Though Bangladesh witnessed a sudden rise in money transfers by migrants in the beginning of the fiscal year, the inflow has been declining steadily since October.
By the end of January, remittance inflow fell below $2 billion, and plummeted further in February. However, the remittance stream in February still clocks a 22.61% growth than the same period of the previous year.
Though the monthly flow has been witnessing a downtrend since October, remittance stream in the first eight months of 2020-21 FY registered 33% rise compared to the same period of the previous year. The first eight months of 2019-20 FY had a 20% growth in remittance.
Ahsan H Mansur, executive director of the Policy Research Institute, thinks since the hundi (illegal channels for money transaction) was off during the peak of the pandemic and government provides 2% incentives for remitting through the banks, the first eight months of the current fiscal year saw a growth in remittance.
Ahsan H Mansur noted the growth will continue in upcoming days too as many expatriates are investing their savings at home since Bangladesh offers better returns than host countries.
According to the central bank, investments by non-resident Bangladeshis in the country during July-December of the current fiscal year increased by nearly 20% compared to the same period of the previous year.
Meanwhile, Ahsan H Mansur referred to some specific points which also contributed to the sudden surge in remittance in the beginning of the year. He said many expatriates visited their families at home with their savings during the virus outbreak, while others came back permanently with their last penny after losing jobs.
"Migrants also sent more money to their families owing to flooding and the pandemic. Now the trend is declining, which leads to a crunch in remittance flow," he added.
Echoing Mansur, Centre for Policy Dialogue (CPD) Distinguished Fellow Mustafizur Rahman told The Business Standard that the illegal channels for sending money home would open completely in upcoming days, which would affect the transactions through banks.
"The remittance inflow looks higher as it is coming through the banks now," he added.
Noting that remittances are playing a crucial role in increasing people's purchasing power, he said the purchasing capacity helps raise the domestic demand leading towards the virus recovery and an overall macroeconomic stability.
Riding on the remittances, Bangladesh's foreign exchange reserves reached $44.12 billion by the end of February. On 24 February, the forex reserves reached at $44 billion milestone for the first time.
Finance Minister AHM Mustafa Kamal hopes the reserves will exceed $50 billion by this year.
On Sunday, the central bank in a monthly report on remittances said high reserves play the vital role in maintaining macroeconomic stability. The report highlighted the role of the reserves in meeting import costs of next eight months and in stabilising the exchange rate.
Despite the rise in foreign exchange reserves, the exchange rate has remained stable as the central bank continues to buy dollars from the market.
Although there is a risk of inflation due to the increased supply of extra money in the market, the central bank said there would be no substantial inflation as people's income has declined due to the ongoing pandemic.
But, Dr Mustafizur Rahman thinks if the Bangladesh Bank does continue buying dollars from the market, there is a risk of inflation out there. "Stronger money will benefit us in exports, but imports will be costlier," he noted.