The finance ministry on Saturday increased the incentive on the remittance exchange rate to 2.5% from the previous 2% with an immediate effect as money transfers from migrants overseas saw a 21% year-on-year fall in the July-November period of the current fiscal year.
Finance Minister AHM Mustafa Kamal said the raised incentive will cover expatriates' costs for sending foreign currencies home and will help achieve Bangladesh's $26 billion remittance target this year.
However, economists, who had alerted the government earlier that remittance magic could come to an end, said more incentive to re-energise the inbound money flow is nothing but "pouring water into the river". Rather, they advocated for narrowing down the gap between the official rate and the kerb market rate of the US dollar.
While the official exchange rate is around Tk85 per US Dollar, the corresponding rate in the kerb or open market is about Tk91-92.
The government for the first time announced a 2% incentive on remittance exchange in the 2019-20 fiscal year. The finance minister attributed the incentive to larger-than-expected money transfers from migrants overseas in the last fiscal year amid the pandemic funk.
Despite the infection curve falling worldwide since July 2021, Bangladesh has been registering negative growth in remittance inflow.
In the first five months of the current fiscal year, Bangladeshi expatriates remitted $8.61 billion, which is around 21% less than the corresponding period of the previous year.
In November last year, the finance ministry wrote to the central bank seeking a way out of the poor remittance outlook. Subsequently, the Bangladesh Bank recommended the government reduce the cost of sending money home.
According to the World Bank, it costs Bangladeshis expatriates Tk3.15 to send Tk100 remittance. The cost is at the highest Tk3.51 in Saudi Arabia from where the country receives most of the foreign currencies.
Finance ministry officials say it is quite complicated to reduce the cost of sending remittances from abroad since the foreign countries and several international organisations set the costs for sending money home.
Finance Minister Mustafa Kamal said the government's cash incentive to encourage remitting through formal channels worked tremendously and they still want to get the full foreign currency inflow through the formal means.
Ahsan H Mansur, executive director of the Policy Research Institute, said, "Raising incentives would be like pouring water into a river where the spread of the interbank exchange rate with the kerb market is Tk6-7. The higher the spread, the less the remittance flow will be through the formal channels."
"With cash incentives to the expatriates, it is not logical to implement two rates of the US Dollar in the country. There should be only one dollar rate. The official exchange rate should be raised to Tk87," he added.
However, the Refugee and Migratory Movements Research Unit have appreciated raising the initiative.
CR Abrar, executive director of the organisation, said they have been advocating for a 4% incentive on remittances from the very beginning. The Ministry of Expatriates' Welfare also sought incentives at the same rate.
While replying to the query whether laundered money is returning to Bangladesh in the form of remittances for incentives, the finance minister Mustafa Kamal said, "We are taking action against money launderers as they grab the headlines."
"Some money laundering cases have been disposed of a few days ago and many of them are now in jail," he added.