M A Taslim
Temporary movement of labour abroad for employment is a relatively new phenomenon in Bangladesh. It started a few years after the emergence of Bangladesh as an independent country on a modest scale. Only about six thousand people went abroad for work in 1976, and during the 5 year period 1976-1980, less than one hundred thousand people found overseas employment. But since then overseas employment increased by leaps and bounds to reach 875 thousand in 2008, the highest ever emigration in a single year (see Chart 1). Since then the rate of overseas employment declined markedly with only 400 thousand people moving abroad for work in 2013.
Overseas employment has some very important implications for the domestic economy and the welfare of the people. The immediate impact of the temporary movement of labour is the employment of people who were either unemployed or employed in less productive work at home. Such overseas employment is obtained at the expense of only relocation costs, which are presumably much less than the capital costs of employing workers in manufacturing or even service industries. Thus the economy makes very substantial saving on capital costs of employment which becomes available for other uses. Large scale employment overseas also reduces population pressure on land.
Over the years overseas employment has come to play a dominant role in the national economy. Its importance is amply demonstrated by the fact that during 2002 to 2010, the labour force of the country increased by 10.4 million (BBS, Report on Labour Force Survey 2010). During the same period nearly 4.0 million workers moved overseas for jobs. Thus, 38 percent of the incremental labour force found employment abroad. During the same period the number of employed people increased by 9.8 million implying that more than 40 percent of incremental employment was generated in the external labour market. Given the acute scarcity of jobs, it is easy to see that the labour market would have been far more unfriendly to workers if such a large number of workers had not found employment overseas. Both unemployment and under- (disguised) unemployment would have increased and wages would have been lower for the entire working class.
The workers who find employment overseas send back a large part of their income to their families at home. Permanent migrants, especially those in UK and USA also remit money home. Their remittances have grown at a rapid pace to become the single largest source of net foreign exchange earnings. Remittances in 2013 were in excess of US$ 14 billion which was well over one-half of the gross export earnings of all other sectors of the economy and over 10 percent of GDP. The inflow of such a large amount of foreign exchange (money) into the economy has several implications.
People who temporarily migrate overseas for work belong mostly to the lower end of the income distribution. Net remittance of each worker raises the disposable income of his family by an equivalent amount. The family is now better-off, and hence spends more on consumption. Estimates vary, but it seems most of the remittances are used for necessities including food, education and health expenses. To the extent net remittances are greater than what the workers could have provided had they been employed in the country, the consumption standard of their families rises and the income distribution is made less unequal. The incremental consumption due to remittances creates additional demand for consumer goods and services, and thereby helps the expansion of domestic industries engaged in the production of these goods and services. A part of the remittances is used for household investment such as purchase of land and apartments, and repair or construction of residences. The rising trend of rural land price is believed to be caused in part by remittances. With both consumption and investment increasing due to remittances, domestic spending rises, which causes GDP to rise. Remittances of course add directly to gross national income.
Remittances have provided strong support to the balance of payments of the country. Remittances are regarded current transfers, and hence recorded as credit items in the current account of the balance of payments. Since 2005-06 remittances have consistently exceeded the trade deficit, sometimes by a large amount. Thus they contributed to not only a substantial surplus in the current account balance, but also to a surplus in the overall balance of payments. This implied a large increase in the international reserves of the country which now stands at US$ 21.7 billion (July 2, 2014), which is sufficient to cover six months import payments of the economy. The external position of Bangladesh is now quite stable and it can withstand an international economic turmoil for a considerable period.
The strengthening of the balance of payments has also meant the strengthening of the domestic currency. If Bangladesh Bank (BB) had not intervened in the foreign exchange market, the value of taka against the US dollar would have appreciated markedly. Such an appreciation would have substantially reduced the competitive edge of our export products, especially readymade garments. This would have reduced export earnings. To prevent such an outcome BB purchased dollars from the market to keep the external value of taka in check. Large inflows of remittances therefore come with a price tag. By strengthening the taka against the dollar and other currencies, remittances make domestic industries, especially export industries, less competitive in the domestic and international market and have the potential to partly or fully destroy some industries (the fabled Dutch disease syndrome). Increases in international reserves could go hand in hand with a decline or a slower growth of domestic industries unless there is a substantial increase in productivity.
The increase in reserves has implications for the monetary sector and monetary policy. International reserves of BB are part of high powered money. Any increase in international reserves will add to high powered money and hence, lead to a multiple (more than 4 times) increase in money supply. Thus a large increase in international reserves will cause a large increase in money supply and this will eventually cause an inflationary upsurge in the economy. To prevent any undesired increase in money supply BB may resort to sterilisation of the monetary impact of an increase in international reserves by engaging in reverse repo operations, that is, sale of government securities to the public. Thus we see a large reduction in BB’s holding of government securities (from Tk. 379 billion in June 2012 to only Tk. 33 billion in April 2014 to partially sterilise the increase of foreign exchange reserves from Tk. 689 billion to Tk. 1380 billion). If remittances continue to increase at a rapid pace in future, it will pose a challenge for monetary policy.
Remittances received by Bangladesh relative to the number of people working overseas are quite modest. The principal reason for this is that the average income of the expatriate workers is quite low. This is a reflection of the fact that the workers are mostly unskilled. Since 1976 the share of unskilled workers (euphemistically called ‘less skilled’) in total migration has been in excess of one-half and the share of semi-skilled about one-sixth. Thus, a large majority of the migrant workers are of low skill and hence poorly paid. Bangladesh has made little effort to improve the skills of the migrant workers during the last four decades such that these workers continue to be pushed into low paid and often hazardous jobs. So far remittances increased due mainly to an expansion of the size of the workforce overseas. The opportunity for further large increases in migration may become more restricted in future. Unless the nation invests substantially in skill development it cannot expect large increases in remittances.
Noted people both within and outside the government lament that remittances are not used ‘productively’, which presumably means remittances are not spent on real capital. Many of them apparently regard remittances as foreign exchange fund owned by the government or BB, hence assume that the latter could determine the disposal of this fund. However, this is not easy to achieve. Remittances are disposable income of the families of expatriate workers, and not revenues of the government or BB. It is for these families to decide how they spend their income. Some surveys suggest that the expatriate families spend the money in about the same way as other families. Most of the remittances (net of loan repayments) are spent on consumption and the rest is invested in financial and real capital, especially real estate. Assuming that expatriate households spend their incomes optimally, it would be difficult to change their behaviour, just as it has proved difficult to substantially increase the saving or investment ratio of the domestic economy.
Remittances have become an important part of our economy and a mainstay of the balance of payments. As such it is important to ensure a steady growth of remittances to support the economy until other employment opportunities and sources of foreign exchange earnings emerge. Remittances have fallen this year for the first time since 1991 in the wake of a substantial reduction in the number of workers going abroad. It is necessary to reverse the trend before it can have a deleterious impact on the economy. The fall in the number of workers going abroad seems to have been caused by a large reduction in the intake of our traditional market, viz. Muslim nations. Relevant ministries of the government need to urgently identify the reasons for the decline and redouble their efforts to regain the lost ground.
Source: bdnews24
