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inflows have created a liquidity overhang in the country's financial
markets and put strain on macroeconomic management. Dr Rahman's
comment on the downside of high inward remittances came in his speech
to the Small States Forum 2009 , sponsored by the World Bank and
International Monetary Fund, in Turkey's biggest city of Istanbul.
Growing remittance is a lifeline to Bangladesh, but it threatens to
create risks of a bubble with a partial use of the funds in
productive investment activities. "Rising labour migration and the
attendant high remittance inflows are not altogether unmixed
blessings. They pose some challenges to macroeconomic management
that require careful handling," said the central bank chief.
Expatriate remittance jumped to $9.7 billion in 2009 from just $2.5
billion in 2002. Even in times of global recession, Bangladesh's
remittance inflow showed 32.4 percent and 22.3 percent growth in
2008 and 2009. The remittance inflow fuelled foreign currency
reserves to a new high of $9.3 billion, according to statistics
updated until September 24. The theme of this year's Small States
Forum focused on how to strengthen the remittance flow and its
impact. The theme recognises twin facts: (a) small states are
disproportionately reliant on remittances and (b) remittances to
small states are projected to decline by 9 percent in 2009 from a
year ago, hurt by the global financial crisis. The global recession
intensifies the challenges faced by the poor and deepens the
difficulties faced by small states in funding their external
financing gaps. In his speech, Dr Rahman said the excess liquidity
tends to spill into "speculative outlays in real estate and other
asset markets, creating bubble-like asset price pressures". The high
inflows of worker remittances into the relatively small and shallow
local inter- bank foreign exchange market has created appreciation
pressure on exchange rate, adversely impacting the remittance
recipients, he said. It is also hurting exporters already affected by
weak demand in external markets in recession, the central bank chief
said. Rahman however pointed out that a domestic shortage of skilled
manpower is typically associated with high manpower exports and high
remittance inflows have not emerged as a major concern for Bangladesh.
The current demographics of Bangladesh and the country's institutions
for general, professional and technical education are providing
steady streams of new unskilled and skilled entrants into the labour
market. "It leaves ample scope for manpower export without causing
domestic shortage," he said. While a major part of remittance goes
into consumption expenses, a substantial part ( around 40 percent)
is utilised for acquisition of capital assets and or for financing
migration and costs of job acquisition abroad for other family
members or relations of the remitting migrant workers, Rahman said.
On risk management, the central banker said fiscal policies in
Bangladesh have provided quick measures to stimulate real sector
investments, including supports to sectors affected by the global
downturn, public- private partnership in infrastructure investments
and support for microfinance self-employment. Besides, Bangladesh
Bank has adopted policy measures for the financial sector to promote
lending to under-served productive real sectors including
agriculture, SMEs, renewable energy and environmental protection, he
said. Over the longer term, he said, strengthening the capacity of
domestic financial markets for handling and absorbing large inflows
will require deepening of secondary markets in treasury and
corporate securities, creating new secondary markets in asset-backed
securities, supporting growth of new capital market institutions like
venture capital and private equity institutions.
