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THE YEAR IN REVIEW

Remittance, forex reserve beat doomsayers

Reiaul Karim Byron
Foreign exchange reserve and remittance marked an important milestone in Bangladesh economy in 2009, beating the development partners' glum forecasts in the face of global recession.
In ten years, foreign currency reserve grew from $1 billion to cross the $10 billion mark this year for the first time.
Also remittance was about to touch the $10 billion mark last fiscal year, and is expected to cross the milestone this year. The country pulled in $1 billion remittance in November, which is highest ever for a single month.
The average inflow throughout the year paints a rosier picture.
Both foreign exchange reserve and remittance were broadly immune to the global recession that has been lingering for around two years now.
Surprised at the successes, experts also cautioned the government against any inflationary pressure that may be caused by the achievements in remittance and foreign exchange reserve.
A few years ago, Bangladesh received remittance of $2 billion to $3 billion annually. The amount crossed $5 billion in fiscal 2006-07. The remittance inflow was $9.68 billion in the last fiscal year with a growth of 22.42 percent. In the first five months of the current fiscal year the remittance growth was 24.48 percent. In November the remittance inflow was $ 1.05 billion.
Manpower export has dropped drastically in recent times -- around 9.81 lakh people went abroad in fiscal 2007-08 and the figure dropped to 6.50 lakh in 2008-09.
In the first four months of the current fiscal year, manpower export went down by around 47 percent and stood at 1.50 lakh.
Despite a fall in manpower export, remittance inflow increased, surprising many observers.
Former deputy governor of the central bank Khondkar Ibrahim Khaled said: "Antimoney laundering drive has helped increase remittance through official channels."
The World Bank predicted a fall in remittance inflow last fiscal year. In the current fiscal year the WB forecast a remittance growth of 12 percent to 15 percent.
Foreign exchange reserve in November crossed $10 billion for the first time and on June 30 the amount was $7.47 billion. The amount was $10.29 billion on December 22. On the same day last year the amount was $5.80 billion.
The main reasons behind the increase in foreign exchange reserve are a decline in import and the boost in remittance. Normally import increases every year but the trend is negative now.
Data shows that import fell by around 15 percent in the first four months of the current fiscal year compared to the same period last year.
Bangladesh Bank Governor Dr Atiur Rahman told The Daily Star "Banking sector is much active now. And so remittance increased. Many exchange houses and bank branches opened in different countries to send remittance. With the cooperation of NGOs, the system of remittance delivery to the recipients has improved. Now we think of introducing payment through mobile phones."
World Bank senior economist Zahid Hossain said: "Continued big remittance inflows posed significant challenges to monetary policy with pressure on exchange rate to appreciate, in turn, risking the competitiveness of exports and incentives to remit."
He said Bangladesh Bank has made sure this does not happen by buying dollars and accumulating forex reserves. But this resulted in a surge in excess liquidity in the banking system, which BB did not sterilise initially.
"This was corrected recently by using reverse repo to siphon off a significant part of excess reserves held by the commercial banks. The BB actions helped maintain exchange rate stability and external competitiveness," the WB senior economist added.
He said the challenge now is to contain inflation at a modest single digit level without hurting growth of credit to the private sector.