. Under-invoicing of imports, estimated at 20%, adds $20 billion, and capital flight through hundi accounts for approximately $1 billion. This suggests a more robust economy than perceived, driven by significant remittance flows that benefit rural development and reduce unemployment.

Challenges of Under-Invoicing

Under-invoicing imports result in revenue loss, higher foreign exchange costs, and customs corruption. Despite ending the Pre-Shipment Inspection (PSI) program, under-invoicing remains prevalent, particularly with imports from China and India. The government loses revenue, and importers may choose costlier sources, depleting foreign exchange reserves.

Conclusion

Bangladesh’s economy is more resilient than often recognized, thanks to the massive influx of remittances. These funds support rural construction and goods purchases, creating a multiplier effect that boosts local economies. Despite challenges like high food inflation, remittances significantly enhance rural living standards and economic stability.

Source: Dhaka Tribune