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Sat, Oct 12, 2024 | Rabi al-Thani 9, 1446 | DXB
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The remittance riddle and migration corridors
The flow of remittances is influenced by labour migration patterns, which are affected by economic, political, and demographic factors
- By
- Ehtesham Shahid
AFP file
The tale of Bangladesh’s migrant workers and their remittances presents a puzzle. Picture this: More Bangladeshis than ever are packing their bags for overseas jobs, yet the money sent back home isn’t keeping pace.
Historically, the story went like this: As more workers migrated, more cash followed back home. However, this narrative has twisted post-pandemic. The World Bank’s fancy statistical tests (think of them as economic weather forecasts) suggest that while once upon a time, the departure of workers could predict the arrival of cash, this crystal ball has gotten foggy recently.
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The usual cash streams from the Gulf Cooperation Council (GCC) countries, where most Bangladeshi overseas workers find jobs, have been more of a trickle. Despite a bustling exodus of workers to places like Saudi Arabia, Bangladesh’s largest labour market abroad, the expected financial boon hasn’t materialised for FY22 and FY23, as per the World Bank’s latest update.
Over two million Bangladeshis ventured abroad searching for work during these fiscal years, outstripping the numbers before Covid-19 spooked the world. This surge was due to the GCC’s immense appetite for labour and the reopening of other job hotspots like Malaysia. But the anticipated remittance windfall? Mysteriously absent.
Experts whisper of a clandestine culprit: The sneaky informal channels siphoning off remittances. There’s a growing allure to these unofficial routes, thanks to the widening rift between the official exchange rate (what the bank gives you) and the informal rate (what you can get under the table). The more significant the gap, the more tempting it is for workers to bypass the banks.
A peek at the broader South Asian canvas confirms this trend: The more significant the difference between the above-board and under-the-radar exchange rates, the less money flows through the formal channels. And just nudging the official exchange rate won’t cut it; remittances won’t bounce back unless we clamp down on this gap.
This conundrum isn’t just a matter of numbers on a spreadsheet; it’s about livelihoods and economies leaning heavily on the cash sent home by hardworking migrants. It’s high time we untangled this remittance riddle and ensured that their money makes the return trip when our workers go abroad.
GCC countries are top migration corridors from Asia, and its outward, diversified remittance flows support growth in many nations in South Asia and the Middle East. Due to this migration, remittances from the GCC have become a critical component of the economies of many South Asian and Southeast Asian countries.
These remittances are a source of foreign exchange reserves, help balance current accounts, and are a vital income source for millions of families, aiding in poverty reduction and supporting household consumption.
The flow of remittances is influenced by labour migration patterns, which are affected by economic, political, and demographic factors. Studies also suggest that the growth in remittances from the GCC region could shift to Africa and Central Asia due to diversifying recruitments.
Remittances from the GCC countries can shift to other regions. However, any such shift would likely be gradual, as it takes time to develop the necessary infrastructure to support new migration corridors, including recruitment agencies, regulatory frameworks, and financial services to process remittances.
However, remittance windfalls should not be the sole concern of recipient countries, although they are a significant aspect of many developing economies. Over-reliance on remittances can make economies vulnerable to global economic shifts, such as changes in immigration policies or economic downturns in labour-sending countries. Focusing on remittances can sometimes obscure the need to develop local employment opportunities.
If young and skilled workers leave to work abroad, the local economy may suffer from a "brain drain", adversely impacting potential domestic growth and innovation. The social impact on families left behind by migrant workers can be substantial, including changes in family dynamics and possible adverse outcomes on the health and well-being of children and elderly family members.
Remittances have become a more critical and resilient external financing source in the post-Covid world. In 2022, remittance flows to low- and middle-income countries increased by eight per cent to reach $647 billion, registering higher growth than our expectations six months ago.
This increase is remarkable, given that it followed a 10.6 per cent growth rate in 2021, and the economic environment seemed difficult due to slowing economies worldwide, inflation, and the war in Ukraine.
However, the International Monetary Fund recognises remittances as a significant factor in the global economy, especially for low and middle-income countries (LMICs), Bangladesh included. As long as the migration corridors develop and flourish, we must collectively live by the consequences of such remittance riddles.
Ehtesham Shahid is an editor and researcher based in the UAE. X: @e2sham
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