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Atiur spotlights downside of high remittance

BB chief speaks at Istanbul forum

Rejaul Karim Byron, from Istanbul
Bangladesh Bank Governor Atiur Rahman said yesterday high remittance 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 Irirkey'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 tire attendant high remittance inflows are not altogether unmLxed 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, creatingbubble-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.